Realty Income: Should You Buy or Sell Stocks?

Explore the pros and cons of investing in Realty Income stocks. This article provides a detailed analysis of market trends, financial forecasts, and investment strategies, guiding you on whether to buy or sell Realty Income stocks for optimal returns.

Realty Income Corporation is a company that was founded in 1969. It is organized by Maryland Corporation. Company invests in commercial real estate. It has been elected by a real estate investment trust ("REIT") to be taxed. Corporation is also listed on the New York Stock Exchange ("NYSE") under the symbol “O”.

Realty Income invests in diversified commercial real estate with a portfolio of over 15,450 properties across 50 US states and 7 countries in Europe. Realty Income is known as "The Monthly Dividend Company®." Since it was founded, the company has excellently declared 646 consecutive monthly dividends. With increased dividend for the last 25 consecutive years, Realty Income is a member of the S&P 500 Dividend Aristocrats® index.

In this article, we are going to take a detailed overview of Realty Income Stocks, and assess whether you should buy or sell your stocks. We will discuss different factors influencing the stocks.

Risk Factors

We will start by looking at risk factors that can influence the stocks of the Realty Income.

Whether it is about competitive pressures or other factors, we need to continue to acquire investment properties for growth. Realty Income faces competition in the acquisition and operation of properties. In real estate investment and financing, they expect competition from businesses, individuals, fiduciary accounts and plans, and other entities. This competition may help the company to purchase properties that they want to.

Ability to attract new clients, re-lease space, collect rent or renew leases can adversely affect cash flow from operations and inhibit growth if there are any negative market conditions or adverse events. This can also negatively influence the industries in which a company operates.

Various facts and events can adversely affect, including:

  • Decreasing demand in areas where properties of the company are located.
  • Unable to retain existing clients and attract new clients.
  • Oversupply of space and huge changes in market rental rates.
  • Declines in our clients’ creditworthiness and ability to pay rent that may be affected by clients' operations, economic downturns and competition they might face from their industries.
  • Defaults by and bankruptcies of clients, inability to pay rent on time, or failure of clients to meet contractual obligations.
  • Changes in laws, rules or regulations impacting our clients' properties negatively.
  • Epidemics, pandemics or outbreaks of illness, disease or virus spiraling to countries and places where our clients and their parent companies operate.
  • Changes in consumer behaviors, preferences, or any demographics affecting clients' operations.
  • Disruptions in supply chain.
  • Economic or physical decline of regions where properties are located.
  • Deteriorating physical condition of our properties.

Realty Income may not be able to sell or rent their properties if clients fail to renew their leases as they expire.

Debt and Financing Activities

At December 31, 2023, total outstanding borrowings of different related facture including credit facility, commercial paper, and term loans were $21.5 billion. This borrowing has a weighted average maturity of 5.9 years and a weighted average interest rate of 3.9% with approximately 94% of total debt at fixed rate debt.

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Term Loans: Realty Income entered into a term loan agreement in January 2023 that permit them to incur up to an aggregate of $1.5 billion multicurrency term loans in total borrowings. The 2023 term loans mature in January 2025 as well as they also have one remaining 12-month maturity extension available at our option. As of December 31, 2023, the effective interest rate stands at 5.0% after giving effect to the interest rate swaps.

Covenants: Summary of the key financial covenants for our senior unsecured notes is detailed below:

Comparison of Operations Results in 2022 and 2023

Total revenue (dollars in thousands) is summarized as below:

Total Revenue:

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Rental Revenue (excluding reimbursable): Below is a tabular summary of rental revenue (excluding reimbursable) for the years ended December 31, 2023 and 2022 (dollars in thousands):

Total Expenses: Total expenses (in thousands) are:

total expences image

Depreciation and Amortization: Overall portfolio growth from acquisitions is the reason behind increase in the depreciation and amortization for the year ended December 31, 2023 as compared with the same period in 2022.

Interest Expense: The components of our interest expense (in thousands are below:

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Quantitative and Qualitative Disclosures about Market Risk

Economic risks from interest rates and foreign currency exchange rates are due in 2024. Realty Income has hedged portion of its risks, yet risks may influence income statement of the company.

Expected Maturity Data: The maturity of our debt as of December 31, 2023 (dollars in millions) is summarized below:

expected maturity image

At December 31, 2023, interest rate has been fixed for outstanding mortgages payable, notes, and bonds. However, interest is variable on credit facility and commercial paper borrowings and term loans that has been mitigated by interest rate swap agreements on term loans.

Investments in Real: Below is an aggregate of the assets acquired during the year ended December 31, 2023 has been allocated in millions:

investemnt in real image

Below is the table of the estimated impact during the next five years and thereafter:

estimated impact image

Analysis Operations and Overall of Financial Condition

On January 23, 2024, Realty Income closed on announced mergence with Spirit. This merger has expanded previous diversified portfolio of 13,458 properties to 15,476 with addition of 2,018 U.S. Dividends of the company were increased 5 times during 2023, and once during 2024.

operations image

Current annualized dividend of the company is $3.0780 per share based on the monthly dividend of $0.2565 per share.

Investments During 2023: Until December 31, 2023, company invested $9.5 billion at an initial weighted average cash yield of 7.1% across diverse range of properties.

Equity Capital Raising: Realty Income raised $5.5 billion of net proceeds from the sale of common stock during 2023 at a weighted average price of $59.79 per share.

Note Issuances: As of January 2024, we issued $450.0 million of 4.750% due February 2029. Company has also issued $800.0 million of 5.125% senior unsecured notes due February 2034. Summary of Accounting Policies

An independent registered Publix accounting firm conducted audit of the Realty Income. Independent sources have found:

Records are maintained accurately and fairly reflect the transactions and dispositions. Financial statements are prepared in accordance with the generally accepted accounting principles that are also accepted in the United States of America ("U.S. GAAP"). Valid Sources that may Positively Influence Realty Income Stocks

Realty Income (O -0.95%) is often a credible source to invest for conservative income investors. It is among the largest real estate investment trusts (REITs). Their tenants also include large retailers like Walgreens, 7-Eleven, Dollar General, Dollar Tree, and Walmart.

As of April 2024, rising interest rates and some challenges for its top tenants have majorly caused Realty Income's stock 23% decline over the past two years. Despite this decline, Realty Income Stocks are still worthy to buy for four simple reasons.

Interest rates can stabilize and decline: The Federal Reserve is likely to reduce over the next couple of years. This is great news for Realty Income as buying properties becomes tougher with high interest rates. Declining stock price has also boosted the forward dividend yield of the Realty Income to 5.7%. This percentage is higher from Treasury's 4.2% yield and most CD yields. This huge gap should drive more investors.

High occupancy rate with healthy FFO growth: Realty Income' occupancy rate was 98.6% at the end of 2023. For the past three decades, this rate has never fallen below 96%. Its recent expansion with mergence in Spirit Realty has increased properties to 15,450. Realty Income's adjusted funds from operations (FFO) have seen upward movement at a compound annual growth rate (CAGR) of 25% from 2018 to 2023. This is unprecedented level growth, especially considering pandemic and inflationary headwinds rattled many of its top tenants. Its adjusted FFO per share saw an increase at a CAGR of 5%.

More room for dividend hikes: Realty Income has consecutively paid monthly dividends since 1969 that has raised a whopping 124 times since its public debut in 1994. It only paid out 71% of its free cash flow (FCF) in the last 12 months that shows more room for raise in monthly dividends.

Historically cheap stocks: REITs are usually valued relative to their FFO per share so nothing to worry about initially look expensive with a price-to-earnings ratio of 43. This shows the company's stocks are cheap. Impact of Real Estate and Credit Markets

Property prices generally continue to fluctuate in the commercial real estate market. Global capital markets experience similar trends during certain periods like price volatility, dislocations, and liquidity disruptions. This can have major impact on the access to capital.

However, Realty Income keeps close eye on commercial real estate and global capital market. They make adjustments to their business strategies according to trends. Is Realty Income worth investing?

Realty Income's dividend growth doesn't seem to stop anytime soon. In the long-term, the REIT expects to deliver 4% to 5% annual adjusted FFO per share growth. This number is roughly in line with its historical average. They expect rent growth and new investment will positively impact cash flow.

The company is expecting a long growth runway ahead. They have estimated that commercial real estate in the U.S is about $4.7 trillion that is suitable for the traditional net lease structure. They aim to acquire it through sale-leaseback transactions with owner-operators.

And among REITs, Realty Income (NYSE: O) also consistently maintains a quality investment portfolio that benefits investors through impressive dividend growth streak. This shows the time is right to invest in Realty Income Stocks as monthly dividend hikes are expected strongly!

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