Image Shown: Shares of Realty Income Corporation (O) have been on an upward tear this year as excitement over a lower interest rate environment, courtesy of the Federal Reserve, is driving up interest in real estate investment trusts.
By Callum Turcan
A holding in our Dividend Growth Newsletter portfolio, Realty Income Corporation (O) invests in single-tenant properties both domestically and now abroad after expanding overseas for the first time earlier this year. The REIT pays out a monthly dividend and has done so for 590 consecutive months (as of early-September 2019), pushing through 102 payout increases since going public in 1994. Shares of the REIT yield 3.6% as of this writing. We like Realty Income’s “A” rated credit ratings (A3/A-), dividend growth trajectory, historically high occupancy rates (averaged north of 98%), push into international markets (the commercial property market in Europe offers Realty Income a long growth runway), and its recent guidance increase.
On September 3, Realty Income announced it was acquiring 454 properties for $1.25 billion from non-listed CIM Real Estate Finance Trust. Those properties cater to 59 different tenants across 20 industries and house 5.1 million leasable square feet. The transaction will be completed in phases, and Realty Income should complete its acquisition of most of these properties by the end of 2019. Realty Income noted the properties had a weighted average remaining lease term of 9.7 years and that 58% of this portfolio’s total rental revenue comes from tenants with investment grade credit ratings.
Realty Income raised its full year adjusted funds from operations (“AFFO”) guidance for 2019 by a penny to $3.29- $3.34/share as management sees this deal as immediately accretive. This transaction should further enhance the REIT’s growth trajectory in 2020+. The deal is being funded through Realty Income’s $3.0 billion revolving credit line, which had ~$2.8 billion in remaining capacity as of early-September according to management. Realty Income is also taking on a bit over $0.1 billion in mortgage debt as part of this deal.
We like Realty Income and think there’s room for additional upside. As growth in global economic activity continues slowing down, weakening demand for US exports and hurting business confidence, the Federal Reserve is increasingly leaning towards additional rate cuts. REITs are major beneficiaries of a lower interest rate environment, especially those with top quality investment grade credit ratings and nice long growth runways like Realty Income. Check out Realty Income’s 16-page Stock Report here—->>>>
Retail REIT Industry – CONE DLR FRT O REG SPG WPC
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Callum Turcan does not own shares in any of the securities mentioned above. Realty Income Corporation (O) and Digital Realty Trust Inc (DLR) are both included in Valuentum’s simulated Dividend Growth Newsletter portfolio. Digital Realty Trust is also included in Valuentum’s simulated High Yield Dividend Newsletter portfolio. Some of the other companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.