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Is it Wise to Hold Realty Income Stock in Your Portfolio?
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Realty Income’s (O - Free Report) solid property acquisition volume is expected to keep the company on the growth curve. This freestanding retail real estate investment trust (REIT) derives majority of its retail rental revenues from tenants, belonging to service, non-discretionary and low-price retail businesses. Such businesses are less vulnerable to economic recessions as well as competition from Internet retailing.
The company’s portfolio is well diversified with respect to tenant, industry, geography and property type. Itss properties are located in 49 states and Puerto Rico. Further, tenants operate in 47 different industries. In addition, beside retail properties, Realty Income’s portfolio comprises industrial, office as well as agricultural properties. This diversification helps the company mitigate risk associated with a particular industry, geography or asset type.
Moreover, Realty Income is focused on external growth by exploring accretive acquisition opportunities. During first-quarter 2018, the company invested $509.8 million in 174 new properties and properties under development or expansion, situated in 27 states. The assets are fully leased, with a weighted average lease term of around 14 years and an initial average cash lease yield of 6.2%.
Around 85% of rental revenues, from acquisitions reported during the quarter, came in from investment grade-rated tenants. Moreover, based on prevailing market conditions and strength in its investment pipeline, the company continues to expect acquisition volume of $1.0-$1.5 billion for 2018.
Additionally, Realty Income’s solid underlying real estate quality and prudent underwriting at acquisition have helped it maintain high occupancy levels consistently. In fact, since 1996, the company’s occupancy level has never been below 96%. Moreover, in first-quarter 2018, the company attained its highest quarter-end occupancy in more than 10 years. Also, its same-store rent growth depicted limited operational volatility.
Furthermore, in March 2018, the company announced a hike in its common stock monthly cash dividend, denoting its 96th dividend increase since its NYSE listing in 1994. The company enjoys a trademark on the phrase “The Monthly Dividend Company”. In fact, the company has generated a compound average annual dividend growth of around 4.7% since its listing on the NYSE. Given its financial position and lower debt-to-equity ratio compared with the industry, this dividend rate is likely to be sustainable.
In six months’ time, shares of Realty Income have outperformed the industry it belongs to. This Zacks Rank #3 (Hold) company’s shares have declined 6%, narrower than the industry’s loss of 7.3%.
Nevertheless, despite Realty Income’s effort to diversify the tenant base, its tenants in the drug store industry accounted for around 10.5% of its rental revenues in first-quarter 2018. This makes the company’s results susceptible to any adverse changes in this industry because a downturn in the industry or a change in the legislation — relating to prescription drugs, could substantially affect Realty Income’s tenants and in turn, affect the revenue stream of this REIT. Moreover, the choppy retail real estate environment and tenant credit issues remain concerns. Further, rate hike adds to its woes.
Also, Realty Income has a substantial exposure to single tenant assets. In fact, of the company’s 5,326 properties in the portfolio, as of Mar 31, 2018; 5,298 or 99.5% are single-tenant properties and the remaining are multi-tenant assets. However, single-tenant leases involve specific and significant risks associated with tenant default. Thus, in case of financial failure of, or default in payment by, a single tenant, the company’s rental revenues from that property as well as the value of the property suffers significantly.
Stocks to Consider
A few better-ranked stocks from the REIT space include Park Hotels & Resorts Inc. (PK - Free Report) , LaSalle Hotel Properties and Arbor Realty Trust (ABR - Free Report) . While Park Hotels & Resorts sports a Zacks Rank of 1 (Strong Buy), LaSalle Hotel and Arbor Realty carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Park Hotels & Resorts’ Zacks Consensus Estimate for 2018 funds from operations (FFO) per share has been marginally revised upward to $2.73 over the past month. The stock has rallied 6.4% in six months’ time.
LaSalle Hotel’s FFO per share estimates for 2018 have been marginally revised upward to $2.21 over the past month. The stock has gained 22.3% during the past six months.
Arbor Realty’s Zacks Consensus Estimate for 2018 FFO per share has remained unchanged at $1.03 over the past month. Its shares have returned 16.6% in the past six months.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
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Is it Wise to Hold Realty Income Stock in Your Portfolio?
Realty Income’s (O - Free Report) solid property acquisition volume is expected to keep the company on the growth curve. This freestanding retail real estate investment trust (REIT) derives majority of its retail rental revenues from tenants, belonging to service, non-discretionary and low-price retail businesses. Such businesses are less vulnerable to economic recessions as well as competition from Internet retailing.
The company’s portfolio is well diversified with respect to tenant, industry, geography and property type. Itss properties are located in 49 states and Puerto Rico. Further, tenants operate in 47 different industries. In addition, beside retail properties, Realty Income’s portfolio comprises industrial, office as well as agricultural properties. This diversification helps the company mitigate risk associated with a particular industry, geography or asset type.
Moreover, Realty Income is focused on external growth by exploring accretive acquisition opportunities. During first-quarter 2018, the company invested $509.8 million in 174 new properties and properties under development or expansion, situated in 27 states. The assets are fully leased, with a weighted average lease term of around 14 years and an initial average cash lease yield of 6.2%.
Around 85% of rental revenues, from acquisitions reported during the quarter, came in from investment grade-rated tenants. Moreover, based on prevailing market conditions and strength in its investment pipeline, the company continues to expect acquisition volume of $1.0-$1.5 billion for 2018.
Additionally, Realty Income’s solid underlying real estate quality and prudent underwriting at acquisition have helped it maintain high occupancy levels consistently. In fact, since 1996, the company’s occupancy level has never been below 96%. Moreover, in first-quarter 2018, the company attained its highest quarter-end occupancy in more than 10 years. Also, its same-store rent growth depicted limited operational volatility.
Furthermore, in March 2018, the company announced a hike in its common stock monthly cash dividend, denoting its 96th dividend increase since its NYSE listing in 1994. The company enjoys a trademark on the phrase “The Monthly Dividend Company”. In fact, the company has generated a compound average annual dividend growth of around 4.7% since its listing on the NYSE. Given its financial position and lower debt-to-equity ratio compared with the industry, this dividend rate is likely to be sustainable.
In six months’ time, shares of Realty Income have outperformed the industry it belongs to. This Zacks Rank #3 (Hold) company’s shares have declined 6%, narrower than the industry’s loss of 7.3%.
Nevertheless, despite Realty Income’s effort to diversify the tenant base, its tenants in the drug store industry accounted for around 10.5% of its rental revenues in first-quarter 2018. This makes the company’s results susceptible to any adverse changes in this industry because a downturn in the industry or a change in the legislation — relating to prescription drugs, could substantially affect Realty Income’s tenants and in turn, affect the revenue stream of this REIT. Moreover, the choppy retail real estate environment and tenant credit issues remain concerns. Further, rate hike adds to its woes.
Also, Realty Income has a substantial exposure to single tenant assets. In fact, of the company’s 5,326 properties in the portfolio, as of Mar 31, 2018; 5,298 or 99.5% are single-tenant properties and the remaining are multi-tenant assets. However, single-tenant leases involve specific and significant risks associated with tenant default. Thus, in case of financial failure of, or default in payment by, a single tenant, the company’s rental revenues from that property as well as the value of the property suffers significantly.
Stocks to Consider
A few better-ranked stocks from the REIT space include Park Hotels & Resorts Inc. (PK - Free Report) , LaSalle Hotel Properties and Arbor Realty Trust (ABR - Free Report) . While Park Hotels & Resorts sports a Zacks Rank of 1 (Strong Buy), LaSalle Hotel and Arbor Realty carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Park Hotels & Resorts’ Zacks Consensus Estimate for 2018 funds from operations (FFO) per share has been marginally revised upward to $2.73 over the past month. The stock has rallied 6.4% in six months’ time.
LaSalle Hotel’s FFO per share estimates for 2018 have been marginally revised upward to $2.21 over the past month. The stock has gained 22.3% during the past six months.
Arbor Realty’s Zacks Consensus Estimate for 2018 FFO per share has remained unchanged at $1.03 over the past month. Its shares have returned 16.6% in the past six months.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6% and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>