Realty Income (O - Free Report) is making concerted efforts to grow its portfolio with solid acquisitions. In a recent video interview at REITworld 2017 with Nareit, the company’s CEO — John Case — noted that the company continues to see solid investment opportunities and expects to complete around $1.5 billion of acquisitions in 2017.
According to the company’s CEO, around $24 billion in acquisition opportunities have been sourced by Realty Income, year to date. Of those, the company is closing approximately 4%. In fact, according to him, acquisitions growth is backing the 6% earnings per share increase projected by the company for this year.
In fact, Realty Income accomplished $1.86 billion in acquisitions in 2016, of which $785.6 million transactions were completed during the fourth quarter. Furthermore, during the nine-month period ended Sep 30, 2017, Realty Income invested around $956.9 million in 177 new properties and properties under development or expansion, situated in 35 states. The assets are fully leased with a weighted average lease term of approximately 14.9 years.
Realty Income’s portfolio comprised 5,062 properties, situated in 49 states and Puerto Rico as of Sep 30, 2017, containing more than 86.4 million leasable square feet of space. These properties are leased to 251 different commercial tenants, belonging to 47 separate industries. The company leases its properties under long-term, net lease agreements.
Notably, this freestanding retail REIT derives more than 90% of its annualized retail rental revenue from tenants with a service, non-discretionary, and/or low price point component to their business. Such businesses are less susceptible to economic recessions as well as competition from Internet retailing.
Realty Income’s solid underlying real estate quality and prudent underwriting at acquisition have helped the company maintain high occupancy levels consistently. In fact, since 1996, the company’s occupancy level has never been below 96%. Further, Case expects occupancy to remain at 98% in 2018. Additionally, its same-store rent growth displayed limited operational volatility.
The company also continues to maintain a conservative capital structure. It has modest leverage, robust liquidity, and continued access to attractively priced equity and debt capital. In addition, it has a well-laddered debt maturity schedule.
However, Realty Income’s substantial exposure to single-tenant assets raises its risks associated with tenant default. Further, generation of notable rental revenues from assets leased to drug stores and rate hike add to its woes.
Shares of Realty Income have underperformed the industry it belongs to, in a month’s time. This Zacks Rank #3 (Hold) company’s shares have inched up 0.7%, while the industry recorded growth of 1.5% during this time frame.
Better-ranked stocks in the REIT space include Franklin Street Properties (FSP - Free Report) , Columbia Property Trust (CXP - Free Report) and Urstadt Biddle Properties (UBA - Free Report) . All three carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Franklin Street Properties’ Zacks Consensus Estimates for 2017 FFO per share remained unchanged at $1.05 over the past month. Its share price has ascended 4.1% in a month’s time.
Columbia Property Trust’s FFO per share estimates for the current year have moved up 1.8% to $1.15 in a week’s time. Its shares have gained 2.6% over the past month.
Urstadt Biddle Properties’ FFO per share estimates for fiscal 2017 remained unchanged at $1.25 over the past month. Its shares have rallied 6.4% during the same time frame.
Note: All EPS numbers presented in this report represent funds from operations (FFO) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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