Realty Income Boosts Strength With Stock Offering Of 9 Million

Realty Income (NYSE:O) recently closed 9 million share common stock offering, leading to net proceeds, after underwriting discounts and commissions, of roughly $677 million. The underwriters have also been granted a 30-day option to purchase up to 1.35 million additional shares of common stock.

The common stock offering will boost the company's financial flexibility and help meet its financial obligations efficiently. Particularly, the company plans to use the proceeds to repay borrowings outstanding under its $3-billion unsecured revolving credit facility. The amount, not used for this purpose, will be used to fund potential investment opportunities and/or for other general corporate purposes.

Notably, Realty Income exited fourth-quarter 2019 with cash and cash equivalents of around $54 million, up from the $10.4 million witnessed at the end of 2018. Furthermore, during 2019, the company raised $2.2 billion from the sale of common stock, at a weighted average price of $72.40 per share. Moreover, the company has an unsecured credit facility, comprising a $3-billion revolving credit facility and a $250-million term loan. As of Dec 31, 2019, the company had balance of borrowings outstanding under its revolving credit facility of $704.3 million.

Realty Income is focused on external growth through exploring accretive acquisition opportunities. Solid property acquisitions at decent investment spreads aided the company’s performance. During 2019, the company invested $3.7 billion in 789 properties and properties under development or expansion, including $797.8 million in 18 properties in the U.K.

The company derives majority of its annualized retail rental revenues from tenants belonging to service, non-discretionary and low-price retail business. Such businesses are less susceptible to economic recessions, and competition from Internet retailing. Accretive acquisitions and solid balance-sheet strength augur well for long-term growth.

However, the retail apocalypse is likely to limit its growth momentum to some extent. In fact, store closures and retailer bankruptcies have become a pressing concern for the overall retail real estate market, affecting REITs, including Simon Property Group (NYSE:SPG) , Kimco Realty (NYSE:KIM) and Macerich (NYSE:MAC) among several others. Realty Income also has substantial exposure to single-tenant assets which raises its risks associated with tenant default.

Shares of this Zacks Rank #3 (Hold) company have outperformed its industry over the past year, gaining 12.4% as against the industry’s decline of 2.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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