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Is Realty Income the Real Deal?

Stock MarketsOct 10, 2021 07:30AM ET
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© Reuters. Is Realty Income the Real Deal?

I am bullish on Realty Income (NYSE:O) because it offers an attractive combination of income, growth, and multiple expansion with relatively low risk.

Realty Income is an S&P 500 real estate investment company, structured as a REIT, that invests in single-tenant commercial properties in the United States (including Puerto Rico) and the United Kingdom. The company delivers monthly dividends, supported by the cash flow from more than 6,700 commercial real estate properties under long-term lease agreements.

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Strengths

With a portfolio of 6,761 properties, Realty Income is a giant when it comes to the real estate investment trust space. The company is valued at $34.5 billion and will soon have a value of $51 billion once it merges with a real estate operating company, VEREIT (NYSE:VER), by the end of 2021. The company is now setting its sight on Continental Europe, where there is less public REIT competition for net lease properties as compared to the United States.

Recent Results

For the second quarter of 2021, Realty Income showed better-than-expected revenue at $464.3 million, beating the consensus estimate of $447.4 million. The net income per share was $0.33, and adjusted funds from operations per share of $0.88 aligned with the consensus estimate.

The company successfully raised $594.1 million from the sale of common stock and made investments of $1.13 billion in 156 properties and properties under development, including $591.8 million in UK properties (over 50% of the company’s total acquisitions). This is in comparison with the $1.03 billion overall investment in properties in the first quarter of 2021, with $403 million worth of investments in the UK.

Realty Income also collected 99.4% of contractual rent in the second quarter, including 98.9% from its theater clients, showing a 4.85% increase from the first quarter of 2021.

After announcing its second quarter 2021 results, the company increased its 2021 investment guidance from $3.25 billion to $4.5 billion. It also expects occupancy to exceed 98% by the end of the fiscal year 2021.

Valuation Metrics

Realty Income’s stock looks pretty reasonably valued right now, as its EV/EBITDA ratio and Price to Adjusted Funds from Operations ratio both indicate the stock is trading close to its historical range. The EV/EBITDA ratio is currently 19.62x, compared to its 5-year average of 19.73x. The Price to Adjusted Funds from Operations ratio is currently 17.87x, compared to its 5-year average of 18.89x. (see Realty Income stock charts on TipRanks)

Wall Street’s Take

From Wall Street analysts, Realty Income earns a Strong Buy analyst consensus, based on 5 Buy ratings, 1 Hold rating, and 0 Sell ratings in the past 3 months. Additionally, the average Realty Income price target of $77.50 puts the upside potential at 15.3%.

Summary and Conclusions

Realty Income is one of the strongest REITs in the world, with a very strong track record of generating outsized returns and income growth, combined with recession resistance. Given that the REIT was able to sustain and even continue growing its monthly dividend during the COVID-19 outbreak and is continuing to find ways to grow accretively while also trading at a slight discount to historical levels, it might be a good time to add shares.

Further bolstering the bull case is Wall Street’s overwhelming bullishness on the company, as well as its stellar balance sheet.

Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

Is Realty Income the Real Deal?
 

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