Realty Income Corporation (NYSE: O) is a leading REIT that focuses on commercial real estate for retail tenants. As a REIT, the company is obligated to distribute a majority of its taxable income to shareholders. The company has also, perhaps self-righteously, given itself the moniker of “The Monthly Dividend Company” for its historic dividend performance. Realty Income has a portfolio of 4,473 properties, totaling over 70 million square feet, leased to 236 tenants from 47 different industries across 49 states and Puerto Rico. The company’s portfolio occupancy is currently at about 98%, with an average remaining lease term of about 10 years. The company’s business model is focused on generating predictable cash flow from long-term tenant-lease contracts so it can predictably pay monthly cash dividends.

The income is a key metric, to say the least, and I wanted to make sure it was on this page.


Top Tenants

Realty Income’s top tenants, by rental contribution, are drug retail chain Walgreens which leases 176 properties and accounts for 7.1% of revenue, courier services company FedEx (FDX) which leases 38 properties and accounts for 4.9% of revenues, discount store operator Dollar General (DG) with 502 properties that bring in 4.6% of revenues, health club operator LA Fitness with 46 properties leased and discount chain Family Dollar with 454 properties leased, with each accounting for 4.3% of revenues. In 2014, Realty Income’s top 20 tenants accounted for roughly 55% of total revenue, providing the company with a solid, stable and reliable income base from top name national chains.

Secondary Offering: Closed a Secondary Public Offering

Realty Income recently closed a secondary public offering of 11.5 million shares, including 1.5 million shares as over-allotment for underwriters. Shares were priced at $46.88 per share on October 7, 2015. Management will use net proceeds from the offering – of about $517 million – to repay existing borrowings from the company’s $2 billion unsecured revolving credit facility, and for working capital needs.

3rd Quarter: 2015

For 3Q15 – the three months ended September 30, 2015 – the company reported total revenue of $258.9 million, up 10% from $235.7 million in the year-ago quarter. Income from continuing operations was down from $73.6 million in Q3 2014 to $67.8 million in Q3 2015 due to an increase in expenses. Realty Income reported net income of $60.7 million for the quarter, or $0.26 per share. For 3Q15, the company had Funds from Operations (FFO) of $162.2 million, or $0.69 per share, and Adjusted Funds from Operations (AFFO) of $165.8 million, or $0.70 per share.

2015 FFO Guidance – 2016 FFO Guidance

Management reiterated full-year 2015 FFO guidance in the range of $2.85 – $2.90 per share, and raised full-year 2015 AFFO guidance from a range of $2.69 – $2.73 to $2.72 – $2.74 per share. For full-year 2016 guidance, management expects AFFO of $2.85 – $2.90, with growth of 5% and 6% year-over-year. The company’s brightened prospects represent strengthening U.S. economic growth, and its real estate properties will only appreciate over time.

Current Dividend

On October 13, 2015, Realty Income’s Board approved a monthly dividend of $0.1905 per share, to be paid on November 16, 2015, to shareholders on record November 2, 2015. The dividend is flat relative to the prior month but up 4% year-over-year. ‘The Monthly Dividend Company’ has delivered 544 consecutive monthly dividend payments since 1969 with 82 increases (of which 71 were consecutive) since going public in 1994. Over the last 46 years, the company has returned over $3.5 billion to shareholders through dividend payments. As of 10/30/2015, Realty Income had an annualized dividend of $2.286 per share and a dividend yield 4.62%.

As of market close on October 30, 2015, Realty Income shares were at $49.46, up about 4% year-to-date and near the middle of the company’s fairly tight 52-week share price range of $43.15 – $55.14. The company’s current share price is about equal to the company’s average consensus analyst price target.

Shares have fallen about 2% since Realty Income’s earnings release on October 28, 2015, where the company missed analysts revenue estimates by 1%. Bank of America upgraded Realty Income to a Buy with a price target of $55, representing upside of 11% based on the company’s most recent closing price. The company has a relatively high Price-to Earnings (PE) ratio of about 45x so shares could see some volatility on broad market declines.

Realty Income has a leverage advantage and is able to borrow at a lower cost than many of its competitors, which gives it a major advantage in the REIT sector. The company uses this advantage to raise capital to acquire more properties and expand its real estate portfolio. Since 2012, the company has added 83 new tenants. In 2013, the company acquired 515 properties through its acquisition of American Realty Capital Trust for $3 billion that increased geographic and industry diversification, and helped lower real estate portfolio risk. In addition to an increase in high-quality tenants, the company’s portfolio has seen a 2% increase in rents over the past year, with rent increase baked into contracts to varying degrees.

Moreover, the company’s focused execution and quality properties are a strong competitive and investor advantage because its tenant occupancy rate has never dipped below 96%. This is due to the fact that the company leases to large, well-established, high-quality tenants which almost guarantees low default risk and solid income over at least the next 10 years, based on the average remaining lease term for the portfolio. Low risk means stability for future dividend payments, which is a positive for income-seeking investors.

Realty Income has been so dependable with its monthly dividend payments that it was added to the S&P 500 High Yield Dividend Aristocrats list in January 2015. Dividends are not the only benefit of owning Realty Income shares because there is the added upside of portfolio growth and capital appreciation potential. And while borrowing costs could rise if the Federal Reserve raises interest rates at the end of 2016, analysts have a high price target of $56 per share with 13% potential upside. Since going public in 1994, Realty Income has delivered compounded total returns of 16%, which is pretty phenomenal, with total return of 80% over the last 5 years. So an initial investment of $10,000 in 1994 when Realty Income went public would be worth over $240,000 today.

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