Strong Argument in Favor of Purchasing Realty Income and Maintaining Ownership Permanently
There are plenty of smart reasons to invest in Realty Income (O 0.36%). This leading real estate investment trust (REIT) stands out due to its high-yielding monthly dividend that consistently increases, a strong financial position, and a reasonable market value.
While other companies share similar traits, Realty Income has a unique selling point. Its unique value proposition sets it apart, making it an excellent choice for buying and holding for the long term. Let's delve into its defining value proposition.
The Preferred Real Estate Partner
Realty Income CEO Sumit Roy emphasized the REIT's distinct value proposition during the third-quarter conference call. He explained:
We serve as the real estate partner for the world's top-tier companies. We have constructed a robust and diversified real estate portfolio filled with premier tenants aimed at providing stable and predictable income flow. Over the past 30 years since going public, we have managed to deliver favorable overall operating returns in various economic circumstances.
Realty Income provides its investors with the chance to own commercial properties essential to the operations of some of the globally recognized companies. For instance, its top 20 tenants feature reputable names such as CVS, FedEx, Walmart, and Home Depot. The REIT often acquires properties through sale-leaseback deals directly from these leading companies, allowing them to capitalize on their real estate value and invest in their growth while returning cash to shareholders. Simultaneously, these deals provide the REIT with additional high-quality properties that generate steady rental income.
Realty Income's strategy of partnering with market leaders has yielded positive results over the years. Roy highlighted that Realty Income has delivered a favorable overall operating return – a combination of dividend income and adjusted funds from operations (FFO)-per-share growth – every year since it became a publicly traded company almost three decades ago. It has seen adjusted FFO per share grow in 27 of 28 years and at a median rate of 5%, while increasing its dividend each year at a 4.3% compound annual growth rate.
Realty Income has exhibited remarkable resilience amid recessions. It has navigated these economic challenges by focusing on owning properties leased to reliable tenants in resilient industries, such as grocery stores, pharmacies, casinos, and warehouses. Additionally, it boasts one of the strongest balance sheets in the REIT sector.
Expanding Partnerships
Realty Income consistently grows its partnership base by teaming up with more world-class companies. For instance, earlier this year, it collaborated with Decathlon, a leading sports company and retailer. In its initial sale-leaseback transaction, it acquired 82 retail properties across Germany, France, Portugal, Spain, and Italy – marking its entrance into these new countries. Decathlon has over 1,750 stores across Europe, Asia, and Latin America, so this deal represented only a small fraction of its extensive retail network. As Neil Abraham, the president of Realty Income International, noted at the time, Decathlon represents the type of market leader that Realty Income is honored to work with. He hoped that this was the beginning of a long-term, mutually beneficial relationship between Decathlon and Realty Income.
Meanwhile, last year, Realty Income entered into a unique partnership with fellow REIT Digital Realty (DLR -0.47%). In a joint venture, Realty Income acquired an 80% stake in two 100% leased data centers under construction. Digital Realty needed additional capital to expand its data center platform, which was growing at a faster rate than its funding capacity. This opened the door for Realty Income to explore a new investment vertical. Realty Income views data centers as a massive $500 billion future investment opportunity. It could acquire operational data centers from companies like Digital Realty or support developers in funding new projects.
These are two examples of how Realty Income collaborates with global companies to invest in real estate. Its partnership strategy allows investors to gain ownership of high-quality properties essential to top companies. This real estate should provide steady rental income growth in the coming decades, enabling Realty Income to continue increasing its adjusted FFO per share and dividend.
Consider Investing in the Preferred Real Estate Partner
Realty Income functions as the real estate partner for top-tier companies. Over the years, this strategy has enabled it to construct a robust and diversified property portfolio that has proven resilient throughout various economic scenarios. By regularly expanding its partnership roster, Realty Income continually seeks new opportunities to bolster its portfolio, making it an ideal company to own for the long term as it should drive steady shareholder value growth in the coming decades.
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Investors who choose to allocate money towards Realty Income's offerings are not just financing commercial properties essential to prominent companies; they are also investing in a company that has shown consistent financial growth and resilience.
By investing in Realty Income, individuals can capitalize on the reliable income flow generated from these high-quality properties, thereby prioritizing financial stability and growth in their portfolios.
