6 Big Wins In Realty Income Corp.'s Earnings Report

Realty Income Corp. keeps on chugging, delivering improved earnings, rents, and occupancy in the first quarter of 2014.

May 1, 2014 at 11:33AM


Source: Realty Income Annual report

Realty Income Corp. (NYSE:O) posted excellent first quarter results, growing funds from operation and improving on several key metrics. Here's 6 big wins in Realty Income Corp.'s first quarter results:

1. Occupancy rates improve
Occupancy rates were excellent this quarter. The company reported an occupancy rate of 98.3%, improving on 97.7% occupancy last year, and 98.2% occupancy last quarter.

Occupancy is obviously one of the most important factors for a real estate investment trust, as each vacancy costs the company lost rents and lower returns. 

2. New acquisitions
Realty Income Corp. added more properties to its umbrella, investing $656.7 million to buy 337 new properties. Many of these acquisitions likely came from one $503 million portfolio purchase from Inland Diversified Real Estate Trust, in December. An SEC filing from February details the terms of the deal, which included 84 single-tenant properties with an average lease term of 13.7 years. Though the contract was signed in December, $202 million was closed in January, with the remainder closing in March and early April.

The first quarter was particularly active for Realty Income, as it had to issue new shares to raise as much as $528.5 million after fees and other expenses. However, the company's history showcases how powerful new equity raises can be, as it allows the company to grow the balance sheet, and funds from operations, on a per-share basis.

3. Dividend coverage improves
Realty Income's reported funds from operations grew to $0.65 per share, while adjusted funds from operations improved to $0.64 per share. FFO and AFFO are excellent measures of the company's long-term profitability and maximum dividend potential each quarter.

Last quarter, the company earned just $0.61 in FFO per share. In the fourth quarter of 2012, the company reported $0.56 in FFO per share. Clearly, the trend is favorable; new acquisitions and rising rents have boosted profitability, and potential dividends.

4. Rents are rising
Realty Income reported that its same store rents rose by 1.5% year over year. In previous conference calls, CEO John Case has noted that the company has annual rent increases of 1.5% built into 70% of its investment-grade leases. The typical retail rate increase for Realty Income is in the neighborhood of 1.25% per year, whereas its office and industrial properties include annual adjustments of 2% per year.

Over time, rising rents are the key to growing profitability. As a triple-net leasing company, Realty Income Corp. isn't exposed to costs like property taxes, maintenance, and insurance, meaning rental hikes can flow directly to the bottom line.

5. Average lease lives stay elevated
The company's stability comes from its long-dated leases. This quarter, the company reported its average lease life stood at 10.8 years, unchanged from the previous quarter.

The portfolio's weighted average lease life is important for understanding the future stability of rental income, as longer-term leases lock in tenants for several years at a time. At 10.8 years, it's safe to say that rental revenue will continue to flow in for years to come.

The Foolish bottom line
Realty Income Corp. investors have come to expect stable dividends that grow over time. The company's first quarter results prove that a consistently growing dividend is still in the cards for shareholders, who have seen dividends grow by a compound rate of 6.1% over the last 10 years.

Big dividends from an investor-friendly tax loophole
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers