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7 Things to Know From Realty Income Corp. Earnings

Jordan Wathen
February 16, 2014

Photo: Enoch Lau

It's hard to get excited about a REIT's earnings report. Let's face it: "Boring," consistent REITs like Realty Income Corp. (NYSE: O), rarely rattle the boat from quarter to quarter.

However, its fourth quarter delivered a promising message: It's business as usual at Realty Income.

Here are 7 things that caught my eye.

1. Occupancy is excellent
It's one thing to own real estate. It's another to find a tenant. Realty income excels at keeping its properties occupied, reporting a 98.2% occupancy rate in the fourth quarter, up one percentage point from the year-ago period.

2. Diversification improved in 2013
Growing acquisition volume made 2013 a standout year for diversification. The company now has 205 tenants, adding 55 in just the past year, most of which stem from its January 2013 acquisition of American Realty Capital Trust.

3. A focus on "safe" tenants
Realty Income is particularly picky when it comes to tenant selection. In the past year, its tenant makeup shifted significantly. Drug stores now make up 9.7% of rental revenue, up from 3.3%. Dollar stores make up 7.1% of revenue, up from 4.3%.

This is part of a strategic move by the company to focus on tenants which have recession- and Internet-proof business models. The company slashed its restaurant exposure from 12.4% of revenue to 9%, a move it expedited as payroll taxes increased in 2013, threatening casual diners' budgets.

4. 40% of revenue comes from credit tenants
As Realty Income shifts toward "safer" occupants, it's also shifting toward investment-grade companies. While investment-grade tenants certainly don't pay the best yields, they minimize turnover, which generates substantial cost-savin