To say that net-lease real estate investment trust Realty Income's (NYSE:O) performance has been a disappointment over the past couple of years would be an understatement. Since reaching an all-time high in August 2016, Realty Income's stock price has fallen by more than 26% while the S&P 500 is up by nearly 25%.

However, it's important for shareholders to realize a couple of things. First, stocks like Realty Income are long-term investments and shouldn't be judged by the performance of any year or two. In fact, Realty Income's annualized total return since its 1994 NYSE listing is 15.7% -- even after the poor performance of the past couple of years -- handily beating the S&P 500.

And second, although Realty Income's stock price has fallen, there's nothing wrong with the business itself. To the contrary, by most metrics, Realty Income is doing quite well.

Sale sign in storefront window.

Image Source: Getty Images.

Why has Realty Income underperformed?

To be clear, there are many factors that affect a stock's performance. However, in Realty Income's case, there have been two big downside catalysts: interest rates and retail weakness.

First, rising interest rates tend to put downward pressure on income-oriented investments such as REITs. As rates from safe investments get more appealing (the 10-year Treasury is a good indicator for REITs), investors demand even higher rates from "riskier" investments like REITs. All things being equal, when yields go up, prices go down. This is the primary reason the Dow Jones Equity REIT Index is down by 11% since mid-2016.

Second, the retail industry as a whole isn't exactly in great shape right now. It seems like we can't get through a week without another high-profile retailer going bankrupt, shutting down stores, or reporting a big operating loss. Since Realty Income peaked in mid-2016, the major retailers filing for bankruptcy include Sports Authority, Hhgregg, Radio Shack, Payless, Gymboree, Vitamin World, and Toys R Us, and this isn't even close to being a complete list.

Not surprisingly, this has made retail REITs one of the worst-performing parts of the real estate sector. Even though the vast majority of Realty Income's tenants aren't in the troubled areas of retail, it has still weighed on the stock.

The point here is that although Realty Income's stock is down for a reason (well, two), the decline has little to do with the health of Realty Income's business itself.

Realty Income: Now vs. the all-time high

The general theme so far is that Realty Income's stock price underperformed the S&P 500 by more than 50 percentage points, but that the reasons have little to do with the company's business.

Now let's put some numbers behind that statement. Realty Income's stock price hit its all-time closing high on August 1, 2016, so let's see how the business' performance has changed since then. Here's a rundown of some key metrics from Realty Income's first-quarter 2018 earnings report, compared with its second-quarter 2016 earnings report, which was released just days before the company hit its all-time high.

Metric

Q2 2016

Q1 2018

Change

FFO per share

$0.70

$0.79

12.9%

Adjusted FFO per share

$0.71

$0.79

11.3%

Annual dividend rate

$2.394

$2.634

10%

Portfolio occupancy

98%

98.6%

60 bps

Same-store rent increases

1.4%

1%

(40 bps)

New investments

$310.3 million / 57 properties

$509.8 million / 174 properties

64.3%

Full-year AFFO guidance

$2.85-$2.90 (2016)

$3.14-$3.20

10.3% (midpoints)

Data source: Company Financials.

Here's the point. If you knew nothing about Realty Income's stock price performance over the past two years or so, what would you conclude from comparing this data side by side? Aside from a slightly lower rate of same-store rent increases, Realty Income's current business looks substantially better. FFO, AFFO, and dividends are all up by double-digit percentages in less than two years, and the current 98.6% occupancy rate is the company's highest quarter-end occupancy in over a decade.

A long-term winner at a discount

Despite all of this strong growth, Realty Income has fallen from a P/AFFO multiple of about 25 to just 16.8. In other words, you can now invest in a stock with a 574-month streak of dividend payments, a 5% yield, and 15.7% annualized returns since its 1994 NYSE listing for roughly two-thirds of the valuation of just a couple of years ago.

Realty Income's properties aren't too vulnerable to retail headwinds, and the company has made it through rising-rate environments before and performed well. Now could be a great time to add this long-term winner to your portfolio at a discount before retail headwinds start to subside and interest rates level off.

Matthew Frankel owns shares of Realty Income. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.