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Realty Income Isn't Just Another Retail REIT

By Matthew Frankel, CFP® and Deidre Woollard - Nov 13, 2020 at 6:51AM

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Not all retail stocks are in the same boat -- here's one that stands out.

Real estate investment trusts, or REITs, haven't performed too well in 2020, and retail REITs have been some of the biggest laggards. But Realty Income ( O 1.23% ) isn't just any retail REIT. In this November 5, 2020 Fool Live video clip, Millionacres REIT analyst Matt Frankel, CFP and Millionacres editor Deidre Woolard take a look at Realty Income's third quarter numbers and what investors should know.

Matt Frankel: Moving on to one of my favorite, REITs, that is one of the first stocks I ever bought that I've talked about before, is Realty Income. The ticker symbol was O, very easy to remember. They actually hold the trademark for the term Monthly Dividend Company, for obvious reasons. They just paid their 604th consecutive monthly dividend. It's a pretty impressive streak. They've raised their dividend 104 times since 1994 when they first listed on the New York Stock Exchange, so this is a pretty impressive dividend stock. It's a retail REIT, which is why it's down this year. Their properties are generally single-tenant retail businesses, most of which are essential businesses. They have a lot of dollar stores, for example, convenient stores, warehouse clubs. If you've been into a Costco ( COST 0.81% ) lately, you know the warehouse club industry is not suffering at all. So generally, they are essential businesses. Virtually, all of their tenants are open. They have some exposure to movie theaters, but not very much. They have some restaurants. The first property back in the '60s was actually a Taco Bell. It wasn't a REIT at the time, but that's how they started the company. Their business is pretty much doing well. Realty Income is designed to be a boring company in the best possible way. They're designed to produce growing cash flow year-after-year, growing income for its shareholders without too much surprises, and that's what we're getting back to pretty quickly actually. Virtually, all of their tenants are open. They collected 93 percent of their third quarter rent, which is, if you look at other retail REITs are reporting today. But that's going to be the number 1. I can pretty much promise you that. They invested $659 million in acquisitions for the quarter, so they're getting back into growth mode. They see some opportunities in the market. Commercial real estate is depressed right now. I mentioned real estate's being one of the worst performing parts of the market this year, so they are investing. They raised their acquisition guidance for the year to $2 billion worth of new acquisitions. That's pretty aggressive. That's what they were doing before the pandemic. Their FFO, funds from operations, which is like earnings, was down by two cents a share, but it's still more than enough to cover it's dividend. Pretty impressive considering what we're going through. They didn't do anything to knock my socks off, but that's really the point. I give them a B plus, A minus, just because they are consistently good. Do you have an opinion on Realty Income? I know I talk about them all the time.

Deidre Woollard: I think one thing that's important is one thing that we really learned this year is the difference between different types of retail REITs. Realty Income or other REITs that are holding, shopping centers that are anchored by grocery stores and things like that have performed so much better than other types of retail. I think that's one thing that we're going to see going forward, is that investors are certainly going to be aware of these types of offerings as being a little safer depending on what comes next.

Matt Frankel: After looking at their quarter, the fact that the stock is still down 30 percent for the year is crazy to me. Empire State's ( ESRT 1.86% ) down 60 percent and I understand why. Ryman ( RHP 5.06% ) is down by about 50 percent, I totally get why. Realty Income, I don't think it deserves the 30 percent haircut.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Realty Income Corporation Stock Quote
Realty Income Corporation
O
$68.08 (1.23%) $0.83
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$533.20 (0.81%) $4.27
Ryman Hospitality Properties, Inc. Stock Quote
Ryman Hospitality Properties, Inc.
RHP
$79.95 (5.06%) $3.85
Empire State Realty Trust, Inc. Stock Quote
Empire State Realty Trust, Inc.
ESRT
$9.32 (1.86%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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