Note: This article is the fifth installment of an eight-part series on Realty Income. Previous articles have focused on the company's history, business, industry, and balance sheet/income statement.
One of the most important considerations when deciding whether or not to invest in a company is its management team. How much experience do the company's key executives have in their field? Are there any major concerns to worry about, like a high turnover rate? And most importantly, does management have a history of delivering on the promises they make to shareholders?
Here are the high-ranking members of Realty Income Corporation's (O 0.29%) management team and what investors should know about them.
The key players
There are 21 managers with the title of vice president or higher at Realty Income, but I'll focus on the top three: the CEO/president, the COO/CIO, and the CFO.
John Case, president and CEO. Image source: Realty Income.
1. John Case, president and CEO. Only the third CEO in Realty Income's 46-year history, Case joined the company as chief investment officer in 2010 and was promoted to president in March 2013 and to CEO six months later. Before coming to Realty Income, Case spent nearly two decades as a real estate investment banker, and he has been responsible for more than $100 billion in transactions. He previously served as the co-head of real estate investment banking for RBC Capital Markets and then for UBS.
Shortly after taking over as CEO, Case made it clear that he didn't plan to make any major changes going forward -- and he hasn't. His plan as CEO is to remain disciplined when it comes to acquisitions and to maintain a conservative balance sheet. After all, the company has used the same business practices since its inception, so why change a winning formula?
Under Case's leadership, Realty Income has maintained its record of dividend increases and has been added to the S&P 500 High Yield Dividend Aristocrats Index. Acquisition volume has never been higher: $1.16 billion in new properties were acquired in 2012, and that amount increased to $1.51 billion and $1.4 billion in 2013 and 2014, respectively. However, the acquisitions seem to be as disciplined as ever: Under Case's leadership, portfolio occupancy has risen to its highest levels since 2006.
2. Sumit Roy, executive VP, COO, CIO. Roy joined Realty Income in 2011 and assumed the roles of chief investment officer and chief operating officer in 2013 and 2014, respectively. The former executive director of UBS Investment Bank, Roy has more than $57 billion in real estate capital markets and advisory transactions under his belt.
3. Paul Meurer, executive VP, CFO, treasurer. Meurer joined Realty Income as chief financial officer in 2001, but he has a long-standing relationship with the company. In fact, he was the company's investment banking advisor during its 1994 IPO. Before joining Realty Income, Meurer spent 14 years in investment banking for Goldman Sachs and Merrill Lynch. In 2014, he was named the Public Company CFO of the Year by San Diego Business Journal.
Strengths and concerns
The only potential concern I can see is that the two most senior executives, Case and Roy, are relatively new in their positions. However, their extensive experience elsewhere more than makes up for this, in my opinion. The rest of the team has been with Realty Income for a long time. In fact, even including the newer members, the average tenure of Realty Income's executive management team is about 12 years.
So the management team looks good on paper -- everyone has lots of experience in the field, and there are hundreds of billions of dollars' worth of experience between the higher-ups.
The billion-dollar question: Do they deliver?
Let's see how well this management team executes on its plans by comparing what they've said would happen to what really happened.
In spring 2014, Realty Income said that it would acquire about $1.2 billion in new properties for 2014 and that it would finance these acquisitions primarily with common stock, not debt. It also told investors to expect earnings (funds from operations) of between $2.53 and $2.58 per share.
Well, not only did the company complete more in acquisitions than it promised ($1.4 billion), but more than half of the capital used to finance these acquisitions was in the form of equity. This prevents the company from getting over-leveraged and maintains Realty Income's ability to cover its debt payments no matter what the market is doing. And earnings for the year came in at $2.58 per share -- the high end of guidance.
Going back to 2013, the same pattern can be seen. Realty Income blew its acquisition guidance out of the water in 2013, but the company actually beat the high end of its guidance. The company told investors to expect FFO of $2.32 to $2.38 per share and delivered $2.41. Basically, it seems that management sets achievable goals for itself in terms of acquisitions, financing, and earnings, and then strives to over-deliver on those goals.
Given management's history of delivering on its promises like this, it's no wonder the company has delivered consistent, market-beating performance.
Final thoughts
Realty Income's management team is a capable group of people who do their jobs incredibly well. Most key management personnel have risen through the ranks at the company, and there are another 18 capable executives on the management team who could eventually step into top roles.
More importantly, given the size and simplicity of Realty Income's business model, investors don't need to worry too much about who in particular is running the company. The beauty of Realty Income is that once a property is acquired and developed, the business basically runs itself. Warren Buffett has said that he looks for companies that anybody can run, and Realty Income definitely fits that description.
