• Sun. Oct 1st, 2023

    Is Realty Income Corporation Undervalued After Its Latest Slump?

    ByNuala Hafner

    Sep 19, 2023
    Is Realty Income Corporation Undervalued After Its Latest Slump?

    Realty Income Corporation, also known as “the monthly dividend company,” has experienced a 4% decline in its market value over the past month. The retail real estate investment trust (REIT) sector has been facing challenges due to uncertain consumer spending, leading to bearishness in the industry. With year-to-date losses exceeding 15%, there is a need for a closer analysis of Realty Income Corporation.

    One factor to consider is the systemic concerns affecting the retail REIT industry as a whole. Many retail REITs in the United States have seen a decline in value this year, suggesting that Realty Income Corporation’s struggles may be due to broader market trends rather than its own weaknesses. Factors such as disinflation and rising credit risk among consumers have contributed to the headwinds faced by the industry.

    Another reason for the decline in Realty Income Corporation’s value is its recent capital raises. The REIT raised $2.2 billion through a common stock program and $1 billion in debt. While raising capital can be advantageous for REITs, the market is skeptical about the feasibility of Realty Income Corporation’s latest capital raise, as its debt offerings were priced at a rate only slightly below the national capitalization rate for U.S. REITs.

    Despite these challenges, Realty Income Corporation’s portfolio remains strong, as evident from its second-quarter revenue, which saw a year-on-year gain of 24.29%. The company has the ability to invest throughout the economic cycle, as demonstrated by its recent investment of approximately $950 million in a partial ownership of the Bellagio in Las Vegas. While this acquisition offers diversification benefits, the cyclicality risk associated with the hotel and casino business needs to be taken into account.

    Realty Income Corporation is known for its monthly dividend payments, and its latest dividend was increased by 0.2%, resulting in a forward dividend yield of around 5.7%. With 122 dividend increases since its listing in 1994, the company is considered a “best in class” dividend growth asset.

    In terms of valuation, Realty Income Corporation’s ratios are within respectable range. However, its price-to-funds from operations multiple suggests that most of the company’s positives are already priced in, making it unlikely that the stock is undervalued at this stage.

    Overall, while Realty Income Corporation’s business model remains strong, its recent capital raises and acquisition present challenges and have impacted its market value. However, it is unlikely that further downside will occur in the near future.

    – Investing.com
    – Trading Economics

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