O Realty Income
Monthly-dividend net-lease cash machine; rate fear, not property rot, drives the discount.
The story
Realty Income is the blue-chip net-lease compounder: ~15,400 single-tenant properties, investment-grade-heavy tenant base, and a fortress balance sheet funding external growth. Revenue has compounded ~20% over five years (VEREIT and Spirit mergers plus acquisitions), with margins stable near 39% and FFO of 3.81B (~$4.03/share). The stock has de-rated from 65 to 59.50 on rate fear, not tenant credit or occupancy deterioration. AFFO growth is now driven by acquisition spreads rather than organic rent, making cost of capital the swing factor.
Nothing fundamental has changed since my last take at 65.03: same 4% year-one AFFO growth (acquisition pipeline at current cost of capital), 2.8% terminal growth well under the 4.97% risk-free rate, and 0.88 AFFO/FFO conversion consistent with net-lease's low recurring capex. Beta of 0.8 and near-zero failure risk reflect the diversified tenant roster. I hold drivers flat; the wider discount to fair value is the market's rate anxiety, not a growth problem.
Value drivers
| AFFO growth (Y1) | 4.0% |
| Terminal AFFO growth | 2.8% |
| AFFO / FFO ratio | 88.0% |
| Beta | 0.80 |
| Failure probability | 0.5% |
| Cost of equity | 8.6% |
Valuation bridge
| PV of AFFO (explicit) | 26.16B |
| PV of terminal value | 36.62B |
| Equity value | 62.47B |
| ÷ shares → per share | $66.02 |
News
score · 8 articles
- Can a $780,000 Portfolio Really Pay $4,750 a Month Without Touching Principal?
- Realty Income or Agree Realty: Which Monthly Dividend Should Retirees Own?
- 5 Dividend Stocks to Hold for the Next 5 Years
- Here's How Many Shares of Realty Income You'd Need for $2,000 in Monthly Dividends
- Realty Income Has a New Revenue Stream, and It's Growing Fast
- 3 High-Yield Dividend Stocks Worth Loading Up On This Month
- 5 REITs That Turn Long-Term Leases Into Reliable Dividend Income
- How Much Do You Really Need Invested in Dividend Stocks to Replace a $25,000 Income?
Projected AFFO
| Yr | FFO | AFFO | Growth | PV |
|---|---|---|---|---|
| 1 | 3.96B | 3.49B | 4.0% | 3.21B |
| 2 | 4.12B | 3.62B | 3.9% | 3.07B |
| 3 | 4.27B | 3.76B | 3.7% | 2.94B |
| 4 | 4.42B | 3.89B | 3.6% | 2.80B |
| 5 | 4.58B | 4.03B | 3.5% | 2.67B |
| 6 | 4.73B | 4.16B | 3.3% | 2.54B |
| 7 | 4.88B | 4.29B | 3.2% | 2.41B |
| 8 | 5.03B | 4.43B | 3.1% | 2.29B |
| 9 | 5.18B | 4.56B | 2.9% | 2.17B |
| 10 | 5.32B | 4.68B | 2.8% | 2.06B |
Key risks
- Sustained higher-for-longer rates compress acquisition spreads and slow AFFO growth
- Retail tenant stress (casinos, gyms, convenience) driving vacancies or rent cuts
- Currency and cap-rate exposure on UK/European expansion and heavy equity issuance dilution
Catalysts
- Fed rate cuts lowering cost of capital and re-rating the multiple toward net asset value
- Accretive acquisitions and data-center/convenience development pipeline adding AFFO