How it got here
Good results never hurt, and Realty Income’s have been positively beneficial. The company’s most recent quarter showed some encouraging numbers, including a top line that climbed by 16% (to $130 million) and adjusted funds from operations — a key metric for REITs which is, essentially, net profit with depreciation, amortization and lesser line items added back in — advancing a respectable 6%.
The rosiness spread to the firm’s increased guidance for fiscal 2013, which now anticipates an adjusted FFO of $2.33-$2.39 per share. This means an improvement of anywhere from 13% to 16% over 2012’s $2.06.
Meanwhile, occupancy is a very impressive 97%.That’s saying something, since following a recent merger (more on this in a second), the company operates over 3,250 properties. Its tenant roster is well diversified, with plenty of famous names but none that hogs too much of the real estate. FedEx Corporation (NYSE:FDX) is post-merger Realty Income’s top renter, but the storied logistics company was responsible for only 5.5% of its landlord’s total portfolio rental revenue. The rest of the list is populated by businesses as diverse as L.A. Fitness, AMC Theaters, CVS Caremark Corporation (NYSE:CVS), and BJ’s Wholesale Club.
Now, about that merger. Realty Income has taken advantage of the good conditions to make a strong addition to its portfolio: American Realty Capital Trust, a smaller REIT the company acquired last year and absorbed into its mother ship last month. ARCT was the reason its new parent raised its AFFO projection; it anticipates the new unit will add $0.20-$0.22 per share to this metric.
That also provides more fuel for a dividend boost, a key reason — heck, sometimes the only reason — investors buy shares of REITs (which by law must distribute at least 90% of their net profit this way). Realty Income pays dividends all the time; in fact it trumpets this by the trademarked self-description “The Monthly Dividend Company,” just in case there’s any doubt.
That very regular handout has been distributed 512 months in a row, and it’s increasing. The firm commemorated the new year by lifting it by 19% to slightly over $0.1809 per share. That 19% was a much bigger hike than the company’s usual incremental boosts.Particularly in the REIT world, investors sit up and take notice when a disbursement is raised by that sort of percentage.
