Bought 10 shares of Reality Income (O) for 59,3$/share. Total cost – 495 EUR (604$) Annual post-tax dividend inome – 16,2 EUR. Yield on cost – 3,3% post-tax.
Jumped bit to early as price went down to around 57$ after new 10,5m share initial offering for further expansion. Well will recover the difference in a year or so. Now to the short company overview.
Its a REIT that most of dividend investors know. It was on my list for some time now. Company pay monthly dividends increasing each quartee for past 25 years, so its a Dividend Aristocrat. Company pay 0,2345$/mo or 2,814$ annualized and that makes it 4,7% pre-tax yield, which feels a bit low as for a REIT. Last increase +3,5% YoY, so its low single digit growth we are looking here. However this REIT differs from large mall operators like Simon property as it retail properties main tenants are grocery and drug stores. These are so called neighbourhood stores that are more resilient to e-commerce then large shopping centres, which main tenants are clothing stores. It has very strong tenants, half of them are investment grade. This allowed to collect >90% of rent income even during worst covid-19 lockdown.
Now 2020 Q3 income was 405m$ and FFO 238m$ which increased if compared YoY but if you take FFO/share it remained flat 0,82$/q level. Annualized FFO 3,28$/share, so that makes it P/FFO 18x which to my understanding is high. This is why I didn’t bought O earlier. Payout ratio 86% from FFO also on a higher side. Now the balance sheet. With cash 0,1 bn$ financial debt 8 bn$ and TTM EBITDA 1,3 bn$ making Leverage x6, for a REIT I would say a very healthy level. With equity 9,8 bn$ and total asset 18,6 bn$ Equity ratio 53% very healthy level. So this is a well capitalized and modest leveraged REIT with sound balance structure. This is why it cost comparably more then other REITs and offers lower yield. To compared Baltic horizon leverage is around x11, and BPY had even more x13. Simon property according to latest Q3 figures have leverage around x7 as their EBITDA decline and debt increases, and it was x5 when i bought in. That the reality with large mall REITs now, but this one might make it as it is large enough.