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Thursday, Oct 6, 2022

Realty Income Keeps Growing, Diversifying

CEO Tom A. Lewis says there’s likely more robust activity ahead this year for Realty Income Corp., even after a first quarter that has already seen the company close on a $3.1 billion corporate acquisition and complete a $756 million stock offering.

The Escondido-based real estate investment trust plans to continue growing and diversifying its portfolio beyond retail properties, moving more into owning distribution centers and related facilities operated by some of the world’s largest corporations.

Lewis said the strategy is to have large tenants across a wide array of industries, whose own financial situations won’t be adversely affected in the event of large swings in interest rates and economic cycles.

For instance, since 2011 it has invested in distribution facilities nationwide operated by consumer-oriented companies such as FedEx, Coca-Cola, Procter & Gamble and Whirlpool. In recent months it has also increased its presence in the aerospace sector, purchasing facilities with tenants such as Boeing, General Electric and Lockheed Martin Corp.

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‘Move Up the Credit Ladder’

“Our goal is to move up the credit ladder and have more of these Fortune 500 companies as our tenants,” Lewis said.

He said Realty Income likely will be buying and selling several properties in coming months, as it aims to diversify among industrial sectors and product types. Its portfolio is currently about 77 percent in retail and 11 percent in distribution centers, with smaller stakes in office, agricultural and manufacturing properties.

The recently completed stock offering, like others in the past, was geared primarily to replenishing the company’s $1 billion credit facility, which it holds with several prominent banks, and to keep capital on hand for future acquisitions and related corporate expenses, Lewis said.

The company made more than $1.1 billion in investments during 2012, following a total of $1.4 billion for 2010 and 2011. The 2012 total did not include its $3.1 billion acquisition of the entire commercial property portfolio of New York-based American Realty Capital Trust Inc., which closed in January.

Lewis said the ARCT acquisition in itself did not add to Realty Income’s staffing base, since most of the employees of the acquired REIT were transferred to other divisions of ARCT. But the recent climb in investment activity has grown the staff in Escondido to around 96, including eight to 10 workers added in the last few months.

The CEO said the company could be adding an additional 15 to 25 workers in the coming year, and also possibly scouting for larger offices within San Diego County, as it outgrows its current headquarters space.

According to the equity research firm Green Street Advisors, which tracks REITs but not Realty Income specifically, the generally improving economy — spurring job growth and rising home values — tends to favor larger REITs that own strip centers and related retail properties.

Rising consumer spending prompts stores and restaurants to expand operations, raising demand for space in shopping centers, Green Street noted. The supply of centers nationwide remains constrained, and most high-demand metro areas, including San Diego, do not have a large number of new retail projects in the pipeline.

The financial data provider StockCall noted in a recent report that large retail-oriented REITs — such as Realty Income and New York-based Kimco Realty Corp. — have been drawing increased interest from investors in 2013, in part because of some big acquisitions but also because of their dividends. Both firms’ dividend yields are now above 4 percent, and Realty Income’s dividends are paid on a monthly basis.

“With the financial markets remaining volatile, a number of investors have been turning to companies that offer high dividends as a way to grow their investments,” StockCall noted.

Realty Income was founded in 1969 and has been publicly traded since 1994, currently under the symbol O on the New York Stock Exchange. It is now among the nation’s largest publicly traded REITs, with more than 3,500 U.S. properties and a market capitalization of more than $7.9 billion.

Lewis has been with the company for 24 years, and much of the management team has been there for more than a decade. While there are no immediate plans for changes in his CEO status, Lewis said the company has recently made executive changes with an eye toward long-term succession planning.

Leadership Roles

John P. Case was named co-president, joining Co-President and Chief Operating Officer Gary Malino in running day-to-day operations. Case will also continue in his position as chief investment officer.

Lewis said the move was made in part to reward Case for his work in more than doubling the firm’s investment portfolio with more than $6 billion in acquisitions over the last three years. The company is also seeking long-range continuity in the management ranks, to maintain its investment objectives and corporate culture.

“Succession planning should be an ongoing process, not an event,” Lewis said.


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