Triple net real estate investment trust subsector offers strong growth prospects, says analyst

Mizuho's Vikram Malhorta raised their price target on Realty Income (NYSE: O) by 5.4% from $56 to $59 on 2024/05/10. The analyst maintained their Strong Buy rating on the stock.

Realty Income, a real estate investment trust specializing in triple net lease properties, recently reported its first-quarter earnings for 2024. Malhorta highlighted the strong growth potential of the triple net real estate investment trust subsector, stating that it continues to offer one of the best risk-adjusted growth stories across REITs. Despite elevated and volatile interest rates and uncertainty surrounding potential rate cuts, the subsector is well-positioned for growth without the need for additional capital.

For the first quarter of 2024, Realty Income reported adjusted funds from operations (AFFO) of $1.03, in line with the Zacks Consensus Estimate. However, it surpassed the figure for the same quarter in 2023 by 10.8%. Revenue for the quarter stood at $1.26 billion, beating the Zacks Consensus Estimate by 33.5% and outperforming the previous year's first-quarter revenue by the same margin.

Looking ahead to the full year 2024, Realty Income's management provided guidance that remains unchanged. They anticipate AFFO in the range of $4.13 to $4.21, assuming a same-store rent growth of approximately 1% and an occupancy rate of 98% or higher. The company also expects to achieve an acquisition volume of $2 billion.

Realty Income's CEO, Sumit Roy, emphasized the company's strong financial position and ample liquidity, which was further bolstered by a well-timed $1.25 billion bond offering in January 2024. Roy noted that the company's investment guidance for the year does not require external capital, highlighting the ability to self-fund external growth.

The stability of Realty Income's high-quality portfolio was underscored by a stable occupancy rate of 98.6% in the first quarter of 2024. The company achieved a rent recapture rate of 104.3% on re-leased properties and generated a 0.8% growth in same-store rental revenue. Realty Income's consistent and recurring cash flow from its diversified portfolio of investments supports the dependable monthly dividends that have been increasing since the company's listing on the NYSE in 1994.

In addition to the rating change for Realty Income, Malhorta also made adjustments to other stocks in their portfolio. They lowered the price target on Gaming & Leisure Properties Inc by -2.1% and maintained a Hold rating. However, the analyst raised the price target on Essential Properties Realty Trust Inc by 11.5% and maintained a Strong Buy rating.

According to WallStreetZen, 100% of the top-rated analysts currently rate Realty Income as a Strong Buy or Buy. No analysts consider it a Hold, and none recommend or strongly recommend selling the stock.

The consensus forecast among analysts suggests that Realty Income's upcoming year will deliver earnings per share (EPS) of $2.18. If the analysts' predictions hold true, the company's next yearly EPS will increase by 101.6% compared to the previous year.

Since Realty Income's latest quarterly report on May 6, 2024, the stock price has declined by 0.9%. In a year-over-year comparison, the stock is down 11.3%. During this period, Realty Income has trailed the performance of the S&P 500, which has decreased by 26.2%.

It is worth noting that Mizuho analyst Vikram Malhorta is ranked in the bottom 7% out of 4,581 Wall Street analysts by WallStreetZen. Their average return stands at -2.8% with a win rate of 42.4%. Malhorta specializes in the Real Estate, Healthcare, and Communication Services sectors.

Realty Income Corporation, founded in 1969 and headquartered in San Diego, California, is a real estate investment trust that owns and manages a diverse portfolio of over 11,000 commercial properties. These properties are leased to clients operating across 60 industries in all 50 U.S. states, the UK, and Spain.

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