Realty Income's Biggest Tenants Are Struggling: Buy, Hold, Or Sell?

seekingalpha07-25

Realty Income Corporation's top tenants are facing challenges and closing stores.This is one more sign that its portfolio quality may have degraded over the years.Should you sell your shares or hold ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2454820393?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1498649784/image_1498649784.jpg","is_english":true,"pubTime":"2024-07-25 20:15","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2454820393","market":"us","top_or_hot":-1,"title":"Realty Income's Biggest Tenants Are Struggling: Buy, Hold, Or Sell?","media":"seekingalpha","content":"<div>\n<p>Realty Income Corporation's top tenants are facing challenges and closing stores.This is one more sign that its portfolio quality may have degraded over the years.Should you sell your shares or hold ...</p>\n\n<a href=\"https://seekingalpha.com/article/4705916-realty-income-biggest-tenants-struggling-buy-hold-or-sell\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Realty Income's Biggest Tenants Are Struggling: Buy, Hold, Or Sell?</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nRealty Income's Biggest Tenants Are Struggling: Buy, Hold, Or Sell?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-25 20:15 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4705916-realty-income-biggest-tenants-struggling-buy-hold-or-sell><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Realty Income Corporation's top tenants are facing challenges and closing stores.This is one more sign that its portfolio quality may have degraded over the years.Should you sell your shares or hold ...</p>\n\n<a href=\"https://seekingalpha.com/article/4705916-realty-income-biggest-tenants-struggling-buy-hold-or-sell\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU1066053197.SGD","symbol_name":"HSBC GIF GLOBAL EQUITY VOLATILITY FOCUSED \"AM3\" (SGDHDG) INC","start_time":0,"source_url":"https://seekingalpha.com/article/4705916-realty-income-biggest-tenants-struggling-buy-hold-or-sell","article_id":"2454820393","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1498649784/image_1498649784.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2454820393","pubTimestamp":1721909700,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Realty Income Corporation's top tenants are facing challenges and closing stores.This is one more sign that its portfolio quality may have degraded over the years.Should you sell your shares or hold on to them?They have all three suffered some terrible news lately, and it is not a good look for Realty Income. Walgreens recently announced that it was going to shut down up to a quarter of its stores as part of a “company-wide strategic review” and this caused its share price to crash to a multi-year low. Some analysts now claim that the company could face bankruptcy in the future, just like its peer, Rite Aid, which filed for Chapter 11 last October. This reminds me that VICI Properties'  CEO told me this back in 2021 in an exclusive interview: “If you look at drugstores, you have to ask the question: once Amazon gets truly serious about being an online pharmacy, what's the impact on Walgreens or CVS ?”","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU1066053197.SGD":"HSBC GIF GLOBAL EQUITY VOLATILITY FOCUSED \"AM3\" (SGDHDG) INC","ADC":"艾格里房产","BK4234":"特殊用途房地产信托","BK4122":"互联网与直销零售","IE000M9KFDE8.USD":"NEUBERGER BERMAN US LARGE CAP VALUE \"A\" (USD) ACC","BK4551":"寇图资本持仓","BK4231":"零售房地产信托","LU0006061336.USD":"Blackrock US Small and MidCap Opportunities A2 USD","BK4561":"索罗斯持仓","IE0034235188.USD":"PINEBRIDGE GLOBAL FOCUS EQUITY \"A\" (USD) ACC","LU1267930490.SGD":"TEMPLETON GLOBAL EQUITY INCOME \"AS\" (SGD) INC A","BK4550":"红杉资本持仓","IE00BKVL7J92.USD":"Legg Mason ClearBridge - US Equity Sustainability Leaders A Acc USD","DLTR":"美元树公司","IE00B19Z8W00.USD":"FTGF CLEARBRIDGE US LARGE CAP GROWTH \"A\" INC","NNN":"NNN REIT INC","CVS":"西维斯健康","LU1066051225.USD":"HSBC GIF GLOBAL EQUITY VOLATILITY FOCUSED \"AC\" (USD) ACC","IE0009356076.USD":"JANUS HENDERSON GLOBAL TECHNOLOGY AND INNOVATION \"A2\" (USD) ACC","LU0211328371.USD":"TEMPLETON GLOBAL EQUITY INCOME \"A\" (MDIS) (USD)   INC","LU1571399168.USD":"ALLSPRING GLOBAL LONG/SHORT EQUITY \"IP\" (USD) ACC","IE00B4JS1V06.HKD":"JANUS HENDERSON BALANCED \"A2\" (HKD) ACC","LU1069347547.HKD":"AB SICAV I - GLOBAL VALUE PORTFOLIO \"AD\" (HKD) INC","IE00B775SV38.USD":"NEUBERGER BERMAN US MULTICAP OPPORTUNITIES \"A\" (USD) ACC","IE00B3S45H60.SGD":"Neuberger Berman US Multicap Opportunities A Acc SGD-H","IE00BN29S564.USD":"JANUS HENDERSON BALANCED \"A3\" (USD) INC","IE0004445239.USD":"JANUS HENDERSON US FORTY \"A2\" (USD) ACC","LU0097036916.USD":"贝莱德美国增长A2 USD","EPRT":"Essential Properties Realty Trust Inc.","O":"Realty Income Corp","IE00BJTD4V19.USD":"NEUBERGER BERMAN US LONG SHORT EQUITY \"A1\" (USD) ACC","BK4554":"元宇宙及AR概念","CZR":"凯撒娱乐","DG":"美国达乐公司","LU0640476718.USD":"THREADNEEDLE (LUX) US CONTRARIAN CORE EQ \"AU\" (USD) ACC","BK4585":"ETF&股票定投概念","BK4128":"药品零售","VICI":"Vici Properties","IE00BKDWB100.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5H\" (SGDHDG) ACC","IE00BJLML261.HKD":"HSBC GLOBAL EQUITY INDEX \"HCH\" (HKD) ACC","AMZN":"亚马逊","BK4566":"资本集团","AMC":"AMC院线","LU0310799852.SGD":"FTIF - Templeton Global Equity Income A MDIS SGD","LU2264538146.SGD":"Fullerton Lux Funds - Global Absolute Alpha A Acc SGD","LU0011850046.USD":"贝莱德全球长线股票 A2 USD","LU0175139822.USD":"AB FCP I Global Equity Blend A USD","WMT":"沃尔玛","BK4559":"巴菲特持仓","WBA":"沃尔格林联合博姿"},"translate_title":"Realty Income最大的租户正在苦苦挣扎：购买、持有还是出售？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"WMT":1,"ADC":1,"EPRT":1,"DLTR":1,"DG":1,"CZR":1,"CVS":1,"NNN":1,"O":1,"VICI":1,"WBA":1,"AMC":0.6,"AMZN":0.6},"content_text":"Realty Income Corporation's top tenants are facing challenges and closing stores.This is one more sign that its portfolio quality may have degraded over the years.Should you sell your shares or hold on to them? I share my thoughts.   peshkov Realty Income Corporation's (NYSE:O) three biggest tenants are:  Walgreens (WBA) Dollar General (DG) Dollar Tree (DLTR) / Family Dollar.  And what do all three of these companies have in common? They have all three suffered some terrible news lately, and it is not a good look for Realty Income. Walgreens recently announced that it was going to shut down up to a quarter of its stores as part of a “company-wide strategic review” and this caused its share price to crash to a multi-year low. Some analysts now claim that the company could face bankruptcy in the future, just like its peer, Rite Aid, which filed for Chapter 11 last October. This reminds me that VICI Properties' (VICI) CEO told me this back in 2021 in an exclusive interview: “If you look at drugstores, you have to ask the question: once Amazon gets truly serious about being an online pharmacy, what's the impact on Walgreens or CVS (CVS)?”   Net Lease Advisor Data by YCharts Similarly, Dollar Tree / Family Dollar plans to close 1,000 stores in the near term. More specifically, they plan to shut 600 Family Dollar stores this year and an additional 400 under both banners in the coming years as their leases gradually expire. We recently interviewed Agree Realty's (ADC) CEO, and we asked him what he thought about Dollar Tree's plan to sell Family Dollar. His response was simply, “Hah. Good luck,” and this really embodies the struggles that the company is facing. Many of those stores are losing money, they are often stuck under long-term leases, they have been underinvested, and the competition is only growing bigger from Amazon (AMZN) and other offline discount stores. Their rival, 99 Cents Only, filed for bankruptcy earlier this year, citing shifting consumer demand, inflation, and theft as some main reasons for its demise:   Net Lease AdvisorData by YCharts Dollar General is today doing a lot better than its rival, but there are also growing concerns right now, and its share price has crashed by 50%+ over the past two years. Its profitability has been crashing because of the high inflation weighing down on the consumer. But the bigger long-term concern for me is that Walmart (WMT) could be going after Dollar General's business. Historically, Dollar General has done well because it would open small shops in less competitive areas. In our interview with Agree Realty's CEO, he explains that: “Dollar General is the food supplier to rural America. It's literally the sole general store in areas with zero competition from other retail. They build at least 15–20 miles from the nearest Walmart and are an essentials provider to rural Americans.” But this could change in the future. Walmart and others are working hard on grocery delivery, and they are also developing smaller store concepts to bring the fight to Dollar General. My fear is that Walmart would win this battle because they have a much larger scale, more power with suppliers, and this allows them to offer even lower prices. To be clear, I still expect Dollar General to do fine over time. However, it would not surprise me if it experiences growing struggles that force it to close some stores down the line, and from a real estate perspective, there is little to like about these properties. They are located in rural markets with often declining populations, and the build quality is poor as well. Here's what VICI's CEO said to me in a previous interview when comparing the quality of their casinos to those of Dollar General net lease properties:  \"Caesars Palace (CZR) in Las Vegas was built in 1966 and it is as vital a building as ever. The Venetian was built like the freakin pyramids of Egypt. I mean that asset will be there forever. You know, the Chinese use the term 1,000-year assets. Who knows if it's truly here in a thousand years, but this is what the Chinese mean by 1,000 years. Not to disparage the Dollar Generals, but those are built to last maybe 15 or 20 years. And then, you know what? Knock it down and start over. It was cheap to begin with.\"  Put simply, Dollar Generals are poorly located, and cheaply built, and so their value relies heavily on the lease with Dollar General. If you lose this lease, the value of your property crashes, and this makes these properties very risky net lease investments. That explains why they typically also trade at relatively high cap rates: Realty Income Data by YCharts All of this is a bad look for Realty Income. Historically, it has been perceived as a “high quality” net lease REIT, but today, its top 3 tenants are facing issues and its biggest investments are in pharmacies and dollar stores, which most people would consider as “low quality” net lease investments. But is this on its own enough of a reason to sell Realty Income? The answer is no. Realty Income is well diversified, it enjoys long leases, and it generally owns better than average properties, which are less likely to be shut down. But it is not something to ignore either. Combined, these three tenants make up ~10% of the company's rental income. Moreover, Realty Income also has other struggling companies like AMC Entertainment (AMC), Red Lobster, and CVS (CVS) in its top 20 tenants. I believe that it reaffirms my previous point that Realty Income's portfolio quality has degraded over the years following their many M&A deals, acquiring lower-quality net lease peers like Vereit and Spirit Realty Capital. This is also evident if you compare Realty Income's occupancy rate to that of its close peers. It is today among the lowest in the net lease peer group and could drop lower in the coming years if it faces more tenant difficulties:     Occupancy Rate   Realty Income (O) 98.6%   VICI Properties (VICI) 100%   Agree Realty (ADC) 99.8%   NNN REIT (NNN) 99.5%   Essential Properties Realty Trust (EPRT) 99.9%   Click to enlarge Therefore, Realty Income should not be compared to Agree Realty and other high-quality net lease REITs anymore, and it deserves to trade at a discounted valuation relative to them. This is the case today, as Realty Income is trading at a 2-turn lower valuation than Agree Realty. But am I buying shares of Realty Income? I am not. I have owned it in the past and would be willing to own it again, but the discount relative to Agree Realty would need to be larger than that. Agree Realty enjoys many advantages that warrant an even larger premium in my opinion and therefore, I would rather buy more shares of Agree Realty instead:     FFO Multiple   Realty Income (O) 13.6x   Agree Realty (ADC) 15.8x   Click to enlarge These advantages have resulted in significant outperformance over the past decade and I expect this outperformance to continue because these advantages still aren't properly factored into the company's valuation: Data by YCharts But it is fair to say Realty Income is not particularly expensive right now either, and I expect it to do relatively well over time. I just think that some of its peers will do even better.  I give Realty Income a Buy rating and Agree Realty a Strong Buy.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"Business Data","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.26.3","shortVersion":"4.26.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2454820393"}