Why This May Be THE REIT to Buy

Retail REIT Realty Income Corporation (O – Get Rating) will release its operating results for the third quarter (ended September 30, 2023) post-market closure on November 6. The REIT’s funds from operations (FFO) and revenue are expected to increase significantly over the prior-year quarter.

In this piece, I have discussed why the stock could be best avoided now despite an expected year-over-year financial improvement.

Retail sales continue to be resilient despite the uncertain macroeconomic environment. Retail sales rose 0.7% in September, more than twice what economists had expected. The rise in retail sales closely follows the revised 0.8% rise in August. Moreover, retail sales are expected to grow further, with the holiday season expected to get underway this month.

O’s FFO and revenue for the third quarter are expected to increase 5.7% and 15.7% year-over-year to $1.02 and $955.78 million, respectively. Given the resilience of retail sales during the third quarter, the strong demand for retail properties is expected to have boosted its revenues.

The company owns more than 13,000 properties across different industries, which helps to lower the risks of overexposure to a particular space. This is also likely to have aided the growth in its earnings during the third quarter. In the last reported quarter, the REIT failed to surpass the consensus estimate by 0.2%. However, its revenue beat the analyst estimates by 8.8%.

On October 10, 2023, O announced the acquisition of Spirit Realty Capital for $9.3 billion. No leverage is being taken for the transaction, and it is expected to deliver over 2.5% accretion to O’s annualized Adjusted Funds from Operations (AFFO) per share. Moreover, no new external capital will be required to finance the transaction.

The merger will lead to an enterprise value of approximately…

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