Here's Why Realty Income's Focus on Essential Retail Keeps It Steady

Core Insights - Realty Income (O) focuses on investing in properties that house essential businesses, avoiding trendy retailers and instead targeting tenants that provide necessities like groceries and medications [1][8] - Approximately 73% of Realty Income's rent is derived from tenants offering essential products and services, ensuring stable cash flow during economic fluctuations [2][8] - The company boasts a high occupancy rate of 98.6% and a weighted average remaining lease term of nine years, with strong demand reflected in re-leases capturing 103.4% of prior rents [3][8] Company Performance - Realty Income's triple-net lease structure allows tenants to cover property taxes, insurance, and maintenance, resulting in minimal overhead and EBITDA margins near 95% [4] - The company's shares have increased by 11% year to date, contrasting with a 4.5% decline in the broader industry [7] Industry Trends - Other retail REITs, such as Kimco Realty Corporation and Regency Centers Corporation, are also focusing on non-discretionary retail, with Kimco achieving 86% of annual base rent from grocery-anchored assets [5][6] - Regency's portfolio includes over 85% grocery-anchored centers, benefiting from steady foot traffic and reliable cash flows [6] Valuation and Estimates - Realty Income trades at a forward 12-month price-to-FFO of 13.55, which is below the industry average but above its one-year median [9] - The Zacks Consensus Estimate for Realty Income's 2025 FFO per share has been revised upward, while the estimate for 2026 has been adjusted downward over the past month [10]