In This Article:
Realty Income's (NYSE: O) mission has been to invest in ways that enable it to pay a dependable dividend that grows over time. The real estate investment trust (REIT) has certainly delivered on that aim over the years. It has raised its dividend 129 times since coming public in 1994, including the last 110 quarters in a row.
Driving its dependability is the REIT's steadily rising rental income. Last year, Realty Income delivered its 14th straight year of adjusted funds from operations (FFO) per-share growth. It has now grown its adjusted FFO per share in all but one year since coming public. It expects 2025 will be more of the same.
Extending the streak to 14 straight years
Realty Income recently reported its fourth-quarter and full-year results for 2024. The diversified REIT generated $4.19 per share of adjusted FFO, a 4.8% increase from 2023's level, extending its growth streak to 14 years in a row. That enabled it to raise its dividend by about 4.5% over the past year, pushing the yield to more than 5.6% as I write this.
The biggest factor driving its growth last year was its highly accretive acquisition of fellow diversified REIT Spirit Realty. It closed the $9.3 billion deal in January. The merger helped deliver more than 2.5% accretion to the REIT's adjusted FFO per share.
On top of that, Realty Income invested another $3.9 billion into nearly 550 properties across the U.S. and Europe at a weighted average initial cash yield of 7.4%. It spent $1.4 billion to acquire properties in the U.S. and nearly $1.1 billion on European acquisitions, invested over $750 million into development projects, and made more than $630 million in loans. About 90% of its investments were in retail properties, 8.6% in industrial real estate, and 1.5% in other properties like data centers.
The final growth driver was rising rental income. The REIT's long-term net leases escalate rents at a very low single-digit annual rate. Meanwhile, it signed new leases at higher rental rates as legacy ones expired. Its rent recapture rate was 105.6% on units re-leased during the year, implying a 5.6% average rental increase from the prior rates on the same space.
15 in a row looks likely
Realty Income expects to continue growing in 2025. The REIT anticipates that its adjusted FFO will rise to a range of $4.22 to $4.28 per share, implying growth of up to 2%. Driving that growth is roughly 1% same-store rent growth across its portfolio and an anticipated acquisition volume of $4 billion. Those drivers will help offset the impact of higher interest rates as it refinances maturing debt and a potential increase in vacancies (it had 205 vacant properties at the end of 2024, while leases comprising 3.2% of its annual base rent expire this year).