Frequent questions Spain
- We primarily own properties that are leased to retail businesses. Examples include Grocery stores, Convenience stores, Dollar stores, and Home Improvement.
- We also own non-retail properties, with industrial buildings comprising approximately 12.7% of revenue
- Our properties are typically freestanding structures (not attached to another building as in a shopping mall or strip center)
- These properties are owned under triple-net leases where the client pays the property’s operating expenses including taxes, maintenance and insurance
- As of 12/31/23, our occupancy rate was 98.6%
- Historically, our portfolio occupancy has never been below 96.6%
- We generally look to acquire properties with 10- to 20-year initial lease agreements
- As of 12/31/23, our leased, single-client properties have a weighted-average remaining lease term of approximately 9.8 years
- We owned 15,450 properties as of 12/31/23
- The properties are located throughout all all 50 states, as well as Puerto Rico, the United Kingdom, Spain, Italy, Ireland, France, Germany and Portugal
We maintain relationships with clients, real estate developers, owners, brokers, private equity firms and investment banks to uncover single-asset and portfolio acquisition opportunities
“Cap rate” is short for lease capitalization rate and is the same as lease yield. This is a measure that is used to determine the annual return generated from lease payments in relation to the purchase price of a property
As part of our investment criteria, we focus on acquiring properties with many of the following attributes:
- Clients with reliable and sustainable cash flow;
- Clients with revenue and cash flow from multiple sources;
- Clients that are willing to sign a long-term lease (10 or more years);
- Clients that are large owners and users of real estate;
- Real estate that is critical to the client’s ability to generate revenue (i.e. they need the property in which they operate in order to conduct their business);
- Real estate with property valuations that approximate replacement cost; and
- Real estate with rental or lease payments that approximate market rents
- To close transactions in a timely manner, we purchase properties for cash using our $4.25 billion acquisition credit facility, which also has a $3.0 billion accordion expansion feature. We also have a $1.5 billion US Commercial Paper Program and a $1.5 billion Euro Commercial Paper Program. We use our unsecured revolving credit facility as a liquidity backstop for the repayment of the notes issued under these commercial paper programs.
- We ultimately seek to permanently fund acquisitions by issuing common stock, preferred stock or long-term bonds
- The type of funding we use to permanently finance acquisitions is determined based on our targeted leverage ratios and market conditions
- Yes, the majority of our leases have some form of rent increases
- Rent increases are negotiated at the time the lease is agreed upon
- Rent increases can vary based on the client’s business and the lease agreement
Dividend Questions
- Dividends are declared when and if the Board of Directors approves the dividend during its regularly scheduled monthly meetings
- Dividend payments have historically occurred on the 15th of the month (or the next business day if the 15th is a weekend or holiday)
Increases in the amount of the dividend are at the discretion of the Board of Directors and are generally determined by increases in the company’s cash flow, or adjusted funds from operations
- Our Board of Directors declares the dividend “record” date and “payable” date at its monthly Board meetings
- The “record” date is the deadline for being on record as an owner of Realty Income shares in order to receive that month’s dividend
- For example: if you wanted to be a shareholder of “record” to receive a dividend that is payable on the 15th of the next month, you would need to purchase shares at least three business days prior to the record date, which is typically the 1st of each month
- The term that is used to describe the last day you can purchase shares to be a shareholder of record on the record date, is the “ex div” date
There are some additional administrative costs associated with paying dividends monthly, rather than quarterly. However, we believe the benefits to our shareholders outweigh these additional costs.
We pay dividends monthly because we believe our shareholders desire monthly income to pay for monthly expenses
- Monthly dividends. Realty Income pays cash dividends monthly, rather than quarterly. The predictability of our business model’s underlying revenue stream affords us the ability to deliver more frequent dividend payments to shareholders.
- Growth. Since our public listing in 1994, our dividend has grown at a compound average annual growth rate of approximately 4.3%. We have increased our cash dividend for 106 consecutive quarters.
- Stability. Dividend income we provide to our shareholders tends to be reliable since it is supported by long-term leases with tenants we have determined can be relied upon to make lease payments. Throughout our operating history, we have never decreased the amount of our regular monthly dividend payment.
Increases in the amount of the dividend are at the discretion of the Board of Directors and are generally determined by increases in the company’s cash flow, or adjusted funds from operations
Typically, investors look at a company’s dividend payout ratio to determine the sustainability of the dividend payment. This ratio is usually calculated based on net income. As a real estate company, there is a supplemental measure called “adjusted funds from operations”, or “AFFO”, that better reflects the company’s ability to generate cash flow to pay the dividend. Most research analysts use AFFO to assess dividend-paying ability. The AFFO calculation removes the non-cash impact of real estate depreciation and amortization and property sale gains or losses to net income, while adjusting for other unique revenue and expense items that are not pertinent to measuring ongoing operating performance.
Why net income is an improper measure to determine dividend-paying capacity:
- If net income is the only measure used to assess operating performance and dividend-paying ability for a real estate company, it appears that most of these companies pay out more in dividends than they earn. This is because depreciation expense is a significant non-cash charge for companies whose assets are primarily real estate.
- The net income calculation also includes non-recurring gains or losses from the sale of properties, which can cause net income to vary materially.
How depreciation works:
- Companies are typically required to estimate the “life” of their buildings and equipment and depreciate them over their estimated useful lives. Based on these estimated lives, they are required to record depreciation charges each period.
- Real estate assets, on the other hand, are long-lived, income-producing assets and, in many cases, may actually appreciate in value over time.
- This depreciation charge is usually the largest expense on the REIT income statement, particularly if the REIT (such as Realty Income) owns a very large real estate portfolio.
Financial Performance Questions
As of 12/31/23, our debt to total market capitalization was 33.80%. Total debt outstanding of approximately $22.14 billion included:
- $20.72 billion in long-term notes, bonds, mortgages, and a term loan
- $764 million of borrowings on our revolving credit facility and commercial paper program
Realty Income’s capital structure consists primarily of common stock, or equity. It is our goal to maintain a conservative balance sheet and keep the use of debt at a manageable level.
- Utilizing modest amounts of leverage reduces overall financial risk and the potential volatility in our long-term cash flow and stock price
- In general, when raising capital to permanently fund acquisitions, we consider market conditions to determine the optimal mix of capital that offers both a cost-effective and a conservative funding option
- The net income calculation includes a significant deduction for depreciation expense, may include a non-cash loss from the sales of properties and other one-time charges
- Since Realty Income’s primary asset is real estate, the depreciation deduction is significant. Thus, net income does not reflect the recurring cash generating ability of our business from which we pay dividends
- The calculation most commonly used to determine a real estate company’s operating performance is “adjusted funds from operations,” or “AFFO”, which adds back the depreciation expense and adjusts for the accounting impact of gains or losses from property sales. It also adjusts for unique revenue and expense items that are not pertinent to ongoing operating performance
