O Updates Q3 Investments; Offers Shares - Analyst Blog


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Realty Income Corp. ( O ) offered an update of its portfolio related investments in third-quarter 2013. Also, this Monthly Dividend Company disclosed an upsized public offering to reduce its debt level.

Q3 Investments

Realty income disclosed that it invested around $503 million in new and under construction assets during third-quarter 2013. The properties have a weighted average lease term of about 14.7 years and initial weighted average contractual lease rate of 7.1%.

Notably, the investment grade tenants at the assets account for 72% of the revenue generation. Year-to-date, as of Sep 30, Realty Income put in roughly $1.37 billion in new and under construction assets. This is in addition to the company's $3.2 billion worth American Realty Capital Trust, Inc. buyout made in Jan 2013.

Upsized Public Offering

In a separate development, Realty Income stated the offering of upsized 8.5 million common shares at $40.63 per share. The offering size was increased from the original amount of 6.5 million shares. Notably, to cover any over-allotments, the company granted a 30-day option to the underwriters to buy up to 1.28 million of additional common shares. The offering is anticipated to close on Oct 25.

Realty Income expects to reap around $329 million in proceeds, excluding underwriting discounts and projected offering expenses with the assumption of no exercise of the over allotment option by the underwriters. This retail real estate investment trust (REIT) intends to utilize the net proceeds for the repayment of outstanding borrowings under its acquisition credit facility worth $1.0 billion.

A consortium of financial institutions acted as underwriters for the common shares offering. Of them, Morgan Stanley ( MS ), Wells Fargo Securities of Wells Fargo & Company ( WFC ), BofA Merrill Lynch, J.P. Morgan of JPMorgan Chase & Co. ( JPM ), RBC Capital Markets, Jefferies, and UBS Investment Bank assisted Realty Income as joint book-running managers.

Our Take

The above-mentioned strategic investments bode well for Realty Income as such efforts will enhance its portfolio quality. Also, a high proportion in investment grade tenants at these properties offer scope for the company to enjoy steady rental revenue going forward.

Moreover, though the public offering will result in share dilution, it will enable Realty Income to attain financial flexibility and position it well to pursue investment opportunities and acquisitions. This would facilitate Realty Income's top-line improvement in the near term.

Realty Income is scheduled to release its third-quarter 2013 results on Oct 31, 2013. The Zacks Consensus Estimate for the third-quarter 2013 funds from operations (FFO) is currently pegged at 61 cents, reflecting a year-over-year increase of 16.67%.

Realty Income currently carries a Zacks Rank #3 (Hold).

JPMORGAN CHASE (JPM): Free Stock Analysis Report

MORGAN STANLEY (MS): Free Stock Analysis Report

REALTY INCOME (O): Free Stock Analysis Report

WELLS FARGO-NEW (WFC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
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