Realty Income (O) Initiates a $1B Commercial Paper Program

Realty Income Corporation O launched a U.S. dollar-denominated unsecured commercial paper program under which it may issue unsecured commercial paper notes up to $1 billion of the maximum aggregate outstanding amount.

Notably, the notes will be sold under customary terms in the United States commercial paper note market. Moreover, it will be ranked pari passu, with all of the company's other unsecured senior debt, including any outstanding senior notes and borrowings under the revolving credit facility.

Realty Income expects to use note proceeds of the program for general corporate purposes. Moreover, it will likely utilize the $3-billion revolving credit facility as a liquidity backstop to repay notes issued under the commercial paper program.

Markedly, the pandemic has caused disruptions in businesses and impacted the financial conditions of tenants, impairing their ability to pay rent. This has affected cash flow from operations for landlords. Hence, companies have been focused on hoarding liquidity as a precautionary measure.

Realty Income’s new commercial paper program will aid the company to boost near-term liquidity. Moreover, as of Jul 31, total liquidity amounted to $2.9 billion, including roughly $400 million of cash in hand and $2.5 billion remaining borrowing capacity available on its $3-billion revolving credit facility.

The company’s financial policy approach underlines disciplined debt and equity funding. In fact, its utilization of its at-the-market (ATM) equity program as well as a public offering of senior notes indicates the consistent capital-sourcing policy.

Specifically, it raised $98.1 million from the sale of common stock at a weighted average price of $63.07 per share during the second quarter primarily through its ATM program. In addition, it raised $593.9 million through the issuance of 3.250% senior unsecured notes due in 2031.

Realty Income has a $3-billion unsecured revolving credit facility, with an initial term that expires in March 2023. The revolving credit facility also has a $1-billion accordion feature. As of Jun 30, 2020, the company had a balance of borrowings outstanding under its revolving credit facility of $628.6 million.

However, retail REITs, which have already been battling store closure and bankruptcy issues, have been affected because retail businesses depend on customer traffic and consumers are avoiding gathering in large public spaces. Moreover, the company’s tenants from the theater, health and fitness as well as restaurant industries are being impacted by the government-mandated closures and social-distancing requirements.

Shares of this Zacks Rank #3 (Hold) company have rallied 17.2% over the past three months compared with the industry’s growth of 14.9%.


Stocks to Consider

Duke Realty Corporation’s DRE Zacks Consensus Estimate for 2020 FFO per share has been revised 3.5% upward to $1.49 over the past month. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alexandria Real Estate Equities, Inc. ARE FFO per share estimates for the ongoing year has been unchanged at $7.31 over the past week. The company currently carries a Zacks Rank of 2.

Stag Industrial, Inc. STAG FFO per share estimates for 2020 has been revised 1.1% upward to $1.86 over the past month. It currently carries a Zacks Rank of 2.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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