Strong Balance Sheet Helping Realty Income Weather Pandemic

Sumit Roy, president and CEO of Realty Income Corp. (NYSE: O), participated in a video interview in conjunction with Nareit’s REITweek: Virtual Investor Conference (held June 2-4).

Roy said that Realty Income issued $760 million of equity at the beginning of the year, at near all-time-high equity prices. At the end of the first quarter, the REIT was at five times debt to EBITA in terms of leverage and 5.5 times interest rate coverage, another record high for the company.

“We are sitting on $2.9 billion of liquidity, of which $1.2 billion is cash,” he said. “So from a balance sheet perspective, I don’t think we could be entering this pandemic-induced downturn any stronger.”

Roy added that the REIT’s clients are doing better financially with each week that passes, so he anticipates that Realty Income will ultimately weather the pandemic. He said the REIT collected 83% of its April rent and May was trending in a similar fashion, both collections of which were better than what the company had been expecting.

Roy said that Realty Income wanted to tell its board and investors that the REIT would no longer be relying on the capital markets, given the associated volatility.

“The fact that we have $1.2 billion in cash also allows us to have the dry powder required to play offense as soon as there is some level of clarity in terms of this recovery really taking hold,” Roy said. He added that although Realty Income has become more selective than under normal circumstances, the company is maintaining its relationships on the brokerage and client sides.

Roy said that grocers, dollar stores, drug stores, and convenience stores have seen a tailwind over the course of the pandemic, but theaters, health and fitness facilities, casual dining locations, and day care centers have all suffered.

“That particular part of the business I do think will go through a rationalization process, especially operators that don’t have the financial wherewithal to be able to...withstand the duration of this downturn,” he said, noting it could create an opportunity for stronger operators to thrive.