Real estate income (O 0.97%) has an exceptional rail Record dividend increase. The real estate investment trust (REIT) has increased its payouts for 107 consecutive quarters (and 126 total) since its IPO in 1994. Its monthly dividend has grown at a solid average annual rate of 4.3% during that time.

A factor that REIT steadily Dividend growth is the ability to continue to grow its portfolio. While higher interest rates have made it more difficult to find value-added investments, Realty Income has taken advantage of the situation by start investing on real estate loans. This step could pay off in the future.

Give recognition where recognition is due

Realty Income made $805.8 million in new investments in the second quarter. The largest investment was a $377.5 million senior secured bond issued by the parent company of British grocer Asda. This debt investment has a yield of 8.1 percent over its six-year term. That is a higher yield than the company will earn on real estate investments (an average of 7.9 percent on acquisitions and 7.3 percent on development projects). The REIT took advantage of higher interest rates to generate a high cash yield on a very stable credit investments.

This investment complemented the company’s growing lending platform. what it was founded last year. Realty Income made its first loan investment last August. It agreed to make a yield-bearing (8.1%) Preference shares Participation in a joint venture (JV) with Black Stone‘S unlisted REITwhich owns the Bellagio Las Vegas. The REIT also posted a profit of $300 million together equity investment in this joint venture. The deal gave Realty Income its second investment in gaming properties.

CEO Sumit Roy commented the launch of its credit investment strategy in the press release presenting the Bellagio investment project: “Credit investments are a natural complement to our traditional business and enable us to add value to our clients while leveraging our core competencies in sourcing and structuring transactions. And Real estate and lending and monitoring.”

Realty income made in total Last year, the company invested $858.1 million in debt investments (real estate-backed loans and preferred equity investments) at a rate of return of 8.7 percent. This rate was significantly higher than the initial return the company expects from equity investments (7 percent on acquisitions and 6.8 percent on development projects).

Opening the door to future possibilities

Real estate income does not plan to become Mortgage REIT The focus was on credit investments. The company is taking advantage of the current opportunity for these investments due to the interest rate environment. Roy discussed the company’s credit strategy at the Second quarter conference call:

We intend to make credit investments selectively, and only if it can ultimately facilitate Access to high quality real estate opportunities, as was the case with Asda. We also believe that these For Realty Income, credit investments represent a lucrative opportunity to participate in and profit from the current interest rate environment. Furthermore, from a risk management perspective, we view these credit investments as a prudent, natural hedge against inherent interest rate risk. as which we have on the liabilities side of our balance sheet.

The CEO highlighted three drivers of its credit investment strategy. First and foremost, it will help open the door to future property acquisition opportunities. For example, the company could eventually acquire its joint venture partner’s stake in the Bellagio if it is willing to offload that asset. In the meantime, it has strengthened its relationship with Asda, its 11th largest tenant. This could put the REIT in a better position to acquire more properties from that partner in the future. Sale-leaseback transactions.

In addition, credit investments enable the REIT to benefit from the current lucrative environment thanks to higher interest rates. While higher interest rates it harder to find Given the attractive opportunities for equity investments, credit investments are tempting these days.

Finally, investing in loans when interest rates are high can help mitigate some of the risk of future interest rate increases on maturing debt. In a sense It can cushion some of the impact of higher future borrowing costs by securing higher-yielding investments now.

A smart strategy

Realty Income is a smart investor. The company is focused on finding investments that will help increase its dividend. Currently, credit investments very attractive, which is This prompted the REIT to focus on this strategy, which could pay off in the future as it provides the REIT with lucrative income streams, new investment opportunities and protection for its balance sheet. This is one of the many reasons Why Realty Income is a great Buy dividend stocks for the long-term.