Why Realty Income Stocks Underperformed the S&P 500 in 2024
Shares of Realty income (NYSE:O) It will decrease by 7% in 2024, according to the data provided S&P Global Market Intelligence. That underperformed. S&P 500 (SNPINDEX: ^GSPC)It showed an increase of 23.3 percent last year. A real estate investment trust (REIT) was still there. After addition in red High Yield Share (Negative 2.1% total return, compared to the S&P 500’s 25% return, including reinvested dividends).
See what it weighs REIT Last year and whether it could come back in 2025.
Realty earnings had a strong year in 2024, all things considered. of Diversified REIT It was on track to raise its adjusted funds from operations (FFO) by about 5%, the expected increase from the beginning. The company earlier in January closed the highly-acclaimed $9.3 billion acquisition of Spirit Realty, another diversified REIT. Additionally, it lowered its full-year investment guidance from $2 billion to $3 billion (which excludes the Spirit deal).
That growth has allowed the REIT to continue increasing its dividend. In the year It marked the 128th dividend increase since going public in 1994 (and the 109th quarter in a row).
Despite all these positives, REIT stocks have been down for the year, falling sharply over the past few months:
The late-year selloff coincided with a shift in interest rate policy by the Federal Reserve. When the feds finally start cutting Federal funds At the end of last year, stubbornly high inflation did not have the desired impact on interest rates. Combined with a strong economy, the Fed subsequently revised down its expectations for future rate cuts in December. That left the market anticipating higher prices for a longer period of time.
High interest rates have a significant impact on commercial real estate. They increase borrowing costs, making it more expensive for real estate operators to finance acquisitions and development projects. They also weigh in on real estate prices, which in turn weigh on REIT stock prices.
These factors add up Cost of capital REITs, such as Realty Income, make it more challenging for them to complete acquisitions of externally funded acquisitions through stock sales and new debt. That’s why last year’s realty income investment volume dropped from more than $9 billion in 2023 and 2022 to around $3 billion.
However, the REIT still managed to grow at a strong pace. Meanwhile, he plans to address headwinds from interest rates Entering the private capital market and starting a fund that can generate improved returns on the capital it invests.