An increasing number of retailers have recently encountered difficulties. This group includes Rite Aid, Red Lobster, Walgreens, Dollar Tree, At Home, and Big Lots. For landlords, challenges ranging from bankruptcies to the closure of underperforming stores translate into lost rent. Realty Income, a major player in the real estate investment trust (REIT) market, is not exempt from these issues. However, despite its association with several struggling retailers, Realty Income is well-positioned to weather the storm.

Here are three key reasons why this REIT remains resilient. Firstly, Realty Income is an industry giant. As the largest net lease REIT, it owns over 15,400 properties. Net leases require tenants to cover most property-level operating expenses. However, with net lease properties typically rented to a single tenant, any vacancy poses a significant risk. The financial instability of a tenant could lead to neglected property upkeep. Nevertheless, the risks associated with the net lease model decrease as the portfolio size increases. No single property becomes critical to overall financial stability when the portfolio is extensive.

With more than 1,550 tenants, no single lessee is crucial to Realty Income's success, even those like Walgreens and Dollar Tree that are currently under pressure. Secondly, Realty Income boasts high-quality properties. Its growth has not come at the expense of property quality. Key to their strategy is selecting desirable locations, particularly in the retail sector where location is paramount. Properties in prime locations are typically re-leased quickly, minimizing income disruption. A testament to their strategy, in Q2 2024, Realty Income renewed 199 leases at rental rates 105.7% higher than expiring ones.

With a portfolio occupancy rate of 98.8%, it’s clear that Realty Income's assets remain in high demand. Lastly, historical trends suggest Realty Income will navigate current challenges effectively. The company has successfully tackled tenant-related issues for decades. Impressively, its dividend has increased annually for 29 consecutive years, even throughout economic downturns like the Great Recession. Past performance indicates that Realty Income expects a minimal impact of around $0.02 per share from current problematic tenants.

Given that adjusted Funds From Operations (FFO) per share were $1.06 in Q2—up 6% year over year—the effect of troubled tenants is minimal. In conclusion, while Realty Income does face exposure to struggling tenants like Red Lobster and Walgreens, these issues will not materially impair its stability. Known also as 'The Monthly Dividend Company,' Realty Income's conservative management approach and robust portfolio ensure it remains a reliable investment. The company's structure supports its reputation as a 'sleep well at night' REIT, providing investors with confidence in its ongoing performance and dividend reliability.