Updated Aug 6 at 2:14pm ET.
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The average rate on a 30-year fixed mortgage rose to 6.69 percent this week. While this is a consumer housing number, it reflects the broader interest rate environment that dictates how much a real estate investment trust like this one has to pay to borrow money.
This company grows by borrowing money to buy properties that pay a higher rent than the interest on its debt. When rates stay high or move up, that gap can shrink, making it harder to find new deals that add to its earnings. If rates stay at these levels, the company will have to be more selective about the properties it buys to keep its dividend growing.
Adjusted funds from operations, a key profit measure for real estate firms that excludes one-time items and depreciation, rose about 4 percent to $1.09 per share. While net income of $0.37 per share was slightly lower than what analysts expected, the underlying business of collecting rent remained very healthy. The company kept its portfolio full with a 98.8 percent occupancy rate and was able to raise rents by about 3 percent on the properties it re-leased.
The most important detail for long-term owners is that the company found $2.6 billion worth of new properties to buy at an average cash yield of 7.3 percent. This shows it can still find profitable deals even with higher interest rates. It also raised $600 million in new debt at a 3.6 percent interest rate in July, which confirms it can still borrow money cheaply enough to make its new property purchases highly profitable.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Fitch Ratings gave the company an 'A' rating with a stable outlook, making it one of only a few U.S. real estate firms to hold such a high grade. This rating is a formal stamp of approval on the company's ability to pay back its debts reliably.
For this business, a high credit rating is a competitive edge. It allows the company to borrow money at lower interest rates than other landlords. Because it pays less for its own debt, it can earn a larger profit on every property it buys, which is the primary engine that fuels its monthly dividend growth.
Source: PRNewsWire
The company updated its financial agreements to increase its revolving credit facilities and commercial paper programs to $5.5 billion each. These are essentially giant corporate credit cards and short-term loan programs that the company can tap into whenever it needs cash quickly.
Having this much ready capital is important because it allows the company to pounce on property deals when they appear without having to wait for a formal bond sale. By upsizing these programs from their previous limits, management is signaling that they want plenty of room to keep buying properties at a steady pace.
Source: 8-K filing
The company will pay its 673rd consecutive monthly dividend in August. The payment of about 27 cents per share is part of a long history of regular distributions that has earned the company its reputation as a reliable income stock. While this is a routine announcement, it confirms that the company's rental income remains steady enough to support its monthly payout. For long-term owners, this consistency is the core reason to own the stock, as the company has successfully maintained this streak through many different economic cycles.
Source: PRNewsWire
Analysts have recently kept their ratings steady following the company's latest earnings report. Out of 34 analysts, 14 recommend buying the stock, and the average price target of $67 suggests an 8% gain from the current price.
The company has a long habit of reporting earnings that come in slightly below what analysts expect, though its actual rental profits remain very steady.
| Expectation | |
|---|---|
| EPS | $0.41 |
| Revenue | $1.43B |
Seeking Alpha · Opinion · Aug 5
PRNewsWire · Press release · Aug 5
PRNewsWire · Press release · Aug 3
Seeking Alpha · Opinion · Jul 21
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