O - Embedded Expectations Analysis - 2020 02 24
ï€ Realty Income Corporation (O:USA) currently trades at historical peaks relative to UAFRS-based (Uniform) Earnings, with a 38.9x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about their property investments, vacant assets, and leverageï€ Specifically, management may be concerned about their investments in domestic and UK properties, the long-term fit of certain acquired CMFT assets, and the sustainability of their dividend increases. Moreover, they may lack confidence in their ability to reposition vacant assets, find investments with spreads above their cost-of-capital, and continue to recapture expiring rent income through property sales. Furthermore, management may be concerned about their leverage and coverage ratios, upcoming debt maturities, and the potential lease implications if Walgreens goes private. Finally, they may be exaggerating their flexibility as a net lease company, the diversity of their tenant profile, and their ability to leverage their scale to pursue large sale leaseback transactions
Realty Income is a real estate investment trust. The company invests in commercial real estate. The company owns a portfolio of properties located in various states, Puerto Rico and United Kingdom.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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