Better Buy: Realty Income vs. Simon Property Group

Realty Income (NYSE: O) and Simon Property Group (NYSE: SPG) are both bellwether names for their respective real estate niches, and they both focus on the retail sector. But they are vastly different companies. Here's a look at just how different they are, and why one appears to be a better bargain than the other today.

Realty Income is one of the largest publicly traded net lease real estate investment trusts (REITs). That means that it owns properties (about 85% of its rent is from retail assets), but its lessees are responsible for most of the costs of maintaining those assets. It's a fairly low-risk business model in which a company sells a key property to Realty Income and then instantly rents it back under a long-term lease. The company is usually looking to free up capital to fund growth projects or reduce debt. So Realty Income is something of a funding source. Realty Income makes the difference between its cost of capital and the rents it charges, and locks that profit in with a long-term lease. It's a win-win relationship.

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Source Fool.com