Trade Realty Income For Unibail-Rodamco-Westfield

Summary

• Both Realty Income and Unibail-Rodamco-Westfield are high-quality retail REITs, but Realty’s 3.6% dividend yield falls short of the 8.5% offered by URW.
• Realty Income has drastically outperformed URW, leaving URW more attractive from a valuation and dividend yield perspective.
• Unibail-Rodamco-Westfield offers an 8.5% dividend yield, prospects for dividend growth and material undervaluation, a rarity in today’s markets.
• Dividend investors who can handle the FX risk should consider trading Realty Income for URW or at least adding URW to REIT allocations.

Dividend investors often view Realty Income (NYSE:O) as a benchmark in the real estate investment trust (REIT) space with its monthly dividends and steady performance, but Unibail-Rodamco-Westfield (OTCPK:UNBLF) currently offers a more attractive investment proposition for investors who can handle EUR currency risk. Both companies are among the largest and highest-quality retail REITs in the world, but Realty Income's recent outperformance leaves URW offering a dramatically more attractive dividend yield and more upside to the share price. URW also offers preferred geographic diversification with a majority of assets in Europe where retail overcapacity is not as acute as in the US. URW's long-time strategy to focus on premier locations with high footfall in key urban environments also arguably leaves it more protected than Realty Income when it comes to the most critical risks in retail, such as growth in online shopping.

This article details why dividend investors should consider a switch from Realty Income to URW and also serves as an introduction to URW for US-based investors that may be less familiar with the company.

Both companies are impressive and well diversified

We have long owned a position in Realty Income, and it's hard to argue with the company's success considering the 16.8% Compound Average Annual Total Shareholder Return since its 1994 NYSE listing, which is significantly better than benchmark indices over the period. The company has many of the attributes we seek in a REIT, including size and diversification across tenants, industries and geographies as well as a focus on high-quality locations and clients.

Source: 3Q 2019 Retail Investor Presentation

But Realty Income is not the only high-quality retail REIT available to investors, with Unibail-Rodamco-Westfield offering a comparable profile. URW owns EUR 65 billion of commercial property (as of June 30, 2019), split 86% in shopping centers, 7% in offices, 5% in convention centers and 2% in services. Following the mid-2018

Analyst’s Disclosure:I am/we are long O, UNBLF, KLPEF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The information enclosed in this article is deemed to be accurate and reliable, but is not guaranteed to or by the author. This article reflects Oyat's views and does not constitute investment advice.