Realty Income (O) shares have extended their slide, trading near $53.30, their lowest level since December last year. The stock has fallen sharply from its July peak of $66.20, erasing roughly $13 billion in market value as the company's market capitalization shrank from over $63 billion to about $50 billion.
Rising Treasury Yields Pressure REITs
The decline is part of a broader sell-off in real estate investment trusts (REITs), with the Vanguard Real Estate ETF (VNQ) dropping to $89.15, its lowest since April and down 11.6% from its all-time high. The primary driver has been the relentless climb in U.S. Treasury yields, with the 10-year yield jumping to 5.3%, while the 5-year and 30-year yields reached 5.05% and 5.66%, respectively.
Yields have surged as the U.S. national debt surpassed $40.2 trillion, and the federal budget deficit continues to widen. Higher yields make government bonds more attractive relative to REITs, which typically offer similar income streams. Realty Income's dividend yield currently stands at about 6%, only slightly above the 10-year Treasury yield, narrowing the spread that has historically drawn income-focused investors.
Debt Costs Climb
Rising yields also increase the cost of borrowing for Realty Income. The company's debt yields have risen, with bonds maturing in 2035 now yielding 6.03% and those due in 2047 at 6.508%. This has translated into higher interest expenses, which have climbed from $305 million in 2020 to $1.14 billion last year. In the most recent quarter, interest expense rose to $313 million from $285 million in the same period a year earlier.
Investors have also been rotating capital out of traditional income sectors and into the booming artificial intelligence (AI) trade, which has offered stronger growth prospects. This shift has further weighed on REIT valuations.
Fundamentals Remain Solid
Despite the share price slump, Realty Income's underlying business has shown resilience. The company reported revenue of $1.55 billion in the last quarter, up from $1.42 billion a year ago. Occupancy remains high at over 96%, and the vast majority of tenants continue to pay rent on time.
Technical Outlook Points Lower
From a technical perspective, the stock has formed a double-top pattern, a bearish reversal signal, with a neckline at $58. The 50-day and 200-day exponential moving averages have crossed, creating a death cross, which is often seen as a sign of sustained downward momentum. The Average Directional Index (ADX) has risen to 47, indicating strong trend strength. Analysts suggest the path of least resistance is lower, with potential support near $50.
This article is for informational purposes only and does not constitute financial advice.
