Can Non-Discretionary Tenants Help Realty Income Withstand Any Cycle?

Realty Income O has built its reputation around consistency, and that shows clearly in how it structures its tenant base. Rather than leaning on more cyclical categories, the REIT has concentrated its retail exposure in tenants whose products and services remain relevant through shifting economic conditions. As of Sept. 30, 2025, approximately 91% of annualized retail base rent came from businesses with a service-oriented, non-discretionary or low-price-point focus, a high share that forms the backbone of its defensive identity.That emphasis translated into steady performance in the third quarter. Realty Income ended the period with 98.7% occupancy, about 10 basis points higher than the prior quarter, supported by durable categories such as grocery, convenience stores and quick-service restaurants. These tenant types tend to maintain foot traffic even when discretionary spending weakens, helping the REIT preserve stable collections and underpin its monthly dividend model. Lease activity also remained healthy during the third quarter. The company’s rent recapture rate across 284 leases was 103.5%, representing $71 million in new cash rents, with 87% of leasing activity generated from renewals by existing clients. Its weighted average lease term is 8.9 years. These reflect tenant stickiness and lease longevity.Moreover, the low price point aspect reinforces tenant resilience. Retailers like Dollar General and Family Dollar cater to value-conscious consumers, particularly in volatile or inflationary environments. Their steady performance supports Realty Income’s rent collection and long-term income visibility. Furthermore, the service-oriented nature of many tenants, including automotive, healthcare and fitness services, provides differentiation from e-commerce threats, enhancing long-term viability.By combining this tenant focus with triple net lease structures, Realty Income significantly limits its operating expense exposure. Tenants are responsible for taxes, insurance and maintenance, enabling solid EBITDA margins. This efficiency, paired with reliable rent streams, supports the REIT’s consistent dividend growth and attractive risk-adjusted returns.Where Are Other Retail REITs Focusing?Similar to Realty Income, Kimco Realty Corporation KIM and Regency Centers Corporation REG also focus on non-discretionary retail tenants. In the third quarter of 2025, Kimco expanded ABR contribution from grocery-anchored shopping centers to a new record level of 86%, up from 78% in 2020. With a well-located and largely grocery-anchored portfolio that offers essential goods and services, this retail REIT is witnessing healthy leasing activity. In the third quarter of 2025, Kimco signed 427 leases aggregating 2.3 million square feet, generating blended pro-rata cash rent spreads on comparable spaces of 11.1%.Regency has a high-quality open-air shopping center portfolio, with more than 85% grocery-anchored neighborhood and community centers. This focus on building a premium portfolio of grocery-anchored shopping centers is a strategic fit because such centers are usually necessity-driven and attract dependable traffic. In uncertain times, the grocery component has benefited retail REITs, and Regency has numerous industry-leading grocers as tenants.O’s Price Performance, Valuation and EstimatesShares of Realty Income have risen 6.1% year to date against the industry’s decline of 7.3%.Image Source: Zacks Investment ResearchFrom a valuation standpoint, O trades at a forward 12-month price-to-FFO of 12.82, below the industry as well as its one-year median of 13.13. It carries a Value Score of D.Image Source: Zacks Investment ResearchWhile the Zacks Consensus Estimate for O’s 2025 FFO per share has been revised southward, the same for 2026 has been tweaked northward over the past 30 days.Image Source: Zacks Investment ResearchAt present, Realty Income carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.Beyond Nvidia: AI's Second Wave Is HereThe AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. Little-known AI firms tackling the world's biggest problems may be more lucrative in the coming months and years.See "2nd Wave" AI stocks now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Realty Income Corporation (O): Free Stock Analysis Report Kimco Realty Corporation (KIM): Free Stock Analysis Report Regency Centers Corporation (REG): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks