Realty Income Q2 2025: Acquisitions Drive Revenue, But Costs Squeeze Profits

Realty Income (NYSE: O), which brands itself as "The Monthly Dividend Company," is a real estate investment trust (REIT) that investors watch closely for its steady performance and reliable dividends. To understand how the company is navigating the current economic landscape, we can dive into its recently released second-quarter 2025 financial results.

The company's income statement reveals the flow of money from revenue sources through various costs to the final profit. The following flow diagram illustrates this breakdown for the three months ended June 30, 2025.

You might notice a slice of revenue labeled "unallocated" in the diagram, amounting to about $72 million for the quarter. This figure corresponds to the "Other revenue" line item on the company's income statement, which isn't assigned to specific property types like retail or industrial. This income primarily comes from financial activities rather than property rent, consisting of interest earned on financing receivables ($32.1 million) and interest from loans and preferred equity investments ($39.2 million).

Acquisition Strategy Drives Revenue Growth

Realty Income's growth story continues, with total revenue for the second quarter climbing to $1.41 billion, up from $1.34 billion in the same period last year. For the first half of the year, total revenue reached $2.79 billion, a solid increase from $2.60 billion in the first half of 2024.

A significant portion of this growth comes from the company's aggressive acquisition strategy.

• New Properties: Properties acquired during 2024 and 2025 contributed an additional $118.4 million in rental revenue over the first six months of the year compared to the same period in 2024.
• Organic Growth: The company isn't just growing through acquisitions. Its "same-store" rental revenue—revenue from properties owned for the entire current and prior-year periods—grew by a healthy 1.2% for the first six months, indicating solid performance from its existing portfolio.

The Rising Cost of Expansion

While revenue is climbing, so are expenses. Total expenses for the quarter rose to $1.23 billion from $1.10 billion a year ago. Two key areas are driving this increase:

• Interest Expense: This jumped by nearly $37 million for the quarter. The primary reason is a larger debt load to fund acquisitions, with average outstanding debt balances increasing from $25.4 billion to $28.8 billion over the past year.
• Provisions for Impairment: This non-cash charge, which reflects a write-down in the estimated value of certain assets, saw a notable increase. The company booked $143.4 million in impairments this quarter, up from $96.5 million in Q2 2024. This suggests that some properties in the portfolio may be underperforming or facing market-specific headwinds.

This combination of rising revenue and even faster-rising expenses led to a decrease in quarterly net income available to common stockholders, which fell to $196.9 million from $256.8 million in Q2 2024.

Key REIT Metrics and Shareholder Returns

For REITs, net income doesn't tell the whole story due to large non-cash expenses like depreciation. Instead, investors focus on Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO), which provide a better picture of a REIT's cash-generating ability.

• FFO per share: For Q2 2025, diluted FFO per share was $1.06, a slight dip from $1.07 in Q2 2024.
• AFFO per share: This metric, which further adjusts for recurring capital expenditures, was $1.05 per share, also down slightly from $1.06 a year ago.

The relatively flat per-share performance, despite overall growth, indicates that the benefits of new investments are being partially offset by the issuance of new shares to fund them (dilution) and rising operating and interest costs.

Despite this, the company remains true to its name. It increased its monthly dividend multiple times in the first half of 2025, and total dividends paid per share for the six-month period were up 3.6% year-over-year.

Looking Ahead

Realty Income continues to execute its growth strategy, expanding its portfolio with a focus on resilient retail and industrial tenants. The company's portfolio remains strong, with a 99% lease rate across more than 15,600 properties as of June 30, 2025.

However, the latest quarter highlights the challenges of growing in a higher interest rate environment. While top-line growth is impressive, pressure from rising interest expenses and asset impairments squeezed profitability. Investors will be watching to see how effectively Realty Income can manage these costs and translate its acquisitions into meaningful per-share growth to support its cherished monthly dividend.