Why Realty Income's Triple-Net Lease Model Makes Investors Reluctant to Exit

Realty Income (NYSE: O), one of the most dominant players in the REIT space, has built its empire on a deceptively simple yet powerful operational structure. For those holding this income-generating juggernaut, walking away means leaving behind a surprisingly resilient investment machine. Here’s what keeps shareholders locked in.

The Economics of Triple-Net Leases: Who Really Bears the Burden?

At the heart of Realty Income’s business model lies the triple-net lease arrangement — a framework that fundamentally reshapes the economics of property ownership. Rather than shouldering the unpredictable costs that typically plague landlords, Realty Income negotiates deals where tenants absorb property taxes, insurance, and maintenance expenses on top of base rent.

This cost-shifting arrangement creates a clean financial stream for the REIT. Rent payments arrive predictably each year, with inflation adjustments baked in, while the operational headaches get passed down the line. It’s a business structure that removes friction from income generation. Even when tenants face payment difficulties, Realty Income has demonstrated consistent ability to recover arrears and quickly reposition vacant properties. The result: a fortress of steady cash flows.

Tenant Quality Builds Structural Stability

What separates Realty Income from the typical landlord isn’t just the lease structure — it’s the caliber of businesses occupying those roughly 15,500 properties. The portfolio reads like a roster of recession-resistant operators: grocery stores (10.8% of holdings), convenience stores (9.7%), and other essential-use retailers that thrive whether economic conditions are booming or deteriorating.

This tenant composition isn’t accidental. Realty Income deliberately cultivated relationships with businesses that maintain stable traffic and revenue streams regardless of broader economic cycles. The payoff shows up clearly in operations — a 98.7% occupancy rate that speaks volumes about portfolio quality. When a tenant struggles or exits, finding a replacement tenant for an essential-use retail location rarely presents challenges.

The Dividend Streak That Speaks Volumes

Perhaps the most captivating aspect of Realty Income’s investment thesis involves its distribution history. The company has pushed through 112 consecutive quarters of dividend increases — a tenure of hikes that extends across recessions, interest rate cycles, and market dislocations. That extraordinary consistency earned Realty Income formal recognition as a Dividend Aristocrat, a distinction marking 30+ years of annual payout growth.

The mechanics are monthly distributions rather than the quarterly standard most investors expect, which creates a psychological anchor that keeps holders engaged. But the real draw remains the compound effect of 133 lifetime dividend boost decisions. Each increase may appear modest in isolation, yet stacked across years, they compound into meaningful income escalation.

Today, with interest rate cuts recently implemented and a forward dividend yield sitting at 5.8%, Realty Income presents a paradoxical appeal: stable income generation coupled with ongoing growth potential in a falling-rate environment. That combination rarely exists, and when it does, investors tend to grip their shares tightly.

For those holding positions in the REIT, the combination of structural economic advantages (triple-net leases), operational resilience (near-99% occupancy in resilient tenants), and an uninterrupted dividend growth narrative creates a compelling reason to maintain exposure rather than seek the exit.