Grade: F — Major Red Flags (REIT-Structural)
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-25, FY ended December 31, 2025) + Yahoo Finance
Auditor: KPMG LLP — Unqualified opinion
CIK: 0000726728
One-line verdict: Realty Income, "The Monthly Dividend Company," receives an F grade from cash of $444M covering 1% of $29.3B debt. This is the largest net-lease REIT by market cap, and its business model is straightforward: buy freestanding commercial properties with long-term leases to investment-grade tenants, finance with unsecured debt, and distribute monthly dividends. Revenue grew 9.1% to $5.7B. CFFO/NI of 3.77 reflects massive depreciation add-backs on a portfolio of 15,000+ properties. M-Score of -2.52 is clean. Goodwill of $10.6B (27% of equity) is manageable and reflects the 2024 Spirit Realty merger. Three watch items: AR outpacing revenue, Debt/EBITDA of 6.1x, and soft asset growth.
| Metric | Result |
|---|---|
| Red Flags | **1** (financial 1 + management 0; Cash-to-debt 1%) |
| Watch Items | **3** (financial 3 + management 0; AR growth, Debt/EBITDA 6.1x, soft asset growth) |
| Checks Completed | **22/23** (financial 17/18 + management 5/5 G1-G5; 1 N/A) |
| Beneish M-Score | **-2.52** (clean) |
| Auditor | KPMG LLP — Unqualified opinion |
Net Lease REIT: Scale and Diversification
Revenue grew 9.1% to $5,749M, driven by acquisition volume and same-store rent escalators. Per the filing, the pro forma impact of properties "acquired during 2025 & 2024" was $330M incremental revenue from 746 properties. Gross margin of 92.5% is the highest in this batch — net-lease REITs have near-zero property-level operating costs because tenants are responsible for taxes, insurance, and maintenance (triple-net structure).
Per the filing, Realty Income's "cash on hand and funds from operations are sufficient to support our current level of cash distributions to our stockholders." The company paid $1,058.6M in net income on approximately $5.7B revenue, representing an 18.4% net margin.
Realty Income's occupancy monitoring includes "proactive leasing and disposition strategies, and maintaining strong client relationships."
The filing discloses pro forma data from the Spirit Realty merger (closed 2024): "Year ended December 31, 2024 — Total revenues $5,319.1, Net income $945.9."
Debt Structure
Total debt of $29.3B makes Realty Income one of the most levered REITs by absolute debt. Debt/EBITDA of 6.1x is typical for a net-lease REIT with investment-grade credit — the 15,000+ properties provide diversification that supports access to unsecured debt markets. The filing warns that "Restrictive covenants could materially and adversely affect our business."
CFFO of $3,991M and FCF of $3,991M (no significant CapEx for a net-lease REIT) demonstrate the capital-light model. SG&A/Gross Profit of 3.8% is among the lowest in this batch — the net-lease model requires minimal management infrastructure per property.
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO | ✅ | 67 days, +6 YoY |
| A2 | AR vs Revenue | ⚠️ | AR +20.0% vs revenue +9.1% |
| A3 | Revenue vs CFFO | ✅ | Revenue +9.1%, CFFO +11.8% |
| B1-B4 | Expense Quality | ✅ | 92.5% gross margin, 3.8% SG&A |
| C1-C3 | Cash Flow | ✅ | CFFO/NI 3.77, FCF $4.0B, accruals -4.0% |
| C4 | Cash vs Debt | ❌ | Cash $444M = 1% of $29.3B |
| D1 | Goodwill | ✅ | $10.6B = 27% of equity (manageable) |
| D2 | Leverage | ⚠️ | Debt/EBITDA = 6.1x |
| D3 | Soft Assets | ⚠️ | +29.0% vs revenue +9.1% |
| D4 | Impairment | ✅ | Normal write-offs |
| E1-E2 | Acquisition Risk | ✅ | G&I declining 5% |
| F1 | M-Score | ✅ | -2.52 (clean) |
| **G1-G5** | **Management signals (new)** | **✅✅✅✅✅** |
Management Signals (New G1-G5 Framework)
**Why separate management signals?** Schilit's *Financial Shenanigans* treats abrupt executive, auditor, and director departures as important early-warning signals. 8-K Item 5.02 executive/director changes and auditor-change filings help separate clean financial statements from governance or continuity risk.
| # | Check | Result | Detail |
|---|---|---|---|
| G1 | CEO change | ✅ | No abnormal signal in the last 18 months |
| G2 | CFO / key financial officer change | ✅ | No abnormal signal in the last 18 months |
| G3 | Independent director / audit committee departure | ✅ | No abnormal signal in the last 18 months |
| G4 | Key operating or legal leader departure | ✅ | No abnormal signal in the last 18 months |
| G5 | Auditor change | ✅ | No abnormal signal in the last 18 months |
Data source: SEC EDGAR 8-K filings filtered for Item 5.02 + management-signals-by-ticker.json
Summary
Grade: F is REIT-structural. Realty Income is the quintessential net-lease REIT — 92.5% gross margins, $4.0B FCF, monthly dividends, and minimal operating complexity. The 1% cash-to-debt ratio is structural, not distress. Debt/EBITDA of 6.1x is within norms for an investment-grade net-lease REIT with 15,000+ properties. The AR growth (20% vs. 9.1% revenue) warrants monitoring but likely reflects timing of acquisition-related rent collections.
**Disclaimer**: This report is based on Realty Income's FY2025 10-K filed with SEC EDGAR on February 25, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: KPMG LLP (Unqualified opinion)
Fiscal year ended: December 31, 2025