Realty Income (O) Tops Q3 FFO Estimates, Misses on Revenues

Realty Income Corporation’s O third-quarter 2019 adjusted funds from operations (AFFO) per share of 83 cents came in line with the Zacks Consensus Estimate. The reported figure is also up 2.5% from the prior-year quarter’s reported tally of 81 cents.

Results were driven by improvement in same-store rent and top-line expansion.

Total revenues for the reported quarter came in at $374.2 million, up 10.7% year over year. However, the revenue figure lagged the Zacks Consensus Estimate of $375.8 million.

Quarter in Detail

During third-quarter 2019, same-store rents on 4,836 properties under lease inched up 1.2% to $293.7 million from the prior-year quarter. Portfolio occupancy of 98.3% as of Sep 30, 2019, shrunk 50 basis points (bps) year over year and remained flat sequentially.

Further, the company had 102 properties available for lease, out of a total of 5,964 properties in the portfolio as of Sep 30, 2019, compared with 102 properties as of Jun 30, 2019. Additionally, during the quarter, the company re-leased 29 properties to existing and new tenants, at a rent recapture rate of 101.5 %.

Portfolio Activity

During the third quarter, Realty Income invested $411.5 million in 51 properties, bringing the company’s total year-to-date investments to more than $2 billion. This includes £22.2 million (or nearly $27.6 million) of the company’s international real estate investment in the U.K.

The assets are under long-term, net lease agreements, with a weighted average lease term of around 9.3 years. Around 56% of the rental revenues from acquisitions reported during the quarter came in from investment grade-rated tenants and their subsidiaries.

The company sold 27 properties for $22.5 million, with a gain on sales of $1.7 million, during the July-September period.

Liquidity

Realty Income exited third-quarter 2019 with cash and cash equivalents of around $236.1 million, up from $10.4 million witnessed at the end of 2018. Furthermore, the company raised $572.4 million from the sale of common stock, at a weighted average price of $74.41 per share, during the reported quarter.

Moreover, the company has a $3.25-billion unsecured credit facility, comprising a $3-billion revolving credit facility and a $250-million term loan. As of Sep 30, 2019, the company had no outstanding borrowings under its revolving credit facility.

Outlook

Realty Income expects full-year 2019 adjusted FFO per share of $3.29-$3.34. The Zacks Consensus Estimate for the same is currently pegged at $3.29.

Our Take

Realty Income’s decent third-quarter performance is encouraging. The company remains focused on external growth through exploring accretive acquisition opportunities. It invested roughly $411.5 million in high-quality properties during the July-September quarter.

In September, Realty Income agreed to acquire 454 single-tenant retail properties from CIM Real Estate Finance Trust, Inc. for around $1.25 billion in cash. The deal, expected to be executed in a number of tranches with majority of the buyouts taking place this year, will be immediately accretive on a leverage-neutral basis.

Realty Income Corporation Price, Consensus and EPS Surprise

Realty Income Corporation Price, Consensus and EPS Surprise

Realty Income Corporation price-consensus-eps-surprise-chart | Realty Income Corporation Quote

Realty Income currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs 

Regency Centers Corporation’s REG third-quarter 2019 NAREIT FFO per share came in at 99 cents, which exceeded the Zacks Consensus Estimate of 96 cents. The reported figure was also up 3.1% from the prior-year quarter tally.

Kimco Realty Corp.’s KIM third-quarter 2019 FFO as adjusted, excluding the impact of transactional income and charges, came in at 37 cents per share, surpassing the Zacks Consensus Estimate by a whisker. The reported tally came in a penny higher than the year-ago quarter’s FFO as adjusted of 36 cents per share.

Taubman Centers Inc. TCO reported third-quarter 2018 adjusted FFO per share of $1.01, beating the Zacks Consensus Estimate of 86 cents. The figure also came in higher than the year-ago tally of 83 cents.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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