Realty Income Collects 85.4% of Q2 Rents, Boosts Liquidity

Realty Income Corporation O reported a decline in contractual rent collections for May and June, relative to April receipts. Nonetheless, during the June-end quarter, the company boosted its liquidity position, which stood at $2.7 billion as of Jul 1, 2020.

Contractual rent receipts across Realty Income’s total portfolio stood at 85.4% for the second quarter. Rent collections were the lowest in May, with 83.5% of rents collected in the total portfolio.

Nonetheless, its investment-grade rated tenants, who account for 48% of rents, have paid 99.1% of rents due. This boosted second-quarter 2020 collections across the total portfolio. The company collected all rents from such tenants for April, while receipts for May and June stood at 98.4% and 98.9%, respectively.

Further, the company’s top 20 tenants, who represent 53.1% of annualized rental revenues, paid 82.5% of second-quarter rents due. This consisted of 83%, 82.1% and 82.5% of rents collected by the company for April, May and June, respectively.

Notably, Realty Income’s top four industries (around 37% of annualized rent) — which are convenience stores (accounting 11.9% of rental revenues for first-quarter 2020), drug stores (9%), dollar stores (8%) and grocery stores (7.7%) — sell ‘essential’ goods and have continued to thrive even during the pandemic. Resultantly, the company received 99.7% of rent due from tenants in these industries for the June-end quarter.

However, retail businesses depend on customer traffic and consumers are avoiding gathering in large public spaces due to the pandemic. This has taken a toll on tenants’ liquidity, who are unable to meet rental obligations. This is expected to impact the company’s near-term results as it generates 84% of rents from retail properties.

Moreover, its tenants from the theater, health and fitness, restaurant, and automotive service industries are being impacted due to the government-mandated closures and social-distancing requirements, and have not paid 81% of June rents.

Further, the majority of the unpaid rent consists of deferral agreements, which have been implemented, or other ongoing discussions for such rental relief.

Impressively, amid such a crisis, Realty Income has emerged as a company with decent financial health through its efforts to boost liquidity and strengthen the balance sheet.

In fact, as of Jul 1, the company had $628.6 million of outstanding borrowings under its revolving credit facility that had a weighted average interest rate of 0.92%. As of the same date, liquidity stood at $2.7 billion, consisting of $2.4 billion of available borrowing capacity on the revolving credit facility, cash on hand of $74 million and a $300-million term deposit.

Shares of this Zacks Rank #3 (Hold) company have lost 12.8% over the past year compared with the industry’s decline of 23.3%.

Stocks to Consider

City Office REIT, Inc.’s CIO funds from operations (“FFO”) per share estimates for the ongoing year have been unchanged at $1.11 over the past 30 days. The company currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Washington Prime Group Inc.’s WPG Zacks Consensus Estimate for 2020 FFO per share has been revised marginally to 73 cents over the past month. The company currently carries a Zacks Rank of 2 (Buy).

Gladstone Land Corporation’s LAND FFO per share estimates for 2020 have been unchanged at 68 cents over the past month. It currently carries a Zacks Rank of 2.

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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