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It has been about a month since the last earnings report for Realty Income Corp. (O). Shares have added about 1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Realty Income Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Realty Income Beats on Q2 FFO, Reinstates Acquisition View
Realty Income’s second-quarter 2020 adjusted AFFO per share of 86 cents surpassed the Zacks Consensus Estimate of 76 cents. The reported figure is also up 4.9% from the prior-year quarter’s 82 cents.
Per management, second-quarter operating results “continue to demonstrate the stability and resiliency” of the company’s business. The company also noted that its diversified and high-quality real estate portfolio, mainly leased to tenants offering non-discretionary and/or low price point goods or services, witnessed healthy occupancy level of 98.5% at the end of the quarter.
Total revenues for the reported quarter came in at $414.6 million, up 13.5% year over year. The revenue figure also exceeded the Zacks Consensus Estimate of $393.7 million.
The company also apprised of its rental receipts through Jul 31, and noted that it has collected 86.5% of contractual rent in the second quarter and 91.5% of contractual rent for July across the total portfolio. Further, it has collected 90.7% of contractual rent due for July from the top 20 tenants and 100% of contractual rent for the month from its investment-grade tenants.
Quarter in Detail
During second-quarter 2020, same-store rental revenue on 5,539 properties under lease edged down 0.4% to $315.7 million from the prior-year quarter. Portfolio occupancy of 98.5% as of Jun 30, 2020, remained unchanged sequentially and expanded 20 basis points year over year. Further, the company generated a rent recapture rate of 101.4% on re-leasing activity.
During the reported quarter, Realty Income invested $154.2 million in 32 properties and properties under development or expansion. This also includes $58.2 million in two properties in the U.K.
Around 41% of the rental revenues reaped from acquisitions during the quarter came in from investment grade-rated tenants, their subsidiaries or affiliated companies, their subsidiaries or affiliated companies.
The company sold 12 properties, generating net proceeds of $7.4 million, with a gain on sales of $1.3 million, during the April-June period.
Realty Income exited the second quarter with cash and cash equivalents of $35.3 million, down from the $54 million witnessed at the end of 2019. Furthermore, the company raised $98.1 million from the sale of common stock, at a weighted average price of $63.07 per share, during the quarter, primarily through its At-The-Market-Program. In addition, it raised $593.9 million through the issuance of 3.250% senior unsecured notes due in 2031.
Realty Income has a $3-billion unsecured revolving credit facility with an initial term that expires in March 2023. The revolving credit facility also has a $1-billion accordion feature. As of Jun 30, 2020, the company had balance of borrowings outstanding under its revolving credit facility of $628.6 million. Notably, in June, the company repaid one of the $250-million senior term loans in full upon maturity.
Realty Income ended the second quarter with a net debt to EBITDAre ratio of 5.1x and a fixed charge coverage ratio of 5.4x. Moreover, as of Jul 31, total liquidity amounted to $2.9 billion, including roughly $400 million of cash in hand and $2.5 billion remaining borrowing capacity available on its $3-billion revolving credit facility, thereby enjoying healthy financial flexibility.
Realty Income noted that while it withdrew the 2020 guidance on Apr 9 in light of the coronavirus pandemic, the company is now reinstating the same relating to its acquisition volume, which is currently estimated at $1.25-$1.75 billion for 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
At this time, Realty Income Corp. has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Realty Income Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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