It has been about a month since the last earnings report for Realty Income Corp. (O). Shares have added about 4.2% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.
Realty Income's Q4 FFO Beats Estimates, Revenues Up Y/Y
Realty Income’s fourth-quarter 2018 adjusted FFO per share of 79 cents surpassed the Zacks Consensus Estimate of 75 cents. The reported figure is also up 3.9% from the prior-year tally of 76 cents.
The company benefited from year-over-year growth in revenues and also enjoyed high occupancy levels.
Total revenues for the reported quarter came in at $342.6 million, up 10.3% year over year. However, the revenue figure narrowly missed the Zacks Consensus Estimate of $343.2 million.
Quarter in Detail
During fourth-quarter 2018, same-store rents on 4,629 properties under lease inched up 0.8% to $272.1 million from the prior-year quarter. Portfolio occupancy of 98.6% as of Dec 31, 2018, shrunk 20 bps sequentially but was up 20 bps year over year.
Further, the company had 80 properties available for lease, out of a total of 5,797 properties in the portfolio as of Dec 31, 2018, compared with 71 properties as of Sep 30, 2018. Moreover, during the quarter, the company re-leased 62 properties to existing and new tenants, at a rent recapture rate of 93.7%.
During the quarter under review, Realty Income invested $332.1 million in 180 new properties and properties under development or expansion, situated in 30 states. The assets are fully leased, with a weighted average lease term of around 16.2 years, and an initial average cash lease yield of 6.5%. However, only around 24% of the rental revenues from acquisitions reported during the quarter came in from investment grade-rated tenants and their subsidiaries.
On the other hand, the company sold 68 properties for $59.3 million, with a gain on sales of $5.8 million, during the Oct-Dec period.
Finally, Realty Income exited 2018 with cash and cash equivalents of $10.4 million, up from $6.9 million at the end of 2017. Furthermore, Realty Income raised $538.7 million from the sale of common stock, at a weighted average price of $63.05 per share, during the reported quarter.
In Oct 2018, the company entered in a new $3.25 billion unsecured credit facility to amend and restate its earlier $2.25 billion unsecured credit facility, of which $2.0 billion was scheduled for expiry in Jun 2019. The new credit facility comprises a $3.0 billion unsecured revolving credit facility and a new $250 million unsecured term loan due March 2024. Notably, as of Dec 31, 2018, Realty Income had a borrowing capacity of $2.75 billion on the revolving credit facility.
For full-year 2019, Realty Income expects adjusted FFO per share in the range of $3.25-$3.31.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Realty Income Corp. has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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