Realty Income Corp. (O) Up 4.4% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Realty Income Corp. (O). Shares have added about 4.4% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Realty Income's Q3 FFO & Revenues Surpass Estimates

Realty Income’s third-quarter 2018 adjusted FFO per share of 81 cents surpassed the Zacks Consensus Estimate of 79 cents. The reported figure also increased 5.2% from the prior-year tally of 77 cents.

The company benefited from year-over-year growth in revenues and also enjoyed high occupancy levels. Further, it revised its guidance for 2018 adjusted FFO per share, increasing the lower end of the previous projection.

Total revenues for the reported quarter came in at $338.1 million, up 10.2% year over year. The revenue figure also exceeded the Zacks Consensus Estimate of $334.2 million.

Quarter in Detail

During third-quarter 2018, same-store rents on 4,707 properties under lease advanced 1.0% to $272.9 million from the prior-year quarter. Portfolio occupancy of 98.8% as of Sep 30, 2018, expanded 10 bps sequentially and 50 bps year over year.

Further, the company had 71 properties available for lease, out of a total of 5,694 properties in the portfolio as of Sep 30, 2018, compared with 69 properties as of Jun 30, 2018. Moreover, during the quarter, the company re-leased 64 properties to existing and new tenants, at a rent recapture rate of 107.9%.

Portfolio Activity

During the quarter under review, Realty Income invested $608.5 million in 238 new properties and properties under development or expansion, situated in 25 states. The assets are fully leased, with a weighted average lease term of around 15.3 years, and an initial average cash lease yield of 6.3%. Around 62% of the rental revenues from acquisitions reported during the quarter came in from investment grade-rated tenants.

On the other hand, the company sold 20 properties for $35.5 million, with a gain on sales of $7.8 million, during the Jul-Sep period.

Liquidity

Finally, Realty Income exited third-quarter 2018 with cash and cash equivalents of $6.7 million, slightly down from $6.9 million at the end of 2017. Furthermore, Realty Income raised $293.0 million from the sale of common stock, at a weighted average price of $57.53 per share, during the Sep-end quarter.

As of Sep 30, 2018, Realty Income had a balance of $774 million on its previous revolving credit facility. In addition, 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.

Outlook

For full-year 2018, Realty Income revised its adjusted FFO per share guidance to $3.18-$3.21 from the prior range of $3.16-$3.21. This denotes annual growth of 4-5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Realty Income Corp. has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest 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.

Outlook

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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