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Realty Income Misses Wells Fargo's Q2 FFO Estimate, But Analyst Remains Bullish

Priya Nigam

Realty Income Corp’s (NYSE: O) second-quarter funds from operations were impacted by lower revenue and higher G&A and were partially offset by lower interest expense, according to Wells Fargo.

The Analyst

Todd Stender maintained an Outperform rating on Realty Income and established a $78 price target. 

The Thesis

Realty Income reported second-quarter normalized FFO of 81 cents per share on Monday, missing Wells Fargo’s estimate by 1 cent, but coming in-line with Street expectations, Stender said in a Monday note. (See his track record here.) 

The REIT reiterated its 2019 FFO guidance of $3.26-$3.31 versus the consensus estimate of $3.29. The guidance assumes $2-$2.5 billion in acquisitions and $75-100 million in dispositions, the analyst said. 

Despite the second-quarter miss, “O’s stable, predictable cash flows derived from a highly occupied portfolio with little-to-no cap ex required due to triple-net leases — represents the hallmark of our Outperform rating," he said. 

While delivering a solid performance in leasing in the second quarter, the company faced a marginal decline in economic occupancy, Stender said.

Realty Income signed 86 lease renewals and sold 16 vacant properties during the quarter.

View more earnings on O

Economic occupancy, which focuses on rent paid on space, declined 30 bps year-on-year, and same-store rents decelerated from the prior quarter's 1.5% to 1.4%. 

The company acquired 90 properties that spanned an area of 3.4 million square feet for $1.08 billion, nearly all of which was in the retail segment, according to Wells Fargo. 

Price Action

Realty Income shares were trading higher by 1.29% at $69.85 at the time of publication Tuesday. 

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Latest Ratings for O

Date Firm Action From To
Jul 2019 Maintains Equal-Weight
May 2019 Upgrades Underweight Equal-Weight
Apr 2019 Maintains Buy Buy

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