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Realty Income (O) Meets Q2 FFO Estimates, Raises 2021 View

Realty Income Corporation’s O second-quarter 2021 adjusted funds from operations (AFFO) per share of 88 cents came in line with the Zacks Consensus Estimate. The reported figure also compares favorably with the prior-year quarter’s 86 cents.

Results reflect better-than-expected improvement in revenues. The retail REIT also raised its 2021 adjusted FFO per share guidance and increased the 2021 acquisitions volume projections to $4.5 billion.

Total revenues for the reported quarter came in at $464.3 million, exceeding the Zacks Consensus Estimate of $447.7 million. The top-line figure also climbed 12% year on year.

Realty Income also apprised of its rental receipts through Jun 30, 2021, and noted that it has collected 95.9% of contractual rent due for the second quarter across its total portfolio. Further, the company has collected 93.4% of contractual rent due for the second quarter from the top 20 tenants and 100% of contractual rent from its investment-grade tenants.The company has collected 38.3% of contractual rent due for the second quarter from the theater clients, and 94.4% of contractual rent from its health and fitness clients.

For July, the company has collected 99.4% of contractual rent across its total portfolio, inclusive of 98.9% collected from the theater clients.

Quarter in Detail

During second-quarter 2021, same-store rental revenues on 6,114 properties under lease inched up 0.5% to $373.8 million from the prior-year period. Portfolio occupancy of 98.5%, as of Jun 30, 2021, expanded 50 basis points (bps) sequentially and flat year over year. The company generated a rent recapture rate of 104.7% on re-leasing activity.

During the reported quarter, Realty Income invested $1.13 billion in 156 properties and properties under development or expansion. This includes $591.8 million in U.K. properties.

Around 54% of the rental revenues reaped from acquisitions during the June-end quarter came in from investment grade-rated tenants, their subsidiaries or affiliated companies.

The company sold 42 properties, generating net proceeds of $56.9 million, with a gain on sales of $14.9 million, during the April-June period.

Notably, the theater industry, which represented 5.4% of annualized contractual rental revenues for Realty Income as of Jun 30, 2021, has been subject to disruptions due to the coronavirus pandemic, raising concerns about the collectability of rent. However, as of Jun 30, 2021, the receivables outstanding for its 79 theater properties aggregated $77.9 million, inclusive of $9.1 million of straight-line rent receivables, and net of $40 million of reserves, inclusive of $2 million of straight-line rent reserves.

Balance Sheet

Realty Income exited second-quarter 2021 with cash and cash equivalents of $231.2 million, down from the $824.5 million witnessed at the end of 2020. As of Jun 30, 2021, the balance of borrowings outstanding under its revolving credit facility was $635.3 million, comprising entirely of Sterling-denominated borrowings of £460 million. Also, as of that date, the company had $650 million in commercial paper borrowings.

The company ended the second quarter with a net debt to EBITDAre ratio of 5.4x and a fixed charge coverage ratio of 6.0x.

During the second quarter, the company raised $457.5 million from the sale of common stock, at a weighted average price of $69.01 per share, mainly through its At-The-Market-Program.

Outlook

Management projects the 2021 adjusted FFO per share at $3.53 to $3.59, suggesting an increase of 4.1-5.9% over 2020. The adjusted FFO per share excludes the merger-related costs related to the proposed VEREIT merger. The Zacks Consensus Estimate for the same is currently pinned at $3.52.

Realty Income currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Realty Income Corporation Price, Consensus and EPS Surprise

Realty Income Corporation Price, Consensus and EPS Surprise
Realty Income Corporation Price, Consensus and EPS Surprise

Realty Income Corporation price-consensus-eps-surprise-chart | Realty Income Corporation Quote

Performance of Other Retail REITs

Simon Property Group, Inc.’s SPG second-quarter 2021 adjusted FFO per share of $2.92 handily exceeded the Zacks Consensus Estimate of $2.37. This performance was backed by better-than-expected top-line growth. The retail REIT behemoth also raised the 2021 FFO per share outlook based on its results so far in the year and expectations for the rest of the year. It has also announced a hike in its quarterly dividend.

Kimco Realty Corp.’s KIM NAREIT FFO per share came in at 34 cents, topping the Zacks Consensus Estimate of 31 cents for the April-June period. This also compared favorably with the year-ago quarter tally of 24 cents. Results displayed better-than-anticipated revenue numbers. Moreover, the retail REIT raised the guidance for 2021 on improved outlook.

We now look forward to the earnings release of another retail REIT — Regency Centers Corporation REG — which is slated to be out on Aug 5.

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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