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Realty Income (O) Q4 FFO & Revenues Top Estimates, Rents Up

Zacks Equity Research

Realty Income Corporation’s O fourth-quarter 2019 adjusted funds from operations (AFFO) per share of 86 cents surpassed the Zacks Consensus Estimate of 83 cents. The reported figure is also up 8.9% from the prior-year quarter’s reported tally of 79 cents.

Results were driven by improvement in same-store rent and healthy occupancy level, which aided top-line expansion.

Total revenues for the reported quarter came in at $397.5 million, up 16% year over year. The revenue figure also exceeded the Zacks Consensus Estimate of $387.3 million.

For full-year 2019, the company reported adjusted FFO per share of $3.32, up 4.1% from the prior year’s $3.19. Revenues for the full year also climbed 12.3% year on year to $1.49 billion.

Quarter in Detail

During fourth-quarter 2019, same-store rents on 4,811 properties under lease increased 2% to $296.5 million from the prior-year quarter. Portfolio occupancy of 98.6% as of Dec 31, 2019, expanded 30 basis points (bps) sequentially and remained flat year over year. Further, the company generated a rent recapture rate of 106.2% on re-leasing activity.

During the reported quarter, Realty Income invested $1.7 billion in 556 properties and properties under development or expansion. This also includes $221 million in five properties in the U.K.

Around 47% of the rental revenues from acquisitions reported during the quarter came in from investment grade-rated tenants, their subsidiaries or affiliated companies.

The company sold 29 properties, generating net proceeds of $36.3 million, with a gain on sales of $14.2 million, during the October-December period.

Liquidity

Realty Income exited fourth-quarter 2019 with cash and cash equivalents of around $54 million, up from the $10.4 million witnessed at the end of 2018. Furthermore, the company raised $582.2 million from the sale of common stock, at a weighted average price of $75.52 per share, during the quarter.

Moreover, the company has a $3.25-billion unsecured credit facility, comprising a $3-billion revolving credit facility and a $250-million term loan. As of Dec 31, 2019, the company had balance of borrowings outstanding under its revolving credit facility of $704.3 million.

Outlook

Realty Income expects full-year 2020 adjusted FFO per share of $3.50-$3.56, indicating annual growth of 5.4-7.2%. The Zacks Consensus Estimate for the same is currently pinned at $3.50.

Notably, with a robust investment pipeline, both domestic and international, the company expects to invest $2.25-$2.75 billion in 2020 based on present market conditions.

Our Take

Realty Income’s decent fourth-quarter performance is encouraging. The company remains focused on external growth through exploring accretive acquisition opportunities. During 2019, it invested $3.7 billion in 789 properties and properties under development or expansion, including $797.8 million in 18 properties in the U.K.

The company derives majority of its annualized retail rental revenues from tenants belonging to service, non-discretionary and low-price retail business. Such businesses are less susceptible to economic recessions, and competition from Internet retailing. Accretive acquisitions and solid balance-sheet strength augur well for long-term growth, though retail apocalypse and substantial exposure to single-tenant assets remain concerns.

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

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.

We, now, look forward to the earnings releases of other REITs like Public Storage PSA, American Tower Corporation AMT and Mack-Cali Realty Corporation CLI, all of which are slated to report their quarterly numbers next week.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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