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Realty Income (O) Rent Collections for September Reach 93.8%

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Zacks Equity Research
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Realty Income Corporation O reported an increase in contractual rent collections for September, relative to July and August as well as the second-quarter receipts.

As of Oct 1, contractual rent receipts across Realty Income’s total portfolio improved to 93.8% for September from 93.6% for August, 92.5% for July and 88.3% for the second quarter. Rent collections from its investment-grade rated tenants, which account for 48% of the annualized rental revenues, were already 100% for September, compared with August’s 99.9%. This compares with 100% for July and 99.4% for the second quarter.

Further, the company’s top 20 tenants, who represent 52.8% of the annualized rental revenues, paid 91.9% of the contractual rent due for September, up from 91.7% of the contractual rent due for August, 90.9% due for July and 82.9% due in the second quarter.

For the third quarter, the company has received 93.3% of contractual rent across total portfolio, 91.5% of contractual rent from top 20 tenants and 100% of contractual rent from investment grade tenants.

Notably, the company’s top four industries (reflecting around 37.5% of the annualized rent), convenience stores (accounting for 12% rental revenues for second-quarter 2020), drug stores (9.1%), dollar stores (8.1%) and grocery stores (8%) sell essential goods and continued to thrive even during the pandemic. The company received 99.7% of rent due from tenants in these industries for September, as well as for the second and third quarters.

However, businesses of physical stores widely depend on customer traffic but consumers are by and large avoiding crowded public spaces due to the pandemic and increasingly opting for online purchases. This, in turn, is thwarting tenants’ liquidity, thereby making it difficult to meet their rental obligations. As a result, retail REITs, which have already been battling against store closures and bankruptcy issues, are being affected. In fact, apart from Realty Income, these are hurting other retail REITs including Macerich MAC, Simon Property SPG and Kimco KIM among others.

For Realty Income, the company’s tenants from theater as well as health and fitness have been adversely impacted by government-mandated closures and social-distancing requirements. As of Oct 1, the theater industry represents roughly 62% of the uncollected third-quarter rent and 57% of uncollected September rent.

Management noted that with tenants accounting for the majority of the unpaid rent, deferral agreements have been either already implemented or relative discussions are currently underway.

Good news is that despite such a crisis, Realty Income emerged as a company with decent financial health through its efforts to boost balance-sheet strength. The company’s financial policy approach underlines its disciplined debt and equity funding. As of the end of the second quarter, the company’s available liquidity amounted to $2.7 million, fixed charge coverage ratio was 5.4 times while net debt/Adjusted EBITDAre was 5.1 times. Further, Realty Income has a credit rating of A-/A3 from Standard & Poor’s / Moody’s,  respectively, which enables it to procure debt financing at attractive costs.

Moreover, situations have improved now and with vast majority of Realty Income’s retail locations being now rent collection trends are likely to improve further. In fact, 98% of its total retail portfolio stores are now open and these represent roughly 84% of its contractual rents.

The company will release its third-quarter 2020 operating results after the market closes on Nov 2. The Zacks Consensus Estimate for third-quarter funds from operations (FFO) per share has been revised upward marginally over the past month to 82 cents.   

Shares of this Zacks Rank #3 (Hold) company have gained 36.4% over the past six months compared with its industry’s growth of 25.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Kimco Realty Corporation (KIM) : Free Stock Analysis Report
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