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Realty Income's (O) August Rent Collection Improves to 93.5%

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

As of Sep 1, contractual rent receipts across Realty Income’s total portfolio improved to 93.5% for August from 92.3% for July and 87.8% for the second quarter. Rent collections from its investment-grade rated tenants, which account for 48% of the annualized rental revenues, were already 99.9% for August. This compares with 100% for July and 99.1% for the second quarter.

Further, the company’s top 20 tenants, who represent 52.8% of the annualized rental revenues, paid 92.2% of the contractual rent due for August, up from 90.9% due for July and 82.6% due in the second quarter.

Notably, the company’s top four industries (reflecting around 37% of the annualized rent), namely 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. Resultantly, the company received 99.7% of rent due from tenants in these industries for August compared with 99.8% for July and 99.7% for the second quarter.

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 taking a huge toll on 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 feeling the heat. In fact, apart from Realty Income, the downside is affecting 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 are significantly impacted by government-mandated closures and social-distancing requirements. As of Sep 1, the theater industry represents roughly 65% of uncollected August rent while theater and health & fitness industries represent approximately 78% of uncollected July rent.

Management noted that with tenants accounting for the majority of the unpaid rent, deferral agreements are 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 new commercial paper program will aid it to drive its near-term liquidity. Moreover, as of Jul 31, total liquidity amounted to $2.9 billion including roughly $400 million of cash in hand and $2.5 billion of borrowing capacity under its $3-billion revolving credit facility.

The company’s financial policy approach underlines its disciplined debt and equity funding. In fact, its utilization of its at-the-market (ATM) equity program as well as public offering of senior notes indicates its consistent capital-sourcing strategy. 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.

Shares of this currently Zacks Rank #3 (Hold) company have gained 5.7% over the past three months compared with its industry’s growth of 1.4%. 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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