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Why Is Realty Income Corp. (O) Down 1.4% Since Last Earnings Report?

Zacks Equity Research
Kroger (KR) closed the most recent trading day at $21.69, moving +0.14% from the previous trading session.

A month has gone by since the last earnings report for Realty Income Corp. (O). Shares have lost about 1.4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Realty Income Corp. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Realty Income Q1 FFO and Revenues Beat Estimates

Realty Income’ first-quarter 2019 adjusted FFO per share of 82 cents surpassed the Zacks Consensus Estimate of 80 cents. The reported figure is also up 3.8% from the prior-year quarter’s reported tally of 79 cents.

The company benefited from year-over-year growth in revenues and also witnessed high occupancy levels. Recently, the company announced its first international real estate investment and raised its guidance for full-year 2019.

Total revenues for the reported quarter came in at $354.4 million, up 11.3% year over year. The revenue figure also exceeded the Zacks Consensus Estimate of $347.6 million.

Quarter in Detail

During first-quarter 2019, same-store rents on 4,891 properties under lease inched up 1.5% to $298.6 million from the prior-year quarter. Portfolio occupancy of 98.3% as of Mar 31, 2019, shrunk 30 basis points (bps) both sequentially and year over year.

Further, the company had 102 properties available for lease, out of a total of 5,876 properties in the portfolio as of Mar 31, 2019, compared with 80 properties as of Dec 31, 2018. Additionally, during the quarter, the company re-leased 71 properties to existing and new tenants, at a rent recapture rate of 104.7 %.

Portfolio Activity

During the first quarter, Realty Income invested $519.5 million in 105 new properties and properties under development or expansion, situated in 25 states. The assets are fully leased, with a weighted average lease term of around 17.0 years, and an initial average cash lease yield of 6.7%. Around 31% of the rental revenues from acquisitions reported during the quarter came in from investment grade-rated tenants and their subsidiaries.

The company sold 19 properties for $22.5 million, with a gain on sales of $7.3 million, during the January-March period.

Liquidity

Finally, Realty Income exited first-quarter 2019 with cash and cash equivalents of $3 million, down from $10.4 million at the end of 2018. Furthermore, Realty Income raised $2.2 million from the sale of common stock, at a weighted average price of $67.85 per share, during the reported quarter.

Further, 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 Mar 31, 2019, the company had a borrowing capacity of $2.2 billion available on its revolving credit facility.

Outlook

Realty Income expects full-year 2019 adjusted FFO per share in the range of $3.28-$3.33, up from $3.25-$3.31 guided earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Realty Income Corp. has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Realty Income Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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