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Why Is Realty Income Corp. (O) Up 0.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Realty Income Corp. (O). Shares have added about 0.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Realty Income Corp. due for a pullback? 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’s first-quarter 2021 adjusted FFO per share of 86 cents surpassed the Zacks Consensus Estimate of 85 cents. However, the reported figure is down 2.3% from the prior-year quarter’s 88 cents. The better-than-expected performance reflects improved revenues in the quarter.

Total revenues for the reported quarter came in at $442.8 million, exceeding the Zacks Consensus Estimate of $432.6 million. The top-line figure also improved 6.9% year on year.

Realty Income also apprised of its rental receipts through Mar 31, 2021, and noted that it has collected 94.1% of contractual rent due for the first quarter across its total portfolio. Further, the company has collected 89.8% of contractual rent due for the first quarter from the top 20 tenants and 100% of contractual rent from its investment-grade tenants.

Further, the company has collected 14% of contractual rent due for the first quarter from the theater clients, and 91.8% of contractual rent from its health and fitness clients.

Notably, the theater industry, which represented 5.6% of annualized contractual rental revenues for Realty Income as of Mar 31, 2021, has been subject to disruption due to the coronavirus pandemic, raising concerns about the collectability of rent.

As of Mar 31, 2021, and Dec 31, 2020, the company was fully reserved for 37 theater properties. Moreover, as of Dec 31, 2020, the receivables outstanding for its 79 theater properties aggregated $66.7 million, net of $33.2 million of reserves, and includes $8.5 million of straight-line rent receivables, net of $1.9 million of reserves.

Quarter in Detail

During first-quarter 2021, same-store rental revenues on 6,127 properties under lease slipped 0.8% to $372.9 million from the prior-year quarter. Same-store rental revenues were negatively impacted by reserves recorded in the reported quarter.

Portfolio occupancy of 98%, as of Mar 31, 2021, expanded 10 basis points (bps) sequentially but shrunk 50 bps year over year. The company generated a rent recapture rate of 103.5% on re-leasing activity.

During the reported quarter, Realty Income invested $1.03 billion in 110 properties and properties under development or expansion. This also includes $403 million in 12 properties in the U.K.

Around 39% of the rental revenues reaped from acquisitions during the March-end quarter came in from investment grade-rated tenants, their subsidiaries or affiliated companies.

The company sold 27 properties, generating net proceeds of $34.7 million, with a gain on sales of $8.4 million, during the January-March period.

Balance Sheet

Realty Income exited first-quarter 2021 with cash and cash equivalents of $183.98 million, down from the $824.5 million witnessed at the end of 2020. In addition, the retail REIT has a $3-billion unsecured revolving credit facility, with an initial term that expires in March 2023 (subject to two six-month options to extend) as well as a $1-billion accordion feature that is subject to obtaining lender commitments. Markedly, there were no borrowings on its revolving credit facility as of Mar 31, 2021. Also, as of that date, the company had $675 million in commercial paper borrowings.

The company ended the first quarter with a net debt to annualized adjusted EBITDAre ratio of 5.3x and a fixed charge coverage ratio of 5.8x.

During the first quarter, the company raised $692 million from the sale of common stock, at a weighted average price of $57.06 per share, primarily through the underwritten public offering in January 2021.

Outlook

Management also noted about remaining “on pace” to meet 2021 investment guidance of more than $3.25 billion.

Management projects the 2021 adjusted FFO per share at $3.44-$3.49, suggesting an increase of 1.5-2.9% over 2020. The guidance does not give effect to the announced merger between Realty Income and VEREIT, Inc.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Realty Income Corp. has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 downward for the stock, and the magnitude of this revision has been net zero. 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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