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Realty Income (O) Beats on Q2 FFO, Reinstates Acquisition View

Realty Income Corporation’s O second-quarter 2020 adjusted funds from operations (AFFO) per share of 86 cents surpassed the Zacks Consensus Estimate of 76 cents. The reported figure is also up 4.9% from the prior-year quarter’s 82 cents.

Per management, second-quarter operating results “continue to demonstrate the stability and resiliency” of the company’s business. The company also noted that its diversified and high-quality real estate portfolio, mainly leased to tenants offering non-discretionary and/or low price point goods or services, witnessed healthy occupancy level of 98.5% at the end of the quarter.

Total revenues for the reported quarter came in at $414.6 million, up 13.5% year over year. The revenue figure also exceeded the Zacks Consensus Estimate of $393.7 million.

The company also apprised of its rental receipts through Jul 31, and noted that it has collected 86.5% of contractual rent in the second quarter and 91.5% of contractual rent for July across the total portfolio. Further, it has collected 90.7% of contractual rent due for July from the top 20 tenants and 100% of contractual rent for the month from its investment-grade tenants.

Quarter in Detail

During second-quarter 2020, same-store rental revenue on 5,539 properties under lease edged down 0.4% to $315.7 million from the prior-year quarter. Portfolio occupancy of 98.5% as of Jun 30, 2020, remained unchanged sequentially and expanded 20 basis points year over year. Further, the company generated a rent recapture rate of 101.4% on re-leasing activity.

During the reported quarter, Realty Income invested $154.2 million in 32 properties and properties under development or expansion. This also includes $58.2 million in two properties in the U.K.

Around 41% of the rental revenues reaped from acquisitions during the quarter came in from investment grade-rated tenants, their subsidiaries or affiliated companies, their subsidiaries or affiliated companies.

The company sold 12 properties, generating net proceeds of $7.4 million, with a gain on sales of $1.3 million, during the April-June period.

Balance Sheet

Realty Income exited the second quarter with cash and cash equivalents of $35.3 million, down from the $54 million witnessed at the end of 2019. Furthermore, the company raised $98.1 million from the sale of common stock, at a weighted average price of $63.07 per share, during the quarter, primarily through its At-The-Market-Program. In addition, it raised $593.9 million through the issuance of 3.250% senior unsecured notes due in 2031.

Realty Income has a $3-billion unsecured revolving credit facility with an initial term that expires in March 2023. The revolving credit facility also has a $1-billion accordion feature. As of Jun 30, 2020, the company had balance of borrowings outstanding under its revolving credit facility of $628.6 million. Notably, in June, the company repaid one of the $250-million senior term loans in full upon maturity.

Realty Income ended the second quarter with a net debt to EBITDAre ratio of 5.1x and a fixed charge coverage ratio of 5.4x. Moreover, as of Jul 31, total liquidity amounted to $2.9 billion, including roughly $400 million of cash in hand and $2.5 billion remaining borrowing capacity available on its $3-billion revolving credit facility, thereby enjoying healthy financial flexibility.

Outlook

Realty Income noted that while it withdrew the 2020 guidance on Apr 9 in light of the coronavirus pandemic, the company is now reinstating the same relating to its acquisition volume, which is currently estimated at $1.25-$1.75 billion for 2020.

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.

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

We, now, look forward to the earnings releases of other retail REITs like Federal Realty Investment Trust FRT and Kimco Realty Corporation KIM, scheduled to release earnings results this week, and The Macerich Company MAC that will report quarterly numbers in the next.

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

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