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Why Is Realty Income Corp. (O) Down 4.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Realty Income Corp. (O - Free Report) . Shares have lost about 4.8% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Realty Income Q2 AFFO and Revenues Surpass Estimates

Realty Income’s second-quarter 2023 AFFO per share of $1.00 beat the Zacks Consensus Estimate of 99 cents by a penny. The reported figure also compared favorably with the prior-year quarter’s 97 cents.

Results reflected better-than-expected revenues in the quarter. The company benefited from expansionary effects and a healthy pipeline of opportunities globally.

Total revenues were $1.02 billion, surpassing the Zacks Consensus Estimate of $966.9 million. The top line rose 25.8% year over year.

Realty Income collected nearly 99% of contractual rent across its theater portfolio in second-quarter 2023. During that period, the uncollected rent was primarily attributable to the unpaid contractual rent at properties leased to Cineworld, which was subsequently rejected as part of the bankruptcy process. As of Jun 30, 2023, for properties leased to Cineworld, O’s cumulative reserves totaled $31.4 million, with total receivables, net of reserves, aggregating $12.9 million.

Quarter in Detail

In the quarter, same-store rental revenues of $718.8 million from 10,685 properties under lease witnessed a rise of 2% from the prior-year period.
The portfolio occupancy of 99% as of Jun 30, 2023, was stable sequentially and improved 10 basis points (bps) year over year. In the quarter, the company achieved a rent recapture rate of 103.4% on re-leasing activity.

In the reported quarter, O invested $3.1 billion in 710 properties and properties under development or expansion.

In the quarter, Realty Income closed on the earlier announced sale-leaseback transaction of 414 single-tenant convenience store properties with EG Group for $1.5 billion.

Balance Sheet

Realty Income exited second-quarter 2023 with $3.5 billion of liquidity. This comprised cash and cash equivalents of $253.7 million and $3.3 billion of availability under its revolving credit facility after deducting $122.7 million in commercial paper borrowings.

Net debt to annualized pro-forma adjusted EBITDAre was 5.3X.
In the second quarter, the company raised $2.2 billion from the sale of its common stock at a weighted average price of $61.89 per share, mainly through its At-The-Market program.

2023 Guidance

Realty Income revised its outlook for 2023 AFFO per share to $3.96-$4.01 from $3.94 to $4.03 stated earlier.

Full-year projections for same-store rent growth of more than 1.25% and occupancy of more than 98% were unchanged from its prior outlook. O now expects a full-year acquisition volume of more than $7 billion, up from its earlier estimation of more than $6.0 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Realty Income Corp. has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 these revisions 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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