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Realty Income (O) Beats on Q4 FFO, Sees Solid Acquisition in 2021

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Realty Income Corporation’s (O - Free Report) fourth-quarter 2020 adjusted funds from operations (AFFO) per share of 84 cents surpassed the Zacks Consensus Estimate of 83 cents. However, the reported figure is down 2.3% from the prior-year quarter’s 86 cents. The better-than-expected performance reflects improved revenues in the quarter.

Total revenues for the reported quarter came in at $418.1 million, exceeding the Zacks Consensus Estimate of $417.5 million. The top-line figure also improved 5.2% year on year.

For 2020, the company reported adjusted FFO per share of $3.39, up from the prior year’s $3.32. Total revenues of $1.65 billion increased 10.7% year on year.

Realty Income also apprised of its rental receipts through Jan 31, 2021, and noted that it has collected 93.6% of contractual rent due for the fourth quarter. Further, the company has collected 89.9% of contractual rent due for the fourth quarter from the top 20 tenants and 100% of contractual rent for the quarter from its investment-grade tenants.

Notably, the theater industry, which represented 5.6% of annualized contractual rental revenues for Realty Income as of Dec 31, 2020, has been subject to disruption due to the coronavirus pandemic, raising concerns about the collectability of rent.

As of Dec 31, 2020, the receivables outstanding for its 77 theater properties aggregated $48.6 million, net of $23.7 million of reserves, and includes $7.8 million of straight-line rent receivables, net of $1.8 million of reserves. In addition, the monthly contractual rent associated with the 37 properties accounted for under the cash basis aggregated $2.8 million as of the same date.

Quarter in Detail

During fourth-quarter 2020, same-store rental revenues on 5,403 properties under lease slipped 3.2% to $307.4 million from the prior-year quarter. Same-store rental income was affected by reserves recorded in the reported quarter. Portfolio occupancy of 97.9% as of Dec 31, 2020, contracted 70 basis points (bps) both sequentially and year over year. The company generated a rent recapture rate of 100.3% on re-leasing activity.

During the reported quarter, Realty Income invested $1.01 billion in 70 properties and properties under development or expansion. This also includes $467.2 million in 11 properties in the U.K.

Around 68% of the rental revenues reaped from acquisitions during the December-end quarter came in from investment grade-rated tenants, their subsidiaries or affiliated companies.

The company sold 60 properties, generating net proceeds of $77.5 million, with a gain on sales of $22.7 million, during the October-December period.

Balance Sheet

Realty Income exited 2020 with cash and cash equivalents of $824.5 million, up from the $54 million witnessed at the end of 2019. 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 Dec 31, 2020. Also, as of that date, the company had no commercial paper borrowings.

The company ended the fourth quarter with a net debt to adjusted EBITDAre ratio of 5.3x and a fixed charge coverage ratio of 5.1x.

During the fourth quarter, the company raised $655 million from the sale of common stock, at a weighted average price of $61.14 per share, primarily through its At-The-Market-Program. In addition, it issued $325 million of 0.750% senior unsecured notes due 2026 and $400 million of 1.800% senior unsecured notes due 2033. Further, the retail REIT issued £400 million through the issuance of 1.625% senior unsecured notes due 2030 in its debut Sterling-denominated public debt offering.

Outlook

Realty Income expects 2021 acquisition volume of more than $3.25 billion on the back of the company’s solid financial position and investment pipeline.

Management projects 2021 adjusted FFO per share of $3.44-$3.49, reflecting an increase of 1.5-2.9% over 2020. The Zacks Consensus Estimate for the same is currently pinned at $3.49.

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

Performance of Other Retail REITs

Simon Property Group, Inc.’s (SPG - Free Report) fourth-quarter 2020 FFO per share of $2.17 missed the Zacks Consensus Estimate of $2.19. The reported figure also came in 26.7% lower than the year-ago quarter’s $2.96. Results reflected the pandemic’s adverse impact on the company’s domestic and international operations, with an impact of 95 cents per share, chiefly on reduced revenues, partly mitigated by cost-reduction moves.

Kimco Realty Corp.’s (KIM - Free Report) NAREIT FFO per share came in at 31 cents, beating the Zacks Consensus Estimate of 30 cents for the December-end quarter. Results highlighted better-than-anticipated revenue numbers. Remarkably, the retail REIT generated revenues of $269.4 million, exceeding the consensus mark of $267.8 million. Nonetheless, the FFO per share came in lower than the year-ago quarter’s 36 cents. Also, revenues declined 9% year on year. Results underlined a fall in same-property NOI, mainly affected by a charge for potentially uncollectible accounts receivable.

Federal Realty Investment Trust’s (FRT - Free Report) fourth-quarter adjusted FFO per share of $1.14 surpassed the Zacks Consensus Estimate of $1.07. Results underlined better-than-anticipated revenues. Quarterly revenues of $219.5 million topped the consensus mark of $208.9 million. Nonetheless, the reported FFO per share decreased from the $1.58 reported in the year-ago quarter. In addition, revenues fell 8.2% year on year in the fourth quarter. The pandemic’s adverse impact and the resultant collectability-related impacts prompted these year-over-year declines.

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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