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Why Is Realty Income Corp. (O) Up 2.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Realty Income Corp. (O - Free Report) . Shares have added about 2.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Realty Income Tops Q4 FFO, Makes Record Investments

Realty Income’s fourth-quarter 2021 adjusted FFO per share of 94 cents surpassed the Zacks Consensus Estimate of 93 cents. The reported figure also compares favorably with the prior-year quarter’s 84 cents.

Results reflect a better-than-expected improvement in revenues. This retail REIT is enhancing its global platform and during the fourth quarter, excluding its merger with VEREIT, it invested $2.63 billion in 401 properties and properties under development or expansion, including $1.04 billion in Europe.

According to Sumit Roy, Realty Income's president and chief executive officer, “In addition to closing our merger with VEREIT, we expanded our global platform through our investment in Spain, a new growth vertical in Continental Europe. To that end, we invested a record $2.6 billion in high-quality real estate during the fourth quarter. This brings 2021 property-level acquisitions to $6.4 billion, setting an annual record for the company.”

Total revenues for the reported quarter came in at $685 million, exceeding the Zacks Consensus Estimate of $592.3 million. The top line also jumped 64% year over year.

Realty Income also apprised of its rental receipts through Dec 31, 2021 and noted that it collected 99.5% of the contractual rent due for the fourth quarter across its total portfolio. Further, O collected 99.8% of the contractual rent due for the fourth quarter from the top 20 tenants and 99.8% of the contractual rent from its investment-grade tenants. The company collected 100.0% of the contractual rent due for the fourth quarter from theater clients and 96.7% of the contractual rent from its health and fitness clients.

Quarter in Detail

During the fourth quarter of 2021, same-store rental revenues on 6,046 properties under lease increased 4.9% to $369.4 million from the prior-year period. Portfolio occupancy of 98.5%, as of Dec 31, 2021, shrank 30 basis points (bps) sequentially but rose 60 bps year over year. The company generated a rent recapture rate of 101.8% on re-leasing activity.
During the reported quarter, excluding its merger with VEREIT, Realty Income invested $2.63 billion in 401 properties and properties under development or expansion, including $1.04 billion in Europe.

Around 35% of 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 58 properties, generating net proceeds of $126.8 million with a gain on sales of $20.4 million, during the October-December period.

The theater industry, which represented 3.4% of annualized contractual rental revenues for Realty Income as of Dec 31, 2021, has been subject to disruptions due to the pandemic, raising concerns about the collectability of rents. As of Dec 31, 2021, this REIT was fully reserved for outstanding receivable balances for 34 theater properties. As of Dec 31, 2021, the receivables outstanding for its 81 theater properties aggregated $71.0 million.

Balance Sheet

Realty Income exited 2021 with cash and cash equivalents of $258.6 million, down from $824.5 million witnessed at the end of 2020.

As of Dec 31, 2021, the balance of borrowings outstanding under its revolving credit facility was $650.0 million. Also, as of that date, O had $901.4 million in commercial paper borrowings.

Net debt to annualized pro forma adjusted EBITDAre was 5.3X, while the fixed charge coverage ratio was 5.6.

During the fourth quarter, the company raised $1.72 billion from the sale of common stock at a weighted average price of $69.07 per share, mainly through its At-The-Market Program.

Guidance

Management projects 2022 adjusted FFO per share of $3.84 to $3.97.

Management’s full-year 2022 projections assume same-store rent growth of 1.5% and occupancy of 98%. O expects full-year acquisition volume of more than $5.0 billion.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Realty Income Corp. has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, 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 trending upward 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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