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Realty Income (O) Displays Mixed Prospects: Time to Hold?
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We initiated coverage on Realty Income Corporation (O - Free Report) on Apr 7.
This freestanding retail REIT’s fourth-quarter 2016 funds from operations (FFO) per share of 77 cents exceeded the Zacks Consensus Estimate of 75 cents, primarily backed by revenue growth. Total revenue for the quarter came in at $287.8 million and surpassed the Zacks Consensus estimate of $278 million. The revenue figure was also up 9.1% from the prior-year quarter.
Realty Income’s portfolio is well diversified with respect to tenant, industry, geography and property type. The company’s properties are located in 49 states as well as in Puerto Rico. Further, its tenants operate in 47 different industries. In addition, besides retail properties, the company’s portfolio comprises industrial, office and agricultural properties. This diversification helps it to mitigate risks associated with a particular industry, geography or asset type.
The company derives more than 90% of its annualized retail rental revenue from tenants with a service, non-discretionary, and/or low price point part to their business. Such businesses are less susceptible to economic recessions and competition from online retailing.
Moreover, Realty Income is focused on external growth through exploring accretive acquisition opportunities. In fact, the company accomplished $1.86 billion in acquisitions in 2016, of which $785.6 million transactions were completed during the fourth quarter. It foresees steady flow of opportunities in 2017 and targets acquisitions of around $1 billion in the year. In addition, Realty Income continues to maintain a conservative capital structure.
Furthermore, growing monthly dividend payouts are encouraging for the shareholders. In fact, the company enjoys a trademark on the phrase “The Monthly Dividend Company”. Notably, the Apr 2017 dividend payment will not only mark Realty Income’s 561st consecutive monthly dividend payouts, but also its 91st dividend hike as well, since the company’s listing on the NYSE in 1994.
Amid this, Realty Income’s shares also outperformed the Zacks categorized REIT and Equity Trust – Retail industry over the past three months. In fact, the company’s shares logged in a return of 2.0% over this time frame compared with the industry’s decline of 4.4%.
However, Realty Income’s substantial exposure to single-tenant assets raises its risks associated with tenant default. Further, despite the company’s efforts to diversify the tenant base, its tenants in the “drug store” industry accounted for around 11.4% of its rental revenue in 2016. This makes the company’s results susceptible to any adverse changes in this industry. Also, rate hike adds to its woes.
Over the past seven days, estimates for first quarter and full-year 2017 funds from operations (FFO) per share remained unchanged at 75 cents and $3.05, respectively.
Currently, Realty Income has a Zacks Rank #3 (Hold).
CoreSite Realty currently has a long-term growth rate of 19.1%.
PS Business Parks’ estimates for 2017 funds from operations (FFO) per share moved north nearly 0.9% to $5.86, over the past seven days.
The Zacks Consensus Estimate for Urban Edge Properties’ FFO per share for 2017 of $1.37 reflects 7.9% year-over-year growth.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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Realty Income (O) Displays Mixed Prospects: Time to Hold?
We initiated coverage on Realty Income Corporation (O - Free Report) on Apr 7.
This freestanding retail REIT’s fourth-quarter 2016 funds from operations (FFO) per share of 77 cents exceeded the Zacks Consensus Estimate of 75 cents, primarily backed by revenue growth. Total revenue for the quarter came in at $287.8 million and surpassed the Zacks Consensus estimate of $278 million. The revenue figure was also up 9.1% from the prior-year quarter.
Realty Income’s portfolio is well diversified with respect to tenant, industry, geography and property type. The company’s properties are located in 49 states as well as in Puerto Rico. Further, its tenants operate in 47 different industries. In addition, besides retail properties, the company’s portfolio comprises industrial, office and agricultural properties. This diversification helps it to mitigate risks associated with a particular industry, geography or asset type.
The company derives more than 90% of its annualized retail rental revenue from tenants with a service, non-discretionary, and/or low price point part to their business. Such businesses are less susceptible to economic recessions and competition from online retailing.
Moreover, Realty Income is focused on external growth through exploring accretive acquisition opportunities. In fact, the company accomplished $1.86 billion in acquisitions in 2016, of which $785.6 million transactions were completed during the fourth quarter. It foresees steady flow of opportunities in 2017 and targets acquisitions of around $1 billion in the year. In addition, Realty Income continues to maintain a conservative capital structure.
Furthermore, growing monthly dividend payouts are encouraging for the shareholders. In fact, the company enjoys a trademark on the phrase “The Monthly Dividend Company”. Notably, the Apr 2017 dividend payment will not only mark Realty Income’s 561st consecutive monthly dividend payouts, but also its 91st dividend hike as well, since the company’s listing on the NYSE in 1994.
Amid this, Realty Income’s shares also outperformed the Zacks categorized REIT and Equity Trust – Retail industry over the past three months. In fact, the company’s shares logged in a return of 2.0% over this time frame compared with the industry’s decline of 4.4%.
However, Realty Income’s substantial exposure to single-tenant assets raises its risks associated with tenant default. Further, despite the company’s efforts to diversify the tenant base, its tenants in the “drug store” industry accounted for around 11.4% of its rental revenue in 2016. This makes the company’s results susceptible to any adverse changes in this industry. Also, rate hike adds to its woes.
Over the past seven days, estimates for first quarter and full-year 2017 funds from operations (FFO) per share remained unchanged at 75 cents and $3.05, respectively.
Currently, Realty Income has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the REIT space include CoreSite Realty Corporation (COR - Free Report) , PS Business Parks, Inc. and Urban Edge Properties (UE - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CoreSite Realty currently has a long-term growth rate of 19.1%.
PS Business Parks’ estimates for 2017 funds from operations (FFO) per share moved north nearly 0.9% to $5.86, over the past seven days.
The Zacks Consensus Estimate for Urban Edge Properties’ FFO per share for 2017 of $1.37 reflects 7.9% year-over-year growth.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>