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Realty Income (O) Q4 FFO Misses Estimates, Revenues Grow Y/Y

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Realty Income Corporation’s (O - Free Report) fourth-quarter 2017 adjusted funds from operations (FFO) per share of 76 cents inched up 1.3% year over year. However, the figure missed the Zacks Consensus Estimate by a penny.

The company benefited from revenue growth in the fourth quarter. It achieved growth in same-store rents and guided annual increase of 3-5% in adjusted FFO per share for full-year 2018.

Total revenues for the reported quarter came in at $310.7 million, surpassing the Zacks Consensus Estimate of $306.9 million. Revenues were also up 8.0% year over year.

For full-year 2017, adjusted FFO per share came in at $3.06, well ahead of the prior-year tally of $2.88. This was backed by 10.2% year-over-year growth in total revenues to $1.2 billion.

Quarter in Detail

During fourth-quarter 2017, same-store rents on 4,254 properties under lease expanded 1.0% to $244.9 million from the prior-year quarter. Portfolio occupancy of 98.4% as of Dec 31, 2017, expanded 10 basis points year over year.

Further, the company had 83 properties available for lease, out of a total of 5,172 properties in the portfolio as of Dec 31, 2017, compared with 86 properties as of Sep 30, 2017. Moreover, during the reported quarter, it re-leased 78 properties to existing and new tenants, at a rent recapture rate of 102.2%.

Portfolio Activity

Solid property acquisitions volume at decent investment spreads aided the company’s performance. During the reported quarter, Realty Income invested $562.6 million in 130 new properties and properties under development or expansion, situated in 27 states. The assets are fully leased, with a weighted average lease term of around 13.6 years, and an initial average cash lease yield of 6.3%. Around 65% of the rental revenues from acquisitions reported during the quarter are from investment grade-rated tenants.

On the other hand, during the quarter, the company sold 13 properties for $97.5 million, with a gain on sales of $23.2 million.

Liquidity

Finally, Realty Income exited 2017 with cash and cash equivalents of $6.9 million, down from $9.4 million at the end of the prior year.

However, the company has a $2.25-billion unsecured credit facility, comprising $2.0 billion revolving credit facility and a $250-million five-year unsecured term loan. The credit facility also bears a $1.0-billion expansion feature. As of Dec 31, 2017, Realty Income had borrowing capacity of $1.89 billion available on its revolving credit facility.

Furthermore, Realty Income raised $135.8 million from the sale of common stock at a weighted average price of $55.54 per share during the fourth quarter.

Outlook

For full-year 2018, Realty Income initiated its adjusted FFO per share guidance in the range of $3.14-$3.20, marking annual increase of 3-5%.

Based on prevailing market conditions, the company expects to acquire $1.0-$1.5 billion in real estate investments.

Our Take

Realty Income’s focus on leasing to service, non-discretionary and low price-based retailers, accretive acquisitions, and conservative capital structure augur well. Rising monthly dividend payouts enhance shareholders’ confidence. Nevertheless, substantial exposure to single-tenant assets increases risks associated with tenant default. In addition, generation of notable rental revenues from assets leased to drug stores and rate hikes are other key concerns.

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.

The stock has depreciated 14% over the past three months, versus the 10.4% loss incurred by the industry it belongs to.

Realty Income Corporation Price, Consensus and EPS Surprise
 

We now look forward to the earnings releases of EPR Properties (EPR - Free Report) , Lamar Advertising Company (LAMR - Free Report) and Outfront Media Inc. (OUT - Free Report) , all of which are expected to report their numbers next week.

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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