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Realty Income (O) Q1 FFO and Revenues Beat Estimates

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Realty Income Corporation’s (O - Free Report) first-quarter 2019 adjusted funds from operations (FFO) per share of 82 cents surpassed the Zacks Consensus Estimate of 80 cents. The reported figure is also up 3.8% from the prior-year quarter’s reported tally of 79 cents.

The company benefited from year-over-year growth in revenues and also witnessed high occupancy levels. Recently, the company announced its first international real estate investment and raised its guidance for full-year 2019.

Total revenues for the reported quarter came in at $354.4 million, up 11.3% year over year. The revenue figure also exceeded the Zacks Consensus Estimate of $347.6 million.

Quarter in Detail

During first-quarter 2019, same-store rents on 4,891 properties under lease inched up 1.5% to $298.6 million from the prior-year quarter. Portfolio occupancy of 98.3% as of Mar 31, 2019, shrunk 30 basis points (bps) both sequentially and year over year.

Further, the company had 102 properties available for lease, out of a total of 5,876 properties in the portfolio as of Mar 31, 2019, compared with 80 properties as of Dec 31, 2018. Additionally, during the quarter, the company re-leased 71 properties to existing and new tenants, at a rent recapture rate of 104.7 %.

Portfolio Activity

During the first quarter, Realty Income invested $519.5 million in 105 new properties and properties under development or expansion, situated in 25 states. The assets are fully leased, with a weighted average lease term of around 17.0 years, and an initial average cash lease yield of 6.7%. Around 31% of the rental revenues from acquisitions reported during the quarter came in from investment grade-rated tenants and their subsidiaries.

The company sold 19 properties for $22.5 million, with a gain on sales of $7.3 million, during the January-March period.


Finally, Realty Income exited first-quarter 2019 with cash and cash equivalents of $3 million, down from $10.4 million at the end of 2018. Furthermore, Realty Income raised $2.2 million from the sale of common stock, at a weighted average price of $67.85 per share, during the reported quarter.

Further, the company has a $3.25-billion unsecured credit facility, comprising a $3-billion revolving credit facility and a $250-million term loan. As of Mar 31, 2019, the company had a borrowing capacity of $2.2 billion available on its revolving credit facility.


Realty Income expects full-year 2019 adjusted FFO per share in the range of $3.28-$3.33, up from $3.25-$3.31 guided earlier. The Zacks Consensus Estimate for the same is currently pegged at $3.29.

Our Take

Realty Income’s decent first-quarter performance is encouraging. The company derives more than 90% of its annualized retail rental revenues from tenants belonging to service, non-discretionary and low-price retail business. Such businesses are less susceptible to economic recessions, as well as competition from Internet retailing. In addition, the company’s solid underlying real estate quality and prudent underwriting at acquisitions have helped maintain its high occupancy levels consistently. Furthermore, accretive acquisitions and solid balance-sheet strength augur well for long-term growth.

Recently, the company announced its first international real estate investment. Specifically, it announced a definitive agreement to acquire 12 properties in the U.K. for £429 million, or around $557 million, from a joint venture of affiliates of J Sainsbury PLC and British Land PLC. The sale-leaseback transaction with Sainsbury's includes annual rent increases over the duration of the lease term, and carries a weighted average lease term of around 15 years.

However, despite all these efforts, the prevalent retail apocalypse is likely to limit its growth momentum to some extent. The company has substantial exposure to single-tenant assets which raises its risks associated with tenant default.

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

We, now, look forward to the earnings releases of other REITs like Omega Healthcare Investors, Inc. (OHI - Free Report) , Senior Housing Properties Trust (SNH - Free Report) and Plymouth Industrial REIT, Inc. (PLYM - Free Report) , which are slated to report their quarterly numbers in the 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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