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Why Is Realty Income Corp. (O) Up 9.9% 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 9.9% in that time frame, outperforming 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 drivers.

Realty Income Q1 FFO and Revenues Surpass Estimates

Realty Income’s first-quarter 2020 adjusted FFO (AFFO) per share of 88 cents surpassed the Zacks Consensus Estimate of 85 cents. The reported figure is also up 7.3% from the prior-year quarter’s 82 cents.

Results were driven by improvement in same-store rent and healthy occupancy level, which aided top-line expansion.

Total revenues for the reported quarter came in at $414.3 million, up 16.9% year over year. The revenue figure also exceeded the Zacks Consensus Estimate of $412.1 million.

The company also apprised of its rental receipts for April, with 82.9% of the contractual rent collected for the month across its total portfolio. It has collected 82.9% of contractual rent due for April from the top 20 tenants and 99.9% of contractual rent for the month from its investment-grade tenants.

Quarter in Detail

During first-quarter 2020, same-store rents on 5,535 properties under lease inched up 0.2% to $321.5 million from the prior-year quarter. Portfolio occupancy of 98.5% as of Mar 31, 2020, expanded 20 bps year over year. Further, the company generated a rent recapture rate of 99% on re-leasing activity.

During the reported quarter, Realty Income invested $486 million in 65 properties and properties under development or expansion. This also includes $165.6 million in four properties in the U.K.

Around 36% of the rental revenues from acquisitions reported during the quarter came in from investment grade-rated tenants, their subsidiaries or affiliated companies.

The company sold 17 properties, generating net proceeds of $126.2 million, with a gain on sales of $38.5 million, during the January-March period.

Balance Sheet

Realty Income exited first-quarter 2020 with cash and cash equivalents of $41.8 million, down from the $54 million witnessed at the end of 2019. Furthermore, the company raised $752.4 million from the sale of common stock, at a weighted average price of $77.37 per share, during the quarter.

The company also completed the early redemption of its $250 million 5.750% notes due on January 2021 in the first quarter. This resulted in a $9.8-million loss on extinguishment of debt.

Moreover, the company has a $3-billion unsecured revolving credit facility. The revolving credit facility also has a $1-billion expansion feature. As of Mar 31, 2020, the company had balance of borrowings outstanding under its revolving credit facility of $615.2 million.

However, as a precautionary measure against the uncertainties prevailing due to the coronavirus pandemic, on Apr 9, the company raised an additional $1.2 billion on its credit facility to increase its cash position to $1.25 billion.

Outlook

In light of the coronavirus pandemic, the company withdrew its 2020 guidance on Apr 9. The company had earlier projected 2020 adjusted FFO per share of $3.50-$3.56, indicating annual growth of 5.4-7.2%. It is now of the opinion to not provide a revised guidance for the year during these uncertain times.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Realty Income Corp. has a nice Growth Score of B, a grade with the same score on the momentum front. 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 C. 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 these revisions looks promising. 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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