Realty Income (O) Beats Q1 FFO Estimates, Revenues Up Y/Y

Realty Income Corporation’s (NYSE:O) first-quarter 2017 adjusted funds from operations (“FFO”) per share of 76 cents exceeded the Zacks Consensus Estimate by a penny. The figure is also 8.6% higher than the prior-year quarter tally of 70 cents. Results reflect better-than-expected growth in revenue.

Total revenue for the quarter came in at $298.0 million, surpassing the Zacks Consensus estimate of $287.3 million. The revenue figure was also up 11.6% year over year.

Quarter in Detail

During first-quarter 2017, same-store rents on 4,322 properties under lease expanded 1.6% to $250.2 million from the prior-year quarter. Portfolio occupancy of 98.3% as of Mar 31, 2017 remained flat sequentially, but expanded 50 basis points year over year.

Further, the company had 83 properties available for lease, out of a total of 4,980 properties in the portfolio as of Mar 31, 2017, compared with 84 properties as of Dec 31, 2016. Moreover, during the reported quarter, the company re-leased 49 properties to existing and new tenants, recapturing 103.6% of the expiring rent.

Portfolio Activity

During the reported quarter, Realty Income invested $370.7 million in 60 new properties and properties under development or expansion, situated in 18 states. The assets are fully leased, with a weighted average lease term of around 16.4 years and an initial average cash lease yield of 6.1%. Notably, around 68% of the rental revenue reaped from acquisitions during first-quarter 2017 is from investment grade rated tenants.

On the other hand, during the reported quarter, the company sold 14 properties for $31.2 million, with a gain on sales of $10.5 million.

Liquidity

Finally, Realty Income exited first-quarter 2017 with cash and cash equivalents of $27.6 million, up from $9.4 million at the end of the prior year.

However, the company has a $2.25 billion unsecured credit facility, comprising a $2.0 billion revolving credit facility and a $250 million five-year unsecured term loan. The credit facility also had a $1.0 billion expansion feature. Notably, as of Mar 31, 2017, Realty Income had no outstanding balance on its revolving credit facility.

In addition, during the reported quarter, Realty Income raised $791.7 million from the sale of common stock at a weighted average price of $61.77 per share.

Outlook

For 2017, Realty Income projects adjusted FFO per share in the range of $3.00–$3.06, implying year-over-year growth of 4.2–6.3%.

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 are positive for shareholders. However, substantial exposure to single-tenant assets raises its risks associated with tenant default. Further, generation of notable rental revenue from assets leased to drug stores and rate hike add to its woes.

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

Let us now look forward to the earnings releases of Essex Property Trust Inc. (NYSE:ESS) , Apartment Investment and Management Company (NYSE:AIV) , and Simon Property Group, Inc. (NYSE:SPG) , all of which are expected to report this week.

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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