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Realty Income (O) Meets Q2 FFO Estimates, Revenues Up Y/Y

Realty Income Corporation’s O second-quarter 2017 adjusted funds from operations (FFO) per share of 76 cents were in line with the Zacks Consensus Estimate.

The figure was 7% higher than the prior-year quarter tally of 71 cents. Results reflect better-than-expected growth in revenues.

Total revenue for the quarter came in at $300.2 million, surpassing the Zacks Consensus Estimate of $296.9 million. Revenues were also up 10.8% year over year.

Realty Income Corporation Price, Consensus and EPS Surprise

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share.

Quarter in Detail

During second-quarter 2017, same-store rents on 4,302 properties under lease expanded 0.4% to $246.9 million from the prior-year quarter. Portfolio occupancy of 98.5% as of Jun 30, 2017 expanded 20 basis points (bps) sequentially and 50 bps year over year.

Further, the company had 76 properties available for lease, out of a total of 5,028 properties in the portfolio as of Jun 30, 2017, compared with 83 properties as of Mar 31, 2017. Moreover, during the reported quarter, the company re-leased 53 properties to existing and new tenants, recapturing 113.2% of the expiring rent.

Portfolio Activity

During the reported quarter, Realty Income invested $321.2 million in 73 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 years and an initial average cash lease yield of 6.6%. Notably, around 33% of the rental revenues from acquisitions during first six months of 2017 are from investment grade rated tenants.

On the other hand, during the reported quarter, the company sold 15 properties for $12.8 million, with a gain on sales of $2.8 million.


Finally, Realty Income exited the second quarter with cash and cash equivalents of $12.2 million, up from $11.9 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 had a $1.0 billion expansion feature. As of Jun 30, 2017, Realty Income had borrowing capacity of $1.35 billion available on its revolving credit facility.


For 2017, Realty Income projects adjusted FFO per share in the range of $3.03–$3.07.

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 shareholder confidence. However, substantial exposure to single-tenant assets raises its risks associated with tenant default. Further, generation of notable rental revenues from assets leased to drug stores and rate hikes 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.

The stock has gained nearly 1% year to date, outperforming the 3.5% decline of the industry it belongs to.

Let us now look forward to the earnings releases of Essex Property Trust Inc. ESS, Apartment Investment and Management Company AIV, and Camden Property Trust CPT all of which are expected to report this week

Note: 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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