Realty Income Corp. (O) Down 5.6% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
·4-min read

A month has gone by since the last earnings report for Realty Income Corp. (O). Shares have lost about 5.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Realty Income Corp. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Realty Income Tops Q2 FFO, Ups Acquisition Guidance

Realty Income’s second-quarter 2022 adjusted FFO per share of 97 cents surpassed the Zacks Consensus Estimate of 95 cents. The reported figure also compared favorably with the prior-year quarter’s 88 cents. The normalized FFO per share came in at $1.02 for the second quarter, up from the 88 cents reported in the year-ago period.

Results reflected better-than-expected revenues for the quarter. The company benefited from expansionary moves and a healthy pipeline of opportunities globally. Moreover, with more than $3.2 billion invested in the first half of the year, Realty Income increased its 2022 acquisition guidance to more than $6 billion.

Total revenues for the reported quarter came in at $810.4 million, exceeding the Zacks Consensus Estimate of $808.5 million. The top line also jumped 74.5% year over year. Results reflect the impact of the merger with VEREIT, which occurred on Nov 1, 2021.

According to Sumit Roy, Realty Income's president and chief executive officer, "Our second quarter results demonstrate the stability of our business and the continued momentum in our global investment pipeline."

Quarter in Detail

In the second quarter of 2022, same-store rental revenues from 9,686 properties under lease increased 2.0% to $615.6 million from the prior-year period. The portfolio occupancy of 98.9%, as of Jun 30, 2022, expanded 30 basis points (bps) sequentially and 40 bps year over year. It also marked the highest occupancy rate in more than 10 years. The company achieved a rent recapture rate of 105.6% on re-leasing activity.

During the reported quarter, Realty Income invested $1.68 billion in 237 properties and properties under development or expansion, including $693.7 million in Europe.

Also, around 39% of rental revenues from acquisitions during the June quarter came from investment-grade-rated tenants and their subsidiaries or affiliated companies.

The company sold 70 properties, generating net proceeds of $150.0 million, with a gain from sales of $40.6 million, during the April-June period.

Balance Sheet

Realty Income exited the second quarter with cash and cash equivalents of $172.8 million, down from the $258.6 million witnessed as of Dec 31, 2021.

As of Jun 30, 2022, the balance of borrowings outstanding under its revolving credit facility was $219.1 million. In April 2022, the company entered into a new $4.25-billion unsecured credit facility to amend and restate its previous $3.0-billion unsecured credit facility, which was due to expire in March 2023. Moreover, as of Jun 30, 2022, the company had $950.0 million in commercial paper borrowings.

Net debt to annualized pro forma adjusted EBITDAre was 5.2X, while the fixed charge coverage ratio was 5.5.

In the second quarter, the company raised $1.1 billion from the sale of common stock at a weighted average price of $67.13 per share, mainly through its At-The-Market Program.

Guidance

Realty Income revised its 2022 guidance and now projects normalized FFO per share in the band of $3.92-$4.05 compared with the $3.88-$4.05 band projected earlier. AFFO per share is expected in the range of $3.84-$3.97, the same as guided earlier.

Management’s full-year 2022 projections assume same-store rent growth of 2.0%, up from the 1.5% guided earlier, and occupancy of more than 98% compared with the 98% projected earlier. Also, the full-year acquisition volume is projected to be more than $6 billion, up from the prior expectation of more than $5 billion.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Realty Income Corp. has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. 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 broadly trending upward for the stock, and the magnitude of these revisions has been net zero. 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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