Why Is Realty Income Corp. (O) Down 41.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Realty Income Corp. (O). Shares have lost about 41.3% 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 drivers.

Realty Income Q4 FFO & Revenues Top Estimates, Rents Up

Realty Income’s fourth-quarter 2019 adjusted FFO per share of 86 cents surpassed the Zacks Consensus Estimate of 83 cents. The reported figure is also up 8.9% from the prior-year quarter’s reported tally of 79 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 $397.5 million, up 16% year over year. The revenue figure also exceeded the Zacks Consensus Estimate of $387.3 million.

For full-year 2019, the company reported adjusted FFO per share of $3.32, up 4.1% from the prior year’s $3.19. Revenues for the full year also climbed 12.3% year on year to $1.49 billion.

Quarter in Detail

During fourth-quarter 2019, same-store rents on 4,811 properties under lease increased 2% to $296.5 million from the prior-year quarter. Portfolio occupancy of 98.6% as of Dec 31, 2019, expanded 30 basis points (bps) sequentially and remained flat year over year. Further, the company generated a rent recapture rate of 106.2% on re-leasing activity.

During the reported quarter, Realty Income invested $1.7 billion in 556 properties and properties under development or expansion. This also includes $221 million in five properties in the U.K.

Around 47% 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 29 properties, generating net proceeds of $36.3 million, with a gain on sales of $14.2 million, during the October-December period.

Liquidity

Realty Income exited fourth-quarter 2019 with cash and cash equivalents of around $54 million, up from the $10.4 million witnessed at the end of 2018. Furthermore, the company raised $582.2 million from the sale of common stock, at a weighted average price of $75.52 per share, during the quarter.

Moreover, 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 Dec 31, 2019, the company had balance of borrowings outstanding under its revolving credit facility of $704.3 million.

Outlook

Realty Income expects full-year 2020 adjusted FFO per share of $3.50-$3.56, indicating annual growth of 5.4-7.2%.

Notably, with a robust investment pipeline, both domestic and international, the company expects to invest $2.25-$2.75 billion in 2020 based on present market conditions.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

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 F on the value side, putting it in the fifth quintile 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

Realty Income Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.