Realty Income Misses Wells Fargo's Q2 FFO Estimate, But Analyst Remains Bullish

Realty Income Corp’s (NYSE:O) second-quarter funds from operations were impacted by lower revenue and higher G&A and were partially offset by lower interest expense, according to Wells Fargo.

The Analyst

Todd Stender maintained an Outperform rating on Realty Income and established a $78 price target. 

The Thesis

Realty Income reported second-quarter normalized FFO of 81 cents per share on Monday, missing Wells Fargo’s estimate by 1 cent, but coming in-line with Street expectations, Stender said in a Monday note. (See his track record here.) 

The REIT reiterated its 2019 FFO guidance of $3.26-$3.31 versus the consensus estimate of $3.29. The guidance assumes $2-$2.5 billion in acquisitions and $75-100 million in dispositions, the analyst said. 

Despite the second-quarter miss, “O’s stable, predictable cash flows derived from a highly occupied portfolio with little-to-no cap ex required due to triple-net leases — represents the hallmark of our Outperform rating," he said. 

While delivering a solid performance in leasing in the second quarter, the company faced a marginal decline in economic occupancy, Stender said.

Realty Income signed 86 lease renewals and sold 16 vacant properties during the quarter.

Economic occupancy, which focuses on rent paid on space, declined 30 bps year-on-year, and same-store rents decelerated from the prior quarter's 1.5% to 1.4%. 

The company acquired 90 properties that spanned an area of 3.4 million square feet for $1.08 billion, nearly all of which was in the retail segment, according to Wells Fargo. 

Price Action

Realty Income shares were trading higher by 1.29% at $69.85 at the time of publication Tuesday. 

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