Realty Income Earnings: Lower Theater and Convenience Store Revenue Leads to Flat Internal Growth

Realty Income reported third-quarter results that were in line with our expectations, leading us to reaffirm our $75 fair value estimate for the no-moat company. While occupied properties fell 10 basis points sequentially to 98.7%, both occupied square footage and economic occupancy increased 10 basis points sequentially to 99.0%. Re-leasing spreads were 5.0%, slightly better than our estimate of 3.7% higher rent on leases signed in the quarter compared with the expiring rent terms. However, same-store net operating income was only up 0.2% year over year, slightly worse than our estimate of 0.8%. The low growth in the quarter is in part due to an 18.5% drop in rent from theater tenants, which represents 2.1% of the company’s total rent, and a 1.8% decline in rent from convenience stores, which represents 9.4% of the company’s rent. Still, Realty Income reported adjusted funds from operations of $1.05 per share in the third quarter, matching our estimate and representing 3.3% growth over the third quarter of 2023.