Analyst Note| Kevin Brown |
Second quarter results for no-moat Realty Income were slightly above our expectations, leading us to reaffirm our $66 fair value estimate. Economic occupancy improved 20 basis points sequentially to 98.8%, in line with our estimate. Rent collection in the second quarter showed slight improvement to 95.9% from 94.1% in the first quarter. Re-leasing spreads were solid at 4.7%, the highest figure in a quarter since 2019. Same-store net operating income growth was low at just 0.5%, though that is better than the declines seen in the prior four quarters. Additionally, Realty Income didn't see much divergence in same-store NOI across different sectors with retail up 0.6%, office up 0.6%, and agriculture up 1.3% while industrial fell 0.4%. Realty Income executed on $1.13 billion in acquisitions in the second quarter, so despite the low internal growth, the $2.16 billion in acquisitions done year to date helped drive normalized funds from operations per share to $0.88 in the second quarter, up $0.02 from the second quarter of 2020 and a penny ahead of our estimate.