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Today we are training Just released fourth quarter financial results outside of real estate income corp. (NYSE:O).When we last covered the company, we told you Spirit Real Estate Capital Corporation (New York Stock Exchange:Stryker) The acquisition has been completed and shareholders have approved the transaction. We discuss the long-term impact of this acquisition on Realty Income’s portfolio.This trade comes as we were short real estate investment trusts (REITs) in 2023 until the fall of 2023, when we turned bullish and specifically noted that we would long The stock price is about $40. Share prices have appreciated, but the sector should benefit when interest rates start to ease, which will alleviate hefty interest payments on new or refinanced debt.
While companies in this space should generally benefit, we believe real estate income is one of the Better drama. There are also some we like, some we cover publicly, and some we reserve for our members. That said, Realty Income is working to find deals with consumer price index (CPI)-based rental escalators that would become unrestricted over time. We like the fact that 30% of the leases in the international portfolio have such clauses. We believe this will be a driver of same-store rental growth and overall revenue growth over time.
In our last column discussing Spirit Realty’s shareholder approval of the acquisition, we also provided forecasts for the just-released earnings report. In this column, we discuss the main results related to the predictions outlined previously.
Keep in mind that the results here don’t have any information from the Spirit Realty deal, as that deal didn’t receive shareholder approval until January 2024. While most readers know this, we just wanted to let those who are new to the name know. So the results we’re seeing are largely reflective of the portfolio, with some slight changes since we started buying in the fall. Looking forward, the overall growth rate from the acquisition of Spirt will be around 3%, but should increase Realty Income’s annualized contracted rents by 20%. So keep future impacts in mind when looking at the numbers presented here.
Our guidance for the fourth quarter is for quarterly revenue of $990 million to $1 billion. Fiscal performance was quite strong, beating expectations and consensus. Frankly, we’d like to see stock prices get a boost on this news after the market and REITs took a breather from the slight rise in the 10-year Treasury yield ($10) over the past few weeks. We were happy to see something that exceeded our expectations. Our estimates are significantly ahead of consensus. Revenue came in at $1.08 billion versus the midpoint of our forecast of $995 million, well above the consensus of $983.8 million. This is a nice year-over-year expansion compared to the fourth quarter of 2022. This follows a strong third quarter with revenue of $1.04 billion, net income of $233 million and adjusted funds from operations (AFFO) of $1.04 per share.
Same-store rental revenue is also critical, and we expect revenue to be $725-$735 million, with residual revenue from other activities (including new leases, loans) totaling approximately $265 million. Real Estate Revenue reported same-store revenue of $714 million, slightly below our expectations. Prior to this, in the third quarter, same-store rental revenue was $716 million. Keep in mind that properties in France, Germany, Ireland, Italy or Portugal are not included in this pool.
In terms of actual earnings on these numbers, we’re targeting Q4 net income of $190-$210 million, and real estate revenue is targeting $1.03-$1.05 of capital from operations. Net profit exceeded our expectations, mainly because revenue exceeded expectations, reaching $218 million. Taking into account customary adjustments, AFFO was $1.01 per share, $0.03 below our estimate. For the year, AFFO was $4.00. This is due to 266 leases expiring during the quarter and higher interest expense on existing debt. The occupancy rate was 98.6%, down from 98.8% at the beginning of the third quarter. Is this cause for concern? It’s down slightly, but the quarter AFFO misses aren’t trending. Recall that Q3 AFFO exceeded expectations.
With the Spirit acquisition completed, Realty Income expects leverage to be approximately 5.5x. But previous quarterly results showed net debt to adjusted EBITDA (annualized) at 5.5 times. As of the end of the fourth quarter, the company had raised $1.6 billion through stock sales. They also issued more notes in December and January (Q1 2024). Realty Income ended the year with $4.1 billion in liquidity, consisting of $232.9 million in cash and cash equivalents, $338 million in outstanding equity offerings and $3.5 billion in available funds under a $4.25 billion revolving credit facility.
We think this was a good quarter, especially given the difficult 2023 for REIT operations. Looking ahead, guidance is mixed. The company expects same-store rent growth of 1% and full-year occupancy rates to exceed 98%. They also forecast $2 billion in acquisitions (excluding the Spirit acquisition). The moral of the story? Occupancy rates remain strong and real estate income continues to be invested. When interest rates fall, investment costs fall. But for now, it’s high, which is why bonds are being issued and so on. As for AFFO guidance, it will increase from $4.00 in 2023 to the mid-point of $4.17. Overall, we think this is respectable guidance.
We won’t have any further information on the current quarter or the near future ahead of tomorrow’s conference call at 2:00 pm ET. We’re most interested in the Q&A there, and we’ll provide any important updates from that call in the comments section of this column. However, we think this is a strong report, all things considered, and think the outlook is bright for the company in 2024 and beyond. We continue to view Realty Income Corporation stock as a weak buy for long-term investing, and the monthly salary you receive through dividends is huge for income.
Your opinion matters
What do you think about Miss AFFO? Can the company continue to increase its dividend? Or will the increase be so small that investors will barely notice it? We believe the guidance is reasonable and rate the stock a Buy. do you agree? Please let the community know below.
