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What's in the Cards for Realty Income's (O) Q4 Earnings?
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Realty Income Corp. (O - Free Report) is scheduled to report fourth-quarter and full-year 2020 results on Feb 22, after the bell. While the company’s results are anticipated to reflect year-over-year increase in revenues, its funds from operations (FFO) per share might display a decline.
In the last reported quarter, this monthly dividend-paying real estate investment trust (REIT) posted a negative surprise of 3.57% in terms of FFO per share. Results reflected the adverse impact of the pandemic and rent collection woes, particularly in the theater industry.
Realty Income has a decent surprise history. Over the trailing four quarters, the company surpassed estimates on three occasions and missed in the other, the average beat being 4.18%. This is depicted in the graph below:
Let’s see how things have shaped up prior to this announcement.
Factors to Consider
The retail real estate market had already been battling dwindling traffic issues, store closures and retailer bankruptcies, and the pandemic has only further aggravated its woes. However, per a report from CBRE Group (CBRE - Free Report) , solid holiday spending helped total retail sales in the fourth quarter, which remained above the first-quarter 2020 pre-pandemic level. In fact, the immunization process roll-out and the additional fiscal stimulus have boosted consumer sentiment.
Retail sales grew 3.9% year on year during the December-end quarter to $1.64 trillion. Though non-store retailers have been witnessing decent sales activity, this holiday season saw higher-than-expected physical store shopping, which is encouraging for the retail real estate market.
The total retail availability rate remained sequentially unchanged at 6.6% in the fourth quarter but expanded 40 basis points year on year thanks to the pandemic. Particularly, the power center segment reported the largest increase year on year. Moreover, rates have varied widely in terms of geography, with the sub-urban areas and tier II cities outperforming higher density urban areas.
Net absorption of 7.1 million square feet during the October-December period marked the first quarterly gain since the outbreak of the global health crisis in the January-March quarter of 2020. Except power centers, every property type recorded positive net absorption. Amid significant e-commerce penetration and store closures, power centers have been affected as well. However, total retail completions plummeted nearly 60% year on year during the fourth quarter due to the COVID-associated restrictions.
In case of Realty Income, its essential retail tenants in its roster have been the saving graceduring this crisis. The company’s top four industries, which are convenience stores (accounting for 12% rental revenues for December), grocery stores (9.6%), drug stores (8.2%), dollar stores (7.6%) and sell essential goods and continue to flourish even amid the pandemic. Rent collections from these tenants have been 100% in November and December, per management’s business update provided in January 2021 institutional investor presentation.
Rent collections from its investment-grade rated tenants, which account for 49% of the annualized rental revenues, were already 100% for December, November and October. Further, the company’s top 20 tenants paid 89.7% of the contractual rent due for December, 90.2% for November and 89.8% for October.
Realty Income has also emerged as a company with decent financial health through its efforts to boost balance-sheet strength. This trend is likely to have continued in the fourth quarter as well. Moreover, situations have improved and with the vast majority of Realty Income’s retail locations now being open, rent collection trends are expected to improve further.
The Zacks Consensus Estimate for quarterly revenues is pegged at $417.5 million, suggesting a 5% increase from the year-ago quarter.
Nevertheless, retail businesses depend on customer traffic and consumers are avoiding gathering in large public spaces due to the pandemic. This has taken a toll on tenants’ liquidity who are unable to meet rental obligations. Particularly, the company’s tenants from theater as well as health and fitness have been adversely impacted by the government-mandated closures and social-distancing requirements. The percentage of total portfolio unpaid rent attributed to theaters in December amounted to 76%.
Realty Income’s activities during the soon-to-be-reported quarter were inadequate to gain analysts’ confidence. The Zacks Consensus Estimate for the fourth-quarter FFO per share has remained unrevised at 84 cents in a month’s time. It also suggested a decline of 2.3% year on year.
For the full year, the Zacks Consensus Estimate for FFO per share has remained unchanged at $3.40 over the past month. However, the figure indicates a 2.41% increase year on year. Revenues are projected to climb 10.8% year on year to $1.65 billion.
Here is what our quantitative model predicts:
Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Realty Income this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Realty Income currently carries a Zacks Rank #3 (Hold) and has an Earnings ESP of 0.00%.
Stocks That Warrant a Look
Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:
American Tower Corporation (AMT - Free Report) , set to report quarterly numbers on Feb 25, currently has an Earnings ESP of +7.49% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Life Storage, Inc. , slated to release earnings figures on Feb 22, has an Earnings ESP of +0.43% and holds a Zacks Rank of 3, currently.
Public Storage (PSA - Free Report) , scheduled to announce fourth-quarter results on Feb 24, has an Earnings ESP of +0.53% and carries a Zacks Rank of 3 at present.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Image: Bigstock
What's in the Cards for Realty Income's (O) Q4 Earnings?
Realty Income Corp. (O - Free Report) is scheduled to report fourth-quarter and full-year 2020 results on Feb 22, after the bell. While the company’s results are anticipated to reflect year-over-year increase in revenues, its funds from operations (FFO) per share might display a decline.
In the last reported quarter, this monthly dividend-paying real estate investment trust (REIT) posted a negative surprise of 3.57% in terms of FFO per share. Results reflected the adverse impact of the pandemic and rent collection woes, particularly in the theater industry.
Realty Income has a decent surprise history. Over the trailing four quarters, the company surpassed estimates on three occasions and missed in the other, the average beat being 4.18%. This is depicted in the graph below:
Realty Income Corporation Price and EPS Surprise
Realty Income Corporation price-eps-surprise | Realty Income Corporation Quote
Let’s see how things have shaped up prior to this announcement.
Factors to Consider
The retail real estate market had already been battling dwindling traffic issues, store closures and retailer bankruptcies, and the pandemic has only further aggravated its woes. However, per a report from CBRE Group (CBRE - Free Report) , solid holiday spending helped total retail sales in the fourth quarter, which remained above the first-quarter 2020 pre-pandemic level. In fact, the immunization process roll-out and the additional fiscal stimulus have boosted consumer sentiment.
Retail sales grew 3.9% year on year during the December-end quarter to $1.64 trillion. Though non-store retailers have been witnessing decent sales activity, this holiday season saw higher-than-expected physical store shopping, which is encouraging for the retail real estate market.
The total retail availability rate remained sequentially unchanged at 6.6% in the fourth quarter but expanded 40 basis points year on year thanks to the pandemic. Particularly, the power center segment reported the largest increase year on year. Moreover, rates have varied widely in terms of geography, with the sub-urban areas and tier II cities outperforming higher density urban areas.
Net absorption of 7.1 million square feet during the October-December period marked the first quarterly gain since the outbreak of the global health crisis in the January-March quarter of 2020. Except power centers, every property type recorded positive net absorption. Amid significant e-commerce penetration and store closures, power centers have been affected as well. However, total retail completions plummeted nearly 60% year on year during the fourth quarter due to the COVID-associated restrictions.
In case of Realty Income, its essential retail tenants in its roster have been the saving graceduring this crisis. The company’s top four industries, which are convenience stores (accounting for 12% rental revenues for December), grocery stores (9.6%), drug stores (8.2%), dollar stores (7.6%) and sell essential goods and continue to flourish even amid the pandemic. Rent collections from these tenants have been 100% in November and December, per management’s business update provided in January 2021 institutional investor presentation.
Rent collections from its investment-grade rated tenants, which account for 49% of the annualized rental revenues, were already 100% for December, November and October. Further, the company’s top 20 tenants paid 89.7% of the contractual rent due for December, 90.2% for November and 89.8% for October.
Realty Income has also emerged as a company with decent financial health through its efforts to boost balance-sheet strength. This trend is likely to have continued in the fourth quarter as well. Moreover, situations have improved and with the vast majority of Realty Income’s retail locations now being open, rent collection trends are expected to improve further.
The Zacks Consensus Estimate for quarterly revenues is pegged at $417.5 million, suggesting a 5% increase from the year-ago quarter.
Nevertheless, retail businesses depend on customer traffic and consumers are avoiding gathering in large public spaces due to the pandemic. This has taken a toll on tenants’ liquidity who are unable to meet rental obligations. Particularly, the company’s tenants from theater as well as health and fitness have been adversely impacted by the government-mandated closures and social-distancing requirements. The percentage of total portfolio unpaid rent attributed to theaters in December amounted to 76%.
Realty Income’s activities during the soon-to-be-reported quarter were inadequate to gain analysts’ confidence. The Zacks Consensus Estimate for the fourth-quarter FFO per share has remained unrevised at 84 cents in a month’s time. It also suggested a decline of 2.3% year on year.
For the full year, the Zacks Consensus Estimate for FFO per share has remained unchanged at $3.40 over the past month. However, the figure indicates a 2.41% increase year on year. Revenues are projected to climb 10.8% year on year to $1.65 billion.
Here is what our quantitative model predicts:
Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Realty Income this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Realty Income currently carries a Zacks Rank #3 (Hold) and has an Earnings ESP of 0.00%.
Stocks That Warrant a Look
Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:
American Tower Corporation (AMT - Free Report) , set to report quarterly numbers on Feb 25, currently has an Earnings ESP of +7.49% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Life Storage, Inc. , slated to release earnings figures on Feb 22, has an Earnings ESP of +0.43% and holds a Zacks Rank of 3, currently.
Public Storage (PSA - Free Report) , scheduled to announce fourth-quarter results on Feb 24, has an Earnings ESP of +0.53% and carries a Zacks Rank of 3 at present.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>