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What's in Store for Realty Income's (O) Earnings in Q4?
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Realty Income Corp.’s (O - Free Report) fourth-quarter 2021 results are slated to be released on Feb 22 release, after the closing bell. The retail REIT’s quarterly results will likely display increases in both revenues and funds from operations (FFO) per share.
In the last reported quarter, this monthly dividend-paying real estate investment trust (REIT) missed the Zacks Consensus Estimate in terms of FFO per share.
Over the trailing four quarters, Realty Income’s bottom line surpassed estimates on two occasions, met the mark once and missed the same in the remaining quarter, the average surprise being 0.32%. This is depicted in the graph below:
Let’s see how things have shaped up prior to this announcement.
Factors to Consider
Per a CBRE Group report, total retail sales increased 16.9% year over year in the fourth quarter, reflecting a strong holiday shopping season in 2021. The fourth quarter marked the fifth consecutive quarter of positive retail absorption (+20.6 million square feet). Also, the average asking rent improved 1.6% year over year to $21.87 per square foot in the fourth quarter as prime space became scarce.
The overall retail availability rate shrank 30 basis points in the December-end quarter to a 10-year low of 5.6%. New construction deliveries were muted in the fourth quarter, with 23.5 million square feet delivered in 2021, down 36% year over year. The scarcity of new prime space has fueled occupancy levels and aided growth in rents.
Realty Income is likely to have gained from the retail real estate market recovery. Its top four industries (representing more than 37% of rental revenues as of Sep 30, 2021), namely convenience stores (11.6 % of revenues), grocery stores (10.9%), dollar stores (7.5%) and drug stores (7.2%), sold essential goods and continued thriving even during the pandemic. This trend is expected to continue in the fourth quarter.
Moreover, Realty Income’s portfolio is well diversified with respect to tenant, industry, geography and property type. This diversification might have helped it mitigate risks associated with a particular industry, geography or asset type.
Realty Income’s solid underlying real-estate quality and prudent underwriting at acquisition helped it maintain its high-occupancy levels consistently. In the fourth quarter too, occupancy level is likely to have been healthy. Also, with O’s high-quality real-estate portfolio leased to large, well-capitalized tenants, its cash flows are expected to have been decent.
Realty Income focuses on external growth through exploration of accretive acquisition opportunities. In the December business update, O announced that from Oct 1, 2021, through Dec 1, 2021, O acquired properties at a purchase price of $1.1 billion.
During the quarter, this REIT also announced the closing of its merger with VEREIT. The combined entity is poised to benefit from the enhanced size, scale, diversification and synergies.
The Zacks Consensus Estimate for quarterly revenues is pegged at $592.3 million, suggesting a 41.7% increase from the year-ago quarter’s reported figure. The consensus mark for rental revenues (including reimbursable) is $542 million, indicating growth from the prior quarter’s $486 million and the year-ago period’s $415 million.
Nevertheless, store closures and bankruptcies might have been deterrents for Realty Income. While situations are improving, any disruption from the COVID-19 variants might have affected the results.
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 been unrevised at 93 cents in the past month. However, the figure suggests 10.7% growth from the year-ago quarter’s reported figure.
Management projects the 2021 adjusted FFO per share at $3.55 to $3.60, suggesting an increase of 5.5% annual growth based on the mid-point.
For the full year, the Zacks Consensus Estimate for FFO per share has been unrevised at $3.58 over the past month. The figure indicates a 5.6% increase from the prior-year reported number. The same for revenues is pegged at $2.02 billion and reflects a 22% improvement from the prior-year reported number.
Here’s What Our Quantitative Model Predicts
Our proven model does not predict a positive surprise in terms of FFO per share for O 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 an FFO beat. However, that’s not the case here.
Realty Income currently has a Zacks Rank #3 and an Earnings ESP of -0.54%. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.
Stocks That Warrant a Look
A few stocks worth considering from the REIT sector are Pebblebrook Hotel Trust (PEB - Free Report) , Life Storage and National Storage Affiliates Trust (NSA - Free Report) . Our model shows that these have the right combination of elements to deliver a surprise this reporting cycle:
Pebblebrook Hotel, slated to release fourth-quarter earnings on Feb 22, has an Earnings ESP of +14.29% and a Zacks Rank of 3 at present.
Life Storage, scheduled to report quarterly figures on Feb 24, has an Earnings ESP of +0.66% and a Zacks Rank of 3, currently.
National Storage Affiliates, slated to release fourth-quarter earnings on Feb 22, has an Earnings ESP of +1.06% and a Zacks Rank #2 (Buy) at present.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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What's in Store for Realty Income's (O) Earnings in Q4?
Realty Income Corp.’s (O - Free Report) fourth-quarter 2021 results are slated to be released on Feb 22 release, after the closing bell. The retail REIT’s quarterly results will likely display increases in both revenues and funds from operations (FFO) per share.
In the last reported quarter, this monthly dividend-paying real estate investment trust (REIT) missed the Zacks Consensus Estimate in terms of FFO per share.
Over the trailing four quarters, Realty Income’s bottom line surpassed estimates on two occasions, met the mark once and missed the same in the remaining quarter, the average surprise being 0.32%. 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
Per a CBRE Group report, total retail sales increased 16.9% year over year in the fourth quarter, reflecting a strong holiday shopping season in 2021. The fourth quarter marked the fifth consecutive quarter of positive retail absorption (+20.6 million square feet). Also, the average asking rent improved 1.6% year over year to $21.87 per square foot in the fourth quarter as prime space became scarce.
The overall retail availability rate shrank 30 basis points in the December-end quarter to a 10-year low of 5.6%. New construction deliveries were muted in the fourth quarter, with 23.5 million square feet delivered in 2021, down 36% year over year. The scarcity of new prime space has fueled occupancy levels and aided growth in rents.
Realty Income is likely to have gained from the retail real estate market recovery. Its top four industries (representing more than 37% of rental revenues as of Sep 30, 2021), namely convenience stores (11.6 % of revenues), grocery stores (10.9%), dollar stores (7.5%) and drug stores (7.2%), sold essential goods and continued thriving even during the pandemic. This trend is expected to continue in the fourth quarter.
Moreover, Realty Income’s portfolio is well diversified with respect to tenant, industry, geography and property type. This diversification might have helped it mitigate risks associated with a particular industry, geography or asset type.
Realty Income’s solid underlying real-estate quality and prudent underwriting at acquisition helped it maintain its high-occupancy levels consistently. In the fourth quarter too, occupancy level is likely to have been healthy. Also, with O’s high-quality real-estate portfolio leased to large, well-capitalized tenants, its cash flows are expected to have been decent.
Realty Income focuses on external growth through exploration of accretive acquisition opportunities. In the December business update, O announced that from Oct 1, 2021, through Dec 1, 2021, O acquired properties at a purchase price of $1.1 billion.
During the quarter, this REIT also announced the closing of its merger with VEREIT. The combined entity is poised to benefit from the enhanced size, scale, diversification and synergies.
The Zacks Consensus Estimate for quarterly revenues is pegged at $592.3 million, suggesting a 41.7% increase from the year-ago quarter’s reported figure. The consensus mark for rental revenues (including reimbursable) is $542 million, indicating growth from the prior quarter’s $486 million and the year-ago period’s $415 million.
Nevertheless, store closures and bankruptcies might have been deterrents for Realty Income. While situations are improving, any disruption from the COVID-19 variants might have affected the results.
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 been unrevised at 93 cents in the past month. However, the figure suggests 10.7% growth from the year-ago quarter’s reported figure.
Management projects the 2021 adjusted FFO per share at $3.55 to $3.60, suggesting an increase of 5.5% annual growth based on the mid-point.
For the full year, the Zacks Consensus Estimate for FFO per share has been unrevised at $3.58 over the past month. The figure indicates a 5.6% increase from the prior-year reported number. The same for revenues is pegged at $2.02 billion and reflects a 22% improvement from the prior-year reported number.
Here’s What Our Quantitative Model Predicts
Our proven model does not predict a positive surprise in terms of FFO per share for O 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 an FFO beat. However, that’s not the case here.
Realty Income currently has a Zacks Rank #3 and an Earnings ESP of -0.54%. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.
Stocks That Warrant a Look
A few stocks worth considering from the REIT sector are Pebblebrook Hotel Trust (PEB - Free Report) , Life Storage and National Storage Affiliates Trust (NSA - Free Report) . Our model shows that these have the right combination of elements to deliver a surprise this reporting cycle:
Pebblebrook Hotel, slated to release fourth-quarter earnings on Feb 22, has an Earnings ESP of +14.29% and a Zacks Rank of 3 at present.
Life Storage, scheduled to report quarterly figures on Feb 24, has an Earnings ESP of +0.66% and a Zacks Rank of 3, currently.
National Storage Affiliates, slated to release fourth-quarter earnings on Feb 22, has an Earnings ESP of +1.06% and a Zacks Rank #2 (Buy) at present.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.