Realty Income Corp.’s (O Quick QuoteO - Free Report) first-quarter 2022 results are slated for a May 4 release after the bell. The company’s quarterly results are likely to display increases in revenues and funds from operations (FFO) per share.

In the last reported quarter, this monthly dividend-paying real estate investment trust (REIT) delivered a surprise of 1.08% in terms of FFO per share. Results reflected a better-than-expected improvement in revenues.

Over the trailing four quarters, the company surpassed estimates on two occasions, met on one and missed the same on the other, the average surprise being 0.29%. 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 before this announcement.

Factors to Consider

The retail real estate market continued to recover in the first quarter despite its set of challenges, with rising rents and a lower overall availability rate.

Per a report from CBRE Group, total retail sales increased 12.8% year over year to $2 trillion in the first quarter, with in-store retail sales displaying higher growth than e-commerce retail sales. The overall net absorption almost doubled year over year to 32 million square feet in the first quarter, marking the sixth consecutive quarter of positive demand.

Availability is also at its lowest mark in at least a decade. The overall retail availability rate was 5.3% in the March-end quarter, contracting 40 basis points quarter over quarter and 1.2 percentage points year over year. Also, there is tightness in the market, with limited new retail supply. Total construction completions decreased to 5.3 million square feet in the first quarter, which marks the second-lowest quarterly total in the past decade.

The average asking rent improved by 2.2% year over year in the first quarter to $22.17 per square foot, which marks the highest annual rate since the first quarter of 2017.

Realty Income’s essential retail tenants in its roster have been the saving grace amid this long-standing health crisis. The company’s top four industries (representing more than 33% of rental revenues as of Dec 31, 2021) — grocery stores (10.2%), convenience stores (9.1% of revenues), dollar stores (7.5%) and drug stores (6.6%) — sell essential goods and continued to thrive even during the pandemic. As such, O has received nearly all the contractual rent due from tenants in these industries since the pandemic started and this trend is likely to have continued in the first quarter as well.

Realty Income’s solid underlying real estate quality and prudent underwriting at acquisitions helped the company maintain its high occupancy levels consistently. In the first quarter too, the occupancy level is likely to have been healthy. Also, with the company’s high-quality real estate portfolio leased to large, well-capitalized tenants, its cash flows are expected to have been decent.

Realty Income also emerged as a company with decent financial health through its efforts to boost its balance-sheet strength. This trend is likely to have continued through the January-March period as well.

The company focuses on external growth through the exploration of accretive acquisition opportunities. Such trends are anticipated to have continued in the to-be-reported quarter.

In the first quarter, Realty Income announced the signing of a definitive agreement to acquire the Encore Boston Harbor Resort and Casino for $1.7 billion under a long-term net lease agreement with Wynn Resorts, Limited. It marked the company’s first purchase in the gaming industry.

The acquisitions of well-located commercial properties add to the company’s scale, offering a competitive edge to its industry. Hence, solid property acquisition volumes at decent investment spreads are likely to have aided the company’s performance.

The Zacks Consensus Estimate for quarterly revenues is pegged at $761.2 million, suggesting a 71.9% increase from the year-ago quarter. The consensus mark for rental revenues (including reimbursable) is $748 million, up from the prior quarter’s $679 million and the year-ago period’s $439 million.

However, Realty Income’s activities during the soon-to-be-reported quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the first-quarter FFO per share has remained unrevised at 97 cents. However, it suggests 12.8% growth year over year.

Here Is What Our Quantitative Model Predicts:

Our proven model does not conclusively predict a 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 carries a Zacks Rank #3 and has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are three stocks from the REIT sector — Simon Property Group (SPG Quick QuoteSPG - Free Report) , STORE Capital Corporation and Ventas, Inc. (VTR Quick QuoteVTR - Free Report) — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.

Simon Property Group, slated to release first-quarter earnings on May 9, has an Earnings ESP of +0.14% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

STORE Capital, scheduled to report quarterly numbers on May 4, has an Earnings ESP of +0.96% and carries a Zacks Rank of 3.

Ventas, slated to report quarterly numbers on May 5, has an Earnings ESP of +1.31% and carries a Zacks Rank of 3.
 
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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.