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Key Factors to Impact Realty Income (O) This Earnings Season
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Realty Income Corp. (O - Free Report) is slated to report second-quarter 2023 results on Aug 2, after the opening bell. The company’s quarterly results are likely to display year-over-year growth in revenues and funds from operations (FFO) per share.
In the last reported quarter, this monthly dividend-paying real estate investment trust (REIT) reported a negative surprise of 3.92% in terms of adjusted FFO per share. The quarterly results benefited from better-than-expected revenues, expansionary effects and a healthy pipeline of opportunities globally. However, higher operating expenses acted as a dampener.
Over the trailing four quarters, the company’s adjusted FFO per share surpassed the Zacks Consensus Estimate on three occasions and missed once, the average surprise being 0.58%. This is depicted in the graph below:
Per a report from CBRE Group (CBRE - Free Report) , the demand for retail space in the second quarter of 2023 was subdued, with net absorption totaling 5.9 million square feet. This represented the lowest level of demand since the sector experienced a negative net absorption of 10.1 million square feet in the third quarter of 2020.
However, on the brighter side, rent growth in the U.S. retail real estate market recommenced during the quarter. The overall average asking rent of $23.21 per square foot improved 0.6% quarter over quarter, marking the highest increase since the first quarter of 2022. Moreover, the figure improved 2.1% year over year. This growth was attributable to significant gains in Raleigh and various Florida markets, per the CBRE Group report.
In addition, elevated construction costs and economic concerns resulted in historically low levels of construction completions. The second quarter’s overall availability rate declined 10 basis points (bps) to 4.8%, a record low.
Amid this backdrop, Realty Income is anticipated to have benefited from the healthy demand for its properties that comprise major industries that sell essential goods and services.
This retail REIT derives most of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and/or low-price-point component to their business. Also, it has a diversified portfolio with respect to tenant, industry, geography and property type. This is likely to have helped the company generate stable rental revenues in the quarter, boosting its top line.
Further, Realty Income is likely to have maintained a high occupancy level during the to-be-reported quarter, given its solid underlying real estate quality and record of prudent underwriting at acquisitions. Our estimate for the company’s second-quarter occupancy stands at 99.1%.
The Zacks Consensus Estimate for quarterly revenues is pegged at $966.9 million, suggesting a 19.3% increase from the year-ago quarter’s reported figure. The consensus mark for rental revenues (excluding reimbursable) is $859.8 million, up from the prior-year quarter’s $759.8 million.
Realty Income is anticipated to have continued with its asset-base expansion during the quarter to bolster external growth via acquisitions and development activities. Its robust balance sheet position is likely to have supported such activities.
However, high interest rates might have raised interest expenses during the second quarter, impeding the company’s performance to some extent. We estimate quarterly interest expenses to rise 23.9% year over year.
The Zacks Consensus Estimate for the quarterly FFO per share has been revised 1% downward to 99 cents in the past month. The figure, however, implies 2.1% year-over-year growth.
Earning Whispers
Our proven model does not conclusively predict a surprise in terms of FFO per share for Realty Income this season. The combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher increases the odds of a beat. However, that is not the case here.
Earnings ESP: O has an Earnings ESP of -0.43%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here are some stocks that are worth considering from the REIT sector, as our model shows that these have the right combination of elements to deliver a surprise this reporting cycle:
Simon Property Group (SPG - Free Report) is scheduled to report quarterly figures on Aug 2. SPG currently has an Earnings ESP of +0.73% and a Zacks Rank #3.
Federal Realty Trust (FRT - Free Report) is scheduled to report quarterly figures on Aug 2. FRT currently has an Earnings ESP of +0.31% and a Zacks Rank #3.
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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Key Factors to Impact Realty Income (O) This Earnings Season
Realty Income Corp. (O - Free Report) is slated to report second-quarter 2023 results on Aug 2, after the opening bell. The company’s quarterly results are likely to display year-over-year growth in revenues and funds from operations (FFO) per share.
In the last reported quarter, this monthly dividend-paying real estate investment trust (REIT) reported a negative surprise of 3.92% in terms of adjusted FFO per share. The quarterly results benefited from better-than-expected revenues, expansionary effects and a healthy pipeline of opportunities globally. However, higher operating expenses acted as a dampener.
Over the trailing four quarters, the company’s adjusted FFO per share surpassed the Zacks Consensus Estimate on three occasions and missed once, the average surprise being 0.58%. This is depicted in the graph below:
Realty Income Corporation Price and EPS Surprise
Realty Income Corporation price-eps-surprise | Realty Income Corporation Quote
Factors to Note
Per a report from CBRE Group (CBRE - Free Report) , the demand for retail space in the second quarter of 2023 was subdued, with net absorption totaling 5.9 million square feet. This represented the lowest level of demand since the sector experienced a negative net absorption of 10.1 million square feet in the third quarter of 2020.
However, on the brighter side, rent growth in the U.S. retail real estate market recommenced during the quarter. The overall average asking rent of $23.21 per square foot improved 0.6% quarter over quarter, marking the highest increase since the first quarter of 2022. Moreover, the figure improved 2.1% year over year. This growth was attributable to significant gains in Raleigh and various Florida markets, per the CBRE Group report.
In addition, elevated construction costs and economic concerns resulted in historically low levels of construction completions. The second quarter’s overall availability rate declined 10 basis points (bps) to 4.8%, a record low.
Amid this backdrop, Realty Income is anticipated to have benefited from the healthy demand for its properties that comprise major industries that sell essential goods and services.
This retail REIT derives most of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and/or low-price-point component to their business. Also, it has a diversified portfolio with respect to tenant, industry, geography and property type. This is likely to have helped the company generate stable rental revenues in the quarter, boosting its top line.
Further, Realty Income is likely to have maintained a high occupancy level during the to-be-reported quarter, given its solid underlying real estate quality and record of prudent underwriting at acquisitions. Our estimate for the company’s second-quarter occupancy stands at 99.1%.
The Zacks Consensus Estimate for quarterly revenues is pegged at $966.9 million, suggesting a 19.3% increase from the year-ago quarter’s reported figure. The consensus mark for rental revenues (excluding reimbursable) is $859.8 million, up from the prior-year quarter’s $759.8 million.
Realty Income is anticipated to have continued with its asset-base expansion during the quarter to bolster external growth via acquisitions and development activities. Its robust balance sheet position is likely to have supported such activities.
However, high interest rates might have raised interest expenses during the second quarter, impeding the company’s performance to some extent. We estimate quarterly interest expenses to rise 23.9% year over year.
The Zacks Consensus Estimate for the quarterly FFO per share has been revised 1% downward to 99 cents in the past month. The figure, however, implies 2.1% year-over-year growth.
Earning Whispers
Our proven model does not conclusively predict a surprise in terms of FFO per share for Realty Income this season. The combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher increases the odds of a beat. However, that is not the case here.
Earnings ESP: O has an Earnings ESP of -0.43%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: O currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks That Warrant a Look
Here are some stocks that are worth considering from the REIT sector, as our model shows that these have the right combination of elements to deliver a surprise this reporting cycle:
Simon Property Group (SPG - Free Report) is scheduled to report quarterly figures on Aug 2. SPG currently has an Earnings ESP of +0.73% and a Zacks Rank #3.
Federal Realty Trust (FRT - Free Report) is scheduled to report quarterly figures on Aug 2. FRT currently has an Earnings ESP of +0.31% and a Zacks Rank #3.
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.