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What's in the Offing for Realty Income (O) in Q4 Earnings?
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Realty Income Corp. (O - Free Report) is slated to report fourth-quarter and full-year 2023 results on Feb 20 after market close. 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) pulled off a surprise of 2.00% in terms of adjusted FFO per share. Results displayed year-over-year growth in the top line.
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 0.28%. This is depicted in the graph below:
Per a report from CBRE Group (CBRE - Free Report) , the U.S. overall retail availability rate hit a record-low 4.7% at year-end, down 10 basis points (bps) quarter over quarter and 31 bps year over year. This property type continues to experience positive net absorption, with the fourth quarter net absorption of 12.5 million square feet, bringing the 2023 annual total to 40 million square feet.
There is a dearth of supply, and elevated construction costs and interest rates are likely to continue to keep new supply in check. Fourth-quarter and full-year construction completions of 5.3 million and 27 million square feet, respectively, marked record lows. The average asking rent was up by 0.8% in the fourth quarter and 2.4% for the year to $23.76 per square foot, and both the growth rates were higher than their 10-year averages, per the CBRE report.
O’s Portfolio & Projections
Realty Income’s portfolio comprises a significant portion of top industries selling essential goods and services. Given a favorable retail real estate environment in the fourth quarter, we expect the company to have witnessed healthy demand for its properties, aiding leasing activity.
The company enjoys a diversified tenant base with respect to tenant, industry, geography and property type. It 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. This is likely to have supported stable rental revenue generation in the quarter, boosting the top line.
Further, given Realty Income’s solid underlying real estate quality and record of prudent underwriting at acquisitions, occupancy at the company’s properties is anticipated to have remained high. Since 1998, O’s occupancy level has never been below 96%. This trend is likely to have continued in the fourth quarter.
The Zacks Consensus Estimate for quarterly revenues is pegged at $1.05 billion, suggesting an 18.26% increase from the year-ago quarter’s reported figure. The consensus mark for rental revenues (excluding reimbursable) is pegged at $963.08 million, up from $947.55 million recorded in the prior quarter and $817.70 million in the year-ago quarter.
Realty Income is anticipated to have maintained a robust balance sheet position in the quarter, supporting its growth endeavors.
However, higher e-commerce adoption might have partly limited the growth tempo. Also, higher interest expenses during the quarter are likely to have been a spoilsport.
The company’s activities during the to-be-reported quarter were adequate to garner analysts’ confidence. The Zacks Consensus Estimate for the quarterly AFFO per share has been revised a cent upward to $1.02 over the past month. The figure implies 2% year-over-year growth.
For 2023, Realty Income projected AFFO per share in the range of $3.98-$4.01. The full-year projections assume same-store rent growth of approximately 1.5% and occupancy of more than 98%.
For the full year, the Zacks Consensus Estimate for AFFO per share is pegged at $4.01. The figure indicates a 2.3% increase year over year on 21.23% year-over-year growth in revenues to $4.05 billion.
Q4 Development
In November 2023, Realty Income and Digital Realty (DLR - Free Report) entered into a joint venture to facilitate the development of two build-to-suit data centers in Northern Virginia. The move marks Realty Income's maiden foray into the data center sector, diversifying its portfolio. The retail REIT invested around $200 million, securing an 80% equity interest in the venture, while Digital Realty maintains a 20% interest.
Here Is What Our Quantitative Model Predicts:
Our proven model predicts a 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 chances of an FFO beat, which is the case here.
Realty Income currently has a Zacks Rank of 3 and an Earnings ESP of +2.80%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks That Warrant a Look
Here are two other stocks from the broader REIT sector — Extra Space Storage Inc. (EXR - Free Report) and American Homes 4 Rent (AMH - Free Report) — you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter.
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.
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What's in the Offing for Realty Income (O) in Q4 Earnings?
Realty Income Corp. (O - Free Report) is slated to report fourth-quarter and full-year 2023 results on Feb 20 after market close. 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) pulled off a surprise of 2.00% in terms of adjusted FFO per share. Results displayed year-over-year growth in the top line.
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 0.28%. 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
US Retail Real Estate Market in Q4
Per a report from CBRE Group (CBRE - Free Report) , the U.S. overall retail availability rate hit a record-low 4.7% at year-end, down 10 basis points (bps) quarter over quarter and 31 bps year over year. This property type continues to experience positive net absorption, with the fourth quarter net absorption of 12.5 million square feet, bringing the 2023 annual total to 40 million square feet.
There is a dearth of supply, and elevated construction costs and interest rates are likely to continue to keep new supply in check. Fourth-quarter and full-year construction completions of 5.3 million and 27 million square feet, respectively, marked record lows. The average asking rent was up by 0.8% in the fourth quarter and 2.4% for the year to $23.76 per square foot, and both the growth rates were higher than their 10-year averages, per the CBRE report.
O’s Portfolio & Projections
Realty Income’s portfolio comprises a significant portion of top industries selling essential goods and services. Given a favorable retail real estate environment in the fourth quarter, we expect the company to have witnessed healthy demand for its properties, aiding leasing activity.
The company enjoys a diversified tenant base with respect to tenant, industry, geography and property type. It 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. This is likely to have supported stable rental revenue generation in the quarter, boosting the top line.
Further, given Realty Income’s solid underlying real estate quality and record of prudent underwriting at acquisitions, occupancy at the company’s properties is anticipated to have remained high. Since 1998, O’s occupancy level has never been below 96%. This trend is likely to have continued in the fourth quarter.
The Zacks Consensus Estimate for quarterly revenues is pegged at $1.05 billion, suggesting an 18.26% increase from the year-ago quarter’s reported figure. The consensus mark for rental revenues (excluding reimbursable) is pegged at $963.08 million, up from $947.55 million recorded in the prior quarter and $817.70 million in the year-ago quarter.
Realty Income is anticipated to have maintained a robust balance sheet position in the quarter, supporting its growth endeavors.
However, higher e-commerce adoption might have partly limited the growth tempo. Also, higher interest expenses during the quarter are likely to have been a spoilsport.
The company’s activities during the to-be-reported quarter were adequate to garner analysts’ confidence. The Zacks Consensus Estimate for the quarterly AFFO per share has been revised a cent upward to $1.02 over the past month. The figure implies 2% year-over-year growth.
For 2023, Realty Income projected AFFO per share in the range of $3.98-$4.01. The full-year projections assume same-store rent growth of approximately 1.5% and occupancy of more than 98%.
For the full year, the Zacks Consensus Estimate for AFFO per share is pegged at $4.01. The figure indicates a 2.3% increase year over year on 21.23% year-over-year growth in revenues to $4.05 billion.
Q4 Development
In November 2023, Realty Income and Digital Realty (DLR - Free Report) entered into a joint venture to facilitate the development of two build-to-suit data centers in Northern Virginia. The move marks Realty Income's maiden foray into the data center sector, diversifying its portfolio. The retail REIT invested around $200 million, securing an 80% equity interest in the venture, while Digital Realty maintains a 20% interest.
Here Is What Our Quantitative Model Predicts:
Our proven model predicts a 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 chances of an FFO beat, which is the case here.
Realty Income currently has a Zacks Rank of 3 and an Earnings ESP of +2.80%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks That Warrant a Look
Here are two other stocks from the broader REIT sector — Extra Space Storage Inc. (EXR - Free Report) and American Homes 4 Rent (AMH - Free Report) — you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter.
Extra Space Storage, scheduled to report quarterly numbers on Feb 27, has an Earnings ESP of +1.08% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
American Homes 4 Rent, slated to release quarterly numbers on Feb 22, has an Earnings ESP of +1.68% and carries a Zacks Rank of 3 at present.
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.