Realty Income Corp. O is scheduled to release its Q4 and full-year 2023 results after the markets close on Feb 20, 2023. It is anticipated that the company’s quarterly results will reveal a year-over-year growth in revenues and funds from operations (FFO) per share.
In the preceding quarter, this monthly dividend-paying real estate investment trust (REIT) exceeded expectations with a 2.00% rise in adjusted FFO per share. The results showed year-over-year growth in the top line.
Over the past four quarters, the company has surpassed the Zacks Consensus Estimate for adjusted FFO per share in three instances and missed once, with an average surprise of 0.28%.
Analysing Realty Income Corporation’s Performance
Realty Income Corporation price-eps-surprise | Realty Income Corporation Quote
Key Considerations
US Retail Real Estate Market in Q4
According to a report from CBRE Group CBRE, the overall retail availability rate in the US dropped to a record-low of 4.7% by year-end, representing a 10 basis points (bps) decline quarter over quarter and a 31 bps decline year over year. The fourth quarter witnessed a net absorption of 12.5 million square feet, with the this property type experiencing positive net absorption. Additionally, construction completions marked record lows, and the average asking rent experienced growth, indicating a positive retail real estate environment.
Realty Income’s Portfolio & Predictions
Realty Income’s portfolio is primarily composed of industries selling essential goods and services. The company is expected to have experienced strong demand for its properties against the backdrop of a favorable retail real estate environment in the fourth quarter, thus bolstering its leasing activity.
Furthermore, the company’s diversified tenant base and sound underlying real estate quality are likely to have supported stable rental revenue generation. The Zacks Consensus Estimate for quarterly revenues stands at $1.05 billion, indicating an 18.26% increase from the year-ago quarter’s reported figure.
Realty Income is projected to have sustained a robust balance sheet position in the quarter. However, it might have been affected by higher e-commerce adoption and increased interest expenses during the period.
Q4 Development
In November 2023, Realty Income and Digital Realty DLR established a joint venture to develop two build-to-suit data centers in Northern Virginia. This move marks Realty Income’s entry into the data center sector, diversifying its portfolio. The retail REIT invested around $200 million to secure an 80% equity interest in the venture, while Digital Realty maintains a 20% interest.
Quantitative Model Predictions
Analysts predict a positive surprise in 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 surpassing FFO estimates, which is the case here. Realty Income currently has a Zacks Rank of 3 and an Earnings ESP of +2.80%.
Other Stocks to Watch
Two other stocks from the broader REIT sector, Extra Space Storage Inc. EXR and American Homes 4 Rent AMH, also hold potential to surprise this quarter based on the model’s insights.
Conclusion
Realty Income’s Q4 earnings are eagerly anticipated and are likely to be heavily impacted by the underperforming retail real estate market and the company’s recent venture into data centers.
Note: The earnings discussed in this article represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
