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Realty Income (O) to Post Q1 Earnings: What's in the Cards?

Realty Income Corp. O is slated to report first-quarter 2023 results on May 3 after market close. As we gear up for the release of Realty Income's first-quarter 2023 earnings report, it's essential to take a closer look at the company's performance and the factors that are likely to have influenced it in this period.

Prior to that, let us make a quick recap of the past performances of Realty Income. In the last reported quarter, this monthly dividend-paying real estate investment trust (REIT) delivered a surprise of 2.04% in terms of adjusted FFO per share. Results reflected better-than-expected revenues in the quarter. The company benefited from expansionary effects and a healthy pipeline of opportunities globally.

Over the trailing four quarters, Realty Income surpassed estimates on all occasions, the average surprise being 1.82%. This is depicted in the graph below:

Realty Income Corporation Price and EPS Surprise

Realty Income Corporation Price and EPS Surprise
Realty Income Corporation Price and EPS Surprise

Realty Income Corporation price-eps-surprise | Realty Income Corporation Quote

Factors to Note

The first quarter of 2023 has seen its fair share of challenges in the commercial real estate market, with uncertainties surrounding interest rate hikes and global geopolitical concerns causing headwinds. Despite these challenges, Realty Income is expected to exhibit resilience in its first-quarter 2023 earnings report. Here are the main factors that have contributed to this expectation:

This retail REIT has a diversified tenant base and derives a majority of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and/or low-price-point component to their business. Benefiting from this, the company is likely to have enjoyed stable rental revenues in the quarter.

Realty Income's occupancy rates have historically remained above 96%, and this trend is expected to have continued in the first quarter of 2023. High occupancy rates contribute to the company's strong cash flow and dividend payments.

Realty Income has been strategic in its approach to acquiring and disposing of properties, capitalizing on opportunities to maximize its returns. The company's acquisition pipeline remains strong, with a focus on high-quality assets that offer attractive risk-adjusted returns.

In the first quarter, Realty Income signed a definitive agreement with EG Group, a leading independent convenience retailer based in the U.K., to acquire up to 415 single-tenant convenience store properties in the United States. However, increasing interest expenses are anticipated to have cast a pall on the company’s quarterly performance.

Projections for Q1 2023

Amid these tailwinds, Realty Income’s top line is expected to have improved. The Zacks Consensus Estimate for quarterly revenues is pegged at $910.82 million, suggesting a 12.82% increase from the year-ago quarter’s reported figure. The consensus mark for rental revenues (excluding reimbursable) is pegged at $816.77 million, up from the prior-year quarter’s $755.56 million.

Our estimate for first-quarter occupancy is currently pegged at 98.7%, while same-store rental revenues are estimated to grow 0.7% year over year.

The company’s activities in the to-be-reported quarter were adequate to garner analysts’ confidence. The Zacks Consensus Estimate for the first-quarter FFO per share has been revised a cent upward to $1.02 in the past week. The figure also implies 4.08% year-over-year growth.

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 +0.12%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our model shows that Federal Realty Investment Trust FRT and Agree Realty Corporation ADC also have the right combination of elements to report a surprise this quarter.

Federal Realty is slated to report quarterly numbers on May 4. FRT has an Earnings ESP of +0.57% and carries a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Agree Realty Corporation, scheduled to report quarterly numbers on May 4, has an Earnings ESP of +0.59% and carries a Zacks Rank of 3.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Conclusion

As we await the official the first-quarter 2023 earnings release, Realty Income appears on track for another stable quarter. The company's focus on essential businesses, strong rent collection rates and anticipated FFO growth should support ongoing dividend increases. However, investors should remain vigilant about potential headwinds in the retail real estate market and keep an eye on O's payout ratio to ensure the safety and growth of their dividends.


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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