What’s in the cards for real estate revenue (O) in Q3 revenue?

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Realty Income Corp.The O’s third quarter 2022 results are scheduled for release Nov. 2 after the bell. The company’s quarterly results are expected to show year-over-year increases in revenue and funds from operations (FFO) per share.

In the last reported quarter, this monthly dividend-paying real estate investment trust (REIT) recorded a surprise 2.11% in terms of adjusted FFO per share. The results reflect better than expected revenue for the quarter. The company benefited from expansionary effects.

In the past four quarters, the company has exceeded estimates on three occasions and missed the same on one occasion, with the average surprise being 0.78%. This is represented in the graph below:

Realty Income Corporation award and surprise EPS

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

Let’s see how things went before this announcement.

Factors to Consider

According to a report by CBRE Group CBRE, retail metrics remained strong in the third quarter, given the start of the holiday season. Core retail sales, excluding gasoline and autos, rose 8.2% from the year-ago period. Overall retail availability fell nearly a full percentage point year-over-year to 5% in the third quarter. Average asking rent rose 2.5% year over year to $22.55 per square foot in the third quarter.

Realty Income’s third quarter results should reflect the benefits of having core commercial tenants on its roster. The focus on service rentals, non-discretionary and low-cost retailers should have helped the company enjoy stable rental income in the quarter.

In addition, Realty Income is focused on external growth by exploring accretive acquisition opportunities. These trends are expected to continue in the quarter ahead.

The strong underlying quality of the company’s real estate and prudent underwriting in acquisitions have helped the company maintain consistently high occupancy levels. Also in the third quarter, the occupancy level should have been healthy. Additionally, with the company’s high-quality real estate portfolio leased to large, well-capitalized tenants, its cash flow should have been decent.

Additionally, acquisitions of well-located commercial properties add to the company’s scale, providing a competitive edge to its industry. Therefore, strong property acquisition volumes at decent investment spreads likely contributed to O’s performance.

Zacks’ consensus estimate for quarterly revenue is pegged at $830.9 million, suggesting a 68.9% increase from the year-ago quarter. Rental revenue consensus mark (excluding refundables) is $776.43 million, up from $759.83 million in the prior quarter and $462.42 million in the prior year period .

Realty Income has become a company with decent financial health thanks to its efforts to strengthen the strength of its balance sheet. This trend probably continued during the July-September period as well.

However, Realty Income’s activity in the soon-to-be-announced quarter was not enough to earn analysts’ confidence. The Zacks consensus estimate for third-quarter FFO per share was revised down one cent south to 97 cents. However, it suggests 6.6% year-over-year growth.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a surprise FFO per share for O this season. The combination of a positive ESP Earnings and a Zacks rank of No. 1 (strong buy), 2 (buy), or 3 (hold) increases the chance of an FFO beat. However, that is not the case here.

Realty Income currently carries a Zacks rank of #3 and has an Income ESP of -0.86%. You can discover the best stocks to buy or sell before they’re flagged with our Income ESP filter.

Actions to consider

Here are some stocks from the broader REIT sector — public storage PSA, Additional storage space Inc. EXR and Host Hotels & Resorts, Inc. HST – which you might want to consider as our model shows these have the right combination of elements to signal a surprise this quarter.

Public Storage, which is expected to report quarterly numbers on Nov. 1, has an earnings ESP of +1.34% and currently carries a Zacks rating of 3. You can see the full list of today’s Zacks #1 Rank stocks here.

Host Hotels & Resorts, which is expected to release its quarterly figures on November 2, currently has a revenue ESP of +0.71% and a Zacks ranking of 3.

Extra Space Storage, which is expected to report third quarter results on November 1, currently has an earnings ESP of +1.31% and carries a Zacks rank of 3.

Stay up to date with upcoming results announcements with the Zacks Earnings Schedule.

To note: Everything related to earnings presented in this article represents funds from operations (FFO) – a metric widely used to assess the performance of REITs.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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