Market Overview

Operating Results for Third Quarter and Nine Months Announced by Realty Income

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ESCONDIDO, Calif.--(BUSINESS WIRE)--

Realty Income Corporation (Realty Income), The Monthly Dividend Company® (NYSE: O), today announced operating results for the third quarter and nine months ended September 30, 2012. Access to this document is available at www.realtyincome.com. All per share amounts presented in this press release are on a diluted per common share basis unless stated otherwise.

COMPANY HIGHLIGHTS:

For the quarter ended September 30, 2012 (as compared to the same quarterly period in 2011):

  • Revenue increased 13.2% to $120.2 million
  • Normalized FFO available to common stockholders increased 8.3% to $68.9 million
  • AFFO available to common stockholders increased 6.7% to $68.5 million
  • Normalized FFO per share increased 4.0% to $0.52
  • AFFO per share increased 2.0% to $0.52
  • Net income available to common stockholders per share was $0.20
  • Portfolio occupancy was 97.0%
  • Invested $496.1 million in 87 new properties and properties under development
  • The monthly dividend increased for the 67th time in August to an annualized amount of $1.8135
  • The monthly dividend was also increased in September, for the 68th time and for the 60th consecutive quarter, to an annualized amount of $1.81725 per share
  • Dividends paid per common share increased 1.8%
  • Announced the proposed acquisition of American Realty Capital Trust (NASDAQ: ARCT)

Financial Results

Revenue

Revenue, for the quarter ended September 30, 2012, increased 13.2% to $120.2 million as compared to $106.2 million for the same quarter in 2011. Revenue, for the nine months ended September 30, 2012, increased 15.3% to $349.9 million as compared to $303.5 million for the same period in 2011.

Net Income Available to Common Stockholders

Net income available to common stockholders, for the quarter ended September 30, 2012, was $27.0 million as compared to $34.7 million for the same quarter in 2011. Net income per share, for the quarter ended September 30, 2012, was $0.20 as compared to $0.27 for the same quarter in 2011. The decrease in net income available to common stockholders includes $5.5 million of merger-related costs, including estimated accruals.

Net income available to common stockholders, for the nine months ended September 30, 2012, was $86.0 million as compared to $97.8 million for the same period in 2011. Net income per share, for the nine months ended September 30, 2012, was $0.65 as compared to $0.79 for the same period in 2011. The decrease in net income available to common stockholders includes a one-time $3.7 million non-cash redemption charge on the Class D preferred shares that were redeemed in March 2012 and $5.5 million of merger-related costs, including estimated accruals.

The calculation to determine net income for a real estate company includes impairments and/or gains from the sales of investment properties. Impairments and/or gains on property sales vary from quarter to quarter. This variance can significantly impact net income.

FFO Available to Common Stockholders

Funds from Operations (FFO), for the quarter ended September 30, 2012, decreased 0.3% to $63.4 million as compared to $63.6 million for the same quarter in 2011. FFO per share, for the quarter ended September 30, 2012, decreased 4.0% to $0.48 as compared to $0.50 for the same quarter in 2011.

FFO, for the nine months ended September 30, 2012, increased 4.4% to $189.3 million as compared to $181.3 million for the same period in 2011. FFO per share, for the nine months ended September 30, 2012, decreased 2.7% to $1.42 as compared to $1.46 for the same period in 2011. The decrease in FFO per share is due to a one-time, $3.7 million non-cash redemption charge on the Class D preferred shares that were redeemed in March 2012 and $5.5 million of merger-related costs, including estimated accruals. Excluding the $3.7 million charge, FFO per share is $1.45 for the first nine months of 2012.

Normalized FFO Available to Common Stockholders

Normalized Funds from Operations, which is based on FFO adjusted to add back merger-related costs, for the quarter ended September 30, 2012, increased 8.3% to $68.9 million as compared to $63.6 million for the same quarter in 2011. Normalized FFO per share, for the quarter ended September 30, 2012, increased 4.0% to $0.52 as compared to $0.50 for the same quarter in 2011.

Normalized FFO, for the nine months ended September 30, 2012, increased 7.4% to $194.8 million as compared to $181.3 million for the same period in 2011. Normalized FFO per share, for the nine months ended September 30, 2012, increased 0.7% to $1.47 as compared to $1.46 for the same period in 2011. Normalized FFO per share includes a one-time, $3.7 million non-cash, redemption charge on the Class D preferred shares that were redeemed in March 2012. Excluding this $3.7 million charge, normalized FFO per share is $1.49 for the first nine months of 2012.

AFFO Available to Common Stockholders

Adjusted Funds from Operations (AFFO), for the quarter ended September 30, 2012, increased 6.7% to $68.5 million as compared to $64.2 million for the same quarter in 2011. AFFO per share, for the quarter ended September 30, 2012, increased 2.0% to $0.52 as compared to $0.51 for the same quarter in 2011.

AFFO, for the nine months ended September 30, 2012, increased 8.9% to $201.3 million as compared to $184.8 million for the same period in 2011. AFFO per share, for the nine months ended September 30, 2012, increased 2.0% to $1.52 as compared to $1.49 for the same period in 2011.

The Company considers FFO, normalized FFO and AFFO to be appropriate supplemental measures of a Real Estate Investment Trust's (REIT's) operating performance. Realty Income defines FFO consistent with the National Association of Real Estate Investment Trust's (NAREIT's) definition as net income available to common stockholders plus depreciation and amortization of real estate assets, plus impairments of real estate, reduced by gains on sales of investment properties and extraordinary items. Normalized FFO adds back one-time merger-related costs for our proposed acquisition of ARCT. AFFO further adjusts Normalized FFO for unique revenue and expense items which are not pertinent to the measurement of our ongoing operating performance. See our reconciliation of net income available to common stockholders to FFO, normalized FFO and AFFO below.

Dividend Information

In August 2012, Realty Income announced a dividend increase of 3.4%. In September 2012, Realty Income announced the 60th consecutive quarterly dividend increase, which is the 68th increase in the amount of the dividend since the Company's listing on the New York Stock Exchange in 1994. The annualized dividend amount, as of September 30, 2012, was $1.81725 per share. The amount of the monthly dividends paid increased 1.2% to $1.317 per share for the nine months ended September 30, 2012, from $1.301 per share for the same period in 2011. In addition, through September 30, 2012, the Company has paid 506 consecutive monthly dividends and over $2.3 billion in total dividends since 1969. Realty Income has a dividend reinvestment and stock purchase program that can be accessed at www.realtyincome.com. The program is administered by Wells Fargo Shareowner Services.

Real Estate Portfolio Update

As of September 30, 2012, Realty Income's portfolio of freestanding, single-tenant properties consisted of 2,838 properties located in 49 states, leased to 144 commercial enterprises doing business in 44 industries. The properties are leased under long-term, net leases with a weighted average remaining lease term of approximately 11.0 years.

Portfolio Management Activities

The Company's portfolio of commercial real estate, owned primarily under 10- to 20-year net leases, continues to perform well and provide dependable lease revenue supporting the payment of monthly dividends. As of September 30, 2012, portfolio occupancy was 97.0% with 84 properties available for lease out of a total of 2,838 properties in the portfolio, as compared to 97.3% portfolio occupancy as of June 30, 2012.

Rent Increases (Decreases)

During the quarter ended September 30, 2012, same store rents on 2,262 properties under lease decreased 1.0% to $91.65 million, as compared to $92.54 million for the same quarter in 2011. Excluding the impact of Friendly's and Buffet's reorganization rent adjustments, same store rental revenue increased 1.0%, during the third quarter of 2012, as compared to the same period in 2011.

During the nine months ended September 30, 2012, same store rents on 2,262 properties under lease decreased 0.8% to $275.1 million, as compared to $277.2 million for the same period in 2011. Excluding the impact of Friendly's and Buffet's reorganization rent adjustments, same store rental revenue increased 1.1%, during the first nine months of 2012, as compared to the same period in 2011.

Property Acquisitions

During the third quarter of 2012, Realty Income invested $496.1 million in 87 new properties and properties under development. The new properties are located in 19 states and are 100% leased with an average lease term of 13.0 years and an initial average lease yield of 7.1%.

During the nine months ended September 30, 2012, Realty Income invested $717.6 million in 234 new properties and properties under development. The new properties are located in 33 states and are 100% leased with an average lease term of 14.3 years and an initial average lease yield of 7.1%.

Realty Income maintains a $1.0 billion unsecured acquisition credit facility, which is used to fund property acquisitions in the near term. As of September 30, 2012, outstanding borrowings on the Company's acquisition credit facility were $609.0 million, and borrowing capacity was $391.0 million. Subsequent to the end of the third quarter, the credit facility borrowings were repaid, and the full $1.0 billion credit facility is available to fund additional acquisitions.

Property Dispositions

Realty Income continued to successfully execute its asset disposition program in the third quarter of 2012. The objective of this program is to sell assets when the Company believes the reinvestment of the sales proceeds will generate higher returns, enhance the credit quality of the Company's real estate portfolio, increase the average lease length, or decrease tenant or industry concentration.

During the quarter ended September 30, 2012, Realty Income sold 11 properties for $15.8 million, with a gain on sales of $2.0 million, as compared to 12 properties sold for $7.4 million, with a gain on sales of $3.1 million, during the same quarter in 2011.

During the nine months ended September 30, 2012, Realty Income sold 30 properties for $34.3 million, with a gain on sales of $6.0 million, as compared to 21 properties sold for $12.5 million, with a gain on sales of $4.5 million, during the same period in 2011.

Other Activities

Acquiring American Realty Capital Trust

In September 2012, Realty Income and American Realty Capital Trust, Inc. signed a definitive agreement under which Realty Income will acquire all of the outstanding shares of American Realty Capital Trust (ARCT) in a transaction valued at approximately $2.95 billion. The board of directors of both companies have unanimously approved the agreement. Assuming shareholder approval by both companies, the transaction is expected to close during the fourth quarter of 2012 or early in the first quarter of 2013. Upon completion, it is anticipated that Realty Income will be the 18th largest REIT in the US, based on total pro forma equity market capitalization, and twice as large as the next largest net-lease REIT.

Priced $800 Million of Senior Unsecured Notes Due 2018 and 2022

On October 2, 2012, the Company announced the pricing of $350 million of 5-year 2.00% fixed rate Notes, due January 31, 2018, and $450 million of 10-year 3.25% fixed rate Notes, due October 15, 2022. The public offering price for the 5-year notes was 99.910% of the principal amount for an effective yield to maturity of 2.017%. The public offering price for the 10-year notes was 99.382% of the principal amount for an effective yield to maturity of 3.323%. The net proceeds from the offering were used to repay borrowings outstanding on the Company's $1.0 billion acquisition credit facility, and the remaining proceeds will be used for general corporate purposes, which may include additional property acquisitions.

Direct Stock Purchase and Dividend Reinvestment Plan (the “Stock Plan”)

During the third quarter of 2012, Realty Income issued 14,085 common shares via its Stock Plan at an average price of $41.69 per share, generating gross proceeds of $584,000. During the first nine months of 2012, Realty Income issued 55,598 common shares via its Stock Plan at an average price of $39.16 per share, generating gross proceeds of $2.2 million.

CEO Comments on Operating Results

Commenting on Realty Income's financial results and real estate operations, Chief Executive Officer, Tom A. Lewis said, “We are pleased to report increases in rental revenue, adjusted funds from operations (AFFO) and dividends during the third quarter of 2012. In addition, our net-leased property portfolio continued to exhibit strong performance with occupancy remaining high at 97% at the end of the third quarter.”

“We also invested $496.1 million in 87 new properties and properties under development, during the third quarter. Year-to-date, we have invested $717.6 million in 234 new properties, and properties under development, with an initial average lease yield of 7.1% and an average lease term of 14.3 years. In addition, we recently disclosed that we anticipate acquiring approximately $1.0 billion in new properties during 2012, based on agreements we have entered into that have closed, or are expected to close, in the fourth quarter. Importantly, the majority of the properties acquired are leased to investment-grade tenants, consistent with our strategic focus on continuing to increase the overall credit quality of our real estate portfolio. Real estate transaction flows continue to offer us attractive net-lease properties for acquisition. All in all, we enjoyed an excellent quarter and nine months on the acquisition front.”

“We also were very successful in accessing the capital markets with the pricing, on October 2, 2012, of $800 million of senior unsecured notes due in 2018 and 2022, to permanently fund both closed and pending acquisitions. The pricing of the notes was very favorable at 2.00% for $350 million of 5-year fixed rate notes and at 3.25% for $450 million of 10-year fixed rate notes.”

“With respect to our recently announced pending acquisition of American Realty Capital Trust, we are in the process of finalizing the proxy statement that will be mailed to all shareholders. Subsequent to receiving shareholder approval and closing of the transaction, we anticipate immediately increasing the annualized amount of the dividend by $0.13 to $1.947 per share.”

“Most important to our shareholders, during the third quarter, we also announced two dividend increases. The first was a special increase of 3.4% in August 2012, which our Board of Directors approved based on the successful operations of our business during the year. We also increased the dividend for the 60th consecutive quarter in September 2012. As a result, the amount of the annualized dividend has increased from $1.746, at the end of 2011, to $1.81725, as of the end of the third quarter, an increase of 4.1%. Providing monthly dividends that increase over time is our mission, and so we remain focused on operating our business in a manner consistent with achieving our mission.”

FFO Commentary

Realty Income's FFO per share has historically tended to be stable and fairly predictable because of the long-term leases that are the primary source of the Company's revenue. There are, however, several factors that can cause FFO per share to vary from levels that have been anticipated by the Company. These factors include, but are not limited to, changes in interest rates and occupancy rates, periodically accessing the capital markets, the level and timing of property and entity acquisitions and dispositions, lease rollovers, the general real estate market, and the economy.

2012 Estimates

Excluding the one-time costs associated with the closing of the ARCT transaction, the Company estimates that 2012 normalized FFO per share should range from $2.00 to $2.04 per share, an increase of 1.0% to 3.0% over the 2011 FFO per share of $1.98. Normalized FFO per share for 2012 is based on an estimated net income per share range of $0.92 to $0.96 plus estimated real estate depreciation of $1.16 and reduced by potential gains on sales of investment properties of $0.08 per share (in accordance with NAREIT's definition of FFO).

The Company estimates that 2012 Adjusted Funds from Operations (AFFO) should range from $2.06 to $2.11 per share, an increase of 2.5% to 5.0% over the 2011 AFFO per share of $2.01. The AFFO per share estimate for 2012 is based on adding back items to normalized FFO totaling $0.12 to $0.13, that reduce net income, and deducting capitalized expenditures and straight-line rent revenue items totaling approximately $0.06, for a net increase of $0.06 to $0.07 over FFO.

2013 Earnings Estimates (assuming a December 31, 2012 ARCT transaction closing date)

The Company estimates that 2013 FFO per share should range from $2.30 to $2.36 per share, an increase of 12.7% to 18.0% over the 2012 estimated FFO per share of $2.00 to $2.04. FFO per share for 2013 is based on an estimated net income per share range of $0.93 to $0.99, plus estimated real estate depreciation of $1.44 and reduced by potential gains on sales of investment properties of $0.07 per share (in accordance with NAREIT's definition of FFO).

The Company estimates that 2013 Adjusted Funds from Operations (AFFO) should range from $2.31 to $2.37 per share, an increase of 9.5% to 15.0% over the 2012 estimated AFFO per share of $2.06 to $2.11. The AFFO per share estimate for 2013 is based on adding back items to FFO, that reduce net income, totaling $0.08 to $0.10, and deducting capitalized expenditures and straight-line rent revenue items totaling approximately $0.05 to $0.07, for a net increase of $0.01 to $0.05 over FFO.

Realty Income considers FFO and AFFO to be appropriate supplemental measures of a real estate investment trust's (REIT's) operating performance. Realty Income defines FFO consistent with the National Association of Real Estate Investment Trust's (NAREIT's) definition as net income available to common stockholders plus depreciation and amortization of real estate assets, reduced by gains on sales of investment properties and extraordinary items. AFFO further adjusts FFO for unique revenue and expense items which are not pertinent to the measurement of Realty Income's ongoing operating performance.

About Realty Income

Realty Income is The Monthly Dividend Company®, a New York Stock Exchange real estate company dedicated to providing shareholders with dependable monthly income. As of September 30, 2012, the Company had paid 506 consecutive monthly dividends throughout its 43-year operating history. The monthly income is supported by the cash flows from over 2,800 properties owned under long-term lease agreements with 144 leading regional and national commercial enterprises. The Company is an active buyer of net-leased properties nationwide. Additional information about the Company can be obtained from the corporate website at www.realtyincome.com or www.twitter.com/realtyincome.

Forward-Looking Statements

Statements in this press release that are not strictly historical are “forward-looking” statements. Forward-looking statements involve known and unknown risks, which may cause the Company's actual future results to differ materially from expected results. These risks include, among others, general economic conditions, local real estate conditions, tenant financial health, the availability of capital to finance planned growth, continued volatility and uncertainty in the credit markets and broader financial markets, property acquisitions and the timing of these acquisitions, charges for property impairments, the outcome of any legal proceedings to which the Company is a party, and our proposed acquisition of American Capital Realty Trust, as described in the Company's filings with the Securities and Exchange Commission. Consequently, forward-looking statements should be regarded solely as reflections of the Company's current operating plans and estimates. Actual operating results may differ materially from what is expressed or forecast in this press release. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date these statements were made.

Note to Editors: Realty Income press releases are available via the internet at http://www.realtyincome.com/invest/newsroom-library/press-releases.shtml.

                       

CONSOLIDATED STATEMENTS OF INCOME

For the three and nine months ended September 30, 2012 and 2011

(dollars in thousands, except per share amounts - unaudited)

 

Three Months
Ended 9/30/12

Three Months
Ended 9/30/11

Nine Months
Ended 9/30/12

Nine Months
Ended 9/30/11

REVENUE
Rental $ 119,845 $ 105,742 $ 348,682 $ 302,600
Other   392     488     1,250     886  
 

Total revenue

 

120,237

   

106,230

   

349,932

   

303,486

 
 
EXPENSES
Depreciation and amortization 37,806 31,561 108,282 86,606
Interest 29,720 28,550 87,477 79,318
General and administrative 9,335 7,143 27,775 23,001
Property 1,951 1,657 6,500 4,941
Merger-related costs 5,495 -- 5,495 --
Income taxes   405     367     1,215     1,102  
 
Total expenses   84,712     69,278     236,744     194,968  
 
Income from continuing operations 35,525 36,952 113,188 108,518
Income from discontinued operations   1,933     3,828     6,941     7,509  
 
Net income 37,458 40,780 120,129 116,027
Preferred stock dividends (10,482 ) (6,063 ) (30,435 ) (18,190 )
Excess of redemption value over carrying value of preferred shares redeemed  

--

   

--

   

(3,696

)

 

--

 
 
Net income available to common stockholders $ 26,976   $ 34,717   $ 85,998   $ 97,837  
 

Funds from operations available to common stockholders (FFO)

$

63,420

$

63,574

$

189,283

$

181,314

Normalized funds from operations available to common stockholders (Normalized FFO)

$

68,915

$

63,574

$

194,778

$

181,314

Adjusted funds from operations available to common stockholders (AFFO)

$

68,496

$

64,239

$

201,290

$

184,847

 
Per share information for common stockholders:

Income from continuing operations, basic and diluted

$

0.19

$

0.24

$

0.60

$

0.73

Net income, basic and diluted $ 0.20 $ 0.27 $ 0.65 $ 0.79
FFO:
Basic $ 0.48 $ 0.50 $ 1.43 $ 1.46
Diluted $ 0.48 $ 0.50 $ 1.42 $ 1.46
Normalized FFO, basic and diluted $ 0.52 $ 0.50 $ 1.47 $ 1.46
AFFO, basic and diluted $ 0.52 $ 0.51 $ 1.52 $ 1.49
Cash dividends paid per common share $ 0.443 $ 0.435 $ 1.317 $ 1.301
 
 
                       

FUNDS FROM OPERATIONS (FFO)

(dollars in thousands, except per share amounts)

 
Three Months

Ended 9/30/12

Three Months

Ended 9/30/11

Nine Months

Ended 9/30/12

Nine Months

Ended 9/30/11

Net income available to common stockholders $ 26,976 $ 34,717 $ 85,998 $ 97,837
Depreciation and amortization:
Continuing operations 37,806 31,561 108,282 86,606
Discontinued operations 75 334 541 1,200
Depreciation of furniture, fixtures & equipment (59 ) (58 ) (195 ) (178 )

Provisions for impairment on Realty Income investment properties

667

169

667

378

Gain on sales of investment properties:

Continuing operations

-- (55 ) -- (210 )
Discontinued operations   (2,045 )   (3,094 )   (6,010 )   (4,319 )
Funds from operations available to common stockholders 63,420 63,574 189,283 181,314
Merger-related costs, including estimated accruals   5,495     --     5,495     --  
Normalized FFO available to common stockholders $ 68,915   $ 63,574   $ 194,778   $ 181,314  
FFO per common share:
Basic $ 0.48 $ 0.50 $ 1.43 $ 1.46
Diluted $ 0.48 $ 0.50 $ 1.42 $ 1.46
Normalized FFO per common share, basic and diluted $ 0.52 $ 0.50 $ 1.47 $ 1.46
Dividends paid to common stockholders $ 59,167 $ 55,145 $ 175,719 $ 161,276

Normalized FFO in excess of dividends paid to common stockholders

$

9,748

$

8,429

$

19,059

$

20,038

Weighted average number of common shares used for computation per share:
Basic 132,764,877 126,376,201 132,731,984 123,921,317
Diluted 132,931,813 126,582,609 132,845,970 124,013,142
 

We define FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trust's definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus impairments of real estate assets, reduced by gains on sales of investment properties and extraordinary items. We define normalized FFO, a non-GAAP measure, as FFO excluding the one-time merger-related costs for our proposed acquisition of ARCT.

 

ADJUSTED FUNDS FROM OPERATIONS (AFFO)

(dollars in thousands, except per share amounts)

 
Most companies in our industry use a similar measurement to AFFO, but they may use the term "CAD" (for Cash Available for Distribution) or "FAD" (for Funds Available for Distribution).
      Three Months

Ended 9/30/12

      Three Months

Ended 9/30/11

      Nine Months

Ended 9/30/12

      Nine Months

Ended 9/30/11

Net income available to common stockholders $ 26,976 $ 34,717 $ 85,998 $ 97,837
Cumulative adjustments to calculate normalized FFO(1)   41,939     28,857     108,780     83,477  
Normalized FFO available to common stockholders 68,915 63,574 194,778 181,314
Excess of redemption value over carrying value of preferred share redemption -- -- 3,696 --
Amortization of share-based compensation 2,230 1,751 7,780 6,098
Amortization of deferred financing costs(2) 522 486 1,633 1,335
Capitalized leasing costs and commissions (521 ) (595 ) (1,218 ) (1,243 )
Capitalized building improvements (1,576 ) (528 ) (3,283 ) (1,737 )
Other adjustments(3)   (1,074 )   (449 )   (2,096 )   (920 )
Total AFFO available to common stockholders $ 68,496   $ 64,239   $ 201,290   $ 184,847  
AFFO per common share, basic and diluted $ 0.52 $ 0.51 $ 1.52 $ 1.49
Dividends paid to common stockholders $ 59,167 $ 55,145 $ 175,719 $ 161,276

AFFO in excess of dividends paid to common stockholders

$ 9,329 $ 9,094 $ 25,571 $ 23,571
 
(1)     See FFO and normalized FFO calculation above for reconciling items.
(2) Includes the amortization of costs incurred and capitalized when our senior notes were issued in March 2003, November 2003, March 2005, September 2005, September 2006, September 2007, June 2010 and June 2011. Additionally, this includes the amortization of deferred financing costs incurred and capitalized in connection with our assumption of the mortgages payable in 2011. These costs are being amortized over the lives of the respective mortgages. No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included.
(3) Includes straight-line rent revenue, and the amortization of above and below-market leases.
 
 
                             

HISTORICAL FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS

(dollars in thousands, except per share amounts)

 

 

For the three months ended September 30,

2012 2011 2010 2009 2008
 
Net income available to common stockholders $ 26,976 $ 34,717 $ 25,591 $ 27,089 $ 28,634
Depreciation and amortization 37,822 31,837 24,132 22,879 22,844
Provisions for impairment on Realty Income investment properties

667

169

84

--

--

Gain on sales of investment properties   (2,045 )   (3,149 )   (1,919 )   (1,814 )   (5,730 )
 
Total FFO 63,420 63,574 47,888 48,154 45,748
Merger-related costs, including estimated accruals   5,495     --     --     --     --  
Normalized FFO $ 68,915   $ 63,574   $ 47,888   $ 48,154   $ 45,748  
 
Normalized FFO per diluted share $ 0.48 $ 0.50 $ 0.46 $ 0.47 $ 0.46
 
Normalized total FFO $ 68,915 $ 63,574 $ 47,888 $ 48,154 $ 45,748
Less FFO contributed by Crest   (232 )   (190 )   (221 )   (207 )   (238 )
 
Normalized FFO before Crest contribution $ 68,683   $ 63,384   $ 47,667   $ 47,947   $ 45,510  
 
Normalized FFO components, per diluted share(1):
FFO before Crest contribution $ 0.52 $ 0.50 $ 0.46 $ 0.46 $ 0.45
Crest FFO contribution $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Normalized Total FFO $ 0.52 $ 0.50 $ 0.46 $ 0.47 $ 0.46
 
AFFO $ 68,496 $ 64,239 $ 48,585 $ 48,499 $ 46,696
 
AFFO per diluted share $ 0.52 $ 0.51 $ 0.47 $ 0.47 $ 0.47
 
Cash dividends paid per share $ 0.443 $ 0.435 $ 0.431 $ 0.427 $ 0.417
Weighted average diluted shares outstanding 132,931,813 126,582,609 103,977,023 103,481,892 100,420,070
 
 

For the nine months ended September 30,

2012 2011 2010 2009 2008
 
Net income available to common stockholders $ 85,998 $ 97,837 $ 74,717 $ 77,606 $ 79,320
Depreciation and amortization 108,628 87,628 70,814 68,713 68,616
Provisions for impairment on Realty Income investment properties

667

378

171

--

--

Gain on sales of investment properties   (6,010 )   (4,529 )   (4,284 )   (4,250 )   (9,439 )
 
Total FFO 189,283 181,314 141,418 142,069 138,497
Merger-related costs, including estimated accruals   5,495     --     --     --     --  
Normalized FFO $ 194,778   $ 181,314   $ 141,418   $ 142,069   $ 138,497  
 
Normalized FFO per diluted share $ 1.47 $ 1.46 $ 1.36 $ 1.37 $ 1.38
 
Normalized total FFO $ 194,778 $ 181,314 $ 141,418 $ 142,069 $ 138,497
Less FFO contributed by Crest   (578 )   (559 )   (585 )   (308 )   (1,338 )
 
Normalized FFO before Crest contribution $ 194,200   $ 180,755   $ 140,833   $ 141,761   $ 137,159  
 
Normalized FFO components, per diluted share:
FFO before Crest contribution $ 1.46 $ 1.46 $ 1.36 $ 1.37 $ 1.37
Crest FFO contribution $ 0.00 $ 0.00 $ 0.01 $ 0.00 $ 0.01
Normalized total FFO $ 1.47 $ 1.46 $ 1.36 $ 1.37 $ 1.38
 
AFFO $ 201,290 $ 184,847 $ 143,930 $ 144,118 $ 144,604
 
AFFO per diluted share $ 1.52 $ 1.49 $ 1.39 $ 1.39 $ 1.44
 
Cash dividends paid per share $ 1.317 $ 1.301 $ 1,290 $ 1,279 $ 1,239
Weighted average diluted shares outstanding 132,845,970 124,013,142 103,887,679 103,532,894 100,462,396
 
(1)   The above FFO per share amounts have been rounded to the nearest two decimals and, as such, the individual amounts may not add up to the “Total FFO” amount.
 
 
                       

CONSOLIDATED BALANCE SHEETS

As of September 30, 2012 and December 31, 2011

(dollars in thousands, except per share amounts)

 
2012 2011
(unaudited)
ASSETS
Real estate, at cost:
Land $ 1,914,482 $ 1,749,378
Buildings and improvements   3,714,597     3,222,603  
Total real estate, at cost 5,629,079 4,971,981
Less accumulated depreciation and amortization   (901,501 )   (814,126 )
 
Net real estate held for investment 4,727,578 4,157,855
Real estate held for sale, net   7,110     2,153  
Net real estate 4,734,688 4,160,008
Cash and cash equivalents 2,794 4,165
Accounts receivable, net 17,187 15,375
Goodwill 17,010 17,206
Other assets, net   264,647     222,635  
 
Total assets $ 5,036,326   $ 4,419,389  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Distributions payable $ 23,704 $ 21,405
Accounts payable and accrued expenses 38,026 58,770
Other liabilities 39,499 29,179
Lines of credit payable 609,000 237,400
Mortgages payable, net 133,394 67,781
Notes payable   1,750,000     1,750,000  
 
Total liabilities   2,593,623     2,164,535  
 
Stockholders' equity:

Preferred stock and paid in capital, par value $0.01 per share 69,900,000 shares authorized and 25,150,000 shares issued and outstanding as of September 30, 2012, and 20,000,000 shares authorized and 13,900,000 shares issued and outstanding as of December 31, 2011

609,363

337,790

Common stock and paid in capital, par value $0.01 per share 370,100,000 shares authorized and 133,452,011 shares issued and outstanding as of September 30, 2012, and 200,000,000 shares authorized and 133,223,338 shares issued and outstanding as of December 31, 2011

2,569,871

2,563,048

Distributions in excess of net income   (736,531 )   (645,984 )
 
Total stockholders' equity   2,442,703     2,254,854  
 
Total liabilities and stockholders' equity $ 5,036,326   $ 4,419,389  
 
 
                         

Realty Income Performance vs. Major Stock Indices

 
Equity NASDAQ
Realty Income REIT Index(1) DJIA S&P 500 Composite
Dividend     Total Dividend     Total Dividend     Total Dividend     Total Dividend     Total
Yield Return(2) Yield Return(3) Yield Return(3) Yield Return(3) Yield Return(4)
 
1995 8.3 % 42.0 % 7.4 % 15.3 % 2.4 % 36.9 % 2.3 % 37.6 % 0.6 % 39.9 %
1996 7.9 % 15.4 % 6.1 % 35.3 % 2.2 % 28.9 % 2.0 % 23.0 % 0.2 % 22.7 %
1997 7.5 % 14.5 % 5.5 % 20.3 % 1.8 % 24.9 % 1.6 % 33.4 % 0.5 % 21.6 %
1998 8.2 % 5.5 % 7.5 % (17.5 %) 1.7 % 18.1 % 1.3 % 28.6 % 0.3 % 39.6 %
1999 10.5 % (8.7 %) 8.7 % (4.6 %) 1.3 % 27.2 % 1.1 % 21.0 % 0.2 % 85.6 %
2000 8.9 % 31.2 % 7.5 % 26.4 % 1.5 % (4.7 %) 1.2 % (9.1 %) 0.3 % (39.3 %)
2001 7.8 % 27.2 % 7.1 % 13.9 % 1.9 % (5.5 %) 1.4 % (11.9 %) 0.3 % (21.1 %)
2002 6.7 % 26.9 % 7.1 % 3.8 % 2.6 % (15.0 %) 1.9 % (22.1 %) 0.5 % (31.5 %)
2003 6.0 % 21.0 % 5.5 % 37.1 % 2.3 % 28.3 % 1.8 % 28.7 % 0.6 % 50.0 %
2004 5.2 % 32.7 % 4.7 % 31.6 % 2.2 % 5.6 % 1.8 % 10.9 % 0.6 % 8.6 %
2005 6.5 % (9.2 %) 4.6 % 12.2 % 2.6 % 1.7 % 1.9 % 4.9 % 0.9 % 1.4 %
2006 5.5 % 34.8 % 3.7 % 35.1 % 2.5 % 19.0 % 1.9 % 15.8 % 0.8 % 9.5 %
2007 6.1 % 3.2 % 4.9 % (15.7 %) 2.7 % 8.8 % 2.1 % 5.5 % 0.8 % 9.8 %
2008 7.3 % (8.2 %) 7.6 % (37.7 %) 3.6 % (31.8 %) 3.2 % (37.0 %) 1.3 % (40.5 %)
2009 6.6 % 19.3 % 3.7 % 28.0 % 2.6 % 22.6 % 2.0 % 26.5 % 1.0 % 43.9 %
2010 5.1 % 38.6 % 3.5 % 27.9 % 2.6 % 14.0 % 1.9 % 15.1 % 1.2 % 16.9 %
2011 5.0 % 7.3 % 3.8 % 8.3 % 2.8 % 8.3 % 2.3 % 2.1 % 1.3 % (1.8 %)
YTD Q3 2012 4.4 % 20.7 % 3.4 % 16.1 % 2.6 % 12.2 % 2.2 % 16.4 % 1.3 % 20.7 %
 

Compounded

Average

Annual Total

Return(5)

17.7 % 11.0 % 9.6 % 8.5 % 8.3 %
 

Note: All of these Dividend Yields are calculated as annualized dividend based on last dividend paid in applicable time period divided by closing price as of period end. Dividend Yield sources: NAREIT website and Bloomberg.

(1)     FTSE NAREIT US Equity REIT Index, as per NAREIT website.
(2) Calculated as the difference between the closing stock price as of period end less the closing stock price as of previous period, plus dividends paid in period, divided by closing stock price as of end of previous period. Does not include reinvestment of dividends.
(3) Includes reinvestment of dividends. Sources: NAREIT website and Factset.
(4) Price only index, does not include dividends. Source: Factset.
(5) All of these Compounded Average Annual Total Return rates are calculated in the same manner: from Realty Income's NYSE listing on October 18, 1994 through September 30, 2012, and assuming reinvestment of dividends, except for NASDAQ. Past performance does not guarantee future performance. Realty Income presents this data for informational purposes only and makes no representation about its future performance or how it will compare in performance to other indices in the future.
 
 

Property Type Diversification

The following table sets forth certain property type information regarding Realty Income's property portfolio as of September 30, 2012 (dollars in thousands):

                                 
Approximate Rental Revenue for Percentage of
Number of Leasable the Quarter Ended Rental
Property Type       Properties           Square Feet       September 30, 2012(1)       Revenue
Retail 2,771 25,697,200 $ 102,959 85.8 %
Agriculture 15 184,500 5,138 4.3
Distribution 20 4,741,500 4,578 3.8
Manufacturing 8 2,030,300 2,745 2.3
Office 9 824,000 3,000 2.5
Industrial       15           850,500         1,570       1.3  
Totals       2,838           34,328,000       $ 119,990       100.0 %
 
      (1)     Includes rental revenue for all properties owned by Realty Income at September 30, 2012, including revenue from properties reclassified as discontinued operations of $168. Excludes revenue of $23 from properties owned by Crest.
 
 

Industry Diversification

The following table sets forth certain information regarding Realty Income's property portfolio classified according to the business of the respective tenants, expressed as a percentage of our total rental revenue:

    Percentage of Rental Revenue(1)
For the Quarter     For the Years Ended
      Ended

September 30,

2012

    Dec 31,
2011
    Dec 31,
2010
    Dec 31,
2009
    Dec 31,
2008
    Dec 31,
2007
    Dec 31,
2006

Retail Industries

                   
Apparel stores 1.4 % 1.4 % 1.2 % 1.1 % 1.1 % 1.2 % 1.7 %
Automotive collision services 1.2 0.9 1.0 1.1 1.0 1.1 1.3
Automotive parts 1.0 1.2 1.4 1.5 1.6 2.1 2.8
Automotive service 3.1 3.7 4.7 4.8 4.8 5.2 6.9
Automotive tire services 4.7 5.6 6.4 6.9 6.7 7.3 6.1
Book stores 0.1 0.1 0.1 0.2 0.2 0.2 0.2
Business services * * * * * 0.1 0.1
Child care 4.5 5.2 6.5 7.3 7.6 8.4 10.3
Consumer electronics 0.5 0.5 0.6 0.7 0.8 0.9 1.1
Convenience stores 16.3 18.5 17.1 16.9 15.8 14.0 16.1
Crafts and novelties 0.3 0.2 0.3 0.3 0.3 0.3 0.4
Dollar stores 3.0 -- -- -- -- -- --
Drug stores 3.5 3.8 4.1 4.3 4.1 2.7 2.9
Education 0.7 0.7 0.8 0.9 0.8 0.8 0.8
Entertainment 1.0 1.0 1.2 1.3 1.2 1.4 1.6
Equipment services 0.1 0.2 0.2 0.2 0.2 0.2 0.2
Financial services 0.2 0.2 0.2 0.2 0.2 0.2 0.1
General merchandise 0.5 0.6 0.8 0.8 0.8 0.7 0.6
Grocery stores 3.7 1.6 0.9 0.7 0.7 0.7 0.7
Health and fitness 6.7 6.4 6.9 5.9 5.6 5.1 4.3
Home furnishings 1.0 1.1 1.3 1.3 2.4 2.6 3.1
Home improvement 1.5 1.7 2.0 2.2 2.1 2.4 3.4
Motor vehicle dealerships 2.0 2.2 2.6 2.7 3.2 3.1 3.4
Office supplies 0.8 0.9 0.9 1.0 1.0 1.1 1.3
Pet supplies and services 0.6 0.7 0.9 0.9 0.8 0.9 1.1
Restaurants - casual dining 7.3 10.9 13.4 13.7 14.3 14.9 7.0
Restaurants - quick service 5.9 6.6 7.7 8.3 8.2 6.6 4.9
Shoe stores 0.1 0.2 0.1 -- -- -- --
Sporting goods 2.4 2.7 2.7 2.6 2.3 2.6 2.9
Theaters 9.5 8.8 8.9 9.2 9.0 9.0 9.6
Transportation services 0.2 0.2 0.2 0.2 0.2 0.2 0.3
Video rental 0.0 0.0 0.2 1.0 1.1 1.7 2.1
Wholesale clubs 2.8 0.7 -- -- -- -- --
Other 0.1       0.1       0.1       0.1       0.1       0.1       0.2  
Retail Industries 86.7 %     88.6 %     95.4 %     98.3 %     98.2 %     97.8 %     97.5 %
 
 

Non-retail Industries

Aerospace 1.0 0.5 -- -- -- -- --
Beverages 5.1 5.6 3.0 -- -- -- --
Consumer appliances 0.2 -- -- -- -- -- --
Consumer goods * -- -- -- -- -- --
Diversified industrial * -- -- -- -- -- --
Equipment services 0.2 0.2 -- -- -- -- --
Financial services 0.4 0.3 -- -- -- -- --
Food processing 1.2 0.7 -- -- -- -- --
Insurance

Machinery

Packaging

0.1

0.2

0.6

--

--

0.4

--

--

--

--

--

--

--

--

--

--

--

--

--

--

--

Paper 0.1 0.1 -- -- -- -- --
Telecommunications 0.8 0.7 -- -- -- -- --
Transportation services 2.3 1.6 -- -- -- -- --
Other     1.1       1.3       1.6       1.7       1.8       2.2       2.5  
Non-retail Industries     13.3 %     11.4 %     4.6 %     1.7 %     1.8 %     2.2 %     2.5 %
Totals     100.0 %     100.0 %     100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
 
*     Less than 0.1%
(1) Includes rental revenue for all properties owned by Realty Income at the end of each period presented, including revenue from properties reclassified as discontinued operations. Excludes revenue from properties owned by Crest.
 
 
 

Tenant Diversification

 
Largest Tenants based on Percentage of Total Portfolio Rental Revenue at September 30, 2012
AMC Theatres       4.8 %           NPC International/Pizza Hut       2.4 %
L.A. Fitness 4.7 % Rite Aid 2.4 %
Diageo 4.7 % Friendly's Ice Cream 2.2 %
BJ's Wholesale Club 4.6 % Smart & Final 2.2 %
Northern Tier Energy/Super America 4.0 % FreedomRoads/Camping World 2.1 %
Regal Cinemas 3.3 % FedEx 2.1 %
The Pantry 2.8 % TBC Corporation 2.0 %
Family Dollar 2.5 %
 
 

Lease Expirations

The following table sets forth certain information regarding Realty Income's property portfolio regarding the timing of the lease term expirations (excluding rights to extend a lease at the option of the tenant) on our 2,739 net leased, single-tenant properties as of September 30, 2012 (dollars in thousands):

    Total Portfolio    

Initial Expirations(3)

    Subsequent Expirations(4)

Year

   

Number

of Leases

Expiring(1)

   

Approx.

Leasable

Sq. Feet

   

Rental

Revenue

for the

Quarter

Ended

Sept. 30,

2012(2)

   

% of

Total

Rental

Revenue

   

Number

of Leases

Expiring

   

Rental

Revenue

for the

Quarter

Ended

Sept. 30,

2012

   

% of

Total

Rental

Revenue

   

Number

of Leases

Expiring

   

Rental

Revenue

for the

Quarter

Ended

Sept. 30,

2012

   

% of

Total

Rental

Revenue

2012 59     430,000     $ 1,503     1.3 %     10     $ 275     0.2 %     49     $ 1,228     1.1 %
2013 157 1,232,800 4,020 3.4 54 1,739 1.5 103 2,281 1.9
2014 155 1,024,300 3,716 3.2 52 1,606 1.4 103 2,110 1.8
2015 156 834,500 3,583 3.0 67 1,776 1.5 89 1,807 1.5
2016 175 885,200 3,739 3.2 114 2,329 2.0 61 1,410 1.2
2017 146 1,816,700 4,581 3.9 44 2,539 2.2 102 2,042 1.7
2018 116 1,863,300 5,265 4.5 91 4,494 3.8 25 771 0.7
2019 142 1,505,700 7,274 6.2 132 6,813 5.8 10 461 0.4
2020 85 1,928,400 5,219 4.4 75 4,873 4.1 10 346 0.3
2021 163 2,272,900 7,351 6.2 155 6,841 5.8 8 510 0.4
2022 122 2,805,900 5,422 4.6 113 5,207 4.4 9 215 0.2
2023 255 2,272,500 10,545 9.0 250 10,106 8.6 5 439 0.4
2024 61 676,900 2,459 2.1 61 2,459 2.1 -- -- --
2025 255 2,713,600 12,267 10.4 250 12,149 10.3 5 118 0.1
2026 112 1,918,200 7,487 6.4 109 7,405 6.3 3 82 0.1
2027-2043     580     8,494,700       33,298     28.2       571       33,111     28.1       9       187     0.1  
Totals     2,739     32,675,600     $ 117,729     100.0 %     2,148     $ 103,722     88.1 %     591     $ 14,007     11.9 %
 
(1)     Excludes 15 multi-tenant properties and 84 vacant unleased properties, one of which is a multi-tenant property. The lease expirations for properties under construction are based on the estimated date of completion of those properties.
(2) Includes rental revenue of $168 from properties reclassified as discontinued operations and excludes revenue of $2,261 from 15 multi-tenant properties and from 84 vacant and unleased properties at September 30, 2012. Excludes revenue of $23 from three properties owned by Crest.
(3) Represents leases to the initial tenant of the property that are expiring for the first time.
(4) Represents lease expirations on properties in the portfolio, which have previously been renewed, extended or re-tenanted.
 
 

Geographic Diversification

The following table sets forth certain state-by-state information regarding Realty Income's property portfolio as of September 30, 2012 (dollars in thousands):

State     Number of

Properties

    Percent

Leased

    Approximate

Leasable

Square Feet

    Rental Revenue for

the Quarter Ended

September 30, 2012(1)

    Percentage of

Rental

Revenue

Alabama     65     94 %     450,500     $ 1,799     1.5 %
Alaska 2 100 128,500 307 0.3
Arizona 97 98 713,300 3,417 2.8
Arkansas 17 100 105,100 320 0.3
California 137 100 3,670,500 15,729 13.1
Colorado 59 95 507,400 1,961 1.6
Connecticut 25 96 456,500 1,283 1.1
Delaware 16 100 29,500 391 0.3
Florida 188 97 2,088,900 7,917 6.6
Georgia 144 93 1,274,900 4,993 4.2
Hawaii -- -- -- -- --
Idaho 12 100 80,700 332 0.3
Illinois 104 99 1,367,400 6,156 5.1
Indiana 84 96 830,600 3,750 3.1
Iowa 28 89 1,876,600 1,211 1.0
Kansas 53 94 790,500 1,512 1.3
Kentucky 23 96 138,900 629 0.5
Louisiana 39 100 384,600 1,419 1.2
Maine 3 100 22,500 139 0.1
Maryland 30 100 492,500 2,255 1.9
Massachusetts 64 92 575,400 2,279 1.9
Michigan 64 100 374,700 1,492 1.2
Minnesota 150 100 1,003,600 6,756 5.6
Mississippi 77 95 775,300 1,817 1.5
Missouri 77 99 1,047,300 3,857 3.2
Montana 2 100 30,000 89 0.1
Nebraska 20 100 204,100 561 0.5
Nevada 16 100 333,700 1,054 0.9
New Hampshire 15 93 217,200 944 0.8
New Jersey 32 94 258,000 1,934 1.6
New Mexico 17 100 139,000 401 0.3
New York 44 98 899,800 4,271 3.6
North Carolina 94 97 851,800 2,878 2.4
North Dakota 6 100 36,600 59 *
Ohio 143 97 1,678,100 4,584 3.8
Oklahoma 42 95 813,400 1,458 1.2
Oregon 20 100 384,200 1,240 1.0
Pennsylvania 105 98 1,092,500 4,173 3.5
Rhode Island 3 100 11,000 37 *
South Carolina 99 98 426,700 2,469 2.1
South Dakota 10 100 89,800 186 0.2
Tennessee 133 97 1,076,000 2,992 2.5
Texas 284 96 3,759,900 11,150 9.3
Utah 9 100 159,300 413 0.3
Vermont 4 100 12,700 130 0.1
Virginia 110 97 1,680,800 4,707 3.9
Washington 35 94 298,100 1,086 0.9
West Virginia 2 100 23,000 125 0.1
Wisconsin 32 94 645,500 1,265 1.1
Wyoming     3     100       21,100       63     0.1  
Totals/Average     2,838     97 %     34,328,000     $ 119,990     100.0 %
 
*     Less than 0.1%
(1) Includes rental revenue for all properties owned by Realty Income at September 30, 2012, including revenue from properties reclassified as discontinued operations of $168. Excludes revenue of $23 from properties owned by Crest.

Realty Income Corporation
Tere H. Miller
Vice President, Corporate Communications
(760) 741-2111, ext. 1177


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