Realty Income Corporation (O)

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Realty Income Corp.(O)

Q1 2010 Earnings Call

April 29, 2010 4:30 p.m. ET

Executives

Tom Lewis - CEO

Paul Meurer - Executive Vice President and CFO

Analysts

Greg Sweitzer - Citigroup

Chris Lucas - Robert W. Baird

Jeffrey Donnelly - Wells Fargo Securities

Rich Moore - RBC Capital Markets

Presentation

Operator

Welcome to the Realty Income first quarter 2010 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, Thursday, April 29, 2010.

And now I'd like to turn the conference over to Tom Lewis, CEO of Realty Income. Please go ahead, sir.

Tom Lewis

Thank you, Alicia [ph], and good afternoon everyone, and welcome to our first quarter conference call. With me in the room today is Paul Meurer, our Executive Vice President and Chief Financial Officer, Mike Pfeiffer, our Executive Vice President and General Counsel, and Terry Miller, our Vice President of Corporate Communications.

And as I am obligated to say that during this conference call, we will make certain statements that maybe considered to be forward-looking statements under Federal Securities law, and the Company’s actual future results may differ significantly from the matters discussed in any forward-looking statements. And we’ll disclose in greater detail on the Company’s quarterly and on the Form 10-K, the factors that could cause such differences.

And with that, we have Paul, review the numbers. Paul?

Paul Meurer

Thanks, Tom. As usual, I’ll just briefly walk through our financial statements and provide a few highlights of our financial results for the past quarter, starting with the income statement.

Total revenue increased to $83.3 million this quarter versus $82.5 million during the first quarter of 2009. Rental revenue increased 1% overall, while same-store rents increased 0.8% for the quarterly period.

On the expense side, depreciation and amortization expense increased by $492,000 in the comparative period as depreciation expense increases naturally as our property portfolio does grow. Interest expense remained flat at around $21.4 million. We had only $39.9 million of borrowings on our credit facility at quarter end. And on a related note our coverage ratios remain strong, with interest coverage at 3.5 times and fixed charge coverage at 2.7 times.

General and administrative or G&A expenses in the first quarter were $6.7 million. Our current projection for G&A for 2010 is about $26 million or about 7.5% of total revenues because this would naturally be impacted by the level of acquisitions during the year.

Our acquisition related costs are now included in G&A expense. As per FAS 141R, in the first quarter, this expenses per FAS 141R totaled $48,000.

Property expenses remain flat at about $2.2 million for the comparative quarter and these expenses are primarily associated with the taxes, maintenance and insurance expenses, which we are responsible for on properties available for lease.

Income taxes consist of income taxes paid to various states by the Company and they remained at around $300,000 for the quarter.

Income from discontinued operations for the quarter totaled $754,000. Real estate acquired for resale refers to the operations of Crest Net Lease our subsidiary that acquires and resale properties. Crest did not sale any properties in the quarter but overall contributed income or FFO of just over $200,000.

Real estate held for investment refers to property sales by Realty Income from our existing core portfolio. We did sell three properties during the quarter, resulting overall in income of approximately $548,000. And these property sales gains are not included in our FFO or in our AFFO calculation.

Preferred stock cash dividends remained at $6.1 million for the quarter, net income available to common stockholders was $24.1 million for the quarter.

Funds from operations or FFO remained at around $46.7 million for the quarter and FFO per share was again $0.45 per share for the comparative quarter. Adjusted funds from operations or AFFO for the actual cash available for distribution as dividends was higher at $0.46 per share for the quarter.

Our FFO is usually higher than our FFO each quarter because our capital expenditures are very low and we have very minimum straight line rent in our portfolio.

We increased our cash monthly dividend again this quarter. We have increased the dividend 50 consecutive quarter and 57 times overall since we went public over 15 years ago.

Now, let's turn to the balance sheet. We've continued to maintain our conservative and safe capital structure. Our debt-to-total market capitalization is only 28%, and our preferred stock outstanding represents just 7% of our capital structure.

As I mentioned we only had $39.9 million of borrowings on our $355 million credit facility. This facility also has a $100 million accordion expansion feature. The initial term runs until May 2011, but has two one-year extension options thereafter.

Our next bond maturity date is until 2013. And in summary, we currently have excellent liquidity and our overall balance sheet remains healthy and safe.

And now let me turn the call back to Tom, who will give you little bit more background.

Tom Lewis

Thanks, Paul. And I will just jump into the portfolio. Obviously, the portfolio did pretty well during the first quarter, very stable. I think our conversations with tenants generally to see their business being the little bit better that the consumer maybe as opened up to little bit even to some of the discretionary type items and I won't say everybody is ebullient, but there is a little better tone and pretty much across the board with a lot of the tenants which is nice to see.

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