Realty Income Corporation (O)

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Realty Income Corporation (O)

Q3 2010 Results Earnings Conference Call

October 28, 2010 4:30 PM ET

Executives

Tom Lewis – CEO

Paul Meurer – EVP, CFO

Analysts

Lindsay Schroll (ph)

Greg Hannon (ph) – Citi

Jeffrey Donnelly – Wells Fargo

Presentation

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Realty Income second 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 opened for questions. (Operator Instructions). This conference is being recorded today Thursday, October 28th, 2010.

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

Tom Lewis

Thank you very much, Mitch, good afternoon, everyone, and welcome to the conference call, obviously to go over our operations and results for the third quarter 2010.

In the room with me today is Paul Meurer, our Executive Vice President and Chief Financial Officer; Gary Malino, our President and COO; Mike Pfeiffer, our Executive Vice President and General Counsel; and John Case, our Executive Vice President and Chief Investment Officer.

And as always, the starring part of the call is that during this conference call, we will make certain statements that may be considered to be forward-looking statements under Federal Securities law. The company’s actual future results may differ significantly from the matters discussed in any forward-looking statements. And we will disclose in greater detail on the company’s quarterly and on Form 10-Q, the factors that may cause such differences.

And we’ll just start with Paul running through the numbers for the quarter. Paul?

Paul Meurer

Thanks Tom. As usual, I will briefly comment on our financial statements, provide a few highlights of those financial results for the quarter, starting with the income statement.

Total revenue increased to $87.2 this quarter versus $81.5 million during the third quarter of last year. Rental revenue increased over 7% reflecting new acquisitions over the past year, and positive same-store rent increases for the quarterly period.

On the expense side, depreciation and amortization expense increased by about $1.4 million in the comparative quarterly period, naturally depreciation expense increases as our property portfolio continues to grow.
Interest expense increased by approximately $3.76 million. This increase was due to the $250 million of senior notes due 2021, which we issued in June. On a related note our coverage ratios remain strong with interest coverage at 3.1 times and fixed charge coverage at 2.5 times.

General and administrative or G&A expenses in the third quarter were $6,165,000 up from last year, but down about $500,000 from the second quarter of this year. As we mentioned on our last two earnings call, the increase in G&A this year is due largely to recent hiring and our acquisitions and research department. Our current projection for G&A for 2010 remains the same at about $26 million or about 7.5% of total revenues.

Property expenses were $1,753,000 for the quarter. This is an increase of $291,000 for the comparative quarterly period, but only about $75,000 from last year. These expenses are primarily associated with the taxes maintenance and insurance expenses which we are responsible for on the properties available for lease.

Income taxes consist of income taxes paid to various states by the company and they were $335,000 during the quarter. Income from discontinued operations for the quarter totaled just under $2 million.

Real estate acquired for resale refers to the operations of Crest Net Lease. Crest is a subsidiary that acquires and resells properties. Crest did not sell any properties in the quarter but overall contributed income or FFO of $221,000.

Real estate held for investment refers to property sales by growth to income from our existing core portfolio. We sold nine properties during the third quarter resulting overall in income of approximately $1.8 million. But again a reminder that these property sales gains are not included in our FFO or in our calculation of our AFFO.

Preferred stock cash dividends remained at $6.1 million for the quarter and net income available to common stockholders was approximately $25.6 million for the quarter. Funds from operations or FFO was $47.8 million for the quarter, down slightly from last year, but up over about $1 million from last quarter. FFO per share was $0.46 for the quarter, down $0.01 from last year, but up $0.01 sequentially from last quarter.

Adjusted FFO or AFFO or the actual cash that we have available for distribution as dividends was higher at $0.47 per share for the quarter. And our AFFO as we’ve said before is usually higher than our FFO, because our capital expenditures are very low and we have very minimal straight line rent in our portfolio.

We increased our cash monthly dividend again this quarter. We have increased the dividend 52 consecutive quarters and 59 times overall since we went public, 16 years ago this month.

Now let’s turn to the balance sheet. We have continued to maintain our conservative and safe capital structure, our debt-to-total market cap is only 27% and our preferred stock outstanding represents just 6% of our capital structure.

We were very pleased to access the equity market last month, raising almost $200 million of common equity to pay for recent acquisition. We thus had a $156 million of cash on hand at September 30th, although we did use a lot of that this month to close the acquisition of 23 properties for a $126.5 million.

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