Realty Income Corporation (O)

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Realty Income Corporation (O)

Q4 2010 Earnings Call Transcript

February 10, 2011 4:30 pm ET

Executives

Tom Lewis – CEO

Paul Meurer – EVP & CFO

Gary Malino – President & COO

Analysts

Lindsay Schroll – Bank of America

Jeffrey Donnelly – Wells Fargo

Gregory Schweitzer [ph] – Citigroup

Dustin Pizzo – UBS

Omotayo Okusanya – Jefferies & Co.

Richard Moore – RBC Capital Markets

Todd Lukasik – Morningstar

Presentation

Operator

Good afternoon, ladies and gentlemen. Welcome to the Realty Income fourth 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, February 10, 2011.

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

Tom Lewis

Thank you, Douglas, and good afternoon, everyone, and welcome to our call where we will review our operations for the year and for the fourth-quarter of 2010.

I have in the room with me today Gary Malino, our President and Chief Operating Officer; Paul Meurer, our Executive Vice President and CFO; John Case, our Executive Vice President and Chief Investment Officer and Tere Miller our Vice President, Corporate Communications.

As always, I must say during this 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. We will disclose in greater detail on the company’s Form 10-K, the factors that may cause such differences.

As we usually do, Paul will start with an overview of the numbers.

Paul Meurer

Thanks, Tom. As usual, let me give a few highlights of our financial statements and results for the quarter and for the year, starting with the income statement. Total revenue increased 13.4% to $92.2 million this quarter versus $81.3 million during the fourth-quarter of last year. This increase in revenue reflected a significant amount of new acquisitions over the past year, as well as some positive same-store rent increases for the quarterly period of 1%.

On the expense side, depreciation and amortization expense increased by $2.35 million in the comparative quarterly period, naturally, as depreciation expense increases our property portfolio continues to grow.

Interest expense increased by approximately $3.75 million. This increase was due to the $250 million of senior notes due 2021, which we issued in June of last year. On a related note, our coverage ratios remained strong with interest coverage at 3.3 times and fixed charge coverage at 2.7 times.

General and administrative or G&A expenses in the fourth-quarter were $5,785,000, up from last year on a comparative quarterly basis, but down about $400,000 from the third-quarter of this year.

As we have mentioned over the past year, the increase in G&A this year is due largely to recent hiring and our acquisition in research department. We had reduced G&A in each of 2008 and 2009.

During 2010, our G&A expense increased as our acquisition activity increased, and then we invested some more in new personnel for future growth. Our current projection for G&A for next year 2011 is approximately $28.5 million, which will still represent only about 7% to 7.5% of total revenue.

Property expenses were $1,925,000 for the quarter. These expenses are primarily associated with the taxes, maintenance and insurance expenses, which we’re responsible for on properties available for lease.

Property expenses increased about 10% this year, but our current estimate for 2011 is much lower at approximately $6.6 million or back to prior level.

Income taxes consist of income taxes paid to various states by the company and they were just over $500,000 during the quarter. Income from discontinued operations for the quarter totaled just under $4.9 million.

Real estate acquired for resale refers to the operations of Crest Net Lease, our subsidiary that acquires and resells properties. Crest did not acquire or sell any properties in the quarter and overall contributed income from discontinued operations of $229,000.

As we mentioned in the press release, we did move the three remaining Crest properties held for sale to held for investment as we’ve had strong leasing interest on these three properties, which we plan to pursue rather than selling these properties in the near-term. As part of this move, we did record total impairment of $807,000 in aggregate on these properties.

Real estate held-for-investment refers to property sales by realty income from our existing core portfolio. We sold nine properties during the quarter resulting overall in income of approximately $4.6 million. These property sales gains are not included in our AFFO or in our FFO.

Preferred stock cash dividends remained at $6.1 million for the quarter and net income available to common stockholders increased to approximately $31.8 million for the quarter.

Funds from operations or FFO increased 8.5% to $52.5 million for the quarter. FFO per share was $0.47 for the quarter and $1.83 for the year.

Adjusted funds from operations or AFFO are the actual cash that we have available for distribution as dividend was higher at $0.48 per share for the quarter and $1.86 for the year. Our AFFO is usually higher than our FFO, because our capital expenditures are fairly low and we have minimal straight line rent currently in our portfolio.

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