Realty Income Corporation (O)

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Realty Income Corporation (O)

Q1 2011 Earnings Call

April 28, 2011 4:30 PM ET

Executives

Tom Lewis – Vice Chairman and CEO

Paul Meurer – CFO, EVP and Treasurer

John Case – EVP and Chief Investment Officer

Analysts

Anthony Paolone – JPMorgan

Lindsay Schroll – Bank of America/Merrill Lynch

Jeffrey Donnelly – Wells Fargo

Gregory Schweitzer – Citigroup

Todd Lukasik – Morningstar

Richard Moore – RBC Capital Markets

Joshua Barber – Stifel Nicolaus

Omotayo Okusanya – Jefferies & Co

Andrew Dizio – Janney Capital Markets

Presentation

Operator

Ladies and gentlemen thank you for standing by and welcome to the Realty Income First Quarter 2011 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 28, 2011.

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

Tom Lewis

Thank you, Joe. Good afternoon everyone and welcome to the call. And obviously our purpose is to review our operations during the first quarter of 2011. And as always, I’m obligated to say that during this conference call, we will make certain statements that may be 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 the forward-looking statements and we’ll disclose in greater detail on the company’s Form 10-Q, the factors that may cause such differences.

And as we normally do, Paul Meurer, our CFO will start this off and walk through our numbers.

Paul Meurer

Thanks, Tom. As usual, I’ll provide some comments and brief highlights of our financial results for the quarter starting with the income statement. And our total revenue increased 18.4% to $97.8 million this quarter versus $82.6 million during the first quarter of 2010. Obviously, this reflected the significant amount of new acquisitions over the past year, as well as some positive same-store rent increases for the quarterly period of 1.1%.

On the expense side, depreciation and amortization expense increased by almost $3.8 million in a comparative quarterly period, as depreciation expense obviously has increased as our property portfolio continues to grow. Interest expense increased by just over $3.7 million, and this increase was due to the $250 million of senior notes due 2021, which we’ve issued in June of last year. On a related note, our coverage ratios both improved since last quarter with interest coverage now at 3.5 times and fixed charge coverage now at 2.8 times.

General and administrative or G&A expenses in the first quarter was $7,870,000, as we’ve mentioned over the past couple of quarters the increase in G&A recently is due largely to recent hiring in our acquisitions and research department. Our G&A expense has increased as our acquisition activity has increased, and as we have invested in new personnel for future growth.

Furthermore though, this quarters G&A was also impacted by the expensing of $371,000 of acquisitions due diligence cost mostly related to the large portfolio acquisition that we announced last month. Our current projection for G&A for 2011 is approximately $29 million, which will represent less than 7% of our total revenue. Property expenses were $1,983,000 for the quarter. And of course these expenses are primarily associated with the taxes, maintenance and insurance expenses, which we are responsible for on properties available for lease. Our current estimate for 2011 is approximately $7 million for property expenses.

Income taxes consist of income taxes paid to various states by the company. They were $350,000 during the quarter. Income from discontinued operations for the quarter totaled $396,000. 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 $222,000.

Real estate held-for-investment refers to property sales by realty income from our existing core portfolio. We sold three properties during the first quarter resulting overall in income of approximately $174,000. These property sales gains are not included in our FFO or in the calculation of our AFFO.

Preferred stock cash dividends remained at $6.1 million for the quarter and net income available to common stock holders increased to approximately $29.9 million for the quarter. Net income or funds from operations or FFO increased 21.2% to $56.6 million for the quarter. On a per share basis, FFO increased 6.7% to $0.48 for the quarter.

Adjusted funds from operation or AFFO or the actual cash we have available for distribution as dividend was a penny higher at $0.49 per share for the quarter. Our AFFO is usually higher than our FFO because our capital expenditures are fairly low and we have minimal straight line rent in our portfolio.

We increased our cash monthly dividend again this quarter. We have increased the dividend 54 consecutive quarters and 61 times overall since we went public 15.5 years ago. And our dividend payout ratio has now continued to decrease, for the quarter was 90% of our FFO and about 88% of our AFFO.

Turning to the balance sheet, we have continued to maintain a very conservative and safe capital structure. Our current debt to total market capitalization is only 25% and our prepared stock outstanding represents just 5% of our capital structure. In March we successfully raised $300 million of new common equity in order to finance new property acquisitions. Since many of these acquisition did not close in the first quarter. We had $130 million of cash on hand at March 31st.

We also have zero borrowings on a $425 million credit facility and we had no debt maturities until 2013. So, in summary, we currently have excellent liquidity, and our overall balance sheet remains very healthy and safe.

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