Realty Income Corporation (O)

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Realty Income Corporation (O)

Q4 2011 Earnings Conference Call

February 9, 2012 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

Lindsay Schroll – Bank of America/Merrill Lynch

Joshua Barber – Stifel Nicolaus

Todd Lukasik – Morningstar

Todd Stender – Wells Fargo Securities

Anthony Paolone – JP Morgan

Rich Moore – RBC Market

Presentation

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Realty Income fourth 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 February 9, 2012. It is now my pleasure to introduce your host for today Mr. Tom Lewis, CEO or Realty. Please go ahead.

Tom Lewis

Thank you, Joe. Good afternoon everyone and welcome to our conference call. We will go throw the operations and results for the fourth quarter and full year 2011. In the room with me as usually is Gary Malino, our President Chief Operating Officer, Paul Meurer, our EVP and CFO, John Case, our EVP and Chief Investment Office and Mike Pfeiffer, our EVP and General Counsel and Terry Miller, our Vice President Corporate Communications.

And as always during this call, we will make certain statements that may be considered to be forward-looking statements under Federal Securities Law. Company’s actual future results may differ significantly from the matters discussed in the forward-looking statements and we will disclose in greater detail in the company’s Form 10-Q, the factors that could cause those differences.

And we will start as we always do with the numbers Paul?

Paul Meurer

Thanks, Tom. So as usual, I will provide some brief comments on our financial statements and provide some highlights of the financial results for both the quarter and the year starting with the income statement. Total revenue increased 23.6% for the quarter and 22.6% for the year. Our revenue for the quarter was $114 million or approximately $456 million on an annualized basis. This obviously reflects the significant amount of new acquisitions over the past year and positive same store rent in our portfolio increases per year of 1.3%.

On the expense side, depreciation and amortization expense increased by about $9.5 million in the comparative quarterly period as depreciation expense increased obviously as our property portfolio continue to grow. Interest expense increased by just under $3.9 million and this increase was due primarily to the June issuance of $150 million of notes in the reopening of our 2035 bond, as well as the $237 million of credit facility borrowings, which we had at year end. On a related note, our coverage ratios do remain strong with interest coverage at 3.5 times and fixed charge coverage at 2.9 times.

General and administrative or G&A expenses in the fourth quarter were $7.95 million or 7% of total revenues. Our G&A expense has increased as our acquisition activity has increased. And we invested in some new personnel for future growth. G&A was also impacted by the expensing of acquisition to diligent cost $357,000 during the quarter and a total of $1.5 million in expense during the year.

Our current projection for G&A for 2012 is approximately $33 million, which will continue to present only 7% of total revenue. Property expenses were $2.3 million for the quarter and $7.4 million for the year. These in course of the expenses primarily associated with the tax of maintenance and insurance one properties where we are responsible for those expenses and properties available for lease. Our current estimate for 2012 is similar at about $7.5 million. Income tax consistent income tax paid to various dates by the company there were $367,000 during the quarter.

Income from discontinued operations for the quarter totaled $1 million and this income is associated with our property sales activity during the quarter. We did sell five properties resulted in a gain on sales of $1.2 million during the quarter and a reminder that we do not include these property sales gains in our AFFO or in our FFO.

Preferred stock cash dividend remained at $6.1 million for the quarter and net income available to common stock holders increased to approximately $34.9 million for the quarter. Funds from operations or FFO per share increased 8.5% to $0.51 for the quarter and 8.2% to $1.98 for a year. Adjusted funds from operations or AFFO are also bad but the extra cash we had available for distribution and dividend was higher, higher than FFO and it increased 8.3% to $0.52 for the quarter and 8.1% to $2.01 per share for the year.

Our AFFO will continue to be higher than our FFO and its differential between our AFFO and FFO will continue to increase. Our capital expenditures are fairly low, we have minimum straight line rent in our portfolio and we believe we will continue to have some FAS141 non-cash reductions to FFO due to in place leases that we acquire in large portfolio transactions that we do. In addition, in 2012 we will have a $3.7 million non-cash charge to FFO for the redemption of our preferred D stock representing approximately $0.027 per share in FFO.

Our 2012 AFFO earnings projection is $2.07 and $2.12 per share or an increase of 3% to 5.5% over our 2011 AFFO per share of $2.01. We increased our cash monthly dividend again this quarter we have increased dividend 57 consecutive quarters and 64 times overall since we went public over 17 years ago. And of course as we announced this week we have not declared 500 consecutive monthly dividends over the past 42 years. Our dividend payout ratio for the quarter was 85% of our funds from operations and about 84% of our AFFO.

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