Realty Income Corporation (O)

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Realty Income Corporation (O)

Q3 2012 Earnings Call

October 25, 2012 4:30 pm ET

Executives

Tom A. Lewis – Chief Executive Officer

Gary M. Malino – President and Chief Operating Officer

John P. Case – Executive Vice President and Chief Investment Officer

Gary M. Malino – President and Chief Operating Officer

Tere H. Miller – Vice President, Corporate Communications and Investor Relations

Analysts

Emanuel Porchman – Citigroup

Michael Bilerman – Citigroup

Joshua Barber – Stifel, Nicolaus & Co., Inc.

Richard J. Milligan – Raymond James & Associates

Craig R. Schmidt – Bank of America/Merrill Lynch

Todd Lukasik – Morningstar Research

Richard C. Moore – RBC Capital Markets Equity Research

Tom Lesnick – Robert W. Baird & Co.

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Realty Income Third Quarter 2012 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 also being recorded today, Thursday, October 25, 2012.

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

Tom A. Lewis

Thank you very much, operator, and good afternoon, everyone, and welcome to the conference call to review our operations and results for the third quarter. In the room with me today, as usual is Gary Malino, our President and Chief Operating Officer; Paul Meurer, our Executive Vice President and CFO; and John Case, our EVP and CIO and Tere Miller, our Executive Vice – excuse me, Vice President, almost promoted you, Tere, of Corporate Communications.

And as always, we’ll say, 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 the forward-looking statements and we will disclose in greater detail on the company’s Form 10-Q, the factors that may cause such differences.

On our call today, we’ll focus on our third quarter and year-to-date operational performance for the company. But before we get into that, let me start with just a brief comment on our merger with American Realty Capital Trust or ARCT. As most of you know, we announced on September 6 that we had reached an agreement to merge the two companies and then after our announcement of the agreement, we filed an S-4 proxy with the Securities and Exchange Commission, which is where it sits today and it is currently in review.

Following that review, which we anticipate will conclude in the near future, we also anticipate getting a final and then effective proxy sent out to all of the shareholders of both the companies. And at that time, we’ll be having an opportunity to talk to all of the parties involved about what we think is an attractive opportunity for the shareholders of both companies and we then move forward towards an approval of that transaction and ultimately close it, but we’ll engage in that time and I’m sure a fair amount of discussion about it.

We continue to anticipate closing the transaction towards the end of the year. So we look forward to more discussion on that once the transaction proxy is effective for us. I’d invite those with any additional questions for now. If they haven’t reviewed the S-4, it is currently filed at Securities and Exchange Commission and is available on EDGAR. And obviously, after we have comments, we’ll make any changes and get that out.

Moving then on to our operating results, let me start with an overview of the numbers and Paul as usual, if you’ll do that for us.

Paul M. Meurer

Thanks, Tom. So as usual, I’ll just comment briefly on our financial statements, provide a few highlights of our financial results for the quarter, starting with the income statement. Total revenue increased 13.2% for the quarter. Our revenue for the quarter was approximately $120 million or $480 million on an annualized basis. This obviously reflects a significant amount of new acquisitions over the past year.

On the expense side, depreciation and amortization expense increased by about $6.2 million in the comparative quarterly period. Depreciation expense obviously increased as our property portfolio continues to grow. Interest expense increased by almost $1.2 million and this increase, this quarter was due to our credit facility borrowings throughout the quarter.

On a related note, our coverage ratios both remain strong with interest coverage at 3.7 times and fixed charge coverage at 2.7 times. General and administrative or G&A expenses in the third quarter were approximately $9.3 million similar to the rate for last quarter.

Our G&A expenses increased this year as our acquisition activity has increased. We have added some new personnel throughout the year and our proxy process this past spring was more expensive than usual. We’ve spent $795,000 of acquisition due diligence costs during this quarter and our employee base has grown from 80 employees, a year ago to 92 employees today. However, our current total projection for G&A for all of 2012 is approximately $36 million, which will still represent only about 7.5% of total revenues.

Property expenses were just under $2 million for the quarter and these are expenses associated primarily with the properties that we have available for lease. Our current estimate for property expenses for all of 2012 remains about $9 million.

Merger-related costs, this new line item refers to the cost associated with the ARCT acquisition. During the quarter, we expensed approximately $5.5 million of such costs and this amount includes accruals for some of the expected total cost for completing the transaction.

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