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REALTY INCOME ANNOUNCES RECORD FOURTH QUARTER AND YEAR-END OPERATING RESULTS ESCONDIDO, CALIFORNIA, February 4, 2004 — Realty Income Corporation (Realty Income), The Monthly Dividend Company®, (NYSE: O) announces operating results for the fourth quarter and year ended December 31, 2003.
(For the quarter ended December 31, 2003:)
(For the year ended December 31, 2003:)
Financial Results Revenue Increases Realty Income's revenue for the fourth quarter ended December 31, 2003 increased 28.6% to $47.2 million as compared to $36.7 million for the same quarter in 2002. Revenue for the year ended December 31, 2003 increased 13.4% to $156.1 million from $137.7 million for the same period in 2002. FFO Available to Common Stockholders FFO for the quarter ended December 31, 2003 increased 26.0% to $31.5 million as compared to $25.0 million for the same quarter in 2002. FFO per diluted common share increased 19.7% to $0.85 per share compared to $0.71 per share for the same period in 2002. For the year ended December 31, 2003, FFO increased 11.0% to $104.0 million as compared to $93.7 million in 2002. FFO per diluted common share increased 5.8% to $2.92 per share as compared to $2.76 per share in 2002. The Company considers FFO to be an appropriate supplemental measure of a Real Estate Investment Trust's (REITs) operating performance as it is based on net income analyses of property portfolio performance that excludes non-cash items such as depreciation. FFO is an alternative, non-GAAP, measure that is also considered to be a good indicator of a company's ability to generate income to pay dividends. (See reconciliation of net income available to common stockholders to FFO in the tables below.) Net Income Available to Common Stockholders Net income available to common stockholders for the quarter ended December 31, 2003 was $25.1 million as compared to $17.7 million for the same period in 2002. On a diluted per common share basis, net income for the quarter was $0.67 per share as compared to $0.51 per share for the same period in 2002. The calculation to determine net income for a real estate company includes gains and losses from the sale of investment properties. The amount of gains and losses varies from quarter to quarter according to the timing of property sales. This variance can significantly impact net income. Excluding the gain on sales of investment properties and income from discontinued operations during the fourth quarter of each year, income from operations available to common stockholders increased by $0.11 to $0.59 per share in 2003 as compared to $0.48 per share in 2002, on a diluted per common share basis. Net income available to common stockholders, for the year ended December 31, 2003, was $76.7 million as compared to $69.0 million in 2002. On a diluted per common share basis, net income was $2.15 per share as compared to $2.03 per share in 2002. Excluding the gain on sales of investment properties and income from discontinued operations, income from operations available to common stockholders increased by $0.17 to $1.95 per share in 2003 as compared to $1.78 per share in 2002, on a diluted per common share basis. Dividend Information In December 2003, Realty Income announced the 25th consecutive quarterly increase in the amount of the monthly dividend on its common stock. This marked the 27th increase in the amount of the dividend since the Company's listing on the New York Stock Exchange in 1994. Through December 2003, the Company has paid 401 consecutive monthly dividends throughout its 34-year operating history. The amount of the monthly dividend was increased to $0.20 per share for an annualized dividend amount of $2.40 per share. During 2003, Realty Income paid twelve monthly dividends totaling $2.3625 per common share and increased the amount of the monthly dividend four times. The Company continues its 34-year policy of declaring and paying common stock dividends every month. During 2003, the Company also paid twelve monthly dividends totaling $2.375 per share on its Class C preferred stock and four quarterly dividends totaling $2.34375 per share on its Class B preferred stock. Real Estate Portfolio Update As of December 31, 2003, Realty Income's portfolio of freestanding, single-tenant, retail properties consisted of 1,404 properties located in 48 states, leased to 85 retail chains doing business in 28 retail segments. The properties are leased under long-term, net leases with a weighted average remaining lease term of approximately 11.8 years. Portfolio Management Activities The Company's portfolio of retail real estate, owned primarily under 15- to 20-year net leases, continues to perform well and provide dependable lease revenue supporting the payment of monthly dividends. As of December 31, 2003, portfolio occupancy was 98.1% with only 26 properties available for lease out of 1,404 properties in the portfolio. Same store rents, on the 1,003 properties under lease during the three months ended December 31, 2003 and 2002, increased 0.2% to $31.24 million from $31.18 million in 2002. Same store rents, on the same 1,003 properties under lease during the twelve months ended December 31, 2003 and 2002, increased 0.9% to $122.23 million compared to $121.11 million in 2002. Property Acquisitions During the fourth quarter, Realty Income and its wholly-owned subsidiary, Crest Net Lease Inc., invested $247.3 million in 211 new properties and properties under development. Realty Income invested $189.3 million in 164 properties with an initial average contractual lease yield of 9.4%. The 164 new properties are located in 16 states and are 100% leased under net-lease agreements with an initial average lease length of 19.9 years. They are leased to five different retail chains in five industries: automotive collision service, automotive service, automotive tire service, convenience store, and home improvement. Crest Net Lease invested $58.0 million in 47 new properties and properties under development. For the year ended December 31, 2003, Realty Income and Crest Net Lease invested $371.6 million in 302 new properties and properties under development. Realty Income invested $284.0 million in 242 properties with an initial average contractual lease yield of 9.8%. The 242 properties are located in 20 states and are 100% leased under net-lease agreements with an initial average lease length of 19.9 years. They are leased to 15 different retail chains in ten industries: automotive collision service, automotive service, automotive tire service, convenience store, equipment rental service, grocery store, home improvement, restaurant, sporting goods and travel plaza. Crest Net Lease invested $87.6 million in 60 new properties and properties under development. During 2004, Realty Income anticipates it will acquire additional properties utilizing its acquisition credit facility, the proceeds from property dispositions, internally generated cash flow and the proceeds from the potential offering of additional public securities. Realty Income maintains a credit facility with borrowing capacity of $250 million, which is used to fund acquisitions. The outstanding balance on the Company's acquisition credit facility at year-end was $26.4 million with $223.6 million available to fund new acquisitions. Property Dispositions Realty Income continued to successfully execute its asset disposition program. The objective of the program is to sell assets when the Company believes the reinvestment of the sale proceeds will generate higher returns, enhance the credit quality of the Company's real estate portfolio or increase the average lease length. During the fourth quarter ended December 31, 2003, Realty Income sold 14 properties for $9.4 million, which resulted in a gain on sales of $2.7 million. The properties sold consisted of: nine child care properties, two restaurants, one automotive collision service center, one consumer electronics store, and one home improvement store. The proceeds were or will be used to pay down the Company's acquisition credit facility and invest in new properties. For the year ended December 31, 2003, Realty Income sold 35 properties for $23.1 million, which resulted in a gain on sales of $6.5 million. The properties sold consisted of: 19 child care properties, nine restaurants, three home improvement stores, one automotive collision service center, one automotive service location, one consumer electronics store and one other property. Other Activities Issuance of 12-Year Senior Unsecured Notes In November 2003, Realty Income issued $150 million of 5-1/2%, 12-year, senior unsecured notes due 2015. The price to investors for the notes was 99.508% of the principal amount for an effective yield of 5.56%. These securities are rated BBB by Fitch Ratings, Baa2 by Moody's Investors Service and BBB by Standard & Poor's Ratings Group. The proceeds from the sale of the notes were used to fund the acquisition of additional properties and to repay borrowings under the Company's acquisition credit facility. Ratings Upgrade In November 2003, Realty Income received a ratings upgrade from Standard & Poor's Ratings Group. The Company's senior unsecured debt ratings were raised to BBB from BBB-. Its preferred stock ratings were raised to BBB- from BB+, with a stable outlook. Issuance of Common Stock In October 2003, Realty Income issued 2.875 million common shares priced at $40.59 per share. Net proceeds from the offering of $110.8 million were used to repay a portion of the amount outstanding on the Company's $250 million unsecured acquisition credit facility. Issuance of 10-Year Senior Unsecured Notes In March 2003, Realty Income issued $100 million of 5-3/8%, 10-year, senior unsecured notes due 2013. The price to investors for the notes was 99.509% of the principal amount for an effective yield of 5.439%. These securities are rated BBB by Fitch Ratings, Baa2 by Moody's Investors Service and BBB by Standard & Poor's Ratings Group. The proceeds from the sale of the notes were used to repay borrowings under the Company's acquisition credit facility. Ratings Upgrade In February 2003, Realty Income received a ratings upgrade from Moody's Investors Service. The Company's senior unsecured debt ratings were raised to Baa2 from Baa3. Its preferred stock ratings were raised to Baa3 from Ba1, with a stable outlook. Crest Net Lease Crest Net Lease is a subsidiary of Realty Income focused on acquiring and subsequently marketing net-leased properties for sale. During the fourth quarter ended December 31, 2003, Crest sold 23 properties for $38.1 million and reported a gain on sales of $5.3 million. During the quarter Crest also invested $58.0 million in 47 new properties and properties under development. For the year ended December 31, 2003, Crest sold 27 properties for $45.2 million and reported a gain on sales of $6.2 million. Crest also invested $87.6 million in 60 new properties and properties under development. As of the end of the year Crest carried a property inventory of $53.3 million, which consists of 37 properties held for sale. Because of the increase in Crest's inventory, the Company anticipates that Crest's contributions to Realty Income's FFO in the early quarters of 2004 may accelerate in comparison to the same quarters in 2003. Management's goal is for Crest to carry an average inventory of approximately $20 to $25 million in properties. The subsidiary generates an earnings spread on the difference between the lease payments it receives on the properties held in inventory and the cost of the capital used to acquire properties. It is management's belief that at this level of inventory these earnings will more than cover the ongoing operating expenses of Crest. Crest's contribution to Realty Income's FFO depends on the timing and number of property sales, if any, in a given quarter. During the fourth quarter and year ended December 31, 2003, Crest generated $4.1 million and $4.6 million, or $0.11 and $0.13, respectively, per diluted common share in FFO for Realty Income, as compared to $0.8 million and $2.7 million, or $0.02 and $0.08, respectively, per diluted common share during the same period in 2002. CEO Comments on 2003 Operating Results Commenting on Realty Income's financial results and real estate operations, Tom A. Lewis, Chief Executive Officer stated, "We are pleased to report that 2003 was a record year for operations of The Monthly Dividend Company®. We ended the year with substantial increases in revenue, earnings, and dividends as well as significant rise in the size and diversification of the Company's real estate portfolio. We also enjoyed four dividend increases and saw the price of our common stock grow from $35.00 at the beginning of the year to $40.00 at the end of the year. Including dividend and share price increases, the total return to shareholders for 2003 was a healthy 21.0%. "We were also gratified with a record $371.6 million in property acquisitions, by far the highest in our 34-year operating history. We also continue to enjoy attractive lease yields on new acquisitions even in the current low interest rate environment. At the same time we were pleased with the Company's continued access to the public capital markets during 2003. We completed two note offerings and an equity offering over the course of the year, which allowed us to generate $357 million of capital to continue our growth while maintaining one of the most conservative balance sheets in our industry. In addition, the Company's core portfolio of real estate exhibited stable occupancy, ending the year with 98.1% of our properties occupied. We believe this excellent performance is due to our continued focus on acquiring properties leased to retailers that sell basic human needs goods and services which consumers use every day. Finally, our subsidiary, Crest Net Lease, outperformed our expectations in the fourth quarter, resulting in a $4.6 million, or $0.13 per share, contribution to Realty Income's funds from operations in 2003. "Looking forward to 2004, we are optimistic about the Company's operations and financial performance for the year ahead. We enter the year with strong portfolio occupancy, a clean and uncomplicated balance sheet, access to capital to fund our growth and access to continued acquisition opportunities. As such, we believe we should be able to continue to deliver solid operational performance during 2004. "We are fortunate that, as The Monthly Dividend Company®, we have continued to offer a dependable source of monthly income to our shareholders throughout market swings and economic uncertainties. We continue to grow our FFO faster than dividends, providing solid dividend coverage and a reduced FFO payout ratio which adds to dividend safety." Earnings Commentary Realty Income's FFO per common share has historically tended to be stable and fairly predictable because of the long-term leases that are the primary source of the Company's revenue. There are, however, several factors that can cause FFO per common share to vary from levels that have been anticipated by the Company. These factors include, but are not limited to, changes in interest rates, occupancy rates, periodically accessing the capital markets, the level and timing of property acquisitions and dispositions, lease rollovers, the general real estate market, the economy, and the operations of Crest Net Lease. 2004 Estimates Management estimates that FFO per common share for 2004 should range from $3.06 to $3.10, which would equate to an increase of approximately 5% to 6% over 2003 FFO per share of $2.92. This represents an increase from the Company's previous 2004 FFO per share estimates of $3.03 to $3.09. FFO for 2004 is based on an estimated diluted net income per share range of $2.19 to $2.23, adjusted (in accordance with the National Association of Real Estate Investment Trust's (NAREIT) definition of FFO) for estimated real estate depreciation of $1.02 and potential gain on sales of investment properties of $0.15 per share. Management estimates Crest Net Lease could contribute between $0.12 to $0.14 per share to Realty Income's FFO during 2004. Crest's primary business is the purchase and sale of properties for a profit. These sales may occur at various times during the course of the year, which could cause FFO, in certain quarters, to fluctuate from normal levels. The Company does not intend to provide quarterly estimates of FFO. Absent any changes in annual FFO guidance at the end of each quarter, it may be presumed that the Company's overall estimate for the year has not changed. Forward-Looking Statements Statements in this press release that are not strictly historical are "forward-looking" statements. Forward-looking statements involve known and unknown risks, which may cause the Company's actual future results to differ materially from expected results. These risks include, among others, general economic conditions, local real estate conditions, the availability of capital to finance planned growth, property acquisitions and the timing of these acquisitions, and the profitability of the Company's subsidiary, Crest Net Lease, as described in the Company's filings with the Securities and Exchange Commission. Consequently, such forward-looking statements should be regarded solely as reflections of the Company's current operating plans and estimates. Actual operating results may differ materially from what is expressed or forecast in this press release. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date these statements were made. Realty Income is The Monthly Dividend Company®, a New York Stock Exchange real estate company dedicated to providing shareholders with dependable monthly income. As of December 31, 2003, the Company had paid 401 consecutive monthly dividends throughout its 34-year operating history. The monthly income is supported by the cash flows from approximately 1,400 retail properties owned under long-term lease agreements with leading regional and national retail chains. The Company is an active buyer of net-leased retail properties nationwide. Note to Editors: Realty Income press releases are available at no charge by calling our toll-free investor hotline number: 888-811-2001, or through the internet at http://www.realtyincome.com/Investing/News.html
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