ESCONDIDO, CALIFORNIA, OCTOBER 26, 2000 — Realty Income Corporation (Realty Income), "The Monthly Dividend Company," (NYSE: O) today announced operating results for the third quarter and nine months ended September 30, 2000.

• The monthly dividend amount was increased for the 12th consecutive quarter
• Annualized dividends increased 3.5% from September 30, 1999 to September 30, 2000, to an annualized amount of $2.21 per share
• Revenue increased 14.4% to $86.7 million
• Funds from Operations (FFO) increased 2.1% to $49.4 million
• FFO per common share increased 2.8% to $1.85
• Crest Net Lease, Realty Income's new subsidiary company, achieved profitability
• Realty Income repurchased 260,900 shares of its securities for $5.6 million

Revenue Increases
Realty Income's revenue for the third quarter ended September 30, 2000 increased 11.2% to $29.9 million as compared to $26.9 million for the same quarter ended September 30, 1999.

Revenue for the nine months ended September 30, 2000 increased 14.4% to $86.7 million from $75.8 million for the same period in 1999.

Funds from Operations
FFO for the quarter ended September 30, 2000 increased 1.2% to $16.6 million as compared to $16.4 million for the same quarter in 1999. On a diluted per common share basis, FFO increased 1.6% to $0.62 per share compared to $0.61 per share for the same period in 1999.

FFO for the nine months ended September 30, 2000 increased 2.1% to $49.4 million as compared to $48.4 million for the same period one year ago. On a diluted per common share basis, FFO increased 2.8% to $1.85 per share from $1.80 per share for the same period in 1999.

FFO is a widely used measure of REIT performance that excludes non-cash charges for the depreciation of real estate. FFO is one measure of a company's cash flow and of its ability to pay dividends.

Dividend Information
On September 14, 2000, Realty Income announced the 12th consecutive quarterly increase in the amount of the monthly dividend on its common stock. This marked the 14th increase in the amount of the dividend since 1994. The amount of the dividend was increased to $0.1838 per share from $0.1825 per share for an annualized dividend amount of $2.21 per share.

Through September 30, 2000, Realty Income paid nine monthly dividends totaling $1.631 per common share. The Company continues its 31-year policy of declaring and paying common stock dividends on a monthly rather than a quarterly basis.

Realty Income also paid nine monthly dividends totaling $1.781 per share on its Class C preferred stock and three quarterly dividends totaling $1.758 per share on its Class B preferred stock.

Net Income Available to Common Stockholders
Net income available to common stockholders for the quarter ended September 30, 2000 decreased to $9.9 million as compared to $11.0 million for the same period in 1999. On a diluted per common share basis, net income decreased to $0.37 per share as compared to $0.41 per share for the three months ended September 30, 1999. The calculation to determine net income includes gains from the sale of investment properties. The amount of gain varies from quarter to quarter based on the timing of property sales and can significantly impact net income. The gain recognized from the sales of property held for investment during the third quarter of 1999 was $0.04 per share greater than the gain recognized during the same quarter in 2000. This difference accounted for the decline in third quarter net income per share in 2000.

Net income available to common stockholders for the nine months ended September 30, 2000 increased to $30.8 million as compared to $30.7 million for the same period in 1999. On a diluted per common share basis, this represented an increase to $1.15 per share as compared to $1.14 per share for the same period one year ago.

Share Repurchase Activity
On an ongoing basis, Realty Income regularly reviews its investment options to determine the best use of its capital. At certain times during the third quarter, the Company's share price justified repurchasing shares since this provided the highest return on its capital. During the three months ended September 30, 2000 the Company invested $1.5 million to repurchase 65,600 shares of its common stock at an average price of $22.86 per share and an estimated FFO yield of approximately 11%.

During the nine months ended September 30, 2000, Realty Income had repurchased 246,600 shares of common stock at an average price of $21.70 per share and an estimated FFO yield of approximately 11.6% per share. The Company also repurchased 14,300 shares of its Class B preferred stock at an average price of $19.27 per share and a yield of 12.16% per share. The total investment in Realty Income shares during the first nine months of 2000 was $5.6 million. The Company used excess cash flow, after the payment of dividends, to repurchase shares of the Company's securities.

Real Estate Portfolio Update

As of September 30, 2000 Realty Income's portfolio of freestanding, single-tenant retail properties consisted of 1,078 properties located in 46 states, leased to 74 retail chains doing business in 23 retail industries.

Portfolio Management Activities
The Company's portfolio of retail real estate properties owned under 10- to 20-year net leases continues to perform well and provide dependable lease revenue supporting the payment of monthly dividends. As of September 30, 2000, portfolio occupancy was 97.3% and 29 of the 1,078 properties were available for lease.

Same store rents on the 901 properties under lease during the three months ended September 30, 2000 and 1999 increased 1.8% to $22.9 million from $22.5 million in 1999. Same store rents on the same 901 properties under lease during the nine months ended September 30, 2000 and 1999 increased 1.2% to $68.1 million compared to $67.3 million in 1999.

Many of the Company's leases call for rent increases every five years. Over the past 4 years Realty Income has acquired approximately $596 million in new properties that now represent approximately 53% of the Company's total portfolio. These properties are due to generate their initial rent increases from 2003 to 2006. As such, the Company believes its same store rent growth is likely to accelerate with the onset of rent increases for the newer properties over the next few years.

During the third quarter Realty Income made excellent progress in the re-lease of 21 properties formerly occupied by Flooring America. At the end of the second quarter the Company became aware of the financial difficulties being experienced by Flooring America and set in motion a plan to re-tenant the properties that would become vacant during the third quarter. As of September 30, 2000, transactions were underway or completed on twelve of the 21 properties, which leaves Realty Income with just nine properties remaining to be re-leased or sold. The Flooring America stores are generally in excellent retail locations that lend themselves to a wide variety of retail uses. In addition, the rents that had previously been received on these properties were mainly at prevailing market rents. The Company believes it will complete the re-tenanting of the remaining nine properties during the first quarter of 2001 and will ultimately recapture 93% of the lease revenue previously derived from Flooring America.

Commenting on Realty Income's financial results and real estate operations, Tom A. Lewis, Chief Executive Officer stated, "We are generally satisfied with the third quarter and year-to-date results. The continued growth in our funds from operations has been somewhat moderated by rising interest rates and the Flooring America vacancies. While we will achieve increases in both funds from operations and dividends this year, we believe that the Company's ongoing FFO growth should generally exceed the rate of growth for 2000. In addition, given the rapid re-tenanting of the Flooring America properties and the recent moderation in interest rates, we believe the impact of these two items will be limited to this year's operations. We are pleased that lease revenues in our core portfolio continue to increase, benefiting from the substantial growth in the size of the portfolio over the past several years. This revenue growth is responsible for the solid cash flow coverage and dependability of the Company's monthly dividend payments."

Property Dispositions
The Company made progress in its asset disposition program during the first nine months of 2000. The objective of the program is to sell assets when the Company believes the reinvestment of the sales proceeds will generate higher returns or enhance the credit quality of the Company's real estate portfolio.

During the third quarter, Realty Income sold three properties for $2.2 million. Through September 30, 2000, Realty Income sold nine properties for $5.8 million. The Company anticipates approximately $20.0 million in property sales through the end of 2000 and up to $50 million in property sales during 2001.

Property Acquisitions
During the third quarter, Realty Income invested $28.0 million in eight new properties and properties under development with an initial contractual yield of 10.9%. For the nine months ended September 30, 2000, the Company had invested $44.8 million in 11 new properties and properties under development with an initial contractual lease yield of 10.8%. The new properties are 100% leased with an initial average lease length of 18.2 years. The Company used the proceeds from the sale of properties and borrowings under its acquisition credit facility to acquire the additional properties.

During the third quarter, Realty Income acquired eight parcels of land located in seven different states. Each parcel of land is leased to Regal Cinemas under a long-term (20-year) triple-net lease and Regal owns and operates a state-of-the art, stadium-seating theater on each of of these locations. The parcels of land are approximately 4.9 million square feet (113 acres) and are prime retail locations. The total amount invested by Realty Income in the parcels of land was $25.5 million or $5.20 per square foot ($226,000 per acre). The Company's purchase of the land represents approximately 35% of the total original investment in the land and buildings by Regal Cinemas.

Regal Cinemas is the largest theater operator in the United States with 418 theaters, 4,472 screens in 32 states. In recent years Regal has been building newer, stadium-seating, megaplex theaters with numerous amenities that have proven to be preferred by the movie-going public. The theaters Regal owns and operates, on the parcels of land acquired by Realty Income, are these newer theaters. They are also among the leading theaters, as measured by ticket sales, in their respective markets, with each of the theaters being among the top 15% in ticket sales in their market over the last 12 months. Additionally, the average theater cash flow coverage of the land lease payments due to Realty Income, based on individual theater financial performance, is an extremely high 5.6 times.

Commenting on the transaction, Tom A. Lewis, Chief Executive Officer stated, "We are pleased to be able to provide this financing to Regal Cinemas during this turbulent time in the theater industry. By acquiring only the land under Regal's top performing, very profitable, seasoned megaplex theaters, we believe we have structured an extremely secure and profitable transaction for our shareholders.

"We have been actively researching the theater exhibition industry and have analyzed hundreds of theater transactions over the past five years. We have followed the industry's move to stadium-seating, megaplex theaters closely and have monitored the negative impact these theaters have had on the older, less modern, existing theaters. By structuring a transaction with only newer, proven theaters, and acquiring only the land under the theaters, we were able to provide the industry's largest company with the capital it needed to continue to transition its business towards the more modern theaters."

Amy Miles, Chief Financial Officer of Regal Cinemas, also commented on the transaction, "The theaters located on the land that Realty Income purchased are among the most profitable in our chain of 418 theaters. They are new, state-of-the-art, megaplex theaters featuring stadium seating and at least 13 screens per theater. We are pleased to have been able to come to terms with Realty Income on locations that we both believe will be mutually profitable throughout the life of our agreement."

The Company also announced that it exchanged two theater properties it had owned for two theaters held in Regal's portfolio. The properties previously owned were two newly built theaters that were early in their business development cycle. The two properties Realty Income acquired in the exchange were more mature, highly profitable, megaplex theaters.

With the acquisition of the eight parcels of land and the exchange of two existing theater locations, Realty Income now derives 4.4% of its annual revenues from the theater industry. Given the structure of the transactions, the store level profitablity and cash flow coverage ratios of the individual properties, it is the Company's opinion that rental income from these properties should remain very stable during this trying time in the theater industry.

Market Overview
Realty Income's acquisition opportunities and the market for freestanding, net-lease retail properties remains strong. The Company has access to excellent real estate acquisition opportunities at attractive lease yields. While the market for acquisitions remains strong, the Company does not feel that the capital markets are currently attractive for the issuance of additional common stock, preferred stock or bonds to fund acquisitions. Further, the Company remains dedicated to maintaining a conservative balance sheet. As such, Realty Income anticipates that internally generated cash flow and the proceeds from property dispositions will be the primary source of funds to generate the growth of its real estate portfolio in the near future. The Company also maintains acquisition credit facilities which are used from time to time to fund acquisitions. The outstanding balances of the credit facilities at the end of the third quarter were $186.3 million. It is anticipated that during the fourth quarter proceeds from property dispositions will be used to pay down these outstanding balances.

Other Activities

Crest Net Lease
During the third quarter, Crest Net Lease Inc., a subsidiary formed in early 2000 to actively buy and sell properties, achieved profitability and sold its first property. Year-to-date Crest Net Lease, Inc.'s net contribution to Realty Income's Funds From Operations is $0.01 per share.

The contribution to Realty Income's FFO by the subsidiary will be dependent on the timing and the number of property sales achieved, if any, in any given quarter. At the end of the third quarter, the subsidiary carried an inventory of $23.9 million in property held for sale. Management believes that Crest Net Lease, Inc. will carry an average inventory of $25 million in property on an ongoing basis. The subsidiary generates earnings on the differential between the lease payments it receives on the properties it holds in inventory and the cost of the capital used to acquire the properties. It is management's belief that at this level of inventory these earnings will generate a modest profit for Crest Net Lease on an ongoing basis, regardless of the level of property sales in any given quarter.

Earnings Commentary

Realty Income's funds from operations tend 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 impact FFO. These include, changes in interest rates which may impact credit costs, increases in vacancies which can impact lease revenue, accessing the capital markets with the associated securities issuance costs, the level of acquisitions, sales of properties, and the operations of Crest Net Lease.

Forward-Looking Statements
Statements in this press release, which are not strictly historical, are "forward-looking" statements. Forward-looking statements involve known and unknown risks, which may cause the Company's actual results in the future 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, the profitability of the Company's subsidiary, Crest Net Lease, and how quickly the company can re-tenant its Flooring America properties and at what lease rates, 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.

Realty Income is "The Monthly Dividend Company," a New York Stock Exchange real estate company dedicated to providing shareholders with dependable monthly income. The monthly income is supported by the cash flows from 1,078 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.

REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

For the three and nine months ended September 30, 2000 and 1999 (dollars in thousands, except per share data) (unaudited)

	Three Months Ended 9/30/00	Three Months Ended 9/30/99	Nine Months Ended 9/30/00	Nine Months Ended 9/30/99
REVENUE
Rental	$ 29,180	$ 26,870	$ 85,859	$ 75,682
Gain on sale of real estate held for sale	558	--	558	--
Interest and other	147	30	264	106
	29,885	26,900	86,681	75,788
EXPENSES
Interest	8,184	6,100	22,813	18,025
Depreciation and amortization	6,913	6,660	20,505	18,987
General and administrative	1,863	1,754	5,358	5,155
Property	536	478	1,517	1,356
Other	269	--	193	--
	17,765	14,992	50,386	43,523
Income from operations	12,120	11,908	36,295	32,265
Gain on sales of investment properties	231	1,236	1,831	1,236
Net Income	12,351	13,144	38,126	33,501
Preferred stock dividends	(2,428)	(2,163)	(7,284)	(2,792)
Net income available to common stockholders	$ 9,923	$10,981	$ 30,842	$ 30,709
Funds from operations (FFO)	$ 16,574	$ 16,380	$ 49,417	$ 48,391
Basic and diluted per share information for common stockholders:
Income from operations	$0.36	$0.36	$1.09	$1.10
Net Income	0.37	0.41	1.15	1.14
FFO	0.62	0.61	1.85	1.80
Cash dividends paid	0.548	0.525	1.631	1.553
Weighted average number of shares used for:
Basic per share computation	26,649,315	26,822,244	26,722,408	26,822,323
Diluted per share computation	26,671,473	26,827,291	26,736,160	26,826,405

 

FUNDS FROM OPERATIONS (dollars in thousands, except per share data)

	Three Months Ended 9/30/00	Three Months Ended 9/30/99	Nine Months Ended 9/30/00	Nine Months Ended 9/30/99
Net income available to common stockholders	$ 9,923	$ 10,981	$ 30,842	$ 30,709
Plus depreciation and amortization	6,913	6,660	20,505	18,987
Less:
Depreciation of furniture, fixtures and equipment and amoritization of organization costs	(31)	(25)	(99)	(69)
Gain on sale of investment properties	(231)	(1,236)	(1,831)	(1,236)
Funds from operations	$ 16,574	$ 16,380	$ 49,417	$ 48,391
Dividends paid to common stockholders	$ 14,594	$ 14,082	$ 43,612	$ 41,642
FFO in excess of dividends	$ 1,980	$ 2,298	$ 5,805	$ 6,749
Basic and diluted FFO per common share	$ 0.62	$ 0.61	$ 1.85	$ 1.80

 

CONSOLIDATED BALANCE SHEETS As of September 30, 2000 and December 31, 1999 (dollars in thousands, except per share data) 2000 1999   ASSETS     Real estate, at cost:         Land $ 363,587 $ 338,489     Buildings and improvements 692,122 678,763 1,055,709 1,017,252     Less accumulated depreciation and amortization (196,407) (179,421)       Net real estate held for investment 859,302 837,831   Real estate held for sale, net 52,718 29,262     Net real estate 912,020 867,093 Cash and cash equivalents 5,297 773 Accounts receivable 3,558 3,407 Goodwill, net 18,360 19,053 Other assets 13,794 15,078        Total assets $ 953,029 $ 905,404   LIABILITIES AND STOCKHOLDERS' EQUITY Distributions payable $ 6,770 $ 4,828 Accounts payable and accrued expenses 8,194 12,792 Other liabilities 4,883 3,753 Line of credit payable 186,300 119,200 Notes payable 230,000 230,000       Total liabilities 436,147 370,573   Stockholders’ equity     Preferred stock and paid in capital, par value $1.00 per share, 20,000,000 shares authorized, 4,125,700 and 4,140,000 shares issued and outstanding in 2000 and 1999, respectively 99,368 99,679 Common stock and paid in capital, par value $1.00 per share, 100,000,000 shares authorized, 26,601,419 and 26,822,164 shares issued and outstanding in 2000 and 1999, respectively 631,802 636,611 Distributions in excess of net income (214,288) (201,459)       Total stockholders’ equity 516,882 534,831       Total liabilities and stockholders’ equity $ 953,029 $ 905,404     The following table sets forth certain information regarding our properties classified according to the business of the respective tenants (dollars in thousands): Annualized Rent (1) (2) (As of September 30, 2000) Industry Rental Revenue % of Total % of Total Revenue 1999 1998 1997   Apparel Stores $2,799 2.4% 3.8% 4.1% 0.7% Automotive Parts 10,147 8.6 8.6 7.8 9.1 Automotive Service 6,806 5.8 6.6 7.5 6.4 Book Stores 572 0.5 0.5 0.6 0.5 Business Services 124 0.1 0.1 * -- Child Care 28,589 24.1 25.3 29.2 35.9 Consumer Electronics 5,859 4.9 4.4 5.4 6.5 Convenience Stores 9,815 8.3 7.2 6.1 5.5 Crafts & Novelties 425 0.4 0.4 * -- Drug Stores 235 0.2 0.2 0.1 -- Entertainment 2,293 1.9 1.2 -- -- General Merchandise 687 0.6 0.6 * -- Grocery Stores 719 0.6 0.5 * -- Health & Fitness 3,940 3.3 0.6 0.1 -- Home Furnishings 6,641 5.6 6.5 7.8 5.6 Home Improvement 1,648 1.4 3.6 * -- Office Supplies 2,476 2.1 2.6 3.0 1.7 Pet Supplies & Services 1,697 1.4 1.1 0.6 0.2 Private Education 1,703 1.4 1.2 0.9 -- Restaurants 14,177 12.0 13.3 16.2 19.8 Shoe Stores 890 0.7 1.1 0.8 0.2 Theaters 5,209 4.4 0.6 -- -- Video Rental 4,510 3.8 4.3 3.8 0.6 Other 6,492 5.5 5.7 6.0 7.3 Totals $118,273 100.0% 100.0% 100.0% 100.0% * Less than 0.1% (1) Annualized Rent is calculated by multiplying the monthly contractual base rent as of October 1, 2000 for each of the properties by 12, and adding the previous twelve month's historic percentage rent, which totaled $1.7 million, (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property. (2) The table does not include the properties owned and held for sale by the company's subsidary, Crest Net Lease. These properties represent 2.2% of the combined total revenue generated by Realty Income and Crest Net Lease.   The following table sets forth certain information regarding our properties as of September 30, 2000, classified according to the retail business types and the level of services they provide (dollars in thousands): REALTY INCOME CORPORATION Lease Revenue by Goods and Services (As of September 30, 2000) Industry Number of Properties Annualized Rent (1)(2) Percent of Annualized Rent   TENANTS PROVIDING SERVICES Automotive Service 101 $ 6,806 5.8% Child Care 336 28,589 24.1% Entertainment 6 2,293 1.9% Health and Fitness 7 3,940 3.3% Private Education 6 1,703 1.4% Theaters 10 5,209 4.4% Other 10 6,492 5.7%   476 55,032 46.4%   TENANTS SELLING GOODS AND SERVICES Automotive Parts 63 5,505 4.7% Business Services 1 124 0.1% Convenience Stores 103 9,815 8.3% Home Improvement 19 271 0.2% Pet Supplies and Services 6 1,230 1.0% Restaurants 174 14,177 12.0% Video Rental 35 4,510 3.8%   401 35,632 30.0%   TENANTS SELLING GOODS Apparel Stores 4 2,799 2.4% Automotive Parts 79 4,642 3.9% Book Stores 2 572 0.5% Consumer Electronics 38 5,859 4.9% Craft and Novelty 2 425 0.4% Drug Stores 1 235 0.2% General Merchandise 11 687 0.6% Grocery Stores 2 719 0.6% Home Furnishings 35 6,641 5.6% Home Improvement 13 1,377 1.2% Office Supplies 8 2,476 2.1% Pet Supplies 2 467 0.4% Shoe Stores 4 890 0.7% 201 27,789 23.4%   Totals 1,078 $ 118,273 100.0%   (1) Annualized Rent is calculated by multiplying the monthly contractual base rent as of October 1, 2000 for each of the properties by 12, and adding the previous twelve month's historic percentage rent, which totaled $1.7 million, (i.e., additional rent calculated as a percentage of the tenant's gross sales above a specified level). For the properties under construction, an estimated contractual base rent is used based upon the estimated total costs of each property. (2) The table does not include the properties owned and held for sale by the company's subsidary, Crest Net Lease. These properties represent 2.2% of the combined total revenue generated by Realty Income and Crest Net Lease.

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