REALTY INCOME REPORTS RECORD OPERATING RESULTS
(Affirms 2001 and 2002 Earnings Guidance)

ESCONDIDO, CALIFORNIA, OCTOBER 30, 2001 — Realty Income Corporation (Realty Income), "The Monthly Dividend Company," (NYSE: O) today announced record operating results for the third quarter and nine months ended September 30, 2001.

THIRD QUARTER COMPANY HIGHLIGHTS:

• The monthly dividend amount was increased for the 16th consecutive quarter to an annualized dividend amount of $2.265 per share.
• Revenue increased 3.7% to $31.0 million.
• Funds from Operations (FFO) increased 18.7% to $19.7 million.
• FFO per common share increased 6.5% to $0.66 per share.
• Net income per common share increased 35.1% to $0.50 per share.
• Previous guidance of $2.65 to $2.67 per common share in FFO for 2001 and $2.80 to $2.82 per common share in FFO for 2002 is affirmed.

Financial Results

Revenue Increases
Realty Income's revenue for the third quarter ended September 30, 2001 increased 3.7% to $31.0 million as compared to $29.9 million for the same quarter ended September 30, 2000.

Revenue for the nine months ended September 30, 2001 increased 6.7% to $92.5 million from $86.7 million for the same period in 2000.

Funds from Operations
FFO for the quarter ended September 30, 2001 increased 18.7% to $19.7 million as compared to $16.6 million for the same quarter in 2000. FFO per common share increased 6.5% to $0.66 per share compared to $0.62 per share for the same period in 2000.

FFO for the nine months ended September 30, 2001 increased 12.3% to $55.5 million as compared to $49.4 million for the same period one year ago. FFO per common share increased 5.9% to $1.96 per share from $1.85 per share for the same period in 2000.

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

Dividend Information
On September 13, 2001, Realty Income announced the 16th consecutive quarterly increase in the amount of the monthly dividend on its common stock. This marked the 18th increase in the amount of the dividend since 1994. The amount of the dividend was increased to $0.18875 per share for an annualized dividend amount of $2.265 per share.

Through September 30, 2001, Realty Income paid nine monthly dividends totaling $1.67625 per common share. The Company continues its 32-year history of declaring and paying common stock dividends on a monthly rather than on a quarterly basis. Realty Income is dedicated to providing its shareholders with dependable monthly dividends and steady dividend growth.

Net Income Available to Common Stockholders
Net income available to common stockholders for the quarter ended September 30, 2001 increased to $14.8 million as compared to $9.9 million for the same period in 2000. Net income per common share increased to $0.50 per share as compared to $0.37 per share for the three months ended September 30, 2000. The calculation to determine net income includes gains from the sale of investment properties. The amount of gains and losses varies from quarter to quarter based on the timing of property sales and can significantly impact net income. The gain recognized from property sales during the third quarter of 2001 increased by $2.6 million and was $0.09 per common share more than the gain recognized from investment property sales during the same quarter in 2000.

Net income available to common stockholders for the nine months ended September 30, 2001 increased to $41.9 million as compared to $30.8 million for the same period in 2000. Net income per common share increased to $1.48 per share as compared to $1.15 per share for the same period one year ago. The gain recognized from property sales during the nine months ended September 30, 2001 increased by $7.1 million and was $0.25 per common share more than the gain recognized from investment property sales during the same period in 2000.

Recent Capital Markets Activity

Issuance of Common Stock
On October 23, 2001, Realty Income issued 2.6 million shares of common stock priced at $28.50 per share. The net proceeds of approximately $70 million from the offering were used to repay a portion of the amount outstanding on the Company's $200 million unsecured acquisition credit facility. The number of common shares outstanding at the end of the third quarter was 29,876,241. Subsequent to the October 23, 2001 common share offering the number of shares outstanding is 32,479,031.

Real Estate Portfolio Update

As of September 30, 2001, Realty Income's portfolio of freestanding, single-tenant retail properties consisted of 1,082 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 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, 2001, portfolio occupancy was 98.0% with 22 of 1,082 properties available for lease.

Same store rents on 986 properties under lease during the three months ended September 30, 2001 and 2000 increased 1.7% to $26.43 million compared to $25.98 million. Same store rents on the same 986 properties under lease during the nine months ended September 30, 2001 and 2000 increased 2.0% to $78.59 million from $77.04 million.

Property Acquisitions
During the third quarter, Realty Income invested $25.8 million in 30 new properties and properties under development with an initial contractual yield of 10.8%. The new properties are 100% leased with an initial average lease length of 20.0 years.

For the nine months ended September 30, 2001, the Company invested $41.1 million in 37 new properties and properties under development with an initial contractual lease yield of 11.1%. The new properties are 100% leased with an initial average lease length of 20.3 years. The Company used the proceeds from the sale of properties, capital from its second quarter common stock offering and borrowings under its acquisition credit facility to acquire these additional properties.

Property Dispositions
The Company continued to successfully execute its asset disposition program during the first nine months of 2001. The objective of the program is to sell assets when the Company believes the reinvestment of the sales proceeds will generate higher returns, enhance the credit quality of the Company's real estate portfolio or increase the average lease length.

During the third quarter, Realty Income sold ten properties for $10.0 million. During the nine months ended September 30, 2001, Realty Income sold 23 properties for $29.7 million.

Market Overview
Realty Income's acquisition opportunities and the market for freestanding, net-lease retail properties remains strong. The Company currently has access to excellent real estate acquisition opportunities at attractive lease yields. It is anticipated that Realty Income will generate growth in its real estate portfolio by financing new acquisitions from internally generated cash flow, proceeds from property dispositions and the capital from its most recent common stock offering. The Company also maintains revolving acquisition credit facilities with borrowing capacity of $225 million, which are used to fund its acquisitions and the operations of its subsidiary, Crest Net Lease, Inc. ($200 million line of credit for Realty Income and $25 million for Crest) The outstanding balance on the Company's credit facility at September 30, 2001 was $72.5 million. The outstanding balance on the credit facility used to fund Crest operations was $25.0 million. In October, net proceeds of approximately $70 million from the common stock offering were used to pay down the outstanding balance on the Company's credit facility.

Other Activities

Crest Net Lease
Crest Net Lease Inc., a subsidiary formed by Realty Income, is focused on acquiring and subsequently marketing net-leased properties for sale. During the third quarter ended September 30, 2001, Crest sold one property for $3.3 million and reported a gain on sales of $284,000. During the quarter Crest also invested $14.2 million in 15 new properties and properties under development and as of the end of the quarter carried an inventory of $25.4 million in properties held for sale.

During the first nine months of the year Crest sold six properties for $18.8 million and reported a gain on sales of $2.4 million. During the nine months ended September 30, 2001, Crest invested $18.7 million in 19 properties and properties under development.

Management believes that Crest will carry an average inventory of between $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. 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. During the third quarter and first nine months of 2001, Crest generated $0.01 and $0.06, respectively, per common share in FFO for Realty Income.

CEO Comments on Mid-Year Operating Results

Commenting on Realty Income's financial results and real estate operations, Tom A. Lewis, Chief Executive Officer stated, "We are very pleased with the Company's continued progress in all facets of its business during the third quarter and first nine months of the year. Portfolio operations remained strong during the quarter with property occupancy increasing to 98% and same store rents continuing to grow on a consistent basis. The two equity offerings we have completed this year have given us an exceptionally strong balance sheet and substantial liquidity to pursue additional property acquisitions. We continue to review attractive opportunities to acquire retail properties under long-term (15-20 year) leases with regional and national retail chains. Initial contractual lease rates are currently in the 10.75% to 11.25% yield range. In addition, Crest Net Lease is also contributing steadily to Realty Income's FFO growth. Looking forward to 2002, we believe that our continued focus on retailers selling basic human needs goods and services at relatively low price points, will continue to position our portfolio to produce consistent results. In addition, the outlook for our freestanding retail real estate market is sound and we are experiencing substantial demand from a variety of well-known retail chains within stable, recession-resistant industries. We believe that we are well positioned, both financially and competitively, to take advantage of investment opportunities that may well be plentiful during a challenging economic environment in 2002."

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 impact changes in FFO per common share 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 of acquisitions and dispositions, and the operations of Crest Net Lease.

2001 Estimates
Management affirms its estimate that FFO per common share for 2001 should range from $2.65 to $2.67, which would equate to an increase of 5.2% to 6.0% over 2000 FFO per share of $2.52.

2002 Estimates
Management also affirms its estimate that FFO per common share for 2002 should range from $2.80 to $2.82, which would equate to an increase of approximately 4.9% to 6.4% over 2001 projected FFO per share of $2.65 to $2.67

In prior years, certain items impacting FFO per share have fluctuated quarter to quarter. Typically, the Company's FFO has been generated as follows: 25% in the first quarter, 24% in the second and third quarters and 27% in the fourth quarter. This fluctuation is primarily due to the receipt of percentage rents in the first and fourth quarters of the year. While the Company believes this trend may continue, FFO may fluctuate additionally in future years based upon the operations of Crest Net Lease, property acquisitions or capital market activities.

Management estimates that Crest Net Lease, Inc. will generate approximately $0.08 per share of FFO during 2001 and 2002. Crest's primary business is the purchase and sale of properties at a profit. These sales may occur at various times during the course of the year, which would cause FFO in certain quarters to increase or decrease from normal levels. The Company does not intend to provide quarterly estimates of FFO. Absent 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, 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, 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. The monthly income is supported by the cash flows from 1,082 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

 

REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

For the three and nine months ended September 30, 2001 and 2000 (dollars in thousands, except per share data)

	Three Months Ended 9/30/01	Three Months Ended 9/30/00	Nine Months Ended 9/30/01	Nine Months Ended 9/30/00
REVENUE
Rental	$ 30,314	$ 29,180	$ 89,396	$ 85,859
Gain on sale of real estate acquired for resale	284	558	2,373	558
Interest and other	409	147	729	264
	31,007	29,885	92,498	86,681
EXPENSES
Interest	6,080	8,184	20,726	22,813
Depreciation and amortization	7,234	6,913	21,602	20,505
General and administrative	1,914	1,723	5,820	4,997
Property	585	536	1,773	1,517
Other	814	409	2,363	554
	16,627	17,765	52,284	50,386
Income from operations	14,380	12,120	40,214	36,295
Gain on sales of investment properties	2,806	231	8,921	1,831
Net Income	17,186	12,351	49,135	38,126
Preferred stock dividends	(2,428)	(2,428)	(7,284)	(7,284)
Net income available to common stockholders	$14,758	$ 9,923	$ 41,851	$ 30,842
Funds from operations (FFO)	$ 19,677	$ 16,574	$ 55,497	$ 49,417
Per share information for common stockholders:
FFO
Basic	$0.66	$0.62	$1.96	$1.85
Diluted	0.66	0.62	1.96	1.85
Income from operations
Basic	0.40	0.36	1.17	1.09
Diluted	0.40	0.36	1.16	1.09
Net Income
Basic	0.50	0.37	1.48	1.15
Diluted	0.50	0.37	1.48	1.15
Cash dividends paid	0.563	0.548	1.676	1.631
The accompanying notes to consolidated financial statements are an integral part of these statements. For these notes, please refer to Form 10-Q for the quarter ended 9/30/2001.

 

 

FUNDS FROM OPERATIONS For the three and nine months ended September 30, 2001 and 2000 (dollars in thousands, except per share amounts)

	Three months ended 9/30/01	Three months ended 9/30/00	Nine months ended 9/30/01	Nine months ended 9/30/00
Net income available to common stockholders	$ 14,758	$ 9,923	$ 41,851	$ 30,842
Plus:
Depreciation and amortization	7,234	6,913	21,602	20,505
Provision for impairment losses on properties held for sale	520	--	1,050	--
Less:
Depreciation of furniture, fixtures and equipment	(29)	(31)	(85)	(99)
Gain on sale of investment properties	(2,806)	(231)	(8,921)	(1,831)
Funds from operations	$ 19,677	$ 16,574	$ 55,497	$ 49,417
Divideneds paid to common stockholders	$ 16,716	$ 14,594	$ 46,905	$ 43,612
FFO in excess of dividends	$ 2,961	$ 1,980	$ 8,592	$ 5,805
Basic and diluted    FFO per common share	$ 0.66	$ 0.62	$ 1.96	$ 1.85
Weighted average number of common shares used for:
Basic per share computation	29,752,807	26,649,315	28,264,186	26,722,408
Diluted per share computation	29,804,308	26,671,473	28,303,628	26,736,160

 

 

CONSOLIDATED BALANCE SHEETS As of September 30, 2001 and December 31, 2000 (dollars in thousands, except per share data)

	2001	2000
ASSETS
Real estate, at cost:
Land	$ 379,970	$ 368,057
Buildings and improvements	713,204	705,470
	1,093,174	1,073,527
Less accumulated depreciation and amortization	(228,587)	(212,379)
Net real estate held for investment	864,587	861,148
Real estate held for sale, net	31,192	33,130
Net real estate	895,779	894,278
Cash and cash equivalents	11,624	3,815
Accounts receivable	3,606	5,053
Goodwill, net	17,437	18,130
Other assets	13,049	13,490
Total assets	$ 941,495	$ 934,766
LIABILITIES AND STOCKHOLDERS' EQUITY
Distributions payable	$    7,521	$    4,914
Accounts payable and accrued expenses	6,096	5,969
Other liabilities	4,208	4,314
Lines of credit payable	97,500	174,000
Notes payable	230,000	230,000
Total liabilities	345,325	419,197
Stockholders’ equity:
Preferred stock and paid in capital, par value $1.00 per share, 20,000,000 shares authorized, 4,125,700 shares issued and outstanding	99,368	99,368
Common stock and paid in capital, par value $1.00 per share, 100,000,000 shares authorized, 29,876,241 and 26,563,519 shares issued and outstanding in 2001 and 2000, respectively	717,312	630,932
Distributions in excess of net income	(220,510)	(214,731)
Total stockholders’ equity	596,170	515,569
Total liabilities and stockholders’ equity	$ 941,495	$ 934,766

The following table sets forth certain information regarding our properties classified according to the business of the respective tenants (dollars in thousands):

REALTY INCOME CORPORATION
Tenants by Industry Percentage of Rental Revenue
	Annualized Rent as of	For the Years Ended (1)
Industry	Sept 30, 2001(1) (2)	Dec 31, 2000	Dec 31, 1999	Dec 31, 1998	Dec 31, 1997	Dec 31, 1996	Dec 31, 1995
Apparel Stores	2.5%	2.4%	3.8%	4.1%	0.7%	--%	--%
Automotive Parts	8.2	8.3	8.6	7.8	9.1	10.5	11.4
Automotive Service	5.6	5.8	6.6	7.5	6.4	4.8	3.7
Book Stores	0.5	0.5	0.5	0.6	0.5	--	--
Business Services	0.1	0.1	0.1	*	--	--	--
Child Care	23.9	24.7	25.3	29.2	35.9	42.0	45.6
Consumer Electronics	3.8	4.9	4.4	5.4	6.5	0.9	--
Convenience Stores	8.3	8.4	7.2	6.1	5.5	4.6	2.4
Craft and Novelty	0.4	0.4	0.4	*	--	--	--
Drug Stores	0.2	0.2	0.2	0.1	--	--	--
Entertainment	1.9	2.0	1.2	--	--	--	--
General Merchandise	0.6	0.6	0.6	*	--	--	--
Grocery Stores	0.6	0.6	0.5	*	--	--	--
Health and Fitness	4.5	2.4	0.6	0.1	--	--	--
Home Furnishings	5.9	5.8	6.5	7.8	5.6	4.4	2.9
Home Improvement	1.3	2.0	3.6	*	--	--	--
Office Supplies	2.1	2.3	2.6	3.0	1.7	--	--
Pet Supplies and Services	1.4	1.5	1.1	0.6	0.2	--	--
Private Education	1.4	1.4	1.2	0.9	--	--	--
Restaurants	13.2	12.3	13.3	16.2	19.8	24.4	24.7
Shoe Stores	0.7	0.8	1.1	0.8	0.2	--	--
Theaters	4.2	2.7	0.6	--	--	--	--
Video Rental	3.6	3.9	4.3	3.8	0.6	--	--
Other	5.1	6.0	5.7	6.0	7.3	8.4	9.3
Totals	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%
* Less than 0.1% (1) The table does not include rental revenue from properties owned by our subsidiary Crest Net Lease. (2) Annualized Rent is calculated by multiplying the monthly contractual base rent as of September 30, 2001 for each of the properties by 12, and adding the previous twelve month's historic percentage rent, which totaled $1.9 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.

 

The following table sets forth certain information regarding our properties as of September 30, 2001, classified according to the retail business types and the level of services they provide (dollars in thousands):

REALTY INCOME CORPORATION
Segmentation by Category
(As of September 30, 2001)
Industry	Number of Properties (1)	Annualized Rent (1)(2)	Percent of Annualized Rent
TENANTS PROVIDING SERVICES
Automotive Service	99	$   6,942	5.7%
Child Care	329	29,360	23.9
Entertainment	8	2,360	1.9
Health and Fitness	9	5,469	4.5
Private Education	5	1,738	1.4
Theaters	10	5,209	4.2
Other	9	6,226	5.1
	469	57,304	46.7
TENANTS SELLING GOODS AND SERVICES
Automotive Parts (with installations)	63	5,634	4.6
Business Services	1	124	0.1
Convenience Stores	105	10,222	8.3
Home Improvement	2	187	0.2
Pet Supplies and Services	6	1,241	1.0
Restaurants	193	16,178	13.2
Video Rental	35	4,471	3.6
	405	38,057	31.0
TENANTS SELLING GOODS
Apparel Stores	5	3,103	2.5
Automotive Parts	76	4,461	3.6
Book Stores	2	602	0.5
Consumer Electronics	36	4,639	3.8
Craft and Novelty	2	502	0.4
Drug Stores	1	235	0.2
General Merchandise	11	687	0.6
Grocery Stores	2	726	0.6
Home Furnishings	38	7,232	5.9
Home Improvement	21	1,377	1.1
Office Supplies	8	2,525	2.0
Pet Supplies	2	467	0.4
Shoe Stores	4	890	0.7
	208	27,446	22.3
Totals	1,082	$ 122,807	100.0%
(1) The table does not include rental revenue from properties owned by our subsidiary Crest Net Lease. (2) Annualized Rent is calculated by multiplying the monthly contractual base rent as of September 30, 2001 for each of the properties by 12, and adding the previous twelve month's historic percentage rent, which totaled $1.9 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.