REALTY INCOME ANNOUNCES INCREASES IN SECOND QUARTER OPERATING RESULTS (Issues 2002 Funds From Operations Guidance)

ESCONDIDO, CALIFORNIA, JULY 25, 2001 — Realty Income Corporation (Realty Income), "The Monthly Dividend Company," (NYSE: O) today announced operating results for the second quarter and six months ended June 30, 2001.

COMPANY HIGHLIGHTS:
(For the month ended June 2001)

• The monthly dividend amount was increased for the 15th consecutive quarter
• The annualized dividend amount increased 2.7% from June 30, 2000 to June 30, 2001, to $2.25 per share
• Revenue increased 8.3% to $61.5 million
• Funds from Operations (FFO) increased 9.1% to $35.8 million
• FFO per common share increased 5.7% to $1.30
• 2.95 million common shares were issued, generating net proceeds of $77.6 million

Financial Results

Revenue Increases
Realty Income's revenue for the second quarter ended June 30, 2001 increased 5.3% to $29.9 million as compared to $28.4 million for the same quarter ended June 30, 2000.

Revenue for the six months ended June 30, 2001 increased 8.3% to $61.5 million from $56.8 million for the same period in 2000.

Funds from Operations
FFO for the quarter ended June 30, 2001 increased 11.7% to $18.2 million as compared to $16.3 million for the same quarter in 2000. On a diluted per common share basis, FFO increased 4.9% to $0.64 per share compared to $0.61 per share for the same period in 2000.

FFO for the six months ended June 30, 2001 increased 9.1% to $35.8 million as compared to $32.8 million for the same period one year ago. On a diluted per common share basis, FFO increased 5.7% to $1.30 per share from $1.23 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 gain on sales of investment properties. FFO is one measure of a company's cash flow and of its ability to pay dividends.

Dividend Information
On June 14, 2001, Realty Income announced the 15th consecutive quarterly increase in the amount of the monthly dividend on its common stock. The amount of the dividend was increased to $0.1875 per share from $0.18625 per share. This represents an annualized dividend amount of $2.25 per share. The Company paid six monthly dividends totaling $1.11375 per common share through June 30, 2001. The Company continues its 32-year history of declaring and paying common stock dividends on a monthly basis.

Realty Income also paid six monthly dividends totaling $1.1874 per share on its Class C preferred stock and two quarterly dividends totaling $1.1718 per share on its Class B preferred stock.

Net Income Available to Common Stockholders
Net income available to common stockholders for the quarter ended June 30, 2001 increased to $11.0 million as compared to $10.4 million for the same period in 2000. On a diluted per common share basis, net income was $0.39 per share for each of the three months ended June 30, 2000 and 2001. The calculation to determine net income includes gains and losses 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 investment property sales during the second quarter of 2001 was $164,000. This was $774,000, or $0.03 per common share, less than the gain recognized from investment property sales during the same period in 2000.

Net income available to common stockholders for the six months ended June 30, 2001 increased to $27.1 million as compared to $20.9 million for the same period in 2000. On a diluted per common share basis, net income increased to $0.98 per share as compared to $0.78 per share for the same period one year ago. The gain recognized from investment property sales during the six months ended June 30, 2001 was $6.1 million. This was $4.5 million, or $0.16 per common share, greater than the gain recognized from investment property sales during the same quarter in 2000.

Issuance of Common Stock
During the second quarter, Realty Income issued 2.95 million shares of common stock priced at $27.80 per share. The net proceeds from the offering, $77.6 million, were used to repay a portion of the amount outstanding on the Company's $200 million unsecured acquisition credit facility and for other general corporate purposes.

Real Estate Portfolio Update
The Company's portfolio of retail properties consists of 1,062 properties located in 46 states, leased to 72 retail chains doing business in 23 retail industries.

Property Acquisitions
During the second quarter ended June 30, 2001, Realty Income invested $8.1 million in four new properties and properties under development with an initial contractual lease yield of 11.7%. The new properties are 100% leased with an initial average lease length of 23 years.

During the six months ended June 30, 2001, the Company invested $15.3 million in seven new properties and properties under development with an initial contractual lease yield of 11.6%. The seven new properties are 100% leased with an initial average lease length of 21.7 years.

Property Dispositions
The Company made good progress in its asset disposition program during the first six months of 2001. The objective of this 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 term.

During the second quarter ended June 30, 2001, Realty Income sold three properties for $2.6 million. During the six months ended June 30, 2001, Realty Income sold 13 properties for $19.7 million.

Portfolio Management Activities
The Company's portfolio of retail real estate 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 June 30, 2001, Realty Income's property portfolio of 1,062 properties was 97.8% leased with 23 properties available for lease.

Same store rents on 997 properties under lease during the six months ended June 30, 2001 and 2000 increased 2.0% to $52.61 million compared to $51.60 million in 2000. Same store rents on the same 997 properties under lease during the three months ended June 30, 2001 and 2000 increased 2.6% to $26.33 million from $25.67 million in 2000.

Market Overview
Realty Income's property acquisition opportunities and the market for freestanding, net-lease, retail properties remains positive. In addition, the Company continues to uncover ample opportunities to invest its capital in properties with 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 second quarter common stock offering. The Company also maintains 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 acquisition credit facility at June 30, 2001 was $57.8 million. The outstanding balance on the credit facility used to fund Crest operations was $12.4 million.

Other Activities

Crest Net Lease
Crest Net Lease Inc., a subsidiary of Realty Income, is focused on acquiring and subsequently marketing net-leased properties for sale. During the second quarter ended June 30, 2001, Crest sold one property for $1.5 million and reported a gain on sales of $161,000. During the quarter Crest also invested $668,000 in properties under development.

During the six months ended June 30, 2001, Crest invested $4.5 million in four properties and properties under development and at June 30, 2001 carried an inventory of $13.8 million in properties held for sale. During the first half of the year, Crest sold $15.5 million in properties and reported a gain on sales of $2.1 million.

Management believes that Crest will carry an average inventory of between $20 to $25 million in properties. Crest 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 the 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 second quarter and first half of 2001, Crest generated $0.01 and $0.05, respectively, per common share in FFO for Realty Income. In May 2001, Realty Income acquired the outstanding 5% of Crest common stock it did not previously own for $507,000 and now owns 100% of Crest.

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 pleased with our operating results for the first half of the year. We began the year with confidence based upon the solid performance of our real estate portfolio, an attractive acquistions environment and the generally increasing price of the Company's common shares. As the first half of the year progressed we continued to gain momentum in an environment that has been favorable to both our industry and our company. During the second quarter we completed an offering of 2.95 million common shares that was very well received. The $77.6 million in capital received from that offering is being invested in new properties, with attractive lease yields, that are scheduled to close during the third and fourth quarters of 2001. In addition, both revenue and FFO per share increased according to our expectations. This allowed us to raise the amount of the monthly dividend twice during the first half of the year. Since August 1995 we have now raised our common stock dividend 17 times and for the last 15 consecutive quarters. As a result, we continue to fulfill our mission to provide dependable monthly income to our shareholders."

Earnings Guidance

Realty Income's FFO per common share tends 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 property acquisitions and dispositions, and the operations of Crest Net Lease.

2001 Estimates
Management estimates 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 estimates 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 and acquisitions or capital market activities.

Management estimates Crest Net Lease, Inc. will generate between $0.06 to $0.08 per share of FFO during 2001 and during 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 could 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 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 1,062 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 via the internet at http://www.realtyincome.com/Investing/News.html

 

REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements of Income For the three and six months ended June 30, 2001 and 2000 (dollars in thousands, except per share data) (unaudited)

	Three months ended 6/30/01	Three months ended 6/30/00	Six months ended 6/30/01	Six months ended 6/30/00
REVENUE
Rental	$ 29,586	$ 28,349	$ 59,082	$ 56,679
Gain on sales of real estate acquired for resale	161	--	2,089	--
Interest and other	179	92	320	117
	29,926	28,441	61,491	56,796
EXPENSES
Interest	6,587	7,471	14,646	14,629
Depreciation and amortization	7,158	6,844	14,368	13,592
General and administrative	1,866	1,699	3,906	3,273
Property	564	466	1,188	981
Other	439	36	1,549	146
	16,614	16,516	35,657	32,621
Income from operations	13,312	11,925	25,834	24,175
Gain on sales of investment properties	164	938	6,115	1,600
Net Income	13,476	12,863	31,949	25,775
Preferred stock dividends	(2,428)	(2,428)	(4,856)	(4,856)
Net income available to common stockholders	$ 11,048	$ 10,435	$ 27,093	$ 20,919
Funds from operations (FFO)	$ 18,214	$ 16,306	$ 35,820	$ 32,843
Basic and diluted per share information for common stockholders:
Income from operations	$ 0.38	$ 0.36	$ 0.76	$ 0.72
Net income	0.39	0.39	0.98	0.78
FFO	0.64	0.61	1.30	1.23
Cash dividends paid	0.5588	0.5438	1.1138	1.0838
The "Notes to the Consolidated Financial Statements" contained in Realty Income's Quarterly Report on Form 10-Q are an integral part of these statements.

 

 

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

	Three months ended 6/30/01	Three months ended 6/30/00	Six months ended 6/30/01	Six months ended 6/30/00
Net income available to common stockholders	$ 11,048	$ 10,435	$ 27,093	$ 20,919
Plus:
Depreciation and amortization	7,158	6,844	14,368	13,592
Provision for impairment losses on properties held for sale	200	--	530	--
Less:
Depreciation of furniture, fixtures and equipment	(28)	(35)	(56)	(68)
Gain on sales of investment properties	(164)	(938)	(6,115)	(1,600)
Funds from operations	$ 18,214	$ 16,306	$ 35,820	$ 32,843
Dividends paid to common stockholders	$ 15,419	$ 14,534	$ 30,189	$ 29,018
FFO in excess of dividends	$ 2,795	$ 1,772	$ 5,631	$ 3,825
Basic and diluted    FFO per common share	$ 0.64	$ 0.61	$ 1.30	$ 1.23
Weighted average number of common shares used for:
Basic per share computation	28,393,227	26,703,319	27,507,539	26,759,355
Diluted per share computation	28,468,992	26,717,992	27,565,500	26,768,843

 

 

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

	2001 (unaudited)	2000
ASSETS
Real estate, at cost:
Land	$ 375,893	$ 368,057
Buildings and improvements	705,957	705,470
	1,081,850	1,073,527
Less accumulated depreciation and amortization	(224,291)	(212,379)
Net real estate held for investment	857,559	861,148
Real estate held for sale, net	15,675	33,130
Net real estate	873,234	894,278
Cash and cash equivalents	1,180	3,815
Accounts receivable	3,270	5,053
Goodwill, net	17,668	18,130
Other assets	13,973	13,490
Total assets	$ 909,325	$ 934,766
LIABILITIES AND STOCKHOLDERS' EQUITY
Distributions payable	$    7,434	$    4,914
Accounts payable and accrued expenses	5,957	5,969
Other liabilities	3,956	4,314
Lines of credit payable	70,200	174,000
Notes payable	230,000	230,000
Total liabilities	317,547	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, 29,611,375 and 26,563,519 shares issued and outstanding in 2001 and 2000, respectively	710,875	630,932
Distributions in excess of net income	(218,465)	(214,731)
Total stockholders’ equity	591,778	515,569
Total liabilities and stockholders’ equity	$ 909,325	$ 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
(As of June 30, 2001)
	Annualized Rent as of	For the Years Ended (1)
Industry	Jun 30, 2001(1) (2)	Dec 31, 2000	Dec 31, 1999	Dec 31, 1998	Dec 31, 1997	Dec 31, 1996	Dec 31, 1995
Apparel Stores	2.3%	2.4%	3.8%	4.1%	0.7%	--%	--%
Automotive Parts	8.5	8.3	8.6	7.8	9.1	10.5	11.4
Automotive Service	5.9	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	4.2	4.9	4.4	5.4	6.5	0.9	--
Convenience Stores	8.5	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	2.0	2.0	1.2	--	--	--	--
General Merchandise	0.6	0.6	0.6	*	--	--	--
Grocery Stores	0.6	0.6	0.5	*	--	--	--
Health and Fitness	4.6	2.4	0.6	0.1	--	--	--
Home Furnishings	6.0	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	1.5	1.4	1.2	0.9	--	--	--
Restaurants	11.5	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	4.4	2.7	0.6	--	--	--	--
Video Rental	3.7	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) Does not include rental revenue from properties owned by Crest Net Lease which are held for sale. (2) Annualized Rent is calculated by multiplying the monthly contractual base rent as of June 30, 2001 for each of the properties by 12, and adding the previous twelve month's historic percentage rent, which totaled $1.8 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 June 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 June 30, 2001)
Industry	Number of Properties (1)	Annualized Rent (1)(2)	Percent of Annualized Rent
TENANTS PROVIDING SERVICES
Automotive Service	101	$6,992	5.9%
Child Care	332	28,514	23.9%
Entertainment	8	2,360	2.0%
Health and Fitness	9	5,426	4.6%
Private Education	6	1,817	1.5%
Theaters	10	5,209	4.4%
Other	8	6,128	5.1%
	474	56,446	47.4%
TENANTS SELLING GOODS AND SERVICES
Automotive Parts	63	5,610	4.7%
Business Services	1	124	0.1%
Convenience Stores	105	10,111	8.5%
Home Improvement	2	187	0.2%
Pet Supplies and Services	6	1,241	1.0%
Restaurants	165	13,677	11.5%
Video Rental	35	4,443	3.7%
	377	35,393	29.7%
TENANTS SELLING GOODS
Apparel Stores	4	2,799	2.3%
Automotive Parts	77	4,463	3.7%
Book Stores	2	572	0.5%
Consumer Electronics	37	4,982	4.2%
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	7,100	6.0%
Home Improvement	23	1,377	1.2%
Office Supplies	8	2,476	2.1%
Pet Supplies	2	467	0.4%
Shoe Stores	4	890	0.7%
	211	27,276	22.9%
Totals	1,062	$ 119,115	100.0%
(1) Does not include properties owned by Crest Net Lease which are held for sale. Crest Net Lease is a subsidiary of Realty Income Corporation. (2) Annualized Rent is calculated by multiplying the monthly contractual base rent as of June 30, 2001 for each of the properties by 12, and adding the previous twelve month's historic percentage rent, which totaled $1.8 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 the timing of the lease term expirations (excluding extension options) on our 1,034 net leased, single-tenant retail properties as of June 30, 2001 (dollars in thousands):
REALTY INCOME CORPORATION
Lease Terms Expiration
(As of June 30, 2001)
Year	Number of Leases Expiring (1)	Annualized Rent (1) (2)	Percentage of Annualized Rent
2001	73	5,487	4.8
2002	81	6,658	5.9
2003	73	6,158	5.4
2004	117	9,980	8.8
2005	84	6,517	5.7
2006	28	2,567	2.3
2007	93	6,385	5.6
2008	66	5,844	5.2
2009	29	2,521	2.2
2010	45	3,880	3.4
2011	38	5,712	5.0
2012	47	5,531	4.9
2013	74	12,700	11.2
2014	39	6,643	5.9
2015	37	4,349	3.8
2016	13	1,390	1.2
2017	11	4,130	3.6
2018	16	1,626	1.4
2019	50	8,705	7.7
2020	9	2,920	2.6
2021	4	1,666	1.5
2023	1	159	0.1
2026	2	372	0.3
2033	2	1,118	1.0
2034	2	570	0.5
Totals	1,034	$    113,588	100.0%
(1) This table does not include five multi-tenant properties and 23 vacant, unleased single-tenant properties owned by the Company and properties owned by Crest Net Lease. The lease expirations for properties under construction are based on the estimated date of completion of such properties. (2) Annualized rent is calculated by multiplying the monthly contractual base rent as of June 30, 2001 for each of the properties by 12 and adding the previous 12 month's historic percentage rent, which totaled $1.8 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.