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REALTY INCOME REPORTS RECORD SECOND QUARTER AND MID-YEAR OPERATING RESULTS ESCONDIDO, CALIFORNIA, July 27, 2005 — 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, 2005.
Financial Results Revenue Increases Realty Income’s revenue for the second quarter ended June 30, 2005 increased 8.4% to $47.5 million as compared to $43.8 million for the same period in 2004. Revenue for the six months ended June 30, 2005 increased 10.4% to $94.2 million as compared to $85.3 million for the same period in 2004. Net Income Available to Common Stockholders Net income available to common stockholders for the quarter ended June 30, 2005 was $22.3 million as compared to $21.4 million for the same period in 2004. On a diluted per common share basis, net income for the quarter was $0.28 per share as compared to $0.27 per share for the same period in 2004. Net income available to common stockholders for the six months ended June 30, 2005 was $43.5 million as compared to $43.9 million for the same period in 2004. On a diluted per common share basis, net income was $0.55 per share as compared to $0.56 per share for the same period in 2004. The calculation to determine net income for a real estate company includes gains from the sale of investment properties and impairments. The amount of gains on property sales and impairments varies from quarter to quarter. This variance can significantly impact net income. During the second quarter of 2005, income from continuing operations available to common stockholders was $0.24 per diluted share as compared to $0.20 per diluted share for the same period in 2004. During the first six months of 2005, income from continuing operations available to common stockholders was $0.48 per diluted share as compared to $0.42 per diluted share for the same period in 2004. FFO Available to Common Stockholders FFO for the second quarter ended June 30, 2005 increased 5.8% to $30.9 million as compared to $29.2 million for the same period in 2004. FFO per diluted common share increased 5.4% to $0.39 per share, for the quarter ended June 30, 2005, as compared to $0.37 per share for the same period in 2004. Core FFO per share before Crest Net’s contribution, for the quarter ended June 30, 2005, increased 15.2% to $0.38 per share from $0.33 per share for the same period in 2004. FFO for the six months ended June 30, 2005 increased 3.5% to $62.0 million as compared to $59.9 million for the same period in 2004. FFO per diluted common share increased 1.3% to $0.78 per share as compared to $0.77 per share for the same period in 2004. Core FFO per share before Crest Net Lease contribution, for the six months ended June 30, 2005, increased 10.1% to $0.76 per diluted share from $0.69 per share for the same period in 2004. 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 a net income analysis 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. Realty Income defines FFO consistent with the National Association of Real Estate Investment Trust’s (NAREIT) definition as net income available to common stockholders plus depreciation and amortization of real estate assets, reduced by gains on sales of investment properties and extraordinary items. (See reconciliation of net income available to common stockholders to FFO in the financial tables below.) Dividend Information In June 2005, Realty Income announced the 31st consecutive quarterly increase in the amount of the monthly dividend on its common stock. This marked the 34th increase in the amount of the dividend since the Company’s listing on the New York Stock Exchange in 1994. The monthly dividend amount was increased to $0.11125 per share from $0.110625 per share for an annualized dividend amount of $1.335 per share. Through June 30, 2005, the Company has paid 419 consecutive monthly dividends and continues its 36-year policy of declaring and paying dividends every month. Real Estate Portfolio Update As of June 30, 2005, Realty Income’s portfolio of freestanding, single-tenant, retail properties consisted of 1,582 properties located in 48 states, leased to 98 retail chains doing business in 30 retail industries. The properties are leased under long-term, net leases with a weighted average remaining lease term of approximately 12.0 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 June 30, 2005, portfolio occupancy was 98.2% with only 29 properties available for lease out of 1,582 properties in the portfolio. Rent Increases Same store rents on 1,283 properties under lease during the three months ended June 30, 2005 and 2004, increased 1.0% to $39.62 million from $39.23 million in 2004. Same store rents on 1,283 properties under lease during the six months ended June 30, 2005 and 2004 increased 0.9% to $79.17 million compared to $78.50 million in 2004. Property Acquisitions During the second quarter, Realty Income and its wholly-owned subsidiary, Crest Net Lease, Inc., invested $74.4 million in 38 new properties and properties under development. Realty Income invested $61.8 million in 29 new properties and properties under development with an initial average contractual lease yield of 8.9%. The 29 new properties acquired by Realty Income are located in seven states and are 100% leased under net-lease agreements with an initial average lease length of 17.8 years. They are leased to five different retail chains in five industries: convenience store, drug store, health and fitness, restaurant, and theater. During the six months ended June 30, 2005, Realty Income and its wholly-owned subsidiary, Crest Net Lease, Inc., invested $166.8 million in 72 new properties and properties under development. Realty Income invested $145.1 million in 60 new properties and properties under development with an initial average contractual lease yield of 8.8%. The 60 new properties acquired by Realty Income are located in 16 states and are 100% leased under net-lease agreements with an initial average lease length of 16.9 years. They are leased to six different retail chains in six industries: convenience store, drug store, health and fitness, motor vehicle dealership, restaurant and theater. Realty Income maintains an unsecured acquisition credit facility with borrowing capacity of $250 million, which is used to fund property acquisitions in the near term. The outstanding balance on the Company’s acquisition credit facility at the end of the second quarter was $54.8 million with $195.2 million available to fund new property 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 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 second quarter ended June 30, 2005, Realty Income sold seven properties for $8.0 million, which resulted in a gain on sales of $2.7 million. The properties sold consisted of: one automotive service location, three child care locations, one consumer electronics store, one convenience store property, and one private education facility. The proceeds were, or will be, used to pay down the Company’s acquisition credit facility and invest in new properties. During the first six months of 2005, Realty Income sold 11 properties for $14.6 million, which resulted in a gain on sales of $3.5 million. The properties sold consisted of: one automotive service location, one automotive tire service location, four child care locations, one consumer electronics store, one convenience store, one motor vehicle dealership, one private eduation facility, and one restaurant. Other Second Quarter 2005 Activities New $300 Million Credit Facility In June 2005, Realty Income entered into a new $300 million acquisition credit facility to replace its existing $250 million acquisition credit facility that is scheduled to expire in October 2005. Under the terms of the new credit facility, the borrowing rate was reduced to LIBOR (London Interbank Offered Rate) plus 65 basis points with a facility fee of 15 basis points, for all-in drawn pricing of 80 basis points over LIBOR. The term of the new facility will begin in October 2005 and extend through October 2008. Crest Net Lease Crest Net Lease Inc. is a wholly-owned subsidiary of Realty Income focused on acquiring and subsequently marketing net-leased properties for sale. During the second quarter ended June 30, 2005, Crest sold one property for $3.5 million and reported a gain on sales of $422,000. Crest also invested $12.6 million in nine new properties and properties under development during the second quarter. For the six months ended June 30, 2005, Crest sold six properties for $11.2 million and reported a gain on sales of $1.6 million. During this same period, Crest invested $21.7 million in 12 new properties and properties under development. As of June 30, 2005, Crest carried an inventory of $22.2 million, which consists of 13 properties held for sale. Crest’s contribution to Realty Income’s FFO depends on the timing and number of property sales, if any, in a given quarter. Therefore, Crest’s contribution can fluctuate and add volatility to the Company’s reported FFO and net income on a comparable quarterly and annualized basis. During the second quarter and six months ended June 30, 2005, Crest generated $296,000 and $1.1 million, or $0.00 and $0.01 per diluted common share, respectively, in FFO (and net income) for Realty Income as compared to $2.9 million and $6.2 million, or $0.04 and $0.08 per diluted common share, respectively, in FFO (and net income) during the same periods in 2004. 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, “The Company enjoyed record operating results during the first half of the year. Revenue continues to grow, increasing 10.4% year-to-date, while funds from operations per diluted common share in the core portfolio grew 10.1% year-to-date. FFO per diluted common share, including Crest’s contribution, grew 5.4% during the second quarter and 1.3% during the first six months of the year. The quarterly and year-to-date comparable numbers are impacted by higher sales in Crest during the first half of 2004 in comparison to the same period in 2005. During the second quarter, Crest sold one property, which brings Crest total property sales to seven during the first half of 2005. We have forecast that Crest’s contribution to Realty Income’s FFO growth will be approximately $0.03 to $0.05, with the majority of Crest’s property sales occurring during the second half of the year due to inventory re-building that has been occurring over the past few months. “Our portfolio of freestanding retail properties continues to perform well with occupancy remaining high at 98.2% and just 29 properties available for lease out of over 1,582 properties in the portfolio. In addition, same store rents rose 1.0% in the second quarter and 0.9% year-to-date. We also have been focused on executing net leases with longer lease terms and, as a result, our weighted average remaining lease length in the portfolio has increased to approximately 12.0 years. Our acquisition pipeline is strong with ample acquisition opportunities that meet our investment criteria in various stages of review and due diligence. During the second quarter Realty Income and Crest Net combined completed 38 new property acquisitions, investing $74.4 million, which brings us to a total of $166.8 million invested in new property acquisitions year-to-date. This is in line with our expectations for acquisitions during the first half of the year and we are on track to meet our 2005 property acquisition goals of approximately $250 million. “We have also increased the dividend two times this year and have paid 419 consecutive monthly dividends to our shareholders. As always, our focus is on maintaining a conservative balance sheet, and realizing stable real estate performance with a high occupancy rate so that we can continue to provide our shareholders with dependable monthly income that increases over time. Based on the performance thus far, we are optimistic about our prospects for positive performance in all Company operations for the remainder of the year.” 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, charges for property impairments, and the operations of Crest Net Lease. 2005 Estimates Management estimates that FFO per common share for 2005 should range from $1.59 to $1.62, which would equate to an increase of approximately 6% to 8% over 2004 FFO per share of $1.50. FFO for 2005 is based on an estimated diluted net income per share range of $1.10 to $1.13, adjusted (in accordance with NAREIT’s definition of FFO) for estimated real estate depreciation of $0.55 and potential gain on sales of investment properties of $0.06 per share. Management further estimates Crest Net Lease could contribute between $0.03 to $0.05 per share to Realty Income’s FFO (and net income) during 2005 as compared to $0.10 per share in 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 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 June 30, 2005, the Company had paid 419 consecutive monthly dividends throughout its 36-year operating history. The monthly income is supported by the cash flows from over 1,550 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.
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