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REALTY INCOME REPORTS THIRD QUARTER AND NINE MONTH OPERATING RESULTS ESCONDIDO, CALIFORNIA, October 30, 2003 — Realty Income Corporation (Realty Income), The Monthly Dividend Company®, (NYSE: O) announces operating results for the third quarter and nine months ended September 30, 2003.
(for the three months ended September 30, 2003)
Financial Results Revenue Increases Realty Income's revenue for the quarter ended September 30, 2003 increased 6.2% to $37.6 million as compared to $35.4 million for the same quarter ended September 30, 2002. Revenue for the nine months ended September 30, 2003 increased 7.8% to $109.3 million from $101.4 million for the same period in 2002. FFO Available to Common Stockholders FFO for the quarter ended September 30, 2003 increased 3.3% to $25.1 million as compared to $24.3 million for the same quarter in 2002. FFO per diluted common share increased 2.9% to $0.72 per share compared to $0.70 per share for the same period in 2002. FFO for the nine months ended September 30, 2003 increased 5.4% to $72.5 million as compared to $68.8 million for the same period in 2002. FFO per diluted common share increased 1.5% to $2.07 per share from $2.04 per share for the same period 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 pay dividends. (See reconciliation of net income available to common stockholders to FFO in the financial tables below.) Net Income Available to Common Stockholders Net income available to common stockholders for the quarter ended September 30, 2003 was $17.9 million as compared to $19.4 million for the same period in 2002. On a diluted per common share basis, net income for the quarter ended September 30, 2003 was $0.51 per share compared to $0.56 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 third quarter of each year, income from operations available to common stockholders increased by $0.02 to $0.48 per share in 2003 as compared to $0.46 per share for the same quarter in 2002, on a diluted per common share basis. Net income available to common stockholders for the nine months ended September 30, 2003 was $51.7 million as compared to $51.3 million for the same period in 2002. On a diluted per common share basis, net income was $1.47 per share as compared to $1.52 per share for the same period one year ago. Excluding the gain on sales of investment properties and income from discontinued operations during the first nine months of each year, income from operations available to common stockholders increased by $0.05 to $1.36 per share in 2003 as compared to $1.31 per share for the same period in 2002, on a diluted per common share basis. Dividend Information In September 2003, Realty Income announced the 24th consecutive quarterly increase in the amount of the monthly dividend on its common stock. This marked the 26th increase in the amount of the dividend since the Company's listing on the New York Stock Exchange in 1994. Through September 2003, the Company has paid 398 consecutive dividends throughout its 34-year operating history. The monthly dividend amount was increased to $0.19875 per share from $0.1975 per share for an annualized dividend amount of $2.385 per share. The Company continues its 33-year history of declaring and paying common stock dividends every month. Real Estate Portfolio Update As of September 30, 2003, Realty Income's portfolio of freestanding, single-tenant, retail properties consisted of 1,254 properties located in 48 states, leased to 84 retail chains doing business in 28 retail industries. The properties are leased under long-term, net leases with a weighted average remaining lease term of approximately 10.9 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 September 30, 2003, portfolio occupancy was 98.9% with only 14 properties available for lease out of 1,254 properties in the portfolio. Same store rents on 1,024 properties under lease during the three months ended September 30, 2003 and 2002 increased 1.4% to $31.00 million from $30.57 million. Same store rents on 1,024 properties under lease during the nine months ended September 30, 2003 and 2002 increased 1.2% to $92.29 million compared to $91.22 million in 2002. Property Acquisitions During the third quarter, Realty Income and its Crest Net Lease, Inc. subsidiary invested $53.0 million in 22 new properties and properties under development. Realty Income invested $27.1 million in 11 new properties with an initial average contractual lease yield of 10.0%. The properties are located in seven states and are 100% leased under net-lease agreements with an initial average lease length of 18.6 years. They are leased to five different retail chains in four industries: (automotive collision service, convenience store, equipment rental service and grocery store). Crest Net Lease invested $25.9 million in 11 new properties and properties under development. During the nine months ended September 30, 2003, Realty Income and its Crest Net Lease, Inc. subsidiary invested $124.3 million in 91 new properties and properties under development. Realty Income invested $94.7 million in 78 properties with an initial average contractual lease yield of 10.7%. The properties are located in 13 states and are 100% leased under net-lease agreements with an initial average lease length of 19.9 years. They are leased to 12 different retail chains in eight industries: (automotive collision service, automotive service, convenience store, equipment rental service, grocery store, restaurant, sporting goods and travel plaza). Crest Net Lease invested $29.6 million in 13 new properties and properties under development. After the close of the third quarter, Realty Income announced that it had acquired 114 convenience store properties from The Pantry, Inc. for $94.5 million. The Company is also negotiating the acquisition of approximately $135 million in additional properties that are anticipated to close sometime during the fourth quarter. Realty Income further disclosed it is considering the issuance of additional public securities to permanently fund this acquisition. Property Dispositions Realty Income continues 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 third quarter of 2003, Realty Income sold seven properties for $4.0 million, which resulted in a gain on sales of $1.1 million. The properties sold consisted of: four childcare properties, two restaurants, and one automotive service location. The proceeds were used to pay down the Company's acquisition credit facility and invest in new properties. During the nine months ended September 30, 2003, Realty Income sold 21 properties for $13.7 million, which resulted in a gain on sales of $3.8 million. The properties consisted of: 10 childcare properties, seven restaurants, two home improvement stores, one automotive service location and one other property. Other Activities Issuance of Common Stock In October 2003, Realty Income issued 2.5 million shares of common stock priced at $40.59 per share. The net proceeds from the offering of approximately $96.3 million were used to repay a portion of the amount outstanding on the Company's $250 million unsecured acquisition credit facility. The number of common shares outstanding after the issuance of common stock was 37,524,427. Acquisition of 114 Convenience Store Properties On October 17, 2003, the Company announced the closing of a transaction to acquire 114 convenience store properties from The Pantry, Inc. (NASDAQ:PTRY) for $94.5 million, of which $25 million was added to Crest Net's inventory. Realty Income acquired the properties under 20-year, triple-net lease agreements in a sale-leaseback transaction that provided The Pantry with a portion of the required financing to purchase Golden Gallon stores from Ahold, USA, a subsidiary of Royal Ahold, NV (NYSE:AHO). The average store size is approximately 2,700 leasable square feet on 1.14 acres of land with an average cost of approximately $829,000. In addition, these are seasoned, profitable stores with an average 14-year operating history. Upon completion of the Golden Gallon acquisition, The Pantry's market presence will significantly increase to approximately 1,400 stores in ten southeastern states. 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 third quarter ended September 30, 2003, Crest sold one property for $2.8 million and reported a gain on sales of $316,000. During the quarter Crest also invested $25.9 million in new properties and properties under development. For the first nine months ended September 30, 2003, Crest sold four properties for $7.1 million and reported a gain on sales of $888,000. During this period Crest also invested $29.6 million in 13 new properties and properties under development. As of the end of the third quarter, Crest carried an inventory of $28.1 million in properties held for sale. As a result of the increase in Crest's inventory, the Company anticipates accelerated contributions to Realty Income's FFO over the next several quarters. 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 the acquire properties. It is management's belief that at this level of inventory earnings will more than cover the ongoing operating expenses of Crest. The contribution to Realty Income's FFO depends on the timing and the number of property sales, if any, in a given quarter. During the third quarter and first nine months of 2003, Crest generated $224,000 and $467,000 or $0.01 and $0.01, respectively, per diluted common share in FFO for Realty Income as compared to $677,000 and $1.9 million, or $0.02 and $0.06 respectively, per diluted common share during the same period in 2002. CEO Comments on Year-to-Date Operating Results Commenting on Realty Income's financial results and real estate operations, Tom A. Lewis, Chief Executive Officer stated, "We are pleased to once again report solid results for the third quarter and year-to-date operations of the Company. As previously announced we are on track to significantly exceed our earlier projection of $150 million in new acquisitions during the year and have already closed on $94.5 million in new property acquisitions during the fourth quarter, bringing our year-to-date acquisitions to over $218 million. Our ability to quickly analyze and commit to a large transaction without numerous financing contingencies as well as our ability to perform in accordance with our tenant's needs, are significant advantages in today's increasingly competitive acquisition environment. These competitive advantages are the primary reason for our ongoing success in new property acquisitions. "By acquiring additional properties and increasing the size of our real estate portfolio, the lease revenue supporting the payment of dividends has continued to increase. This has allowed us to increase the amount of the dividend three times this year and for 24 consecutive quarters since 1997. Throughout our operating history, we have paid 398 consecutive monthly dividends to our shareholders. In addition, our portfolio of 1,254 properties remains extremely healthy with occupancy at 98.9% and both revenue and FFO per share were higher as a result of continued increases in our same store rents and recent property acquisitions. The continued strength of our core portfolio is important to our shareholders as it contributes to the reliability and safety of the monthly dividend." Earnings Commentary Realty Income's funds from operations have 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. 2003 Estimates Management estimates that FFO per common share for 2003 should range from $2.85 to $2.87 per share, which would equate to an increase of approximately 3.3% to 4.0% over the Company's 2002 adjusted FFO per share of $2.76. These revised 2003 estimates include the addition of impairment charges of $570,000, or 1.6 cents per share that the Company has added to its financial statements to comply with recent changes in the Securities and Exchange Commission's reporting requirements. The 2002 FFO includes charges for impairment of $1.3 million, or 3.9 cents per share. FFO for 2003 is based on an estimated diluted net income per share range of $2.07 to $2.09 adjusted (in accordance with the National Association of Real Estate Investment Trust's (NAREIT) definition of FFO) for real estate depreciation of $0.96 and gain on sales of investment properties of $0.18. Management estimates that Crest Net Lease, Inc. will generate between $0.06 and $0.08 per share of FFO during 2003. These revised estimates are due to increased inventory and projected property sales throughout the remainder of the year. 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. 2004 Estimates Management estimates that FFO per common share for 2004 should range from $3.03 to $3.09, which would equate to an increase of approximately 6% to 8% over the mid-point of the Company's 2003 projected FFO per share of between $2.85 to $2.87 per share. FFO for 2004 is based on an estimated diluted net income per share range of $2.02 to $2.08 adjusted (in accordance with the National Association of Real Estate Investment Trust's (NAREIT) definition of FFO) for real estate depreciation of $1.18 and gain on sales of investment properties of $0.17. Management estimates that Crest Net Lease could contribute between $0.10 to $0.12 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 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 September 30, 2003, the Company had paid 398 consecutive monthly dividends throughout its 34-year operating history. The monthly income is supported by the cash flow from over 1,254 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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