Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Total revenue

$

374.2

$

338.1

$

1,094.1

$

985.3

Net income available to common stockholders ⁽¹⁾

$

101.0

$

99.0

$

307.2

$

278.5

Net income per share

$

0.32

$

0.34

$

0.98

$

0.97

Funds from operations (FFO) available to common stockholders ⁽²⁾

$

262.0

$

234.6

$

759.2

$

685.5

FFO per share

$

0.82

$

0.81

$

2.43

$

2.39

Adjusted funds from operations (AFFO) available to common stockholders ⁽²⁾

$

265.4

$

236.2

$

768.0

$

687.7

AFFO per share

$

0.83

$

0.81

$

2.46

$

2.40

⁽¹⁾

The calculation to determine net income for a real estate company includes impairments, gains on property sales and foreign currency gains and losses. These items can vary from quarter to quarter and can significantly impact net income and period to period comparisons.

⁽²⁾

The company considers FFO and AFFO to be appropriate supplemental measures of a Real Estate Investment Trust's (REIT's) operating performance. Realty Income defines FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trusts' (NAREIT's) definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus impairments of real estate assets, and reduced by gains on property sales. AFFO further adjusts FFO for unique revenue and expense items, which the company believes are not as pertinent to the measurement of the company's ongoing operating performance. Presentation of the information regarding FFO and AFFO is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and AFFO in the same way, so comparisons with other REITs may not be meaningful. FFO and AFFO should not be considered as alternatives to reviewing our cash flows from operating, investing, and financing activities. In addition, FFO and AFFO should not be considered as measures of liquidity, our ability to make cash distributions, or our ability to pay interest payments. See the reconciliations of net income available to common stockholders to FFO and AFFO on pages seven and eight of this press release.

Properties available for lease at June 30, 2019

102

Lease expirations

50

Re-leases to same tenant ⁽¹⁾

(26)

Re-leases to new tenant ⁽¹⁾⁽²⁾

(3)

Dispositions

(21)

Properties available for lease at September 30, 2019

102

⁽¹⁾

The annual new rent on these re-leases was $6.96 million, as compared to the previous annual rent of $6.86 million on the same properties, representing a rent recapture rate of 101.5% on the properties re-leased during the quarter ended September 30, 2019.

⁽²⁾

Re-leased to one new tenant after a period of vacancy, and two new tenants without vacancy.

Properties available for lease at December 31, 2018

80

Lease expirations

260

Re-leases to same tenant ⁽¹⁾

(174)

Re-leases to new tenant ⁽¹⁾⁽²⁾

(12)

Dispositions

(52)

Properties available for lease at September 30, 2019

102

⁽¹⁾

The annual new rent on these re-leases was $48.52 million, as compared to the previous annual rent of $47.53 million on the same properties, representing a rent recapture rate of 102.1% on the properties re-leased during the quarter ended September 30, 2019.

⁽²⁾

Re-leased to six new tenants after a period of vacancy, and six new tenants without vacancy.

Number of
Properties

Square Feet

(in millions)

Investment

($ in millions)

Weighted
Average
Lease Term
(Years)

Initial Average
Cash Lease
Yield

Three months ended September 30, 2019

Acquisitions - U.S.(in 23 states)

39

2.0

$

372.0

15.1

5.7

%

Acquisitions - U.K.⁽¹⁾

1

0.1

27.6

20.6

4.8

%

Total Acquisitions

40

2.1

399.6

15.4

5.7

%

Properties under Development - U.S.

11

0.4

11.9

15.0

7.7

%

Total ⁽²⁾

51

2.5

$

411.5

15.4

5.7

%

Nine months ended September 30, 2019

Acquisitions - U.S.(in 38 states)

214

6.2

$

1,412.9

15.7

6.5

%

Acquisitions - U.K.⁽¹⁾

13

1.2

576.8

15.0

5.2

%

Total Acquisitions

227

7.4

1,989.7

15.5

6.1

%

Properties under Development - U.S.

14

0.4

36.0

16.0

7.4

%

Total ⁽³⁾

241

7.8

$

2,025.7

15.5

6.2

%

⁽¹⁾

Represents investments of £22.2 million during the quarter ended September 30, 2019 and £456.1 million during the nine months ended September 30, 2019 multiplied by the applicable exchange rate on the date of acquisition.

⁽²⁾

The tenants occupying the new properties operate in 13 industries, and are 48.7% retail and 51.3% industrial, based on rental revenue. Approximately 56% of the rental revenue generated from acquisitions during the third quarter of 2019 is from investment grade rated tenants and their subsidiaries.

⁽³⁾

The tenants occupying the new properties operate in 19 industries, and are 89.6% retail and 10.4% industrial, based on rental revenue. Approximately 25% of the rental revenue generated from acquisitions during the first nine months of 2019 is from investment grade rated tenants and their subsidiaries.

Three Months Ended
September 30,

Nine Months Ended
September 30,

Increase

2019

2018

2019

2018

Three
months

Nine
months

Rental Revenue

$

293.7

$

290.2

$

882.5

$

870.2

1.2

%

1.4

%

Three Months Ended
September 30, 2019

Nine Months Ended
September 30, 2019

Properties sold

27

64

Net sales proceeds

$

21.5

$

72.6

Gain on sales

$

1.7

$

15.8

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share amounts) (unaudited)

Three Months

Three Months

Nine Months

Nine Months

Ended 9/30/19

Ended 9/30/18

Ended 9/30/19

Ended 9/30/18

REVENUE

Rental (including reimbursable)

$

372,312

$

337,252

$

1,090,601

$

980,365

Other

1,935

829

3,461

4,897

Total revenue

374,247

338,081

1,094,062

985,262

EXPENSES

Depreciation and amortization

149,424

136,967

437,367

402,069

Interest

73,410

69,342

215,918

195,385

General and administrative

16,460

16,332

50,153

49,970

Property (including reimbursable)

20,354

15,806

63,332

48,594

Income taxes

1,822

1,302

4,422

3,733

Provisions for impairment

13,503

6,862

31,236

25,034

Total expenses

274,973

246,611

802,428

724,785

Gain on sales of real estate

1,674

7,813

15,828

18,818

Foreign currency and derivative gains, net

327

—

463

—

Net income

101,275

99,283

307,925

279,295

Net income attributable to noncontrolling interests

(226)

(284)

(740)

(753)

Net income available to common stockholders

$

101,049

$

98,999

$

307,185

$

278,542

Funds from operations available to common stockholders (FFO)

$

262,031

$

234,550

$

759,195

$

685,514

Adjusted funds from operations available to common stockholders (AFFO)

$

265,355

$

236,195

$

768,026

$

687,744

Per share information for common stockholders:

Net income:

Basic

$

0.32

$

0.34

$

0.99

$

0.97

Diluted

$

0.32

$

0.34

$

0.98

$

0.97

FFO:

Basic

$

0.82

$

0.81

$

2.44

$

2.39

Diluted

$

0.82

$

0.81

$

2.43

$

2.39

AFFO:

Basic

$

0.83

$

0.81

$

2.47

$

2.40

Diluted

$

0.83

$

0.81

$

2.46

$

2.40

Cash dividends paid per common share

$

0.680

$

0.660

$

2.030

$

1.969

FUNDS FROM OPERATIONS (FFO)

(dollars in thousands, except per share amounts)

We define FFO, a non-GAAP measure, consistent with NAREIT's definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus impairments of real estate assets, reduced by gains on real estate sales.

Three Months

Three Months

Nine Months

Nine Months

Ended 9/30/19

Ended 9/30/18

Ended 9/30/19

Ended 9/30/18

Net income available to common stockholders

$

101,049

$

98,999

$

307,185

$

278,542

Depreciation and amortization

149,424

136,967

437,367

402,069

Depreciation of furniture, fixtures and equipment

(136)

(166)

(438)

(493)

Provisions for impairment

13,503

6,862

31,236

25,034

Gain on sales of real estate

(1,674)

(7,813)

(15,828)

(18,818)

FFO adjustments allocable to noncontrolling interests

(135)

(299)

(327)

(820)

FFO available to common stockholders

$

262,031

$

234,550

$

759,195

$

685,514

FFO allocable to dilutive noncontrolling interests

362

217

1,032

667

Diluted FFO

$

262,393

$

234,767

$

760,227

$

686,181

FFO per common share:

Basic

$

0.82

$

0.81

$

2.44

$

2.39

Diluted

$

0.82

$

0.81

$

2.43

$

2.39

Distributions paid to common stockholders

$

216,248

$

191,703

$

629,658

$

564,747

FFO available to common stockholders in excess of distributions paid to common stockholders

$

45,783

$

42,847

$

129,537

$

120,767

Weighted average number of common shares used for FFO:

Basic

319,945,932

290,664,368

311,556,279

286,599,191

Diluted

320,726,136

291,207,186

312,300,391

287,105,285

ADJUSTED FUNDS FROM OPERATIONS (AFFO)

(dollars in thousands, except per share amounts)

We define AFFO as FFO adjusted for unique revenue and expense items, which the company believes are not as pertinent to the measurement of the company's ongoing operating performance.  Most companies in our industry use a similar measurement to AFFO, but they may use the term "CAD" (for Cash Available for Distribution) or "FAD" (for Funds Available for Distribution).

Three Months

Three Months

Nine Months

Nine Months

Ended 9/30/19

Ended 9/30/18

Ended 9/30/19

Ended 9/30/18

Net income available to common stockholders

$

101,049

$

98,999

$

307,185

$

278,542

Cumulative adjustments to calculate FFO ⁽¹⁾

160,982

135,551

452,010

406,972

FFO available to common stockholders

262,031

234,550

759,195

685,514

Amortization of share-based compensation

3,187

3,870

10,478

12,527

Amortization of deferred financing costs ⁽²⁾

1,299

1,014

3,471

2,872

Amortization of net mortgage premiums

(354)

(354)

(1,061)

(1,167)

Loss (gain) on interest rate swaps

694

(265)

2,058

(3,064)

Straight-line payments from cross-currency swaps ⁽³⁾

1,754

—

2,553

—

Leasing costs and commissions

(851)

(379)

(1,880)

(2,831)

Recurring capital expenditures

(406)

(382)

(577)

(529)

Straight-line rent

(7,642)

(6,575)

(19,735)

(18,207)

Amortization of above and below-market leases

5,486

4,655

13,227

12,426

Other adjustments ⁽⁴⁾

157

61

297

203

AFFO available to common stockholders

$

265,355

$

236,195

$

768,026

$

687,744

AFFO allocable to dilutive noncontrolling interests

368

227

1,064

692

Diluted AFFO

$

265,723

$

236,422

$

769,090

$

688,436

AFFO per common share:

Basic

$

0.83

$

0.81

$

2.47

$

2.40

Diluted

$

0.83

$

0.81

$

2.46

$

2.40

Distributions paid to common stockholders

$

216,248

$

191,703

$

629,658

$

564,747

AFFO available to common stockholders in excess of distributions paid to common stockholders

$

49,107

$

44,492

$

138,368

$

122,997

Weighted average number of common shares used for AFFO:

Basic

319,945,932

290,664,368

311,556,279

286,599,191

Diluted

320,726,136

291,207,186

312,300,391

287,105,285

⁽¹⁾

See FFO calculation on page seven for reconciling items.

⁽²⁾

Includes the amortization of costs incurred and capitalized upon issuance of our notes payable, assumption of our mortgages payable and issuance of our term loans. The deferred financing costs are being amortized over the lives of the respective notes payable, mortgages and term loans. No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included.

⁽³⁾

Straight-line payments from cross-currency swaps represent quarterly payments in U.S. dollars received by us from counterparties in exchange for associated foreign currency payments. These USD payments are fixed and determinable for the duration of the associated hedging transaction.

⁽⁴⁾

Includes adjustments allocable to noncontrolling interests, obligations related to financing lease liabilities, and foreign currency gains and losses as a result of intercompany debt and remeasurement transactions.

HISTORICAL FFO AND AFFO

(dollars in thousands, except per share amounts)

For the three months ended September 30,

2019

2018

2017

2016

2015

Net income available to common stockholders

$

101,049

$

98,999

$

87,940

$

70,302

$

60,705

Depreciation and amortization, net of furniture, fixtures and equipment

149,288

136,801

127,436

113,730

104,154

Provisions for impairment

13,503

6,862

365

8,763

3,864

Gain on sales of real estate

(1,674)

(7,813)

(4,319)

(4,335)

(6,224)

FFO adjustments allocable to noncontrolling interests

(135)

(299)

(230)

(174)

(339)

FFO

$

262,031

$

234,550

$

211,192

$

188,286

$

162,160

FFO per diluted share

$

0.82

$

0.81

$

0.77

$

0.73

$

0.69

AFFO

$

265,355

$

236,195

$

213,601

$

186,575

$

165,790

AFFO per diluted share

$

0.83

$

0.81

$

0.77

$

0.72

$

0.70

Cash dividends paid per share

$

0.680

$

0.660

$

0.635

$

0.601

$

0.570

Weighted average diluted shares outstanding - FFO

320,726,136

291,207,186

276,050,671

258,356,892

236,739,942

Weighted average diluted shares outstanding - AFFO

320,726,136

291,207,186

276,138,853

258,356,892

236,739,942

For the nine months ended September 30,

2019

2018

2017

2016

2015

Net income available to common stockholders

$

307,185

$

278,542

$

240,662

$

202,820

$

180,515

Depreciation and amortization, net of furniture, fixtures and equipment

436,929

401,576

371,315

331,617

302,868

Provisions for impairment

31,236

25,034

8,072

16,955

9,182

Gain on sales of real estate

(15,828)

(18,818)

(17,689)

(15,283)

(17,117)

FFO adjustments allocable to noncontrolling interests

(327)

(820)

(683)

(546)

(918)

FFO

$

759,195

$

685,514

$

601,677

$

535,563

$

474,530

FFO per diluted share

$

2.43

$

2.39

$

2.22

$

2.11

$

2.05

AFFO

$

768,026

$

687,744

$

623,327

$

543,367

$

477,006

AFFO per diluted share

$

2.46

$

2.40

$

2.30

$

2.14

$

2.06

Cash dividends paid per share

$

2.030

$

1.969

$

1.891

$

1.786

$

1.700

Weighted average diluted shares outstanding - FFO

312,300,391

287,105,285

271,126,114

254,223,301

231,545,745

Weighted average diluted shares outstanding - AFFO

312,300,391

287,105,285

271,214,296

254,458,747

231,545,745

REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

September 30, 2019

December 31, 2018

ASSETS

(unaudited)

Real estate, at cost:

Land

$

5,085,951

$

4,682,660

Buildings and improvements

13,062,209

11,858,806

Total real estate, at cost

18,148,160

16,541,466

Less accumulated depreciation and amortization

(3,017,204)

(2,714,534)

Net real estate held for investment

15,130,956

13,826,932

Real estate held for sale, net

15,770

16,585

Net real estate

15,146,726

13,843,517

Cash and cash equivalents

236,064

10,387

Accounts receivable

163,444

144,991

Lease intangible assets, net

1,313,798

1,199,597

Goodwill

14,503

14,630

Other assets, net

305,369

47,361

$

17,179,904

$

15,260,483

LIABILITIES AND EQUITY

Distributions payable

$

74,735

$

67,789

Accounts payable and accrued expenses

163,154

133,765

Lease intangible liabilities, net

326,172

310,866

Other liabilities

260,357

127,109

Line of credit payable

—

252,000

Term loans, net

498,936

568,610

Mortgages payable, net

282,053

302,569

Notes payable, net

6,256,400

5,376,797

7,861,807

7,139,505

Commitments and contingencies

Stockholders' equity:

Common stock and paid in capital, par value $0.01 per share, 740,200,000 shares authorized, 325,910,281 shares issued and outstanding as of September 30, 2019 and 370,100,000 shares authorized, 303,742,090 shares issued and outstanding as of December 31, 2018

12,294,138

10,754,495

Distributions in excess of net income

(2,987,120)

(2,657,655)

Accumulated other comprehensive loss

(13,599)

(8,098)

9,293,419

8,088,742

Noncontrolling interests

24,678

32,236

9,318,097

8,120,978

$

17,179,904

$

15,260,483

Realty Income Performance vs. Major Stock Indices

Equity

NASDAQ

Realty Income

REIT Index ⁽¹⁾

DJIA

S&P 500

Composite

Dividend

Total

Dividend

Total

Dividend

Total

Dividend

Total

Dividend

Total

yield

return ⁽²⁾

yield

return ⁽³⁾

yield

return ⁽³⁾

yield

return ⁽³⁾

yield

return ⁽⁴⁾

10/18 to 12/31/1994

10.5%

10.8%

7.7%

0.0%

2.9%

(1.6%)

2.9%

(1.2%)

0.5%

(1.7%)

1995

8.3%

42.0%

7.4%

15.3%

2.4%

36.9%

2.3%

37.6%

0.6%

39.9%

1996

7.9%

15.4%

6.1%

35.3%

2.2%

28.9%

2.0%

23.0%

0.2%

22.7%

1997

7.5%

14.5%

5.5%

20.3%

1.8%

24.9%

1.6%

33.4%

0.5%

21.6%

1998

8.2%

5.5%

7.5%

(17.5%)

1.7%

18.1%

1.3%

28.6%

0.3%

39.6%

1999

10.5%

(8.7%)

8.7%

(4.6%)

1.3%

27.2%

1.1%

21.0%

0.2%

85.6%

2000

8.9%

31.2%

7.5%

26.4%

1.5%

(4.7%)

1.2%

(9.1%)

0.3%

(39.3%)

2001

7.8%

27.2%

7.1%

13.9%

1.9%

(5.5%)

1.4%

(11.9%)

0.3%

(21.1%)

2002

6.7%

26.9%

7.1%

3.8%

2.6%

(15.0%)

1.9%

(22.1%)

0.5%

(31.5%)

2003

6.0%

21.0%

5.5%

37.1%

2.3%

28.3%

1.8%

28.7%

0.6%

50.0%

2004

5.2%

32.7%

4.7%

31.6%

2.2%

5.6%

1.8%

10.9%

0.6%

8.6%

2005

6.5%

(9.2%)

4.6%

12.2%

2.6%

1.7%

1.9%

4.9%

0.9%

1.4%

2006

5.5%

34.8%

3.7%

35.1%

2.5%

19.0%

1.9%

15.8%

0.8%

9.5%

2007

6.1%

3.2%

4.9%

(15.7%)

2.7%

8.8%

2.1%

5.5%

0.8%

9.8%

2008

7.3%

(8.2%)

7.6%

(37.7%)

3.6%

(31.8%)

3.2%

(37.0%)

1.3%

(40.5%)

2009

6.6%

19.3%

3.7%

28.0%

2.6%

22.6%

2.0%

26.5%

1.0%

43.9%

2010

5.1%

38.6%

3.5%

27.9%

2.6%

14.0%

1.9%

15.1%

1.2%

16.9%

2011

5.0%

7.3%

3.8%

8.3%

2.8%

8.3%

2.3%

2.1%

1.3%

(1.8%)

2012

4.5%

20.1%

3.5%

19.7%

3.0%

10.2%

2.5%

16.0%

2.6%

15.9%

2013

5.8%

(1.8%)

3.9%

2.9%

2.3%

29.6%

2.0%

32.4%

1.4%

38.3%

2014

4.6%

33.7%

3.6%

28.0%

2.3%

10.0%

2.0%

13.7%

1.3%

13.4%

2015

4.4%

13.0%

3.9%

2.8%

2.6%

0.2%

2.2%

1.4%

1.4%

5.7%

2016

4.2%

16.0%

4.0%

8.6%

2.5%

16.5%

2.1%

12.0%

1.4%

7.5%

2017

4.5%

3.6%

3.9%

8.7%

2.2%

28.1%

1.9%

21.8%

1.1%

28.2%

2018

4.2%

15.2%

4.4%

(4.0%)

2.5%

(3.5%)

2.2%

(4.4%)

1.4%

(3.9%)

YTD 2019

3.5%

24.9%

3.5%

28.5%

2.5%

17.5%

2.0%

20.6%

1.1%

20.6%

Compound Average Annual Total Return ⁽⁵⁾

16.8%

10.9%

10.6%

9.8%

9.9%

Note:  The dividend yields are calculated as annualized dividends based on the last dividend paid in applicable time period divided by the closing price as of period end.  Dividend yield sources: NAREIT website and Bloomberg, except for the 1994 NASDAQ dividend yield which was sourced from Datastream / Thomson Financial.

⁽¹⁾

FTSE NAREIT US Equity REIT Index, as per NAREIT website.

⁽²⁾

Calculated as the difference between the closing stock price as of period end less the closing stock price as of previous period, plus dividends paid in period, divided by closing stock price as of end of previous period.  Does not include reinvestment of dividends for the annual percentages.

⁽³⁾

Includes reinvestment of dividends.  Source:  NAREIT website and Factset.

⁽⁴⁾

Price only index, does not include dividends as NASDAQ did not report total return metrics for the entirety of the measurement period. Source: Factset.

⁽⁵⁾

The Compound Average Annual Total Return rates are calculated in the same manner for each period from Realty Income's NYSE listing on October 18, 1994 through September 30, 2019, and (except for NASDAQ) assume reinvestment of dividends. Past performance does not guarantee future performance. Realty Income presents this data for informational purposes only and makes no representation about its future performance or how it will compare in performance to other indices in the future.