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Realty Income Announces Operating Results For Third Quarter And First Nine Months Of 2018

Realty Income Announces Operating Results For Third Quarter And First Nine Months Of 2018

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10.31.2018

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11995 El Camino Real, San Diego, CA 92130

CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts) (unaudited)

	Three Months		Three Months		Nine Months		Nine Months
	Ended 9/30/18		Ended 9/30/17		Ended 9/30/18		Ended 9/30/17
REVENUE
Rental	$	324,773	$	293,455	$	945,191	$	867,325
Tenant reimbursements	12,479		11,933		35,174		34,918
Other	829		1,532		4,897		2,872
Total revenue	338,081		306,920		985,262		905,115

EXPENSES
Depreciation and amortization	136,967		127,569		402,069		371,755
Interest	69,342		62,951		195,385		185,935
General and administrative	16,332		13,881		49,970		43,227
Property (including reimbursable)	15,806		17,267		48,594		52,828
Income taxes	1,302		1,133		3,733		2,621
Provisions for impairment	6,862		365		25,034		8,072
Total expenses	246,611		223,166		724,785		664,438
Gain on sales of real estate	7,813		4,319		18,818		17,689
Net income	99,283		88,073		279,295		258,366
Net income attributable to noncontrolling interests	(284)		(133)		(753)		(420)
Net income attributable to the Company	98,999		87,940		278,542		257,946
Preferred stock dividends	—		—		—		(3,911)
Excess of redemption value over carrying value of preferred shares redeemed	—		—		—		(13,373)
Net income available to common stockholders	$	98,999	$	87,940	$	278,542	$	240,662

Funds from operations available to common stockholders (FFO)	$	234,550	$	211,192	$	685,514	$	601,677
Adjusted funds from operations available to common stockholders (AFFO)	$	236,195	$	213,601	$	687,744	$	623,327

Per share information for common stockholders:
Net income, basic and diluted	$	0.34	$	0.32	$	0.97	$	0.89

FFO, basic and diluted	$	0.81	$	0.77	$	2.39	$	2.22

AFFO:
Basic	$	0.81	$	0.78	$	2.40	$	2.30
Diluted	$	0.81	$	0.77	$	2.40	$	2.30

Cash dividends paid per common share	$	0.660	$	0.635	$	1.969	$	1.891

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 9/30/18		Ended 9/30/17		Ended 9/30/18		Ended 9/30/17

Net income available to common stockholders	$	98,999	$	87,940	$	278,542	$	240,662
Depreciation and amortization	136,967		127,569		402,069		371,755
Depreciation of furniture, fixtures and equipment	(166)		(133)		(493)		(440)
Provisions for impairment	6,862		365		25,034		8,072
Gain on sales of real estate	(7,813)		(4,319)		(18,818)		(17,689)
FFO adjustments allocable to noncontrolling interests	(299)		(230)		(820)		(683)
FFO available to common stockholders	$	234,550	$	211,192	$	685,514	$	601,677
FFO allocable to dilutive noncontrolling interests	217		220		667		659
Diluted FFO	$	234,767	$	211,412	$	686,181	$	602,336


FFO per common share, basic and diluted	$	0.81	$	0.77	$	2.39	$	2.22

Distributions paid to common stockholders	$	191,703	$	174,607	$	564,747	$	509,987

FFO available to common stockholders in excess of distributions paid to common stockholders	$	42,847	$	36,585	$	120,767	$	91,690

Weighted average number of common shares used for FFO:
Basic	290,664,368		275,511,870		286,599,191		270,584,365
Diluted	291,207,186		276,050,671		287,105,285		271,126,114

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 9/30/18		Ended 9/30/17		Ended 9/30/18		Ended 9/30/17
Net income available to common stockholders	$	98,999	$	87,940	$	278,542	$	240,662
Cumulative adjustments to calculate FFO ⁽¹⁾	135,551		123,252		406,972		361,015
FFO available to common stockholders	234,550		211,192		685,514		601,677
Excess of redemption value over carrying value of Class F preferred share redemption	—		—		—		13,373
Amortization of share-based compensation	3,870		3,426		12,527		10,641
Amortization of deferred financing costs ⁽²⁾	1,014		1,329		2,872		4,133
Amortization of net mortgage premiums	(354)		(341)		(1,167)		(1,580)
Gain on interest rate swaps	(265)		(368)		(3,064)		(1,228)
Leasing costs and commissions	(379)		(489)		(2,831)		(1,248)
Recurring capital expenditures	(382)		(171)		(529)		(536)
Straight-line rent	(6,575)		(4,778)		(18,207)		(12,331)
Amortization of above and below-market leases	4,655		3,732		12,426		10,213
Other adjustments ⁽³⁾	61		69		203		213
AFFO available to common stockholders	$	236,195	$	213,601	$	687,744	$	623,327
AFFO allocable to dilutive noncontrolling interests	227		299		692		885
Diluted AFFO	$	236,422	$	213,900	$	688,436	$	624,212

AFFO per common share
Basic	$	0.81	$	0.78	$	2.40	$	2.30
Diluted	$	0.81	$	0.77	$	2.40	$	2.30

Distributions paid to common stockholders	$	191,703	$	174,607	$	564,747	$	509,987

AFFO available to common stockholders in excess of distributions paid to common stockholders	$	44,492	$	38,994	$	122,997	$	113,340

Weighted average number of common shares used for AFFO:
Basic	290,664,368		275,511,870		286,599,191		270,584,365
Diluted	291,207,186		276,138,853		287,105,285		271,214,296


⁽¹⁾	See FFO calculation on page six 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⁾	Includes adjustments allocable to both noncontrolling interests and capital lease obligations.

HISTORICAL FFO AND AFFO
(dollars in thousands, except per share amounts)

For the three months ended September 30,	2018		2017		2016		2015		2014

Net income available to common stockholders	$	98,999	$	87,940	$	70,302	$	60,705	$	57,941
Depreciation and amortization	136,801		127,436		113,730		104,154		95,135
Provisions for impairment	6,862		365		8,763		3,864		495
Gain on sales of real estate	(7,813)		(4,319)		(4,335)		(6,224)		(10,975)
FFO adjustments allocable to noncontrolling interests	(299)		(230)		(174)		(339)		(337)

FFO	$	234,550	$	211,192	$	188,286	$	162,160	$	142,259

FFO per diluted share	$	0.81	$	0.77	$	0.73	$	0.69	$	0.64

AFFO	$	236,195	$	213,601	$	186,575	$	165,790	$	142,429

AFFO per diluted share	$	0.81	$	0.77	$	0.72	$	0.70	$	0.64

Cash dividends paid per share	$	0.660	$	0.635	$	0.601	$	0.570	$	0.548

Weighted average diluted shares outstanding - FFO	291,207,186		276,050,671		258,356,892		236,739,942		222,236,071

Weighted average diluted shares outstanding - AFFO	291,207,186		276,138,853		258,356,892		236,739,942		222,236,071



For the nine months ended September 30,	2018		2017		2016		2015		2014

Net income available to common stockholders	$	278,542	$	240,662	$	202,820	$	180,515	$	156,540
Depreciation and amortization	401,576		371,315		331,617		302,868		277,804
Provisions for impairment	25,034		8,072		16,955		9,182		2,676
Gain on sales of real estate	(18,818)		(17,689)		(15,283)		(17,117)		(16,818)
FFO adjustments allocable to noncontrolling interests	(820)		(683)		(546)		(918)		(1,032)

FFO	$	685,514	$	601,677	$	535,563	$	474,530	$	419,170

FFO per diluted share	$	2.39	$	2.22	$	2.11	$	2.05	$	1.93

AFFO	$	687,744	$	623,327	$	543,367	$	477,006	$	416,255

AFFO per diluted share	$	2.40	$	2.30	$	2.14	$	2.06	$	1.92

Cash dividends paid per share	$	1.969	$	1.891	$	1.786	$	1.700	$	1.642

Weighted average diluted shares outstanding - FFO	287,105,285		271,126,114		254,223,301		231,545,745		216,830,013

Weighted average diluted shares outstanding - AFFO	287,105,285		271,214,296		254,458,747		231,545,745		216,830,013

REALTY INCOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)

	Nine Months Ended		Year Ended
	September 30, 2018		December 31, 2017
ASSETS	(unaudited)
Real estate, at cost:
Land	$	4,562,343	$	4,080,400
Buildings and improvements	11,666,564		10,936,069
Total real estate, at cost	16,228,907		15,016,469
Less accumulated depreciation and amortization	(2,607,309)		(2,346,644)
Net real estate held for investment	13,621,598		12,669,825
Real estate held for sale, net	65,376		6,674
Net real estate	13,686,974		12,676,499
Cash and cash equivalents	6,666		6,898
Accounts receivable, net	135,866		119,533
Acquired lease intangible assets, net	1,212,679		1,194,930
Goodwill	14,861		14,970
Other assets, net	38,279		45,336
Total assets	$	15,095,325	$	14,058,166

LIABILITIES AND EQUITY
Distributions payable	$	65,749	$	60,799
Accounts payable and accrued expenses	119,144		109,523
Acquired lease intangible liabilities, net	309,665		268,796
Other liabilities	109,854		116,869
Line of credit payable	774,000		110,000
Term loans, net	319,571		445,286
Mortgages payable, net	310,206		325,941
Notes payable, net	5,375,882		5,230,244
Total liabilities	7,384,071		6,667,458

Commitments and contingencies

Stockholders' equity:
Common stock and paid in capital, par value $0.01 per share, 370,100,000 shares authorized, 295,145,532 shares issued and outstanding as of September 30, 2018 and 284,213,685 shares issued and outstanding as of December 31, 2017	10,220,092		9,624,264
Distributions in excess of net income	(2,543,852)		(2,252,763)
Total stockholders' equity	7,676,240		7,371,501
Noncontrolling interests	35,014		19,207
Total equity	7,711,254		7,390,708
Total liabilities and equity	$	15,095,325	$	14,058,166

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%
YTD 2018	4.6%	3.2%	4.0%	1.8%	2.2%	8.8%	1.9%	10.6%	1.0%	16.6%


Compound Average Annual Total Return⁽⁵⁾		15.9%		10.5%		10.8%		10.0%		10.3%


Note: All of these 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⁾	All of these Compound Average Annual Total Return rates are calculated in the same manner: from Realty Income's NYSE listing on October 18, 1994 through September 30, 2018, and (except for NASDAQ) assuming 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.