Exhibit 99.1
CONTACT:
Tere Miller
Vice President, Corporate Communications
760-741-2111 ext. 177
REALTY INCOME ANNOUNCES RECORD
THIRD QUARTER AND NINE MONTH OPERATING RESULTS
ESCONDIDO, CALIFORNIA, November 3, 2006...Realty Income Corporation (Realty Income), The Monthly Dividend Company® (NYSE: O) today announced operating results for the third quarter and nine months ended September 30, 2006.
COMPANY HIGHLIGHTS:
(For the quarter ended September 30, 2006,
as compared to the same quarterly period in 2005)
· Revenue increased 21.3% to $59.3 million
· Funds from Operations (FFO) available to common stockholders increased 19.9% to $38.0 million
· FFO per diluted common share increased 7.5% to $0.43 per share
· Net income available to common stockholders per diluted common share was $0.27 per share
· Portfolio occupancy increased to 98.8%
· Same store rents increased 0.6% to $44.04 million
· Invested $104.2 million in 87 additional properties
· Issued 4.715 million common shares priced at $24.32
· Issued $275 million of 5.95%, 10-year unsecured Notes
· Redeemed $110 million of 7-¾% Notes due May 2007
· Dividends paid per share increased 6.5% as compared to the same quarterly period in 2005
· Increased the monthly dividend 6.6% in August to an annual amount of $1.503 per common share
· Increased the monthly dividend for the 36th consecutive quarter in September to an annual amount of $1.5105 per share
Financial Results
Revenue Increases
Realty Income’s revenue for the third quarter ended September 30, 2006, increased 21.3% to $59.3 million as compared to $48.9 million for the same period in 2005.
Revenue, for the nine months ended September 30, 2006, increased 19.9% to $171.0 million as compared to $142.6 million for the same period in 2005.
Net Income Available to Common Stockholders
Net income available to common stockholders, for the quarter ended September 30, 2006, was $24.2 million as compared to $20.8 million for the same period in 2005. On a diluted per common share basis, net income for the quarter was $0.27 per share as compared to $0.26 per share for the same period in 2005.
Net income available to common stockholders, for the nine months ended September 30, 2006, was $71.0 million as compared to $64.2 million for the same period in 2005. On a diluted per common share basis, net income was $0.82 per share as compared to $0.81 per share for the same period in 2005.
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The calculation to determine net income for a real estate company includes gains from the sale of investment properties and impairments. Net income can be significantly impacted by property sales and impairments, which vary from quarter to quarter.
During the third quarter of 2006, income from continuing operations available to common stockholders was $0.26 per diluted common share as compared to $0.25 per diluted common share for the same period in 2005.
During the first nine months of 2006, income from continuing operations available to common stockholders was $0.76 per diluted common share as compared to $0.73 per diluted common share for the same period in 2005.
Funds from Operations (FFO) Available to Common Stockholders
FFO, for the third quarter ended September 30, 2006, increased 19.9% to $38.0 million as compared to $31.7 million for the same period in 2005. FFO per diluted common share increased 7.5% to $0.43 per share, for the quarter ended September 30, 2006, as compared to $0.40 per share for the same period in 2005. FFO per diluted common share before Crest’s contribution, for the quarter ended September 30, 2006, increased 7.7% to $0.42 per share as compared to $0.39 per share for the same period in 2005. For a calculation of FFO before Crest’s contribution, see pages 6 and 7.
FFO, for the nine months ended September 30, 2006, increased 18.2% to $110.9 million as compared to $93.8 million for the same period in 2005. FFO per diluted common share increased 7.6% to $1.27 per share as compared to $1.18 per share for the same period in 2005. FFO per diluted common share before Crest’s contribution, for the nine months ended September 30, 2006, increased 8.6% to $1.26 per share as compared to $1.16 per share for the same period in 2005.
The Company considers FFO to be an appropriate supplemental measure of a Real Estate Investment Trust’s (REIT’s) 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’s) 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 the reconciliation of net income available to common stockholders to FFO on page 7).
Dividend Information
In August 2006, Realty Income increased the amount of the monthly common stock dividend by 6.6% to an annualized amount of $1.503 per share. Then, in September 2006, the Company increased the amount of the monthly dividend again to an annualized amount of $1.5105. The September increase in the monthly dividend was the 36th consecutive quarterly increase and the 41st increase in the amount of the dividend since the Company’s listing on the New York Stock Exchange in 1994. The amount of the monthly dividends paid for the nine months ended September 30, 2006, increased 6.1% to $1.060 per share as compared to $0.999 per share in dividends paid for the same period in 2005. Through September 30, 2006, the Company has paid 434 consecutive monthly dividends and continues its 37-year history of declaring and paying dividends every month.
Real Estate Portfolio Update
As of September 30, 2006, Realty Income’s portfolio of freestanding, single-tenant, retail properties consisted of 1,766 properties located in 48 states, leased to 101 retail chains doing business in 29 retail industries. The properties are leased under long-term, net leases with a weighted average remaining lease term of approximately 12.2 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, 2006, portfolio occupancy was 98.8% with only 21 properties available for lease out of 1,766 properties in the portfolio.
Rent Increases
Same store rents on 1,430 properties under lease, during the three months ended September 30, 2006 and 2005, increased 0.6% to $44.04 million from $43.77 million in 2005. Same store rents on 1,430 properties under lease during the nine months ended September 30, 2006 and 2005 increased 0.6% to $131.54 million compared to $130.78 million in 2005.
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Property Acquisitions
During the third quarter, Realty Income and Crest invested $104.2 million in 87 new properties and properties under development. Realty Income invested $103.0 million in 85 new properties and properties under development with an initial average contractual lease yield of 8.6%. The 85 new properties acquired by Realty Income are located in 18 states and are 100% leased under net-lease agreements with an initial average lease length of 11.2 years. They are leased to 8 different retail chains in 7 separate industries.
During the nine months ended September 30, 2006, Realty Income and its wholly-owned subsidiary, Crest Net Lease, Inc., invested $259.1 million in 138 new properties and properties under development. Realty Income invested $249.2 million in 133 new properties and properties under development with an initial average contractual lease yield of 8.7%. The 133 new properties acquired by Realty Income are located in 24 states and are 100% leased under net-lease agreements with an initial average lease length of 13.6 years. They are leased to 13 different retail chains in 10 separate industries.
Realty Income maintains a $300 million unsecured acquisition credit facility, which is used to fund property acquisitions in the near term. There was no outstanding balance on the Company’s acquisition credit facility at the end of the third quarter and $300 million is available to fund new property acquisitions. In addition, at September 30, 2006, the Company had cash and cash equivalents of $113 million.
Property Dispositions
Realty Income continued to successfully execute its core portfolio 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 ended September 30, 2006, Realty Income sold three properties for $4.0 million, which resulted in a gain on sales of $843,000.
During the first nine months of 2006, Realty Income sold 13 properties for $10.7 million, which resulted in a gain on sales of $3.0 million.
Other Third Quarter 2006 Activities
Redeemed $110 Million 7-¾% Notes Due May 2007
In September 2006, Realty Income redeemed all of its outstanding $110 million, 7-¾%, unsecured notes due May 2007. The Notes were redeemed at a redemption price equal to 100% of the principal amount of the 2007 Notes, plus accrued and unpaid interest to the redemption date, as well as a make-whole payment. The make-whole payment of $1.6 million is recorded as a “loss on extinguishment of debt” on the Company’s income statement. On a per diluted common share basis, the make-whole payment represented approximately $0.017 during the third quarter ended September 30, 2006.
Issued $275 Million of 5.95% 10-Year Senior Unsecured Notes
Also in September 2006, Realty Income issued $275 million of 5.95% senior unsecured notes due 2016. The public offering price for the notes was 99.74% of the principal amount for an effective yield of 5.985%. The securities are rated BBB+ by Fitch Ratings, Baa2 by Moody’s Investors Service and BBB by Standard & Poor’s Ratings Group. The net proceeds for the offering were used to fund the redemption of $110 Million 7-¾% unsecured notes due May 2007 and for other general corporate purposes.
Issued 4.715 Million Share Common Stock Offering
Also in September 2006 Realty Income completed a common stock offering of 4,715,000 shares priced at $24.32 per share, raising gross proceeds of approximately $115 million. The proceeds from the offering were used to fund real estate acquisitions, for the repayment of borrowings under the Company’s $300 million unsecured acquisition credit facility, and for other general corporate purposes.
Crest Net Lease
Crest Net Lease, Inc. (Crest), Realty Income’s wholly-owned subsidiary, is focused on acquiring and subsequently marketing net-leased properties for sale. During the third quarter ended September 30, 2006, Crest sold four properties for $6.6 million and reported a gain on sale of $313,000. Crest also invested $1.2 million in 2 new properties during the third quarter.
For the nine months ended September 30, 2006, Crest sold nine properties for $16.8 million and reported a gain on sales of $1.7 million. During this same period, Crest invested $9.9 million in five new properties and properties under development. As of September 30, 2006, Crest carried an inventory of $40.3 million, which consists of 13 properties that are held for sale.
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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 Realty Income’s reported FFO and net income on a comparable quarterly and annualized basis. During the third quarter ended September 30, 2006, Crest generated $99,000, or $0.00 per diluted common share, in FFO (and net income) for Realty Income as compared to $566,000, or $0.01 per diluted common share, in FFO for the same period in 2005. During the nine months ended September 30, 2006, Crest generated $1.5 million, or $0.02 per diluted common share, in FFO (and net income) for Realty Income as compared to $1.7 million, or $0.02 per diluted common share, in FFO (and net income) for Realty Income for the same period in 2005.
CEO Comments on Operating Results
Commenting on Realty Income’s financial results and real estate operations, Tom A. Lewis, Chief Executive Officer, stated, “The Company ended the third quarter and first nine months of 2006 with solid operating performance in all areas of the business. Revenue increases for the third quarter and first nine months of the year exceeded 20%, driven by a high level of new property acquisitions and continued increases in same store rents on our existing real estate portfolio. Funds from operations per share growth for the third quarter and first nine months of 2006 exceeded 7%, which allowed us to increase the dividend 6.6% in August and increase it 0.5% in September.
“The Company’s existing portfolio of properties continued to exhibit strong operating metrics with occupancy increasing to 98.8% and same store rents increasing 0.6% during the third quarter. In addition, the Company continues to have access to a strong pipeline of new acquisition opportunities that have allowed us to acquire 138 additional properties for $259 million during the first nine months of the year. We estimate that property acquisitions for all of 2006 will exceed $625 million at attractive initial lease rates of approximately 8.7%.
“Realty Income’s access to capital to fund new acquisition opportunities remains very strong since all of the properties acquired during the first nine months of 2006 have been permanently financed, leaving the Company with no balance on its $300 million acquisition credit facility at the end of the third quarter. We remain optimistic about our operations and the continued growth of the Company for the balance of the year and into 2007. “
FFO Commentary
Realty Income’s FFO per diluted 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 diluted 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.
2006 Estimates
Management estimates that FFO per diluted common share for 2006 should range from $1.70 to $1.72, which would represent annual FFO per diluted common share growth of approximately 4.9% to 6.2%, compared to 2005 FFO per share of $1.62. FFO for 2006 is based on an estimated net income per diluted common share range of $1.10 to $1.12, adjusted (in accordance with NAREIT’s definition of FFO) for estimated real estate depreciation of $0.65 and potential gain on sales of investment properties of $0.05 per share.
Management further estimates that Crest could contribute between $0.03 to $0.05 per share to Realty Income’s FFO during 2006. 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 on a comparable quarterly and annualized basis.
2007 Estimates
Management estimates that FFO per diluted common share for 2007 should range from $1.81 to $1.85, which would represent annual FFO per diluted common share growth of approximately 5.2% to 8.8% over projected 2006 FFO per share guidance of $1.70 to $1.72. FFO for 2007 is based on an estimated net income per diluted common share range of $1.15 to $1.19, adjusted (in accordance with NAREIT’s definition of FFO) for estimated real estate depreciation of $0.70 and potential gain on sales of investment properties of $0.04 per share.
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Management further estimates that Crest could contribute between $0.04 to $0.06 per share to Realty Income’s FFO during 2007. 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 on a comparable quarterly and annualized basis.
The Company does not intend to provide estimates of quarterly FFO amounts. Absent changes in annual FFO guidance at the end of each quarter, it may be presumed that the Company’s overall estimates for 2006 and 2007 have not changed.
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, 2006, the Company had paid 434 consecutive monthly dividends throughout its 37-year operating history. The monthly income is supported by the cash flows from over 1,700 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.
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, whether the announced pending acquisitions are completed, local real estate conditions, the availability of capital to finance planned growth, property acquisitions and the timing of these acquisitions, charges for property impairments, the outcome of any legal proceedings to which the Company is a party, and the profitability of Crest, the Company’s subsidiary, 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.
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
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CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30, 2006 and 2005
(dollars in thousands, except per share amounts)
| | Three Months
Ended 9/30/06 | | Three Months
Ended 9/30/05 | | Nine Months
Ended 9/30/06 | | Nine Months
Ended 9/30/05 | |
REVENUE | | | | | | | | | |
Rental | | $ | 59,062 | | $ | 48,751 | | $ | 169,895 | | $ | 142,248 | |
Other | | 245 | | 136 | | 1,097 | | 308 | |
| | 59,307 | | 48,887 | | 170,992 | | 142,556 | |
EXPENSES | | | | | | | | | |
Interest | | 12,530 | | 10,228 | | 37,657 | | 29,080 | |
Depreciation and amortization | | 14,641 | | 11,226 | | 42,961 | | 33,098 | |
General and administrative | | 4,083 | | 4,166 | | 12,683 | | 11,927 | |
Property | | 787 | | 1,002 | | 2,332 | | 2,876 | |
Income taxes | | 96 | | 202 | | 558 | | 603 | |
Loss on extinguishment of debt | | 1,555 | | — | | 1,555 | | — | |
| | | | | | | | | |
| | 33,692 | | 26,824 | | 97,746 | | 77,584 | |
| | | | | | | | | |
Income from continuing operations | | 25,615 | | 22,063 | | 73,246 | | 64,972 | |
Income from discontinued operations: | | | | | | | | | |
Real estate acquired for resale by Crest | | 99 | | 566 | | 1,515 | | 1,695 | |
Real estate held for investment | | 844 | | 493 | | 3,324 | | 4,624 | |
| | 943 | | 1,059 | | 4,839 | | 6,319 | |
| | | | | | | | | |
Net income | | 26,558 | | 23,122 | | 78,085 | | 71,291 | |
Preferred stock cash dividends | | (2,351 | ) | (2,351 | ) | (7,052 | ) | (7,052 | ) |
| | | | | | | | | |
Net income available to
common stockholders | | $ | 24,207 | | $ | 20,771 | | $ | 71,033 | | $ | 64,239 | |
| | | | | | | | | |
Funds from operations available to
common stockholders (FFO) | | $ | 37,976 | | $ | 31,748 | | $ | 110,898 | | $ | 93,784 | |
| | | | | | | | | |
Per share information for common
stockholders, basic and diluted | | | | | | | | | |
Income from continuing operations | | $ | 0.26 | | $ | 0.25 | | $ | 0.76 | | $ | 0.73 | |
Net income | | $ | 0.27 | | $ | 0.26 | | $ | 0.82 | | $ | 0.81 | |
| | | | | | | | | |
FFO, basic: (1) | | | | | | | | | |
FFO before Crest Net contribution | | $ | 0.42 | | $ | 0.39 | | $ | 1.26 | | $ | 1.16 | |
Crest Net Lease | | $ | 0.00 | | $ | 0.01 | | $ | 0.02 | | $ | 0.02 | |
Total FFO | | $ | 0.43 | | $ | 0.40 | | $ | 1.28 | | $ | 1.18 | |
| | | | | | | | | |
FFO, diluted: (1) | | | | | | | | | |
FFO before Crest Net contribution | | $ | 0.42 | | $ | 0.39 | | $ | 1.26 | | $ | 1.16 | |
Crest Net Lease | | $ | 0.00 | | $ | 0.01 | | $ | 0.02 | | $ | 0.02 | |
Total FFO | | $ | 0.43 | | $ | 0.40 | | $ | 1.27 | | $ | 1.18 | |
| | | | | | | | | |
Cash dividends paid | | $ | 0.360 | | $ | 0.338 | | $ | 1.060 | | $ | 0.999 | |
(1) The above FFO per share amounts have been rounded to the nearest two decimals and as such the individual amounts may not add up to the “Total FFO” amount.
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FUNDS FROM OPERATIONS
(dollars in thousands, except per share amounts)
| | Three Months
Ended 9/30/06 | | Three Months
Ended 9/30/05 | | Nine Months
Ended 9/30/06 | | Nine Months
Ended 9/30/05 | |
| | | | | | | | | |
Net income available to common stockholders | | $ | 24,207 | | $ | 20,771 | | $ | 71,033 | | $ | 64,239 | |
Depreciation and amortization: | | | | | | | | | |
Continuing operations | | 14,641 | | 11,226 | | 42,961 | | 33,098 | |
Discontinued operations | | 20 | | 89 | | 82 | | 330 | |
Depreciation of furniture, fixtures & equipment | | (49 | ) | (35 | ) | (142 | ) | (102 | ) |
Gain on sales of investment properties: | | | | | | | | | |
Continuing operations | | — | | — | | — | | (14 | ) |
Discontinued operations | | (843 | ) | (303 | ) | (3,036 | ) | (3,767 | ) |
| | | | | | | | | |
Funds from operations available to
common stockholders | | $ | 37,976 | | $ | 31,748 | | $ | 110,898 | | $ | 93,784 | |
| | | | | | | | | |
Dividends paid to common stockholders | | $ | 32,109 | | $ | 26,867 | | $ | 92,605 | | $ | 79,543 | |
| | | | | | | | | |
FFO in excess of dividends | | $ | 5,867 | | $ | 4,881 | | $ | 18,293 | | $ | 14,241 | |
| | | | | | | | | |
FFO per common share: | | | | | | | | | |
Basic | | $ | 0.43 | | $ | 0.40 | | $ | 1.28 | | $ | 1.18 | |
Diluted | | $ | 0.43 | | $ | 0.40 | | $ | 1.27 | | $ | 1.18 | |
Weighted average number of common shares used for computation per share: | | | | | | | | | |
Basic | | 89,166,429 | | 79,779,808 | | 86,936,161 | | 79,653,608 | |
Diluted | | 89,267,138 | | 79,843,553 | | 87,084,545 | | 79,727,036 | |
| | | | | | | | | |
CONTRIBUTIONS BY CREST NET LEASE TO FUNDS FROM OPERATIONS
(dollars in thousands, except per share amounts)
Crest Net acquires properties with the intention of reselling them rather than holding them as investments and operating the properties. Consequently, we classify properties acquired by Crest Net as held for sale at the date of acquisition and do not depreciate them. The operations of Crest Net’s properties are classified as “income from discontinued operations, real estate acquired for resale.”
| | Three Months
Ended 9/30/06 | | Three Months
Ended 9/30/05 | | Nine Months
Ended 9/30/06 | | Nine Months
Ended 9/30/05 | |
Gain on sales of real estate acquired for resale | | $ | 313 | | $ | 713 | | $ | 1,739 | | $ | 2,361 | |
Rental revenue | | 913 | | 514 | | 3,007 | | 1,083 | |
Interest expense | | (711 | ) | (320 | ) | (2,175 | ) | (630 | ) |
General and administrative expense | | (73 | ) | (137 | ) | (227 | ) | (410 | ) |
Property expenses | | (17 | ) | (9 | ) | (50 | ) | (59 | ) |
Provisions for impairment | | (308 | ) | -- | | (308 | ) | -- | |
Income taxes | | (18 | ) | (195 | ) | (471 | ) | (650 | ) |
Funds from operations contributed by Crest | | $ | 99 | | $ | 566 | | $ | 1,515 | | $ | 1,695 | |
| | | | | | | | | |
Crest FFO per common share, basic and diluted | | $ | 0.00 | | $ | 0.01 | | $ | 0.02 | | $ | 0.02 | |
| | | | | | | | | |
Total FFO | | $ | 37,976 | | $ | 31,748 | | $ | 110,898 | | $ | 93,784 | |
Less FFO contributed by Crest | | (99 | ) | (566 | ) | (1,515 | ) | (1,695 | ) |
FFO before Crest contribution | | $ | 37,877 | | $ | 31,182 | | $ | 109,383 | | $ | 92,089 | |
FFO before Crest contribution per
common share, basic and diluted: | | $ | 0.42 | | $ | 0.39 | | $ | 1.26 | | $ | 1.16 | |
We define FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trust’s definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, reduced by gains on sales of investment property and extraordinary items.
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