UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
=========
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended MARCH 31, 1999, or
==================
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
COMMISSION FILE NUMBER 1-13318
==============================
REALTY INCOME CORPORATION
=========================
(Exact name of registrant as specified in its charter)
MARYLAND
========
(State or other jurisdiction of incorporation or organization)
33-0580106
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(I.R.S. Employer Identification No.)
220 WEST CREST STREET, ESCONDIDO, CALIFORNIA 92025
===================================================
(Address of principal executive offices)
(760) 741-2111
==============
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
There were 26,822,247 shares of common stock outstanding as of
May 12, 1999.
Page 1
REALTY INCOME CORPORATION
Form 10-Q
March 31, 1999
Table of Contents
-----------------
[S] [C]
PART I. FINANCIAL INFORMATION Pages
============================== -----
Item 1: Financial Statements
Consolidated Balance Sheets........................ 3
Consolidated Statements of Income.................. 5
Consolidated Statements of Cash Flows.............. 6
Notes to Consolidated Financial Statements......... 8
Item 2: Management's Discussion and Analysis Of
Financial Condition and Results Of Operations...... 12
Item 3: Quantitative and Qualitative Disclosures About
Market Risk........................................ 27
PART II. OTHER INFORMATION
==========================
Item 6: Exhibits and Reports on Form 8-K................... 28
SIGNATURE................................................... 30
EXHIBIT INDEX............................................... 30
Page 2
PART I. FINANCIAL INFORMATION
==============================
ITEM 1. FINANCIAL STATEMENTS
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
===========================
March 31, 1999 and December 31, 1998
(dollars in thousands, except per share data)
1999 1998
(Unaudited)
=========== =========
ASSETS
Real estate, at cost:
Land $ 301,949 $ 283,043
Buildings and improvements 628,833 606,792
--------- ---------
930,782 889,835
Less - accumulated depreciation
and amortization (177,367) (171,555)
--------- ---------
Net real estate 753,415 718,280
Cash and cash equivalents 5,694 2,533
Accounts receivable 2,064 2,973
Goodwill, net 19,746 19,977
Other assets 15,620 15,471
--------- ---------
Total assets $ 796,539 $ 759,234
========= =========
Continued on next page
Page 3
(continued)
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
===========================
March 31, 1999 and December 31, 1998
(dollars in thousands, except per share data)
1999 1998
(Unaudited)
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Distributions payable $ 4,627 $ 4,559
Accounts payable and accrued expenses 7,996 4,036
Other liabilities 3,495 5,630
Line of credit payable 103,900 84,800
Notes payable 230,000 210,000
--------- ---------
Total liabilities 350,018 309,025
--------- ---------
Stockholders' equity
Preferred stock, par value
$1.00 per share, 20,000,000 shares
authorized, no shares issued
or outstanding -- --
Common stock, par value $1.00 per
share, 100,000,000 shares
authorized, 26,822,326 and 26,817,103
shares issued and outstanding in
1999 and 1998, respectively 26,822 26,817
Paid in capital in excess of par value 609,794 609,669
Accumulated distributions
in excess of net income (190,095) (186,277)
--------- ---------
Total stockholders' equity 446,521 450,209
--------- ---------
Total liabilities and
stockholders' equity $ 796,539 $ 759,234
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 4
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Income
=================================
For the three months ended March 31, 1999 and 1998
(dollars in thousands, except per share data)
(Unaudited)
1999 1998
========== ==========
REVENUE
Rental $ 23,948 $ 19,168
Interest and other 38 54
---------- ----------
23,986 19,222
---------- ----------
EXPENSES
Depreciation and amortization 6,090 5,084
Interest 5,880 2,491
General and administrative 1,646 1,465
Property 441 473
---------- ----------
14,057 9,513
---------- ----------
Income from operations 9,929 9,709
Gain on sales of properties -- 215
---------- ----------
Net income $ 9,929 $ 9,924
========== ==========
Basic and diluted net income per share $ 0.37 $ 0.38
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 5
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
=====================================
For the three months ended March 31, 1999 and 1998
(dollars in thousands)
(Unaudited)
1999 1998
========= =========
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,929 $ 9,924
Adjustments to net income:
Depreciation and amortization 6,090 5,084
Gain on sales of properties -- (215)
Change in assets and liabilities:
Accounts receivable and
other assets 1,342 1,280
Accounts payable, accrued
expenses and other liabilities 2,277 2,186
--------- ---------
Net cash provided by
operating activities 19,638 18,259
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of properties -- 1,948
Acquisition of and additions
to properties (39,685) (52,061)
Payment of other liabilities (1,713) --
--------- ---------
Net cash used in
investing activities (41,398) (50,113)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit 47,000 54,700
Payments of line of credit (27,900) (39,300)
Payments of distributions (13,679) (12,462)
Proceeds from notes issued,
net of costs of $500 19,500 --
Proceeds from stock offerings,
net of offering costs of $64 -- 28,437
Proceeds from other stock issuances -- 69
--------- ---------
Net cash provided by
financing activities 24,921 31,444
--------- ---------
Continued on next page
Page 6
(continued)
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
=====================================
For the three months ended March 31, 1999 and 1998
(dollars in thousands)
(Unaudited)
1999 1998
========= =========
Net increase (decrease) in
cash and cash equivalents 3,161 (410)
Cash and cash equivalents,
beginning of period 2,533 2,123
--------- ---------
Cash and cash equivalents,
end of period $ 5,694 $ 1,713
========= =========
For supplemental disclosures, see note 7.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 7
REALTY INCOME CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
==========================================
March 31, 1999
(Unaudited)
1. Management Statement
The consolidated financial statements of Realty Income Corporation
("Realty Income", the "Company", "we" or "our") were prepared from our
books and records without audit and include all adjustments (consisting
of only normal recurring accruals) necessary to present a fair
statement of results for the interim periods presented. Readers of
this quarterly report should refer to our audited financial statements
for the year ended December 31, 1998, which are included in our 1998
Annual Report on Form 10-K, as certain disclosures which would
substantially duplicate those contained in such audited financial
statements have been omitted from this report.
2. Property Acquisitions
During the first three months of 1999, we invested $40.8 million in 34
new retail properties and properties under development with an initial
aggregate contractual lease rate of 10.3%. These 34 properties are
located in 16 states and will contain approximately 286,000 leasable
square feet and are 100% leased, with an average initial lease term of
14.6 years.
During the first three months of 1998, we invested $51.8 million in 22
new retail properties and properties under development with an initial
aggregate contractual lease rate of 10.5%. These 22 properties are
located in 16 states and contain approximately 356,600 leasable square
feet and are 100% leased, with an average initial lease term of 15.5
years.
3. Distributions Paid And Payable
Realty Income pays distributions monthly. During the three months
ended March 31, 1999, we paid three monthly distributions of $0.17 per
share, totaling $0.51 per share. For the three months ended March 31,
1998, we paid three monthly distributions of $0.16 per share, totaling
$0.48 per share. As of March 31, 1999, a distribution of $0.1725 per
share was declared and was paid on April 15, 1999.
4. Gain on Sales of Properties
For the three months ended March 31, 1999, no properties were sold.
For the three months ended March 31, 1998, we sold three properties
(one child care center, one multi-tenant location and one restaurant)
for $1.9 million and recognized a gain of $215,000.
Page 8
5. Net Income per Share
Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during each
period. Diluted net income per share is computed by dividing the
amount of net income for the period by each share that would have been
outstanding assuming the issuance of common shares for all dilutive
potential common shares outstanding during the reporting period.
The following is a reconciliation of the denominator of the basic net
income per share computation to the denominator of the diluted net
income per share computation, for the three months ended March 31,
1999 and 1998 (net income was available to common shareholders for all
periods presented):
1999 1998
---------- ----------
Weighted average shares used for basic
net income per share computation 26,822,382 26,028,589
Incremental shares from the assumed
conversion of stock options 3,030 9,006
---------- ----------
Adjusted weighted average shares used
for diluted net income per share
computation 26,825,412 26,037,595
========== ==========
In the first quarter of 1999, 161,397 stock options that were anti-
dilutive have been excluded from the incremental shares from the
assumed conversion of stock options. No stock options were anti-
dilutive in the first quarter of 1998.
6. Notes Payable
In January 1999, we issued $20 million of 8.00% senior notes due 2009
(the "1999 Notes"). The 1999 Notes are unsecured and were sold at
98.757% of par to yield 8.10%. The proceeds from the offering were
used to pay down credit facility borrowings and for other corporate
purposes. Currently, there is no formal trading market for the 1999
Notes and we have not listed and do not intend to list the 1999 Notes
on any securities exchange.
7. Supplemental Disclosure of Cash Flow Information
Interest paid during the first three months of 1999 and 1998 was $2.9
million and $92,000, respectively. In the first three months of 1999
and 1998, interest of $294,000 and $80,000 respectively, was
capitalized to properties under development.
Page 9
7. Supplemental Disclosure of Cash Flow Information (continued)
The following non-cash investing and financing activities are included
in the accompanying consolidated financial statements:
In 1999 the acquisition properties resulted in an increase in building
and other liabilities of $1.3 million.
8. Segment Information
We evaluate performance and make resource allocation decisions on a
property by property basis. For financial reporting purposes, we have
grouped our operating segments into seven reportable segments. Our
segments combine properties into groups based upon the business of our
tenants. All of the properties have been acquired separately and are
incorporated into one of the applicable segments. Revenue is the only
component of segment profit and loss we measure. Since our revenue is
primarily from net leases, expenditures for additions to long-lived
assets were to acquire additional properties.
The following tables set forth certain information as of March 31, 1999
(for the dates or quarters presented below) regarding the properties
owned by us classified according the business of the respective tenants
(dollars in thousands):
Revenue
----------------------
For the quarter ended March 31, 1999 1998
-------- --------
Segment rental revenue:
Automotive parts $ 2,074 $ 1,497
Automotive service 1,630 1,440
Child care 6,174 5,947
Consumer electronics 1,149 1,171
Convenience stores 1,367 1,110
Home furnishings 1,702 1,119
Restaurants 3,428 3,369
Other non-reportable segments 6,424 3,515
Reconciling items -interest and other 38 54
-------- --------
Total revenue $ 23,986 $ 19,222
======== ========
Page 10
8. Segment Information (continued)
Assets
---------------------
March 31, December 31,
1999 1998
-------- --------
Segment net real estate:
Automotive parts $ 71,421 $ 65,847
Automotive service 51,794 46,731
Child care 140,538 138,875
Consumer electronics 40,146 40,447
Convenience stores 43,696 43,986
Home furnishings 67,200 71,366
Restaurants 87,554 87,682
Other non-reportable segments 251,066 223,346
------- -------
Total segment net real estate 753,415 718,280
Reconciling items 43,124 40,954
-------- --------
Total assets $796,539 $759,234
======== ========
Page 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
- --------------------------
This quarterly report on Form 10-Q (the "Quarterly Report"), contains
forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. When used in this
Quarterly Report, the words estimated, anticipated and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements are subject to risks, uncertainties, and
assumptions about Realty Income Corporation, including, among other
things:
- Our anticipated growth strategies;
- Our intention to acquire additional properties;
- Anticipated trends in our business, including trends in the
market for long-term net leases of freestanding, single tenant
retail properties;
- Future expenditures for development projects; and
- Availability of capital to finance our business.
Future events and actual results, financial and otherwise, may differ
materially from the results discussed in the forward-looking
statements. In particular, among the factors that could cause actual
results to differ materially are the continued qualification as a real
estate investment trust, general business and economic conditions,
competition, interest rates, accessibility of debt and equity capital
markets and other risks inherent in the real estate business including
tenant defaults, potential liability relating to environmental matters
and illiquidity of real estate investments.
Additional factors that may cause risks and uncertainties include those
discussed in the sections entitled "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.
Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. In light of these risks and
uncertainties, the forward-looking events discussed in this Quarterly
Report might not occur.
Page 12
GENERAL
- -------
Realty Income Corporation, a Maryland corporation ("Realty Income", the
"Company", "our" or "we") was organized to operate as an equity real
estate investment trust ("REIT"). We are a fully integrated, self-
administered real estate company with in-house acquisition, leasing,
legal, retail and real estate research, portfolio management and
capital markets expertise. As of March 31, 1999, we owned a
diversified portfolio of 1,004 retail properties located in 45 states
with over 8.1 million square feet of leasable space. Of the 1,004
properties in the portfolio, 997 are single-tenant retail properties
with the remainder being multi-tenant properties. As of March 31,
1999, 991, or 99.4%, of the 997 single-tenant properties were leased
with an average remaining lease term (excluding extension options) of
approximately 8.6 years.
Our primary business objective is to generate dependable monthly
distributions from a consistent and predictable level of funds from
operations ("FFO") per share. Additionally, we generally will seek to
increase distributions to stockholders and FFO per share through both
active portfolio management and the acquisition of additional
properties.
Our portfolio management focus includes:
- Contractual rent increases on existing leases;
- Rental increases at the termination of existing leases when
market conditions permit; and
- The active management of the Company's property portfolio,
including selective sales of properties.
Our acquisition of additional properties adheres to a focused strategy
of acquiring primarily:
- Freestanding, single-tenant, retail properties;
- Properties leased to regional and national retail chains; and
- Properties under long-term, net lease agreements with initial
contractual base rent which, at the time of acquisition and as
a percentage of acquisition costs, is in excess of our
estimated cost of capital.
We typically acquire, then lease back, retail store locations from
chain store operators, providing capital to the operators for continued
expansion and other corporate purposes. Our acquisitions and
investment activities are concentrated in well-defined target markets
and focus generally on middle-market retailers providing goods and
services that satisfy basic consumer needs.
Page 13
Our net lease agreements generally:
- Are for initial terms of 10 to 20 years;
- Require the tenant to pay a minimum monthly rent and property
operating expenses (taxes, insurance and maintenance); and
- Provide for future rent increases (typically subject to
ceilings) based on increases in the consumer price index,
additional rent calculated as a percentage of the tenant's
gross sales above a specified level or fixed increases.
We believe that the long-term ownership of an actively managed,
diversified portfolio of retail properties under long-term, net lease
agreements produces consistent, predictable income. We also believe
that long-term leases, coupled with the tenant's responsibility for
property expenses, generally produce a more predictable income stream
than many other types of real estate portfolios, while continuing to
offer the potential for growth in rental income.
Since 1970 and through December 31, 1998, Realty Income has acquired
and leased back to regional and national retail chains 944 properties
(including 34 properties that have been sold) and has collected in
excess of 98% of the original contractual rent obligations on those
properties. We believe that within this market we can achieve an
attractive risk adjusted return on the financing that we provide to
retailers.
RECENT DEVELOPMENTS
- -------------------
ACQUISITION OF 34 PROPERTIES DURING THE FIRST THREE MONTHS OF 1999.
During the first three months of 1999, we continued implementing our
growth plan, which is intended to increase our funds from operations
per share. As part of our plan, we acquired 34 additional properties
(the "New Properties") increasing the number of properties in the
portfolio by 3.5% to 1,004 properties at March 31, 1999 from 970
properties at December 31, 1998. During the first quarter of 1999, we
continued to diversify our portfolio with the addition of one new
industry segment, Entertainment, and five new retail chains. As of
March 31, 1999, our portfolio of 1,004 properties consists of 70
separate retail chains doing business in 22 separate retail segments.
During the first quarter of 1999, we invested $40.8 million in New
Properties and properties under development (excluding estimated
unfunded development costs on properties under construction at
March 31, 1999 of $21.1 million). We also paid $87,000 for lease
commissions and $43,000 for building improvements on existing
properties in our portfolio. The weighted average annual unleveraged
return on the $40.8 million invested in the first quarter of 1999 is
estimated to be 10.3%, computed as estimated contractual net operating
income (which in the case of a net leased property is equal to the base
rent or, in the case of properties under construction, the estimated
base rent under the lease) for the first year of each lease, divided by
Page 14
the estimated total costs of each property. Since it is possible that
a tenant could default on the payment of contractual rent, no assurance
can be given that the actual return on the funds invested will not
differ from the foregoing percentage.
The New Properties are leased to 11 separate tenants operating in ten
different retail industries. The New Properties are located in 16
states, will contain approximately 286,000 leasable square feet and are
100% leased under net leases, with an average initial lease term of
14.6 years. Of the New Properties, 25 were occupied as of April 30,
1999 and the remaining properties were pre-leased and under
construction, pursuant to contracts under which the tenants have agreed
to develop the properties (with development costs funded by Realty
Income) and to begin paying rent when the premises open for business.
INCREASE IN MONTHLY DISTRIBUTION. In January and April 1999, the
monthly distributions were increased $0.0025 to $0.17 and $0.1725 per
share, respectively. Realty Income continues its policy of paying
distributions monthly. During the first three months of 1999, we paid
three distributions of $0.17 per share, totaling $0.51 per share.
During the first three months of 1998, the Company paid three monthly
distributions of $0.16 per share, totaling $0.48 per share. In March
and April 1999, we declared distributions of $0.1725 per share, which
were paid on April 15, 1999 and payable on May 17, 1999, respectively.
The monthly distribution of $0.1725 per share represents a current
annualized distribution of $2.07 per share, and an annualized
distribution yield of approximately 8.8% based on the last reported
sale price of the Company's Common Stock on the NYSE of $23.625 on
May 10, 1999. Although we expect to continue our policy of paying
monthly distributions, there can be no assurance that the current level
of distributions will be maintained by the Company or as to the actual
distribution yield for any future period.
NOTES OFFERING. In January 1999, we issued $20 million of 8.00%
unsecured senior notes due 2009 (the "1999 Notes"). The 1999 Notes
were sold at 98.757% of par to yield 8.10%. The proceeds from the
offering were used to pay down bank borrowings and for other corporate
purposes. Currently, there is no formal trading market for the 1999
Notes and we have not listed and do not intend to list the 1999 Notes
on any securities exchange.
OTHER INFORMATION
- -----------------
Realty Income's common stock is listed on the New York Stock Exchange
("NYSE") under the ticker symbol "O", our central index key ("CIK")
number is 726728 and cusip number is 756109-104.
In October 1998, we issued 8.25% Monthly Income Senior Notes due 2008,
which are traded on the NYSE under the ticker symbol "OUI". The cusip
number of these Monthly Income Senior Notes is 756109-AA2.
Realty Income had 49 employees as of May 10, 1999.
Page 15
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and Cash Equivalents
Realty Income is organized for the purpose of operating as an equity
REIT which acquires and leases properties and distributes to
stockholders, in the form of monthly cash distributions, a substantial
portion of its net cash flow generated from leases on its retail
properties. We intend to retain an appropriate amount of cash as
working capital. At March 31, 1999, Realty Income had cash and cash
equivalents totaling $5.7 million.
We believe that our cash and cash equivalents on hand, cash provided by
operating activities and borrowing capacity are sufficient to meet our
liquidity needs for the foreseeable future. However, we intend to
utilize additional sources of capital to fund property acquisitions and
to repay our acquisition credit facility.
Capital Funding
Realty Income has a $170 million, three-year revolving, unsecured
acquisition credit facility of which $52 million expires in December
2000 and $118 million expires in December 2001. The credit facility
currently bears interest at 0.85% over the London Interbank Offered
Rate ("LIBOR") and offers us other interest rate options. As of
May 10, 1999, $56.0 million of borrowing capacity was available to us
under the acquisition credit facility. At that time, the outstanding
balance was $114.0 million with an effective interest rate of 5.81%.
This credit facility has been and is expected to be used to acquire
additional retail properties leased to regional and national retail
chains under long-term lease agreements. Any additional borrowings
will increase our exposure to interest rate risk.
We expect to meet our long-term capital needs for the acquisition of
properties through the issuance of public or private debt or equity.
In August 1997, we filed a universal shelf registration statement with
the Securities and Exchange Commission covering up to $300 million in
value of common stock, preferred stock and/or debt securities. Through
May 10, 1999, $221.4 million in value of common stock and debt
securities has been issued under the universal shelf registration
statement.
We received investment grade corporate credit ratings from Duff &
Phelps Rating Company, Moody's Investor Service, Inc., and Standard &
Poor's Rating Group in December 1996. Currently, Duff & Phelps has
assigned a rating of BBB, Moody's has assigned a rating of Baa3, and
Standard & Poor's has assigned a rating of BBB- to our senior debt.
These ratings could change based upon, among other things, our results
of operations and financial condition.
Page 16
Distributions
Realty Income pays distributions monthly. Cash distributions paid
during the first quarter of 1999 and 1998 were $13.7 million and $12.5
million, respectively.
FUNDS FROM OPERATIONS ("FFO")
- -----------------------------
FFO for the first quarter of 1999 increased by $1.2 million or 8.1% to
$16.0 million versus $14.8 million during the first quarter of 1998.
We define FFO as net income before gain on sales of properties, plus
depreciation and amortization. In accordance with the recommendations
of the National Association of Real Estate Investment Trusts
("NAREIT"), amortization of deferred financing costs is not added back
to net income to calculate FFO. Amortization of financing costs is
included in interest expense in the consolidated statements of income.
The following is a reconciliation of net income to FFO, and information
regarding distributions paid and diluted weighted average number of
shares outstanding for the first quarter of 1999 and 1998 (dollars in
thousands):
1999 1998
-------- --------
Net income $ 9,929 $ 9,924
Plus depreciation and amortization 6,090 5,084
Less depreciation of furniture,
fixtures and equipment and
amortization of organization costs (21) (39)
Less gain on sales of properties -- (215)
-------- --------
Total Funds From Operations $ 15,998 $ 14,754
======== ========
Cash Distributions Paid $ 13,679 $ 12,462
FFO in excess of Distributions $ 2,319 $ 2,292
Diluted weighted average
number of shares outstanding 26,825,412 26,037,595
We consider FFO to be an appropriate measure of the performance of an
equity REIT. FFO is used by financial analysts in evaluating REITs and
can be one measure of a REIT's ability to make cash distribution
payments. Presentation of this information provides the reader with an
additional measure to compare the performance of different REITs,
although it should be noted that not all REITs calculate FFO the same
way so comparisons with such REITs may not be meaningful.
Page 17
FFO is not necessarily indicative of cash flow available to fund cash
needs and should not be considered as an alternative to net income as
an indication of Realty Income's performance or to cash flows from
operating, investing, and financing activities as a measure of
liquidity or ability to make cash distributions or to pay debt service.
RESULTS OF OPERATIONS
- ---------------------
The following is a comparison of our Results of Operations for the
three months ended March 31, 1999 to the three months ended March 31,
1998.
Rental revenue was $23.9 million for 1999 versus $19.2 million for
1998, an increase of $4.7 million. The increase in rental revenue was
primarily due to the acquisition of 34 properties during the first
quarter of 1999 and 149 properties during 1998 (the "New Properties").
The New Properties generated revenue of $4.8 million in 1999 compared
to $192,000 in 1998, an increase of $4.6 million.
Of the 1,004 properties in the portfolio as of March 31, 1999, 997 are
single-tenant properties with the remaining properties being multi-
tenant properties. Of the 997 single-tenant properties, 991, or 99.4%,
were net leased with an average remaining lease term (excluding
extension options) of approximately 8.6 years. Of our 991 leased
single-tenant properties, 984 or 99.3% were under leases that provide
for increases in rents through:
- Base rent increases tied to a consumer price index with
adjustment ceilings;
- Overage rent based on a percentage of the tenants' gross
sales; or
- Fixed increases.
Some leases contain more than one of these clauses. Percentage rent,
which is included in rental revenue, was $214,000 during 1999 and
$208,000 in 1998. Same store rents generated on 812 properties owned
during all of both the first quarter of 1999 and 1998 increased by
$43,000 or 0.2%, to $19.00 million from $18.96 million. At March 31,
1999, we had six vacant properties versus four vacant properties at
March 31, 1998. With out the effect of properties vacant during part
of the first quarter of 1999 or 1998, the same store rents generated on
803 properties owned and occupied during all of both the first quarter
of 1999 and 1998 increased by $254,000 or 1.4%, to $18.781 million from
$18.527 million. Approximately 52% of our current property portfolio
was acquired over the last four years. A majority of the leases on
these acquisitions provide for rent increases after the fifth year of
the lease. We anticipate rental increases on these acquisitions
starting in the second half of the year 2000.
At March 31, 1999, we had six properties that were not under lease as
compared to five at December 31, 1998. At March 31, 1999, 998, or
Page 18
99.4%, of the 1,004 properties in the portfolio were under lease
agreements with third party tenants.
Depreciation and amortization was $6.1 million in 1999 versus $5.1
million in 1998. The increase in 1999 was primarily due to
depreciation of the New Properties.
Interest expense in 1999 increased by $3.4 million to $5.9 million, as
compared to $2.5 million in 1998. The following is a summary of the
five components of interest expense for 1999 and 1998 (dollars in
thousands):
1999 1998 Net Change
------- ------- ----------
Interest on outstanding
loans and notes $ 5,715 $ 2,449 $ 3,266
Amortization of settlements
on treasury lock agreements 189 (28) 217
Credit facility commitment fees 65 56 9
Amortization of credit facility
origination costs and deferred
bond financing costs 205 94 111
Interest capitalized (294) (80) (214)
-------- -------- --------
Interest expense $ 5,880 $ 2,491 $ 3,389
======== ======== ========
Credit facility and notes outstanding (dollars in thousands)
- ------------------------------------------------------------
1999 1998 Net Change
------- ------- ----------
Average outstanding balances $306,482 $129,317 $177,165
Average interest rates 7.56% 7.68%
Interest expense was $3.4 million more in 1999 than in 1998 due to an
increase in the average balances outstanding, which was partially
offset by lower average interest rates.
General and administrative expenses increased by $181,000 to $1.65
million in 1999 versus $1.47 million in 1998. General and
administrative expenses as a percentage of revenue decreased to 6.9% in
1999 as compared to 7.6% in 1998. The increase in general and
administrative expenses was primarily due to a change in accounting for
internal acquisition costs. In March 1998, the Emerging Issues Task
Force reached a consensus on Issue No. 97-11, "Accounting for Internal
Costs Relating to Real Estate Property Acquisitions" ("EITF 97-11").
Page 19
EITF 97-11 provides that internal costs of preacquisition activities
incurred in connection with the acquisition of a property that will be
classified as operating at the date of acquisition should be expensed
as incurred. Prior to EITF 97-11, these costs were capitalized. Of
the $181,000 increase in general and administrative expenses,
approximately $81,000 is due to the change in accounting for internal
acquisition costs. EITF 97-11 was effective at the end of the first
quarter of 1998, thus comparison of future quarters will not be
impacted by this change.
Property expenses are broken down into costs associated with non-net
leased multi-tenant properties, unleased single-tenant properties and
general portfolio expenses. Expenses related to the multi-tenant and
unleased single-tenant properties include, but are not limited to,
property taxes, maintenance, insurance, utilities, property
inspections, bad debt expense and legal fees. General portfolio costs
include, but are not limited to, insurance, legal, property inspections
and title search fees. At March 31, 1999, six properties were
available for lease as compared to five at December 31, 1998. Property
expenses were $441,000 in 1999 and $473,000 in 1998. The decrease in
property expenses is primarily attributable to lower insurance costs.
We anticipate property expenses to increase as we acquire additional
properties.
We review long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not
be recoverable. There was no provision for impairment taken in 1999 or
1998.
During 1998, we sold three properties (one child care center, one
restaurant and one multi-tenant location) for $1.9 million and
recognized a gain of $215,000. No properties were sold in 1999.
In 1999 and 1998, we had net income of $9.9 million. Rental revenue
increased by $4.8 million due to an increase in rental revenue from New
Properties of $4.6 million, which was substantially offset by an
increase of $4.4 million in the following expenses:
- Depreciation and amortization of $1.0 million; and
- Interest expense of $3.4 million.
PROPERTIES
- ----------
As of March 31, 1999, we owned a diversified portfolio of 1,004
properties located in 45 states with over 8.1 million square feet of
leasable space. At March 31, 1999, approximately 99% of the properties
were under net lease agreements. Net leases typically require the
tenant to be responsible for minimum monthly rent and property
operating expenses including property taxes, insurance and maintenance.
Page 20
Our net leased retail properties are primarily leased to regional and
national retail chain store operators. The average leasable retail
space of the 1,004 properties is approximately 8,100 square feet on
approximately 49,300 square feet of land. Generally, buildings are
single-story properties with adequate parking on site to accommodate
peak retail traffic periods. The properties tend to be on major
thoroughfares with relatively high traffic counts and adequate access,
egress and proximity to a sufficient population base to constitute a
suitable market or trade area for the retailer's business.
The following table sets forth-certain information regarding our
properties classified according to the business of the respective
tenants (dollars in thousands):
Annualized Percentage of Total
Rent as of Rental Revenue for
Number April 1, 1999(1) the Years Ended
of ------------------- -------------------
Prop- Rental Percentage
Industry erties Revenue of Total 1998 1997 1996
- -------------------- ------ -------- ---------- ------ ------ ------
Apparel Stores 5 $ 3,927 3.8% 4.1% 0.7% --%
Automotive Parts 136 9,350 9.0 7.8 9.1 10.5
Automotive Service 105 7,176 6.9 7.5 6.4 4.8
Book Stores 1 450 0.4 0.6 0.5 --
Business Services 1 120 0.1 * -- --
Child Care 324 26,311 25.4 29.2 35.9 42.0
Consumer Electronics 37 4,431 4.3 5.4 6.5 0.9
Convenience Stores 61 5,429 5.2 6.1 5.5 4.6
Craft and Novelty 2 425 0.4 * -- --
Drug Stores 1 235 0.2 0.1 -- --
Entertainment 2 940 0.9 -- -- --
General Merchandise 11 687 0.7 * -- --
Grocery Stores 2 789 0.8 * -- --
Health and Fitness 2 1,202 1.2 0.1 -- --
Home Furnishings 35 6,872 6.6 7.8 5.6 4.4
Home Improvement 33 4,059 3.9 * -- --
Office Supplies 8 2,476 2.4 3.0 1.7 --
Pet Supplies and
Services 8 1,537 1.5 0.6 0.2 --
Private Education 5 1,497 1.5 0.9 -- --
Restaurants 175 14,170 13.7 16.2 19.8 24.4
Shoe Stores 3 890 0.9 0.8 0.2 --
Video Rental 35 4,501 4.3 3.8 0.6 --
Other 12 6,148 5.9 6.0 7.3 8.4
- -------------------- ------ -------- ------ ------ ------ ------
Totals 1,004 $103,622 100.0% 100.0% 100.0% 100.0%
==================== ====== ======== ====== ====== ====== ======
* Less than 0.1%
Page 21
[FN]]
(1) Annualized rental revenue is calculated by multiplying the monthly
contractual base rent as of April 1, 1999 by 12 and adding the previous
12 month's historic percentage rent, which totaled $1.7 million. For
properties under construction, an estimated contractual base rent is
used based upon the estimated total costs of each property.
</FN>
Of the 1,004 properties in the portfolio at March 31, 1999, 997 were
single-tenant properties with the remaining properties being multi-
tenant properties. As of March 31, 1999, 991 of the 997 single-tenant
properties, or 99.4%, were net leased with an average remaining lease
term (excluding extension options) of approximately 8.6 years. The
following table sets forth certain information regarding the timing of
the lease term expirations (excluding extension options) on our 991 net
leased, single-tenant retail properties as of April 1, 1999.
Number of Annualized Percent of
Leases Rent (1) (2) Annualized
Year Expiring (2) (in thousands) Rent
- ------ ------------ -------------- ----------
1999 31 $ 1,570 1.6%
2000 35 1,837 1.9
2001 47 3,918 4.0
2002 79 6,597 6.7
2003 68 5,651 5.7
2004 110 9,269 9.4
2005 81 6,005 6.1
2006 28 2,474 2.5
2007 94 6,396 6.5
2008 67 5,758 5.8
2009 23 2,794 2.8
2010 41 3,273 3.3
2011 38 5,483 5.6
2012 53 5,935 6.0
2013 101 16,016 16.2
2014 18 2,287 2.3
2015 31 4,042 4.1
2016 13 1,986 2.0
2017 11 4,124 4.2
2018 16 1,585 1.6
2019 4 729 0.7
2033 2 940 1.0
- ------ --------------- --------------- ----------
Totals 991 $ 98,669 100.0%
====== =============== =============== ==========
Page 22
[FN]
(1) Annualized rent is calculated by multiplying the monthly
contractual base rent as of April 1, 1999 for each of the properties by
12 and adding the previous 12 month's historic percentage rent, which
totaled $1.7 million (i.e., additional rent calculated as a percentage
of the tenant's gross sales above a specified level). For the
properties under construction, an estimated contractual base rent is
used based upon the estimated total costs of each property.
(2) This table does not include seven multi-tenant properties and six
vacant, unleased single-tenant properties owned by the Company. The
lease expirations for properties under construction are based on the
estimated date of completion of such properties.
</FN>
The following table sets forth certain state-by-state information
regarding Realty Income's property portfolio as of April 1, 1999.
Annualized
Approximate Rent (1) Percent of
Number of Percent Leasable (in thou- Annualized
State Properties Leased Square Feet sands) Rent
- ------------ ---------- ------- ----------- ---------- ----------
Alabama 9 100% 63,300 $ 609 0.6%
Arizona 31 99 211,800 3,003 2.9
Arkansas 5 100 36,700 614 0.6
California 62 95 1,096,100 13,622 13.1
Colorado 42 100 250,700 3,477 3.4
Connecticut 10 100 223,800 2,976 2.9
Delaware 1 100 5,400 72 0.1
Florida 74 99 753,900 8,369 8.1
Georgia 49 100 306,400 4,393 4.2
Idaho 12 100 58,500 789 0.8
Illinois 30 100 209,000 2,707 2.6
Indiana 29 100 170,400 2,155 2.1
Iowa 10 100 67,900 688 0.7
Kansas 22 100 231,000 2,469 2.4
Kentucky 13 100 43,500 1,087 1.0
Louisiana 5 100 39,600 509 0.5
Maryland 8 100 48,300 698 0.7
Massachusetts 8 100 57,500 1,059 1.0
Michigan 11 100 73,700 1,005 1.0
Minnesota 24 100 244,700 2,501 2.4
Mississippi 15 100 148,500 1,139 1.1
Missouri 31 100 184,300 2,336 2.2
Montana 2 100 30,000 276 0.3
Nebraska 10 100 98,700 1,228 1.2
Nevada 7 100 86,400 1,277 1.2
New Hampshire 1 100 6,400 147 0.1
New Jersey 3 100 39,800 359 0.3
(continued on the next page)
Page 23
(continued)
Annualized
Approximate Rent (1) Percent of
Number of Percent Leasable (in thou- Annualized
State Properties Leased Square Feet sands) Rent
- ------------ ---------- ------- ----------- ---------- ----------
New Mexico 5 100 46,000 350 0.3
New York 18 94 223,100 4,168 4.0
North Carolina 32 100 171,400 2,913 2.8
North Dakota 1 100 22,000 65 0.1
Ohio 66 100 331,200 5,351 5.2
Oklahoma 17 100 102,600 1,303 1.3
Oregon 17 100 92,400 1,114 1.1
Pennsylvania 22 100 161,600 2,187 2.1
South Carolina 23 100 93,000 1,564 1.5
South Dakota 1 100 6,100 95 0.1
Tennessee 24 96 214,400 2,546 2.4
Texas 149 99 1,210,700 12,752 12.3
Utah 9 100 58,200 811 0.8
Virginia 29 100 133,200 2,806 2.7
Washington 43 100 252,600 3,464 3.3
West Virginia 2 100 16,800 147 0.1
Wisconsin 18 100 167,300 2,153 2.1
Wyoming 4 100 20,100 269 0.3
- -------------- -------- ------- ----------- ---------- ---------
Totals/Average 1,004 99% 8,109,000 $103,622 100.0%
============== ======== ======= =========== ========== =========
[FN]
(1) Annualized rent is calculated by multiplying the monthly
contractual base rent as of April 1, 1999 for each of the properties by
12 and adding the previous 12 month's historic percentage rent, which
totaled $1.7 million (i.e., additional rent calculated as a percentage
of the tenant's gross sales above a specified level). For the
properties under construction, an estimated contractual base rent is
used based upon the estimated total costs of each property.
</FN>
The table on the next page sets forth certain information regarding the
properties owned by Realty Income as of April 1, 1999, classified
according to the retail business types and the level of services they
provide (dollars in thousands).
Page 24
Percent of
Number of Annualized Annualized
Industry Properties Rent (1) Rent
- -------- ---------- ---------- ----------
TENANTS SELLING GOODS
- ---------------------
Apparel Stores 5 $ 3,927 3.8%
Automotive Parts 81 4,705 4.5
Book Stores 1 450 0.4
Consumer Electronics 37 4,431 4.3
Craft and Novelty 2 425 0.4
Drug Stores 1 235 0.2
General Merchandise 11 687 0.7
Grocery Stores 2 789 0.8
Home Furnishings 35 6,872 6.6
Home Improvement 12 1,333 1.3
Office Supplies 8 2,476 2.4
Pet Supplies 2 455 0.4
Shoe Stores 3 890 0.9
---------- ---------- ----------
200 27,675 26.7
---------- ---------- ----------
TENANTS SELLING GOODS AND SERVICES
- ----------------------------------
Automotive Parts 55 4,645 4.5
Business Services 1 120 0.1
Convenience Stores 61 5,429 5.2
Home Improvement 21 2,726 2.6
Pet Supplies and Services 6 1,082 1.1
Restaurants 175 14,170 13.7
Video Rental 35 4,501 4.3
---------- ---------- ----------
354 32,673 31.5
---------- ---------- ----------
TENANTS PROVIDING SERVICES
- --------------------------
Automotive Service 105 7,176 6.9
Child Care 324 26,311 25.4
Entertainment 2 940 0.9
Health and Fitness 2 1,202 1.2
Private Education 5 1,497 1.5
Other 12 6,148 5.9
---------- ---------- ----------
450 43,274 41.8
---------- ---------- ----------
TOTALS 1,004 $103,622 100.0%
========== ========== ==========
Page 25
[FN]
(1) Annualized rent is calculated by multiplying the monthly
contractual base rent as of April 1, 1999 for each of the properties by
12 and adding the previous 12 month's historic percentage rent, which
totaled $1.7 million (i.e., additional rent calculated as a percentage
of the tenant's gross sales above a specified level). For the
properties under construction, an estimated contractual base rent is
used based upon the estimated total costs of each property.
</FN>
THE YEAR 2000 ISSUE
===================
Some computer programs identify a year by using only two digits instead
of four. This method of identification could cause these programs to
fail or create erroneous results in the year 2000. This situation has
been referred to generally as the Year 2000 issue.
The first essential component of our Year 2000 assessment program was
to determine if our internal mission-critical computer systems were
compliant. We have completed a review of our software and hardware and
determined (through a combination of internal testing and vendor
representations that their products have been tested and are compliant)
that all internal mission-critical systems (those systems that are
necessary to conduct our business activities) are Year 2000 compliant.
We have also reviewed our non-mission critical software and hardware
and have identified a few third-party products that are not Year 2000
compliant. We have scheduled upgrades or replacement of these non-
compliant products before the end of the third quarter of 1999. We
believe that the total cost of remediation associated with our
corporate level computer systems will be less than $30,000, of which
less than $20,000 is anticipated to be spent during 1999. We
anticipate that we will complete remediation of our internal computer
systems before the end of the third quarter of 1999.
The second essential component of our Year 2000 assessment program was
to ensure that our significant tenants are assessed for Year 2000
compliance. We had discussions with our significant tenants in order
to assess their readiness for the Year 2000 issue. Through April 30,
1999, tenants representing approximately 95% of our revenue have
confirmed that they are Year 2000 compliant or anticipate being
compliant by the end of the third quarter of 1999. Due to the nature
of the tenants' businesses, we do not believe the Year 2000 issue will
materially impact the tenants' ability to pay rent. However, the
failure of one or more tenants as a result of the Year 2000 issue could
have a material adverse effect on our results of operations or
financial position.
The third component of our Year 2000 assessment program was to ensure
that our mission-critical vendors are assessed for Year 2000
compliance. We have had discussions with these significant
Page 26
vendors in order to assess their ability to successfully resolve the
Year 2000 issue. As of April 30, 1999, 100% of our mission-critical
vendors have confirmed that they are Year 2000 compliant or anticipate
being compliant by the end of the third quarter of 1999. Our transfer
agent has advised us it is Year 2000 compliant.
While we are continually reviewing the Year 2000 preparedness of our
key tenants and vendors, we rely on their representations and can not
be assured that all of their computer systems will be Year 2000
compliant. It is possible that relevant information has not been made
available for our assessment, or that potential solutions will not be
within our control.
We continue to evaluate the Year 2000 issue, which includes the
determination of whether or not to implement a contingency plan. We
have completed our assessment program and we are currently in the
implementation and replacement stage of our remediation program.
Though we do not expect the Year 2000 issue to have a material adverse
effect on our results of operations or financial position, there can be
no assurances of that position.
IMPACT OF INFLATION
===================
Tenant leases generally provide for limited increases in rent as a
result of increases in the tenant's sales volumes, increases in the
consumer price index, and/or fixed increases. We expect that inflation
will cause these lease provisions to result in increases in rent over
time. However, during times when inflation is greater than increases
in rent as provided for in the leases, rent increases may not keep up
with the rate of inflation.
Approximately 99% of the properties in the portfolio are leased to
tenants under net leases in which the tenant is responsible for
property costs and expenses. These features in the leases reduce our
exposure to rising property expenses due to inflation.
Inflation and increased costs may have an adverse impact on the tenants
if increases in the tenant's operating expenses exceed increases in
revenue.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
====================================================================
We are exposed to interest rate changes primarily as a result of our
credit facility and long-term debt used to maintain liquidity and
expand our real estate investment portfolio and operations. Our
interest rate risk management objective is to limit the impact of
interest rate changes on earnings and cash flows and to lower our
overall borrowing costs. To achieve our objectives we borrow primarily
Page 27
at fixed rates and may selectively enter into derivative financial
instruments such as interest rate lock agreements, interest rate swaps
and caps in order to mitigate our interest rate risk on a related
financial instrument. We do not enter into any transactions for
speculative or trading purposes.
Our interest rate risk is monitored using a variety of techniques. The
table below presents the principal amounts, weighted average interest
rates, fair values and other terms required by year of expected
maturity to evaluate the expected cash flows and sensitivity to
interest rate changes (dollars in table in millions).
Expected Maturity Data
----------------------
There- Fair
2001 after Total Value (2)
---- ------ ------ ---------
Fixed rate debt -- $230.0(1) $230.0 $221.6
Average interest rate 7.99% 7.99%
Variable rate debt $103.9 -- $103.9 $103.9
Average interest rate 5.86% -- 5.86%
[FN]
(1) $110 million matures in 2007, $100 million matures in 2008 and $20
million matures in 2009.
(2) The fair value of the fixed rate debt is based upon the closing
market price per each note at March 31, 1999. The fair value of the
variable rate debt approximates its carrying value because its terms
are similar to those available in the market place.
</FN>
As the table incorporates only those exposures that exist as of
March 31, 1999, it does not consider those exposures or positions that
could arise after that date. As a result, our ultimate realized gain
or loss with respect to interest rate fluctuations will depend on the
exposures that arise during the period, our hedging strategies at the
time, and interest rates.
PART II. OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
Exhibit No. Description
=========== ===========
3.1 Articles of Incorporation of the Company (filed as
Appendix B to the Company's Proxy Statement dated
March 28, 1997 ("1997 Proxy Statement") and
incorporated herein by reference).
Page 28
3.2 Articles Supplementary of the Class A Junior
Participating Preferred Stock of Realty Income
Corporation (filed as exhibit A of exhibit 1 to Realty
Income's registration statement on Form 8-A, dated
June 26, 1998, and incorporated herein by reference).
3.3 Bylaws of the Company (filed as Appendix C to the
Company's 1997 Proxy Statement and incorporated
herein by reference).
4.1 Pricing Committee Resolutions and Form of 7.75%
Notes due 2007 (filed as Exhibit 4.2 to the
Company's Form 8-K dated May 5, 1997 and
incorporated herein by reference).
4.2 Indenture dated as of May 6, 1997 between the
Company and The Bank of New York (filed as Exhibit
4.1 to the Company's Form 8-K dated May 5, 1997 and
incorporated herein by reference).
4.3 First Supplemental Indenture dated as of
May 28, 1997, between the Company and The Bank of
New York (filed as Exhibit 4.3 to the Company's
Form 8-B and incorporated herein by reference).
4.4 Rights Agreement, dated as of June 25, 1998, between
Realty Income Corporation and The Bank of New York
(filed as an exhibit 1 to the Company's registration
statement on Form 8-A, dated June 26, 1998, and
incorporated herein by reference).
4.5 Pricing Committee Resolutions (filed as an exhibit 4.2
to Realty Income's Form 8-K, dated October 27, 1998
and incorporated herein by reference).
4.6 Form of 8.25% Notes due 2008 (filed as an exhibit 4.3 to
Realty Income's Form 8-K, dated October 27, 1998
and incorporated herein by reference).
4.7 Form of Indenture dated as of October 28, 1998 between
Realty Income and The Bank of New York (filed as exhibit
4.1 to Realty Income's Form 8-K, dated October 27, 1998
and incorporated herein by reference).
4.8 Pricing Committee Resolutions and Form of 8% Notes due
2009 (filed as exhibit 4.2 to Realty Income's Form 8-K,
dated January 21, 1999 and incorporated herein by
reference).
27 Financial Data Schedule, filed herein
Page 29
B. One report on Form 8-K was filed by registrant during the
quarter for which this report is filed.
A report on Form 8-K dated January 21, 1999 was filed on
January 22, 1999 reporting the issuance of $20 million
principal amount of 8.0% notes due January 15, 2009.
SIGNATURE
==========
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REALTY INCOME CORPORATION
(Signature and Title) /s/ GARY M. MALINO
Date: May 12, 1999 -------------------------------------
Gary M. Malino, Senior Vice President
Chief Financial Officer (Principal
Financial and Accounting Officer)
EXHIBIT INDEX
[S] [C] [C]
Exhibit No. Description Page
=========== =========== ====
27 Financial Data Schedule ................... 31
Page 30
[ARTICLE]5
[LEGEND]
This Schedule contains summary financial information extracted from
the registrant's Balance Sheet as of March 31, 1999 and Income
Statement for the three months ended March 31, 1999 and is qualified
in its entirety by reference to such financial statements.
[MULTIPLIER]1
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-END] MAR-31-1999
[CASH] 5,694,000
[SECURITIES] 0
[RECEIVABLES] 2,064,000
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] <F1> 0
[PP&E] 930,782,000
[DEPRECIATION] (177,367,000)
[TOTAL-ASSETS] 796,539,000
[CURRENT-LIABILITIES] <F1> 0
[BONDS] 333,900,000
[COMMON] 26,822,000
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 419,699,000
[TOTAL-LIABILITY-AND-EQUITY] 796,539,000
[SALES] 0
[TOTAL-REVENUES] 23,986,000
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 8,177,000
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 5,880,000
[INCOME-PRETAX] 9,929,000
[INCOME-TAX] 0
[INCOME-CONTINUING] 9,929,000
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 9,929,000
[EPS-PRIMARY] 0.37
[EPS-DILUTED] 0.37
[FN]
Current assets and current liabilities are not applicable to
the Company under current industry standards.
</FN>
Page 31