O - Earnings call transcript Q4 2017 | Realty Income Corporation

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Operator

Good day and welcome to the Realty Income Fourth Quarter and Year End 2017 Operating Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Janeen Bedard, Senior Vice President. Please go ahead.

Janeen Bedard

Thank you all for joining us today for Realty Income’s fourth quarter 2017 operating results conference call. be Officer Chief Roy, and Chief Officer. will Meurer, Officer; President results Operating Financial Chief Treasurer; our John Executive Case, Paul and Discussing and Sumit

may we federal statements. under laws. any from The results certain During the forward-looking future securities will actual differ conference to be call, statements this forward-looking that may be Company’s matters considered statements in make significantly discussed

in Form cause disclose will such XX-K. greater Company’s in the factors may We detail that differences the

limit I during Case. in over two-question Q&A turn We portion everyone call will a CEO, be call the the order the of observing John the our to opportunity will give to to participate. now

John Case

Janeen, Thanks, our today. welcome and to call

of pleased year favorable A growth another a successful this strengthen handful of to $X.X with while one one of completing are with sheet, rating. just healthy least and only in rates complete our generating We share single acquisitions X.X%. balance high credit quality becoming at over achieved company We to growth continuing billion recapture our AFFO REITs per of

to introducing $X.XX share XXXX per represents approximately which to guidance AFFO growth of X%. are X% annual We of $X.XX,

hand Paul detail our additional results. to to provide on it Paul? me over financial now Let

Paul Meurer

quarter of to long-term quarter interest going $XX.X Thanks, John. issued the $XX.X to we a quarter rate due comparative versus million. to million bonds gain and few items financial ago. highlights a I the This billion increase am results XXXX $X as swap as the during year, year with by well provide expense the lower in Interest increased for starting our and the for income statement. was

in revenues which of for total Our X% quarter with projection. full X.X% G&A was year was our for the the as rental and and percentage other year, line a

net We in have ratio remain G&A project lowest to continue the XXXX. REIT approximately in X% the and lease sector we G&A to

the X.X% X% the non-reimbursable a and quarter other property was rental for percentage full year was year with in as total line which revenues for our Our expenses also and of projection.

in as remain $X.XX X.X% or in $X.XX FFO the Funds or We redemption recognized a we $X.XX XXXX. expect of with share our share, fourth charge early $XX.X result was bonds, for from which the X% replaced the of of range that X.XX% million per longer to and bonds. to property non-reimbursable operations lower year. In and a quarter XXXX expenses one-time we coupon per term

gains our totaling NAREIT of difference to includes or $X.XX AFFO charge As a over the non-cash $X.XX maintain $X.XX was reminder, we sheet, with we These representing our items the Briefly our quarter or incurred charge lease back XXXX. the and non-recurring the losses, the AFFO driver December intangibles, in per for incurred $X.XX or in have for continued from XXXX. operations year which swaps, $X.XX of various liability from in FFO reported two defined management this year redemption definition, such this charges with we connection and in April redemption we preferred stock follows does amortization rate interest bond redemption cash, FFO as and dividend share for distribution in capital FFO turning to available primary as the increase the Adjusted have a funds the balance structure. conservative and X.X% actual

through During ATM our a million equity the we raised primarily quarter, in $XXX program.

billion in equity full-year, per approximately the For we X.X share. and $XX raised over

at at Last XX.X X.X the year the bonds in bonds the average rate long-term billion XXXX. of the unsecured average term from the weighted weighted average year, and start of during at of X.X of fixed X.X years. issued a of years maturity to extended we our weighted we our X.XX% Additionally, yield end quarter years

coverage highest now charge which ratio history. fixed in coverage X.X times the is our our is Additionally, company’s

in thereafter. with remains of schedule $XXX schedule less well XXXX, maturity our of than laddered remainder coming shape, maturity good million is due and Our a overall the debt very debt

Our modest. overall leverage remains

In debt low is now, excellent coverage the continue forma times. acquisitions pro to me we to let to Our EBITDA assuming strong summary, leverage, back our fourth liquidity annualized and of have over John. metrics. X.X now impact And pull quarter

John Case

properties for will of year of Paul. with an based I versus Thanks, the basis our the begin portfolio which to number increase ago Occupancy and overview on matching perform XX year-end an continues the occupancy. points well. XX-year XX.X% of period was

be for XX% XXXX. to approximately occupancy expect We

During we XXX% sixth above long-term of leasing This approximately our our recapturing is rates consecutive the above was quarter rent, year, of re-leased a the average. significantly recapture XXX expiring properties which XXX%.

net were them to leasing rents report we sector favorably metric. our commissions. flat those in companies This tenant Our recapture and compares also as incur saw rates who effective improvements this

our as to asset recapture testament have recapture a experience and in view our is rates rates efforts. industry. of rate advantageous previous teams, we This continue competitive Additionally, portfolio our to XXX%, management have our asset we which one our improvement an active have our over improve XXXX, net leased of as Since run talent increased and XX%. management a the the of been

investment to shareholder approximately fit vacant attractive flowing These off sold earnings to cash assets and an that recycle non-strategic were approximately given disposition, also properties IRR of to associated criteria and the the In at cost. asserts This XX% achieving negative a incremental of on allowed leased of continue XX% Moving into selectively criteria. we were X%. that generating value. disposition investment we IRR properties rate that were us XXXX, we of caring proceeds $XXX unlevered sell sales our from X%. sold meet million approximately proceeds better an growth properties the to no dispose our on longer pleased cap properties of unlevered

of The rental same-store Our under pool point any projected excludes or in for development that domain comparable actions involved redevelopment during increased consistent our revenue periods. run the were is the year methodology which properties our XXXX. X% rate for eminent during or with same-store vacant,

rate we our Our portfolio, assets. leased methodology trends with how consistent is manage on rental isolating our

that analyze recognized any community for further without excluding the properties. summing we metric investment this However,

end result, growth annual of an basis entirety the a for disclosure properties we at comparable to present all properties our all add owned comparable inclusive was for will X% of our on years an XXXX, rental rental same-store also we in periods. year rent. to revenue growth As of same-store the have reflect revenue decided In additional which owned both

environments. X.X% of commercial and XXXX extent, operate to posses XX the flow. Within type industry a continues geography, our majority factors portfolio to is not property states end cash different the the remain price compete to at and/or been believe Our our XXX do largest Walgreens in more rental leased effectively At revenue. of of our properties, their business. climate from in these our at our outside a to of traditional e-commerce comes service, rent revenue properties XX.X% retail of drugstores rental in were industries largest characteristics the XX% point retail industry, non-discretionary our have tenant revenue. retail rental relevant located with bankruptcies retail U.S. the XX from particularly over vast a These and of be largest in our in allow Rico. variety of these characteristics. tenants our by Puerto tenants of retailer industrial contributes revenue component and industries component diversified properties tenant, which is We low portfolio, XX% XX% stability where today’s to tenants in with of and our at that to remains year, economic certain rental were about

rated basis median currently in a tenants. X.X the performance credit the revenue range. This remains excellent quality continue tenants our coverage weighted remained times portfolio for the have metric at our rent sound. is ratio store X.X We The The to level rental annualized end while retail upper average XX% investment of our properties from is of our of grade retail with also times. generated historical on four-walled

watch years. of list remains of the also last Our is the few levels percentage a low rent, X% range as with in consistent our which

during of fourth over million to Moving acquisitions, the we in XXXX quarter. billion on just acquisitions $XXX completed was which in completed $X.X

continue of meet a investment steady our opportunities flow We see to that parameters.

us investment we selective the remained amount in X% We the of quarter, acquisition to in billion During our approximately $X.X opportunities bringing acquiring $XX.X XXXX. sourced strategy, sourced. in sourced billion

has Our recently. capital increased cost

short-term a XXX approximately invest to spreads capital accretive continue at of our points. investment our of that cost are over We basis average consistent historical with

which As Moody's in AFFO current is our compression cost weighted debt nominal average considerable yield experienced as year AX upgrade cost November. of our a our to reminder, reflects spread first our unsecured by following of rate fixed both as XX year well capital

near-term properties cost quality us that low acquire continued to meaningful earnings allows of while provides highest also Our the in favorable long-term growth. returns capital creating

we environment, strength continued billion the billion. pipeline to acquisitions the are be XXXX investment market and $X to %X.X our estimating current and Given

reflects large primarily As typical a and Sumit estimate does unidentified not I'll now detail. it over scale our transactions. to more and dispositions hand flow account acquisitions to reminder discuss in business for this any

Sumit Roy

John. Thank you,

basis, close are per XX During to weighted XXX fourth average the of XX% initial investment years. lease assets revenue and and with $XXX at industrial XX acquisitions from and tenants the was property approximately in of average approximately from XX in from X.XX% grade average leased quarter total fourth retail XXXX, investment states of in generated transactions of invested different tenants. XX.X located cap quarter term million are million. the We properties an are a industries. we cash These in On assets. revenues rate the XX% X% are of discrete $X.X a XX

remain grade located billion On XX generated the the one-off leased XXX of with cash transactions. were XXXX, grade retail XX the closed lease Of tenants to XX% flow Transaction rate healthy. revenue of years. during, four assets. during average of for total quarter, X% the transactions Investment During and $X.XX XX properties a investment acquisitions we are XX% initial XX at were fourth invested revenues acquisitions portfolios are quarter. opportunities XX% in are different term in basis, assets are sourced approximately fourth XX% from above of states closed average weighted in to XX one-off were These XX.X the in and from transactions industries. the the X.X% industrial. year, XX% from million. continues opportunities discrete XX% were cap Of a an tenants. represented and Of

quarter. fourth remained cap the in to As rates pricing, steady

capital cash investments average of spreads. which to of our as our spreads initial cost average capital. were XXX fourth weighted the relative points our basis first cost spreads defined healthy averaging quarter We less in of investments average historical Our yield quarter above were weighted nominal

remained program disposition active. Our

net and and disposition cash acquisition for year brings an This cash X.X%. between cap XXXX acquisitions We X.X% would in X.X%. us XXXX to our dispositions. of well hand exceptional During target the a net or an of We regarding quarter, sold during net XXX.X we XXX volume X.X% as million XX XX.X IRR to of XX to and and to million XX proceeds look at sold unlevered forward of John. rate unlevered back of had XXXX IRR million rate With cap like it properties a a realized at million. that, I as achieving properties

John Case

Sumit. Thanks,

As Paul billion was $X.X under equity year a capital average activities. for an active said, markets very our to $XX per at just in investors XXXX share. of common price issued We

acquisitions loan issued XX and coupon our of nearly X.X% the of long-term weighted of billion balance, $X.X and used billion bond fund yield permanent unsecured capital $X Additionally, in rate over term was bonds. average we term our redeem fixed The high having to out activity years. with

$X As credit. we our billion We on reduced years. have capital of average our leverage available by line markets approximately and extended term result currently billion of $X.X the three our almost a activities, on these debt

We for history. ample we month, our the flexibility have the and XXth in liquidity increased our company. dividend Last time grow as we company’s

the Our year X% annualized dividend represents current over increase period. a ago

our increased year in dividend annual every listing rate dividend average the compound of since XXXX at Company’s growing have We X.X%. the a

Yield Aristocrats to proud in are Dividend Index. the be one of We S&P High REITs only five

XXXX with our XX.X% XXXX. XXXX. wrap of up, payout lowest performance we ratio in remain are XXXX ratio optimistic for and company’s was payout pleased it since Our AFFO our To

to and acquisitions all up contributing like portfolio, At growth sheet, pipeline it risk-adjusted favorable Operator? this open shareholders. balance healthy, estate would questions. to time, earnings for for real our Our remain I

Operator

from of Merrill [Operator with you. first Dennerlein we Lynch. question Thank our will And Bank Instructions] America take Joshua

Joshua Dennerlein

been expired nature question in Did anything that or year the was ‘XX? up beyond? for you is of renewals. yet? lease early lease that renewal My have ‘XX this What you what's then, renew haven't renewals might renewed on in And

John Case

great that’s Yes, Josh. question

over. roll years consistently of have got We front lease proactively our in future

of XX% XXXX address the So able rolling we last more XXXX. year to were than leases during

our we significant average were didn’t we did properties tenants, above have releasing that had the XXXX We address a good have that of on really to sizable able XX recapture in in activity rates. amongst So expire fairly some lot leased achieving portfolios activity we set we XXXX. to XXXX but in top were

owned One we ranging and and add the of above and portfolio. year. substantial Bank were assets maturities those of the XX were release to to able and to the XX XXXX during were was assets to XXXX rental our leased XXXX XXXX from We PNC those that our also recapture for from Bank average term PNC PNC we to rates to able well leases to XX extending

rollovers remaining here we’re So always working we have and on XXXX. today that leased something the and leased we as sit XXXX XXXX we’ve including for rollovers done

Operator

with Vikram Morgan next Stanley. go And Malhotra to we’ll

Vikram Malhotra

your year bit a like acquisition the was above expectations. for little seems It guidance

in You’ve you us of no have markets cooperate? can if that, there just a something may that sense could mentioned is but there you identified? unidentified related large the don’t equity you there, take And is leverage say where to portfolio give

John Case

at that the year. year The acquisitions. we $X.XX with recall is up the we highest year as this executed Sure. point, of acquisitions for we predicting in estimate with we billion Last came and at in you acquisitions were juncture come up $X billion this may this

So we’re optimistic.

think We’re conditions side the and $X.X good and on seeing right flow the $X market acquisition range billion to transaction we billion. as current the

flow a then of growth conservatively we on from balance have have line proceeds sources do our some debt so credit acquisitions sales our to including that of asset retained fund help we acquisitions us also growth. today sheet have to $X.X cash the number fund do a proceeds capitalized capacity. We we billion have as We available and of well capital have

it we growth fund not and something share prefer it do. could to we have accretive While to today’s price in be

sector but I one that something do actually think we say few of could we’re not to the be prefer that, in would juncture. this reach the at it

Vikram Malhotra

that all just second NOI calculation then properties. you And provide question, same-store the including

Just get sense for so we and curious has of how calculation that XX trended? have you that a XX number say just done

Paul Meurer

consistent. have been we and it’s Yes, relatively

look was me XXXX these. So, at it’s at it and so X.X%. about let at Yes, in XXXX right was it right X% about in

to continue question I And range. consistent to more So so I we've failed to it looked was in your remained at or comfortable first it's I something we think answer this less pretty and remain this will in think going leverage. back are terms of

very Single cost ratings BBB+ are business. much in or of to committed positive a that our to the ratings, from We is very capital ratings because want attractive with S&P, those our comes we so and preserve with Moody's along those BBB+ helps AX outlook current debt there a

Operator

Joseph with And to Nick next will Citi. go

Nick Joseph

attractive do to below investment versus opportunities. Thanks. John, an your comments considerably just is your spread you investment coming view back on how for equity equity issuing about to with consensus issuance NAV or balancing the NAV think relative

John Case

said a we prices we to that pressure sources that growth these these and I accretively some multiple issue been prices. prices to to values. I'll that of could equity we due have at lower at ago fund like issue not in under economic prices to equity go fund than obviously again sector of we moment with capital while has prefer some growth our what would terms factors macro Well, back higher equity But

and that. So have necessarily to don’t will do believe we

Unidentified Analyst

secondly the you cap Thanks. recent think the interest move moved they stabilize it's rates or volume just and X% adjustment market cap rates already the fast rise then any move just around in maybe would haven't given deal if reach more to And to do delivery then on transaction maybe already. its of broadly rates given and

John Case

changes albeit so over relatively they times Yes, the yield. year in significant rates we've basis minute-by-minute XX cap that a always a like and following seen securities our treasury capital the their life carriers of are lag, on cost not with or

with to tend or cap run, the a cost rates for of capital a are. may over quarter to where say were unchanged rates discussions there higher than entertain to longer even quarter two capital to cost so it the of take were much however catch-up more in while I transactions where cap today, rates for and last willingness having our three cap pretty that are have fourth the XXXX. the and rates is of that So sellers would they in or at year negotiations cap will been follow

beginning were costs elevated. the seeing movement that we year, throughout see and capital remain if were would perhaps occurring in to So expect of the to it

Operator

Karin Ford go MUFG And with to will Securities. next we

Karin Ford

morning. good Hi,

the here. want clear. on follow-up having are just discussion be to capital Just to we John

you do cash fund think guidance that flow capacity, ATM and/or no fully enough you you So debt excess with issuance? could proceeds have today disposition your

John Case

depends think to all around on sales. that’s on XXX but million. the we’re we The XXX it we XXX asset cash guiding million, CapEx asset retained I level could front to is Well of fixed the after almost tweak, year last flow million something sales XX million, but did pretty

and share So conservative it today’s we’re within the could given we capacity could if not fortunate leverage at could, nature the then price, I at would to I sheet of given today but see, the I prefer at will price to have additional levels. and that look could. mean today’s again but have invest it the some get we think current to us we that we accretively think range? balance and

Karin Ford

evolution may continuing credit consolidation XXXX. given on performance did about on really second that. this for this But for consider year? great your occupancy what’s your steady, you conservative been for going My in has your up just example, closures portfolio to thanks been is and question a point. taking Okay, considering more the core No potential both approach alike, has in expectations? base store For of be your with disintermediation tenant expectations

John Case

resilient portfolio impact Well at of the e-commerce given and its has more our the we looked been to entire portfolio nature.

occur price this and did are for any credit We this plan are that our hearing for credit or analysis orientation accounted service our are what portfolio. the non-discretionary point as to in tenant not baked within low point, we would our and we expecting preparing And are those guidance. it, not we of having issues would material year, we we into XXXX tenant issues but believe at

Operator

to go will we next James. And Mings Raymond Collin with

Collin Mings

Thanks. Good afternoon.

from disposition just front flexibility back thing the me, like specific upon from the depending going markets. guide you highlight a question initial to just deceleration year, material year? on driving the First suggesting capital Any this last

John Case

Well an investment outperformance. We accounting proceeds. our building office Office million two last a philosophy. sell year for XX was not able bit strategic about were of to to in is

So been see and that can our you trending we numbers. that in down had

we a needed was it normal. side disposition from But program can higher So to. a flex if bit than we that’s the

if levels certainly we’re you of capital perspective dispositions as still exceeded numbers. price know could was management the So as guiding typically right our through $XXX shares, to we’ve dispositions and we side. the those we and the through asset do evaluation from and more in now, that disposition team issuing But increase access appealing on $XX could million million to all

Collin Mings

maybe expand during just to upon the acquisition Okay. as the as far increased the Wal-Mart? And quarter exposure then activity well during as maybe the just can industrial acquisitions quarter, as you

Paul Meurer

in investment the investments relationship have very into lease in in of that were were high existing was did quality of of large we acquisitions types XX% and the that acquisitions quarter in investment quarter we fourth pricing percentage and group for think properties had of the We a made and we the pleased industrial the lease of about also grade high grade reflected we rated work I portfolio. a to terms closed transactions, had Yes. to to tenants cap the these tenants, fourth that

Operator

Fargo. next we’ll And go with Todd to Wells Stender

Todd Stender

thanks. Hi,

tenant, are Just couple rent the to if Sam they lease you guys rated I stick acquire Clubs. were CDS but any on terms wondered there the investment escalators, and Wal-Mart are flat? Wal-Mart its theme grade like What a

Paul Meurer

escalators about lease our on portfolio. of on we have that XX% Wal-Marts, Well Yes.

brick-and-mortar omni-channel picked have incorporating operating we market you So up neighborhood a the well those in the in markets the and those and share primary fourth quarter markets they there Wal-Mart been neighborhood their building. very are and that was obviously platforms and XX% initiatives e-commerce national strategy, in exposure with associating have that the the

with been pleased well have performing are they quite we and So that.

Todd Stender

much And lease stuff? left the on is that how of

Paul Meurer

they are term around years. Wal-Mart to think entire somewhere I overall, years. for XX that lease particular the our segment exposure is On XX weighted XX average

Todd Stender

for Thanks level to of updated an just also but been internet acquired then sort there? any items ship long Stores, you there willing it’s of And you comments Dollar resistant thoughts then space, Dollar any some headlines Amazon see that.

Paul Meurer

years you just consecutive the had Stores Dollar us experienced then Family as same-store same-store XX for Todd. Dollar Tree of of non-consecutive has and experienced have Dollar growth. the run six, over years Well, a generally growth home Dollar know, here last seven and years

shop produce to likely or The basket they immediately So do any maybe largely to a typically often counts $XX of needed is are dinner size are they use that for they internet pressures, of night. their despite buying small internet quite their quarter they butter pressures and milk are that products areas, some or cash, because continue $XX in insulated are customers less rural to average from online. customers well are

trying any given rule and impact national seeing the we're from these businesses. challenges effectively just cost this on some to locations player more of smaller and juncture and So efficiently deliver in not of their e-commerce large a at

performed relevant we're there, don’t So overall a well I bit, in that raise us. it on material so exposure up but way, our a might to because additional some will basis creep a it's for pleased making with we investments little industry think

Operator

will Ladenburg with Massocca John Thalmann. to And next go

John Massocca

Good to portfolio CPI? what percent of escalators percent on based today rent it escalators has and talk what about your with you regards afternoon. has but no Can Wal-mart

John Case

of escalators CPI Yes, XX% the so escalators I have leases. say around would XX% are fall and XX% somewhere about to rent XX%

John Massocca

the regards merger opportunity with Aid that sense. an the that thoughts any might effects to be then how And there credit for you acquisitions? Albertson's Okay so additional think that Rite makes

John Case

Rite I Aid those will don’t we view in and more selling but has go announcement and the any exposure to companies seen properties as to stores XX to material owns Yes, and as and discussions it a it's another be more synergies to you Aid create well John, with exposure their Rite really and we to CDS. know we've and it X,XXX now, such customers business. Rite Walgreens expand But rolling Walgreens. Aid Albertson's would businesses it positively, our those in that able for have any Rite top out the XX plans throughout Walgreens is think of Aid making the expect been going seven savings its PBM by seven of business to Albertson's PBM while accessing our going competitive to the

at Albertson's So able has will very foods to addition access been that to Aid the food successful in label be Rite private improve service and having prepared their selling. offerings

a consolidation captive stronger efficient more Walgreens companies industry to really compete horizontal against it within also seeing gives peers scale, makes give And as and that of are like the potential sector And entrants. in consolidation a Aid industry just customers. drugstore So industry. existing think it synergies and additional new we that some vertical better both and creates that and size, lot Rite and significant players CVS drugstore we their

So that’s the key.

that we view quite So positively.

Operator

to remarks. Case I call. turn concluding conference Income’s Realty call of portion question-and-answer over the for now the to would concludes like John This Instructions]. [Operator

John Case

various everyone have to we and everyone Thanks, call the over joining today. and David good you seeing and Okay. for at afternoon. the forward for appreciate I in next conferences participating weeks the us a few next Well. look thank

Operator

participation. today’s We conclude your thank for And that does you conference.

You may now disconnect.

Realty Income (O) 22 Feb 182017 Q4 Earnings call transcript