O - Earnings call transcript Q1 2018 | Realty Income Corporation

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Operator

Good day, everyone and welcome to the Realty Income First Quarter 2018 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, ma’am.

Janeen Bedard

Thank you all for joining us today for Realty Income’s first quarter 2018 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 Forms cause disclose will such XX-Q. 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 the Thanks, pleased our another We're today. to year welcome begin and successful to call with quarter.

million now generated acquisitions During high in tenants. the grade first over of was revenue quality and quarter, from rental investment our rated $XXX invested XX% property we

of is Our occupancy consecutive is quarter positive our highest which focus in years. quarter on reached occupancy, in XX quality our our portfolio $X.XX, seventh XX.X%, while confident represents than spreads achieving business share We the released. occupancy also to en of reflected properties of We in on X% about more level, this per are X%. remain AFFO $X.XX reiterating outlook and for growth our recapture annual to XXXX guidance our which

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

Paul Meurer

when results for despite the comparative stock. Series expense largely starting quarter will I in the redemption of preferred we a items quarter, the highlights our our in for the preferred we was million the John. to outstanding provide dividend financial the few This higher balance. Thanks, due flat announced Interest debt income a a year with was ago quarter F expense recognized statement. $X.X in

expense. larger interest this of the has effect the quarter, decreasing recognized gain swap which rate interest we Additionally,

a X.X% was percentage for rental and of Our G&A, quarter. the as total other revenues,

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

and the property and non-reimbursable other expenses, the non-reimbursable rental quarter FFO that XX.X% X.X% of to of the the of from of share quarter last first property was for XXXX. the related total X.X% remain to we redemption expect $X.XX preferred in revenues, Our expenses $XX.X charge or to per increase over operations quarter, in Series XXXX. was million representing for our as the a range X% stock. Funds percentage in first year, we F recognized a Note non-cash early quarter

balance average borrowings does or definitions. weighted the the As operations of of was our Adjusted nearly approximately cash longer XXXX. yield years, is at or a was had per offering, as FFO dividends, bond $X.XX The schedule April, share $XXX rate for our available no nicely X.X maturity it debt which offering fixed our the we X.X% start from X.XX%. for and the our follow for years the issued facility maturity we've as a bonds bond forma Pro than XXXX. NAREIT at our continued other FFO distribution fit they us turning term redefined also our on in maturities unsecured out revolving to in structure. is reported funds AFFO maintain to allowed credit three we sheet, we of a capital increase. seven-year Briefly reminder, quarter, the In representing early actual the in million have conservative to

schedule and due million year latter only maturity very schedule with of our overall our is $XX the of debt XXXX outside well coming than and this Our remainder less coming shape thereafter. million of excellent debt due in revolver remains maturity $XX in

modest. remains leverage overall Our

at X.X our pro first of quarter X.X and is remains acquisitions, our fixed times impact the annualized times. currently healthy forma to debt Our charge EBITDA, assuming coverage

we in excellent have to leverage, continue and So, coverage strong summary, liquidity low metrics.

over Now, turn John. call back to let the me

John Case

of Paul. begin well. to continues which an perform overview the portfolio, with Thanks, I’ll

based I versus As period. the of year occupancy an increase earlier, XX the of mentioned number ago XX.X%, on properties basis points was

north to XXXX. XX% just expect We for of occupancy be

re-leased the expiring, recapturing properties, over our During that expiring our Since were which the listing XXXX, those of of XXXX rent, consistent average. XX XXX% rent nearly properties quarter, long-term re-leased. or properties re-leased have in with we we just is on with XXX% leases sold recapturing

meet longer to to sell Going that continue dispositions, criteria. properties we selectively our no investment

of sold IRR X.X% of million non-strategic we cap an leased achieving and $XX of X.X%. sales assets, quarter, the unlevered During or property a rate

to from $XX for dispositions We’re million million our increasing for $XXX $XXX million to in approximately estimate XXXX.

increased Our same XX% run is rent the to Approximately continue rate which of leases our for with during store projected XXXX. contractual X% quarter, revenue consistent have rental our increases.

properties these pleased largest XX of to in stability geography at which Walgreens e-commerce point property the retail component our portfolio economic properties. of our have was continues a possess and/or continues other traditional not have with rental relative our been rental our and characteristics component that quarter, first US had our our low located largest service, by which in Rico. of well, XX% remains tenant today's to portfolio, the our non-discretionary characteristics. compete be extent more tenant in perform which Within challenges rental XX.X% and recent The in variety revenue allow to operate states factors with portfolios, is types relevant XX% to the is our industrial revenue. largest where business. effectively of over believe of tenants Puerto vast comes particularly We rental been revenue. XX of to and industries more re-leased retail majority properties These Our commercial significant revenue XXX these flow. the contributes to due different our certain diversified drugstores outside retail portfolio, the in their history, retailer of tenants at We're from of climate with successfully a in and price to of type, At in the industry do to rent of tenants environments. e-commerce to X.X% bankruptcies a quarter, pressures. industries especially at end faced our from XX% cash of retail about retail of strength

credit the weighted have of level X.X investment portfolio’s median on average to tenants. rated over investment portfolio times. highest of our excellent tenants store sound. a is performance generated grade continue quality retail coverage half four while The also is represents rent X.X the in our with properties remains for rental ratio wall in the basis, The retail times We history. annualized our from revenue grade exposure This

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

$XXX completed during X.X% rate. acquisitions at Moving Virtually, million on in cap the all in the to a industries. we quarter C-store QSR acquisitions, and

GAAP our the we rates As We of as opposed rental rates to acquisition disclose as acquisitions quality the higher. first these cap estimate rates. quarter of from X.X% revenue cash cap would rated tenants. cap pleased from investment GAAP is grade about were our with XX% be a reminder, We investments generated

transaction store with in credit and and REIT rent. significant with quarter, fifth net feet completed the tenant, as largest our on pleased convenience and their operator properties of strong to XXXX X.X% of a properties X-Eleven now vintage operate sale off-market first located are S&P about done size, The due this to lease XXXX and density. concentration population provides restaurant store. rating history top relationship. properties is of investment and quick of are within an size basis only This highly global the our trafficked an creating of the X-Eleven During leaseback sale These two-thirds we of We the transaction with markets us reflects was square approximately tenant X-Eleven leaseback are able in without very and the transaction continue issues. who AA-. these a significant for previously benefits service average with the in execute on to convenience concept to excess a newer is representing the afforded is we partnered scale

real rent quality with well the excess rents. our market a to of Overall, term with investment of are continue meet to in we parameters. lease that rents of average pleased portfolio we our addition the transaction, this estate, see growth an In average lined opportunities in of and the years which carries steady structure of with XX flow

the During acquiring opportunities. strategy, X.X billion sourced in of X% We acquisition quarter, sourced. our in we remain investment amount the selective

result the move tenants investment to of the first average Our spreads credit as the properties of of the a strong as quality and costs. high capital higher as the in our well profile historical closer quarter

I'll bit XXXX we hand acquisition our discuss the pipeline investment Given our now. market more to to $X.X over Sumit? billion in strength billion. be in a Sumit in continue to to detail $X acquisitions volume estimate to environment, the it continued current

Sumit Roy

John. you, Thank

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

were opportunity billion continues the Investment the industries of first most in significant to transactions. transactions source X.X in one-off of closed and discrete flow the stores approximately restaurants. first for Transaction or XX% the convenience quarter. XX in XX% the X% and grade healthy acquisitions assets. the first Some first closed service during quick portfolios for are the represented Of quarter, We represented were quarter. XXX one-off million remain XX% opportunities quarter,

high properties essentially high non-investment rate grade rate As quarter. the range. to from properties to X% to from X% grade we’re low around first pricing and trading trading range cap cap cap rates, in Investment X% unchanged X%

first define were spreads under of average healthy, historical investment cost of relative our an year as spreads which less capital initial to first nominal XXX yield, our cost were average the investment weighted capital. spreads. in We averaging quarter, basis cash our average weighted Our points approximately just

cap properties of during John? and unlevered million. forward IRR approximately volume net realized X.X%. mentioned, net achieving conclusion, sold to the million XXX John an we of target In we our revise for of X.X% quarter, XXXX As XX.X of disposition a at look and proceeds XX acquisition cash rate

John Case

the years. credit fund of April to Paul our benefits for reflects sector. lease the which markets We growth recent net to We're our the our monitor to as the of continue the remainder The of well over business. positioned sheet referenced rating having capital the year highest balance offering, pricing result management our in a of bond fund conservative

for dividend bond approximately available billion in $X.X X.X on unsecured XXth notes In increased a weighted credit. have history. XXXX until the line term have no remaining $X have years. our maturities average March, our of we about bonds currently the and We company’s and time of our senior We billion

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

S&P We listing have increased dividend our annual the year company's are growing start REITs our We��re of To Yield be rate dividend Index. a wrap to in every in and XXXX, of only the remain the X.X%. the Dividend Aristocrats one pleased five remainder company's XXXX. it with of proud up, compound for to since year average we at performance High the optimistic

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

Operator

UBS. take our first Yulico with Nick We’ll now Instructions] from [Operator question

Nick Yulico

to question sell? guess bit going guidance you I just little first talk the more looking a a up. disposition Can what about on you're off,

John Case

Sure.

be stores assets Piazzi we're some types, think dining portfolio our million guided and few largely to and and to thing included this types that sell the Just conversations opportunities as led we of we assets There's like guidance, going The closer million in we've they're along, bit in the year the in couple a a other same did a dispositions. dilutive. factored have the goes they're we are non-strategic. but a last but to non-strategic XXX when year, they're that though uncover million, to us year, for year, believe had casual dispositions to to XXX of and we initially non-strategic additional XX even

Nick Yulico

question is second then And on Okay. industrial.

the that talked looking looked happened exposure. previously M&A I'm how wondering that's in at to sector the You've first grow build with as affected, still able quarter that the of you of how ability deals late, make that's your buy pricing see Can to been of where you your us versus there the work to is be industrial? cost capital? pipeline and in was about you much industrial for affecting

John Case

less, basis XX% a we've tick more XX That's seen of and points Yeah. has About in Nick. quarter basis were year continue or though this good the by by rates points. the XX the we transactions question, risen to industrial first industrial XX-year sourced treasury even roughly down properties cap

why for business reinforce billion activity us said, our of we been That does that and properties. quite it that on the have the the regarding acquisitions given were portfolio, part first of being balance of sheet. that it's that's in strength industrial our to grow quarter challenging So just the sector, in under $X views none the

challenging we're capital. cost to these of at our have given be it significantly, pleased to would So current it, pricing but levels, grow

Operator

We’ll move our Karin Ford and from take question Securities. with next MUFG

Karin Ford

talked about You’ve dispositions. investment your you could guidance leverage flow, and cash fund how with capacity

off again sounds good. and/or guidance the How thinking trading like You’re and fast you’re NAV? is using issuance to are the about ATM above it expanding pipeline a here, start now once equity you that

John Case

Well, acquisitions are Karin, the lumpy.

can't at We've to We did extrapolate guidance of for that's XXX XXX quarters them. acquisitions. quarters word one XXX that's and quarter what So we describe to our the change million million. at million to really XXX we've and used

to still billion billion X the year this guiding for We’re X.X to point. at

as we far fund our growth yes, As year. raising, could capital this

is Our great coming estimated growth shape cash to right the balance debt, sheet disposition in proceeds, markets flow routine through equity and the now. without

appropriate capital will makes need we equity the most company. when opportunities, we and form for at raise we sense will to that look the However, form capital, the in all the including use

Karin Ford

real going to deal to aspects M&A earlier with estate prospects GPT’s do respect the anything Do for by the net unique away My back you driven the privatization or week Gramercy you real was second think of is question this take question triple earlier. the generally. that estate industrial

John Case

the a lot types flavor those I the was competition industrial of properties. of We've Well, think day. seen for of

put Gordon we company. frequently Gramercy We I solid have. think we They some them, winning just losing our Gordon, know know, acquisitions. portfolio nice share competed job, did a a property on and good I fair well, together as with

least more the you it's than is that transaction a fact company. Gramercy that Blackstone think I the net driven rather industrial by is

I think question. that addresses your

Operator

we’ll move with next, Joseph on Citi. to Nick And

Michael Bilerman

Bilerman Michael Nick. It’s here with

four relative So load, you’ve base has revenue investors it put grown as year. years this or about and G&A line of in see almost $X what won't should think over capital just, billion you asset I G&A the every if you terms organization, to about, think call your of you last revenues at X% that continue ever within time. so, maybe or run further at of How the to sort consistently out may point leverage G&A

John Case

Yeah.

So, terms percent we with at we've held X%, which have pleased revenues. been of in a of G&A as

for perhaps think hold bit I level foreseeable down you future that? it to we'll Paul, be on to elaborate and bring that want able a the more.

Paul Meurer

Yeah.

G&A Some I position on the enter growth past put years portfolio we've company property continued of significant support necessary we the the additions were systems, as without and over side. expanded personnel new in, of kind personnel the of invested of of couple types think, and good in the and additions us which to

bit ticked where coming, Yes, is curve number that of the down. and occur I that though kind X%. this more feeling we around will and could year term near think we're see leverage still So for a little

Michael Bilerman

Vice organizational Presidents do a think that. be right announcement, with How that CFO, have lease COO, it’s Mark's into Officer, guess a number Executive CIO, for net you CEO, a about President, CSO, of Chief then to I going company? structure I Strategy and and a the feed a think

big pretty get leverage It haven't of company able from a suite Just -- as where I senior their a like been lease recognize a you've company. the that meaningfully. you’re for net heads G&A lot in to grown seems just you

Paul Meurer

positions and comments to in as your you that broaden and efficiency don't to we to it got probably the over don't come and the company. now continue given more time, has We we've why of skill any the critical positions not skillset, company. lowest are hear your down Well, deepen set sector the of the the management right have

place at that of we'll cite be, I’d of full a think peers terms revenues. and following of be Mark’s So level will in any XX% percent are of and where our in the G&A we'll closer most a be executive taking I I as it think, addition, that. I to got our think we've of skillsets with complement care load

Operator

we’ll Next, Fargo. Wells to with on move Belcher Jason

Jason Belcher

Hi.

headline pressures about retail. ask to of this people this that partnering sell was wanted Sears have install to insulated with saw and about car another I most tires, Just retail from well sector morning think Amazon yesterday would it’s fairly online I felt

heard coming you've your line service from the us exposure remind bucket? or something if disruption in parts more to is what anything service just seen your would something is auto and this of wondering auto about the unexpected sort And tenants, this parts they’ve could then down Just that sectors be please? you and the

John Case

Yeah.

are parts of to been then sector, by we've revenues about rental tire And tire that, area service service. that's an automotive tires, automotive with. another the have and our of fine X.X% So services the top in and X% represented on we

from of We and any yet, the of increase in country. is haven't that on but to from clients certainly trend feedback our immediate this that business benefits transaction the like automobile we driven continuing miles a received that's Sears as

those gas and rating very tires, or is vehicles with strong the all an whether company of will TBC a need EDV. Sumitomo leases of So regardless parent for and they're is stands TBC. behind A-

Operator

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

Vikram Malhotra

a the role. time this this bit the just wanted of on Chief new to first Officer. created the I of is Strategy in I terms announced believe position in more dig the sort you've

sector say potentially years, a for maybe bigger viewer to us matter if it looking signal wondering the portfolios over what be exposed next M&A? the give perhaps this or ten does looking at strategy does strategic even would you to role changing a this can and sense different I’m in of maybe his you at So you signal

John Case

We'll be Well, properties $XX become complex it we've with that it position more XX the has our made XXXX to grown level that in to formulating dedicated and background the the position. research it efficient strategy. and billion with doesn't me but think well sit investment change more have and as XX rest very -- to executive in credit be well, I is for this suited industries, and continue and oversee work He'll executive a company the size company to to board the states have continue will effort forward We as it believe a made in Neil’s community process. to a sense different strategy. team, our of strategy going sense a on

a So we're It's successes that the $X.X change glad Investment but increasing and billion XXXX does and role that were we growth to to just Chief had had we've any a do the Neil have not he strategy will given us. and diversification our response company. company we're he signal billion $XX for just had today, of the that well, role, since portfolio Officer in in we've when it in

Vikram Malhotra

of drugstores, have and that be sectors, in terms itself, two just to maybe few concentration convenience sort stores portfolio the do some main over of in just the where now thoughts next of And like you years. the give you'd us

John Case

digit be strong percentage such we're in comfortable as low Well, rent having of sectors range. those double that

have cap XX basis a large did you higher rate, the opportunistically C-stores, some see said, at one-off quarter, acquire for properties, a and we'll being tenants the assets with and a next we very when liquid That in leaseback we those within drugstores around of bids strong transactions see and two what point levels. those that's XX% of market sale rental sell XX would than in those revenues. to market. We're times, be somewhere we industries comfortable So, categories, often

but way comfortable money value, exposure, given a with of good it's we're us So to and drive raise those levels, industries. strength the for manage those

Operator

move on to Next, Thalmann. Ladenburg Massocca with we’ll John

John Massocca

would fact occupied and the to increase speaking, more dispositions Given expect on year the in that and mix to strategic, be disposition expected vacant you what the between the guidance assets? be this maybe generally you

Sumit Roy

I for In do were the us XXX million the XX alluded. in – to assets, get of that XX the see first were a quarter, John in shift to as order vacant. was occupied, it three

occupied We on are and having going a majority assets. discussions be side those are casual dining the to vast of

John Massocca

update a these them? little did leasing And you blast then give XQ past, quick in properties a a of of bit assets, but you it’s can on or the us of Gander XX the sell former in any

John Case

Sure.

nine initially we -- think So I revenues. X.X% and was Ganders less than it they our of owned represented

this So of point, were expiring it the wasn't six at rates XX%, just the we nine, rent. a significant tenant re-leased for three recapture At resolved under us.

then are selling, So with of under in properties have we're with on contract national sold terms three and pleased three the regional we more and in were have discussions remaining then to we those and and sell tenants. leasing

on we're that and with that's far. So so where stand pleased the we outcome

Operator

Realty concluding This concludes I over Income’s turn to of call portion conference. back remarks. the for now the John will question-and-answer Case

John Case

thank weeks Okay. speaking We we and few call. appreciate the in a you. Well, to everyone you Thanks today joining look again joining and for us NAREIT. at with forward ICSC

Operator

our concludes your participation. you This for for call Thank today, you. all Thank everyone. conference

You disconnect. may now

Realty Income (O) 9 May 182018 Q1 Earnings call transcript