ESCONDIDO, Calif., Oct. 26 /PRNewswire/ -- Realty Income Corporation
(Realty Income), "The Monthly Dividend Company," (NYSE: O) today announced
operating results for the third quarter and nine months ended September 30,
2000.
COMPANY HIGHLIGHTS:
(for the nine months ended September 30, 2000)
-- The monthly dividend amount was increased for the 12th consecutive
quarter
-- Annualized dividends increased 3.5% from September 30, 1999 to
September 30, 2000, to an annualized amount of $2.21 per share
-- Revenue increased 14.4% to $86.7 million
-- Funds from Operations (FFO) increased 2.1% to $49.4 million
-- FFO per common share increased 2.8% to $1.85
-- Crest Net Lease, Realty Income's new subsidiary company, achieved
profitability
-- Realty Income repurchased 260,900 shares of its securities for
$5.6 million
Financial Results
Revenue Increases
Realty Income's revenue for the third quarter ended September 30, 2000
increased 11.2% to $29.9 million as compared to $26.9 million for the same
quarter ended September 30, 1999.
Revenue for the nine months ended September 30, 2000 increased 14.4% to
$86.7 million from $75.8 million for the same period in 1999.
Funds from Operations
FFO for the quarter ended September 30, 2000 increased 1.2% to
$16.6 million as compared to $16.4 million for the same quarter in 1999. On a
diluted per common share basis, FFO increased 1.6% to $0.62 per share compared
to $0.61 per share for the same period in 1999.
FFO for the nine months ended September 30, 2000 increased 2.1% to
$49.4 million as compared to $48.4 million for the same period one year ago.
On a diluted per common share basis, FFO increased 2.8% to $1.85 per share
from $1.80 per share for the same period in 1999.
FFO is a widely used measure of REIT performance that excludes non-cash
charges for the depreciation of real estate. FFO is one measure of a
company's cash flow and of its ability to pay dividends.
Dividend Information
On September 14, 2000, Realty Income announced the 12th consecutive
quarterly increase in the amount of the monthly dividend on its common stock.
This marked the 14th increase in the amount of the dividend since 1994. The
amount of the dividend was increased to $0.1838 per share from $0.1825 per
share for an annualized dividend amount of $2.21 per share.
Through September 30, 2000, Realty Income paid nine monthly dividends
totaling $1.631 per common share. The Company continues its 31-year policy of
declaring and paying common stock dividends on a monthly rather than a
quarterly basis.
Realty Income also paid nine monthly dividends totaling $1.781 per share
on its Class C preferred stock and three quarterly dividends totaling
$1.758 per share on its Class B preferred stock.
Net Income Available to Common Stockholders
Net income available to common stockholders for the quarter ended
September 30, 2000 decreased to $9.9 million as compared to $11.0 million for
the same period in 1999. On a diluted per common share basis, net income
decreased to $0.37 per share as compared to $0.41 per share for the three
months ended September 30, 1999. The calculation to determine net income
includes gains from the sale of investment properties. The amount of gain
varies from quarter to quarter based on the timing of property sales and can
significantly impact net income. The gain recognized from the sales of
property held for investment during the third quarter of 1999 was $0.04 per
share greater than the gain recognized during the same quarter in 2000. This
difference accounted for the decline in third quarter net income per share in
2000.
Net income available to common stockholders for the nine months ended
September 30, 2000 increased to $30.8 million as compared to $30.7 million for
the same period in 1999. On a diluted per common share basis, this
represented an increase to $1.15 per share as compared to $1.14 per share for
the same period one year ago.
Share Repurchase Activity
On an ongoing basis, Realty Income regularly reviews its investment
options to determine the best use of its capital. At certain times during the
third quarter, the Company's share price justified repurchasing shares since
this provided the highest return on its capital. During the three months
ended September 30, 2000 the Company invested $1.5 million to repurchase of
65,600 shares of its common stock at an average price of $22.86 per share and
an estimated FFO yield of approximately 11%.
During the nine months ended September 30, 2000, Realty Income had
repurchased 246,600 shares of common stock at an average price of $21.70 per
share and an estimated FFO yield of approximately 11.6% per share. The
Company also repurchased 14,300 shares of its Class B preferred stock at an
average price of $19.27 per share and a yield of 12.16% per share. The total
investment in Realty Income shares during the first nine months of 2000 was
$5.6 million. The Company used excess cash flow, after the payment of
dividends, to repurchase shares of the Company's securities.
Real Estate Portfolio Update
As of September 30, 2000 Realty Income's portfolio of freestanding,
single-tenant retail properties consisted of 1,078 properties located in
46 states, leased to 74 retail chains doing business in 23 retail industries.
Portfolio Management Activities
The Company's portfolio of retail real estate properties owned under
10- to 20-year net leases continues to perform well and provide dependable
lease revenue supporting the payment of monthly dividends. As of September
30, 2000, portfolio occupancy was 97.3% and 29 of the 1,078 properties were
available for lease.
Same store rents on the 901 properties under lease during the three months
ended September 30, 2000 and 1999 increased 1.8% to $22.9 million from
$22.5 million in 1999. Same store rents on the same 901 properties under
lease during the nine months ended September 30, 2000 and 1999 increased 1.2%
to $68.1 million compared to $67.3 million in 1999.
Many of the Company's leases call for rent increases every five years.
Over the past 4 years Realty Income has acquired approximately $596 million in
new properties that now represent approximately 53% of the Company's total
portfolio. These properties are due to generate their initial rent increases
from 2003 to 2006. As such, the Company believes its same store rent growth
is likely to accelerate with the onset of rent increases for the newer
properties over the next few years.
During the third quarter, Realty Income made excellent progress in the
re-lease of 21 properties formerly occupied by Flooring America. At the end
of the second quarter the Company became aware of the financial difficulties
being experienced by Flooring America and set in motion a plan to re-tenant
the properties that would become vacant during the third quarter. As of
September 30, 2000, transactions were underway or completed on twelve of the
21 properties, which leaves Realty Income with just nine properties remaining
to be re-leased or sold. The Flooring America stores are generally in
excellent retail locations that lend themselves to a wide variety of retail
uses. In addition, the rents that had previously been received on these
properties were mainly at prevailing market rents. The Company believes it
will complete the re-tenanting of the remaining nine properties during the
first quarter of 2001 and will ultimately recapture 93% of the lease revenue
previously derived from Flooring America.
Commenting on Realty Income's financial results and real estate
operations, Tom A. Lewis, Chief Executive Officer, stated, "We are generally
satisfied with the third quarter and year-to-date results. The continued
growth in our funds from operations has been somewhat moderated by rising
interest rates and the Flooring America vacancies. While we will achieve
increases in both funds from operations and dividends this year, we believe
that the Company's ongoing FFO growth should generally exceed the rate of
growth for 2000. In addition, given the rapid re-tenanting of the Flooring
America properties and the recent moderation in interest rates, we believe the
impact of these two items will be limited to this year's operations. We are
pleased that lease revenues in our core portfolio continue to increase,
benefiting from the substantial growth in the size of the portfolio over the
past several years. This revenue growth is responsible for the solid cash
flow coverage and dependability of the Company's monthly dividend payments."
Property Dispositions
The Company made progress in its asset disposition program during the
first nine months of 2000. The objective of the program is to sell assets
when the Company believes the reinvestment of the sales proceeds will generate
higher returns or enhance the credit quality of the Company's real estate
portfolio.
During the third quarter, Realty Income sold three properties for
$2.2 million. Through September 30, 2000, Realty Income sold nine properties
for $5.8 million. The Company anticipates approximately $20.0 million in
property sales through the end of 2000 and up to $50 million in property sales
during 2001.
Property Acquisitions
During the third quarter, Realty Income invested $28.0 million in eight
new properties and properties under development with an initial contractual
yield of 10.9%. For the nine months ended September 30, 2000, the Company had
invested $44.8 million in 11 new properties and properties under development
with an initial contractual lease yield of 10.8%. The new properties are
100% leased with an initial average lease length of 18.2 years. The Company
used the proceeds from the sale of properties and borrowings under its
acquisition credit facility to acquire additional properties.
During the third quarter, Realty Income acquired eight parcels of land
located in seven different states. Each parcel of land is leased to Regal
Cinemas under a long-term (20-year) triple-net lease and Regal owns and
operates a state-of-the art, stadium-seating theater on each of these
locations. The parcels of land are approximately 4.9 million square feet
(113 acres) and are prime retail locations. The total amount invested by
Realty Income in the parcels of land was $25.5 million or $5.20 per square
foot ($226,000 per acre). The Company's purchase of the land represents
approximately 35% of the total original investment in the land and buildings
by Regal Cinemas.
Regal Cinemas is the largest theater operator in the United States with
418 theaters, 4,472 screens in 32 states. In recent years Regal has been
building newer, stadium-seating, megaplex theaters with numerous amenities
that have proven to be preferred by the movie-going public. The theaters
Regal owns and operates, on the parcels of land acquired by Realty Income, are
these newer theaters. They are also among the leading theaters, as measured
by ticket sales, in their respective markets, with each of the theaters being
among the top 15% in ticket sales in their market over the last 12 months.
Additionally, the average theater cash flow coverage of the land lease
payments due to Realty Income, based on individual theater financial
performance, is an extremely high 5.6 times.
Commenting on the transaction, Tom A. Lewis, Chief Executive Officer
stated, "We are pleased to be able to provide this financing to Regal Cinemas
during this turbulent time in the theater industry. By acquiring only the
land under Regal's top performing, very profitable, seasoned megaplex
theaters, we believe we have structured an extremely secure and profitable
transaction for our shareholders.
"We have been actively researching the theater exhibition industry and
have analyzed hundreds of theater transactions over the past five years. We
have followed the industry's move to stadium-seating, megaplex theaters
closely and have monitored the negative impact these theaters have had on the
older, less modern, existing theaters. By structuring a transaction with only
newer, proven theaters, and acquiring only the land under the theaters, we
were able to provide the industry's largest company with the capital it needed
to continue to transition its business towards the more modern theaters."
Amy Miles, Chief Financial Officer of Regal Cinemas, also commented on the
transaction, "The theaters located on the land that Realty Income purchased
are among the most profitable in our chain of 418 theaters. They are new,
state-of-the-art, megaplex theaters featuring stadium seating and at least
13 screens per theater. We are pleased to have been able to come to terms
with Realty Income on locations that we both believe will be mutually
profitable throughout the life of our agreement."
The Company also announced that it exchanged two theater properties it had
owned for two theaters held in Regal's portfolio. The properties previously
owned were two newly built theaters that were early in their business
development cycle. The two properties Realty Income acquired in the exchange
were more mature, highly profitable, megaplex theaters.
With the acquisition of the eight parcels of land and the exchange of two
existing theater locations, Realty Income now derives 4.4% of its annual
revenues from the theater industry. Given the structure of the transactions,
the store level profitability and cash flow coverage ratios of the individual
properties, it is the Company's opinion that rental income from these
properties should remain very stable during this trying time in the theater
industry.
Market Overview
Realty Income's acquisition opportunities and the market for freestanding,
net-lease retail properties remains strong. The Company has access to
excellent real estate acquisition opportunities at attractive lease yields.
While the market for acquisitions remains strong, the Company does not feel
that the capital markets are currently attractive for the issuance of
additional common stock, preferred stock or bonds to fund acquisitions.
Further, the Company remains dedicated to maintaining a conservative balance
sheet. As such, Realty Income anticipates that internally generated cash flow
and the proceeds from property dispositions will be the primary source of
funds to generate the growth of its real estate portfolio in the near future.
The Company also maintains acquisition credit facilities which are used from
time to time to fund acquisitions. The outstanding balances of the credit
facilities at the end of the third quarter were $186.3 million. It is
anticipated that during the fourth quarter, proceeds from property
dispositions will be used to pay down these outstanding balances.
Other Activities
Crest Net Lease
During the third quarter, Crest Net Lease Inc., a subsidiary formed in
early 2000 to actively buy and sell properties, achieved profitability and
sold its first property. Year-to-date Crest Net Lease, Inc.'s net
contribution to Realty Income's Funds From Operations is $0.01 per share.
The amount of the contribution to Realty Income's FFO by the subsidiary
will be dependent on the timing and the number of property sales achieved, if
any, in any given quarter. At the end of the third quarter, the subsidiary
carried an inventory of $23.9 million in property held for sale. Management
believes that Crest Net Lease, Inc. will carry an average inventory of
$25 million in property on an ongoing basis. The subsidiary generates
earnings on the differential between the lease payments it receives on the
properties it holds in inventory and the cost of the capital used to acquire
the properties. It is management's belief that at this level of inventory,
these earnings will generate a modest profit for Crest Net Lease on an ongoing
basis regardless of the level of property sales in any given quarter.
Earnings Commentary
Realty Income's funds from operations tend to be stable and fairly
predictable because of the long-term leases that are the primary source of the
Company's revenue. There are, however, several factors that can impact FFO.
These include, changes in interest rates which may impact credit costs,
increases in vacancies which can impact lease revenue, accessing the capital
markets with the associated securities issuance costs, the level of
acquisitions, sales of properties, and the operations of Crest Net Lease.
Forward-Looking Statements
Statements in this press release, which are not strictly historical, are
"forward-looking" statements. Forward-looking statements involve known and
unknown risks, which may cause the Company's actual results in the future to
differ materially from expected results. These risks include, among others,
general economic conditions, local real estate conditions, the availability of
capital to finance planned growth, the profitability of the Company's
subsidiary, Crest Net Lease, and how quickly the Company can re-lease its
Flooring America properties and at what lease rates, as described in the
Company's filings with the Securities and Exchange Commission. Consequently,
such forward-looking statements should be regarded solely as reflections of
the Company's current operating plans and estimates. Actual operating results
may differ materially from what is expressed or forecast in this press
release.
Realty Income is "The Monthly Dividend Company," a New York Stock Exchange
real estate company dedicated to providing shareholders with dependable
monthly income. The monthly income is supported by the cash flows from
1,078 retail properties owned under long-term lease agreements with leading
regional and national retail chains. The Company is an active buyer of
net-leased retail properties nationwide.
Note to Editors:
Realty Income press releases are available at no charge by calling our
toll-free investor hotline number: 888-811-2001, or through the internet at
http://www.realtyincome.com/Investing/News.html
CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30, 2000 and 1999
(dollars in thousands, except per share amounts)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
9/30/00 9/30/99 9/30/00 9/30/99
REVENUE
Rental $29,180 $26,870 $85,859 $75,682
Gain on sale of real
estate held for resale 558 -- 558 --
Interest and other 147 30 264 106
29,885 26,900 86,681 75,788
EXPENSES
Interest 8,184 6,100 22,813 18,025
Depreciation and
amortization 6,913 6,660 20,505 18,987
General and
administrative 1,863 1,754 5,358 5,155
Property 536 478 1,517 1,356
Other 269 -- 193 --
17,765 14,992 50,386 43,523
Income from operations 12,120 11,908 36,295 32,265
Gain on sales of
investment properties 231 1,236 1,831 1,236
Net income 12,351 13,144 38,126 33,501
Preferred
stock dividends (2,428) (2,163) (7,284) (2,792)
Net income available
to common stockholders $9,923 $10,981 $30,842 $30,709
Funds from
operations (FFO) $16,574 $16,380 $49,417 $48,391
Basic and diluted per
share information
for common
stockholders:
Income from
operations $0.36 $0.36 $1.09 $1.10
Net income 0.37 0.41 1.15 1.14
FFO 0.62 0.61 1.85 1.80
Cash dividends paid 0.548 0.525 1.631 1.553
Weighted average
number of common
shares used for:
Basic per share
computation 26,649,315 26,822,244 26,722,408 26,822,323
Diluted per share
computation 26,671,473 26,827,291 26,736,160 26,826,405
FUNDS FROM OPERATIONS
(dollars in thousands)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
9/30/00 9/30/99 9/30/00 9/30/99
Net income available
to common
stockholders $9,923 $10,981 $30,842 $30,709
Plus depreciation
and amortization 6,913 6,660 20,505 18,987
Less:
Depreciation of
furniture, fixtures
and equipment (31) (25) (99) (69)
Gain on sales of
investment properties (231) (1,236) (1,831) (1,236)
Funds from operations $16,574 $16,380 $49,417 $48,391
Dividends paid to
common stockholders $14,594 $14,082 $43,612 $41,642
FFO in excess of
dividends $1,980 $2,298 $5,805 $6,749
Basic and diluted
FFO per common share $0.62 $0.61 $1.85 $1.80
CONSOLIDATED BALANCE SHEETS
As of September 30, 2000 and December 31, 1999
(dollars in thousands, except per share data)
2000 1999
ASSETS
Real estate, at cost:
Land $363,587 $338,489
Buildings and improvements 692,122 678,763
1,055,709 1,017,252
Less accumulated depreciation
and amortization (196,407) (179,421)
Net real estate held for investment 859,302 837,831
Real estate held for sale, net 52,718 29,262
Net real estate 912,020 867,093
Cash and cash equivalents 5,297 773
Accounts receivable 3,558 3,407
Goodwill, net 18,360 19,053
Other assets 13,794 15,078
Total assets $953,029 $905,404
LIABILITIES AND STOCKHOLDERS' EQUITY
Distributions payable $6,770 $4,828
Accounts payable and accrued expenses 8,194 12,792
Other liabilities 4,883 3,753
Lines of credit payable 186,300 119,200
Notes payable 230,000 230,000
Total liabilities 436,147 370,573
Stockholders' equity:
Preferred stock and paid in capital, par value
$1.00 per share, 20,000,000 shares authorized,
4,125,700 and 4,140,000 shares issued and
outstanding in 2000 and 1999, respectively 99,368 99,679
Common stock and paid in capital, par value
$1.00 per share, 100,000,000 shares
authorized, 26,601,419 and 26,822,164 shares
issued and outstanding in 2000 and 1999,
respectively 631,802 636,611
Distributions in excess of net income (214,288) (201,459)
Total stockholders' equity 516,882 534,831
Total liabilities and stockholders' equity $953,029 $905,404
The following table sets forth certain information regarding our
properties classified according to the business of the respective tenants
(dollars in thousands):
Annualized (1) (2)
Rent as of September 30, 2000
Rental Percentage Percentage of Total Revenue
Industry Revenue of Total 1999 1998 1997
Apparel Stores $2,799 2.4% 3.8% 4.1% 0.7%
Automotive Parts 10,147 8.6 8.6 7.8 9.1
Automotive Service 6,806 5.8 6.6 7.5 6.4
Book Stores 572 0.5 0.5 0.6 0.5
Business Services 124 0.1 0.1 * --
Child Care 28,589 24.1 25.3 29.2 35.9
Consumer Electronics 5,859 4.9 4.4 5.4 6.5
Convenience Stores 9,815 8.3 7.2 6.1 5.5
Crafts & Novelties 425 0.4 0.4 * --
Drug Stores 235 0.2 0.2 0.1 --
Entertainment 2,293 1.9 1.2 -- --
General Merchandise 687 0.6 0.6 * --
Grocery Stores 719 0.6 0.5 * --
Health & Fitness 3,940 3.3 0.6 0.1 --
Home Furnishings 6,641 5.6 6.5 7.8 5.6
Home Improvement 1,648 1.4 3.6 * --
Office Supplies 2,476 2.1 2.6 3.0 1.7
Pet Supplies
& Services 1,697 1.4 1.1 0.6 0.2
Private Education 1,703 1.4 1.2 0.9 --
Restaurants 14,177 12.0 13.3 16.2 19.8
Shoe Stores 890 0.7 1.1 0.8 0.2
Theaters 5,209 4.4 0.6 -- --
Video Rental 4,510 3.8 4.3 3.8 0.6
Other 6,492 5.5 5.7 6.0 7.3
Totals $118,453 100.0% 100.0% 100.0% 100.0%
* Less than 0.1%
(1) Annualized Rent is calculated by multiplying the monthly contractual
base rent as of September 30, 2000 for each of the properties by 12,
and adding the previous twelve 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) The table does not include the properties owned and held for sale by
the company's subsidiary, Crest Net Lease. These properties
represent 2.2% of the combined total revenue generated by Realty
Income and Crest Net Lease.
The following table sets forth certain information regarding our
properties as of September 30, 2000, classified according to the retail
business types and the level of services they provide (dollars in thousands):
Number of Annualized Percentage of
Industry Properties Rent (1) (2) Annualized
Rent
TENANTS PROVIDING SERVICES
Automotive Service 101 $6,806 5.8%
Child Care 336 28,589 24.1
Entertainment 6 2,293 1.9
Health & Fitness 7 3,940 3.3
Private Education 6 1,703 1.4
Theaters 10 5,209 4.4
Other 10 6,492 5.5
476 55,032 46.4
TENANTS SELLING GOODS AND SERVICES
Automotive Parts 63 5,505 4.7
Business Services 1 124 0.1
Convenience Stores 103 9,815 8.3
Home Improvement 19 271 0.2
Pet Supplies & Services 6 1,230 1.0
Restaurants 174 14,177 12.0
Video Rental 35 4,510 3.8
401 35,632 30.1
TENANTS SELLING GOODS
Apparel Stores 4 2,799 2.4
Automotive Parts 79 4,642 3.9
Book Stores 2 572 0.5
Consumer Electronics 38 5,859 4.9
Craft & Novelty 2 425 0.4
Drug Stores 1 235 0.2
General Merchandise 11 687 0.6
Grocery Stores 2 719 0.6
Home Furnishings 35 6,641 5.6
Home Improvement 13 1,377 1.2
Office Supplies 8 2,476 2.1
Pet Supplies 2 467 0.4
Shoe Stores 4 890 0.7
201 27,789 23.5
Totals 1,078 $118,453 100.0%
(1) Annualized Rent is calculated by multiplying the monthly contractual
base rent as of September 30, 2000 for each of the properties by 12,
and adding the previous twelve 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) The table does not include the properties owned and held for sale by
the company's subsidiary, Crest Net Lease. These properties
represent 2.2% of the combined total revenue generated by Realty
Income and Crest Net Lease.
SOURCE Realty Income Corporation
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Related links:
http://www.realtyincome.com
CONTACT:
Tere Miller, Vice President, Corporate
Communications of Realty Income Corporation, 760-741-2111 ext.
177
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