Realty Income Announces Operating Results For Second Quarter And First Six Months Of 2018

SAN DIEGO, Aug. 1, 2018 /PRNewswire/ — Realty Income Corporation (Realty Income, NYSE: O), The Monthly Dividend Company^®, today announced operating results for the second quarter and six months ended June 30, 2018. All per share amounts presented in this press release are on a diluted per common share basis unless stated otherwise.

COMPANY HIGHLIGHTS:

For the quarter ended June 30, 2018:

• Net income per share was $0.34
• AFFO per share increased 5.3% to $0.80, compared to the quarter ended June 30, 2017
• Invested $347.0 million in 190 new properties and properties under development or expansion
• Dividends paid per common share increased 4.1%, compared to the quarter ended June 30, 2017

CEO Comments

“We achieved another quarter of positive operating results and remain optimistic about our business prospects for the future,” said John. P. Case, Realty Income’s Chief Executive Officer. “During the second quarter, we invested approximately $347 million in property acquisitions, bringing us to nearly $860 million in high-quality acquisitions completed during the first half of the year. We raised just over $300 million in equity during the quarter to fund our investment activities. Our portfolio continues to perform well, as we ended the quarter with high occupancy levels and healthy re-leasing spreads.”

“Based on the continued strength of our business, we are increasing our 2018 acquisitions guidance to approximately $1.75 billion from our previous guidance range of $1.0 billion to $1.5 billion. We are also raising our 2018 AFFO per share guidance from our previous estimate of $3.14 – $3.20 to $3.16 – $3.21, representing annual growth of 3% – 5%.”

Financial Results

Revenue
Revenue for the quarter ended June 30, 2018 increased 9.6% to $328.9 million, as compared to $300.2 million for the same quarter in 2017. Revenue for the six months ended June 30, 2018 increased 8.2% to $647.2 million, as compared to $598.2 million for the same period in 2017.

Net Income Available to Common Stockholders
Net income available to common stockholders for the quarter ended June 30, 2018 was $96.4 million, as compared to $81.1 million for the same quarter in 2017. Net income per share for the quarter ended June 30, 2018 was $0.34, as compared to $0.30 for the same quarter in 2017.

Net income available to common stockholders for the six months ended June 30, 2018 was $179.5 million, as compared to $152.7 million for the same period in 2017. Net income per share for the six months ended June 30, 2018 was $0.63, as compared to $0.57 for the same period in 2017.

The calculation to determine net income for a real estate company includes impairments, gains on property sales and/or fair value adjustments on interest rate swaps. These items can vary from quarter to quarter and can significantly impact net income and period to period comparisons.

Funds From Operations Available to Common Stockholders (FFO)
FFO for the quarter ended June 30, 2018 increased to $226.1 million, as compared to $203.3 million for the same quarter in 2017. FFO per share for the quarter ended June 30, 2018 increased to $0.79, as compared to $0.75 for the same quarter in 2017.

FFO for the six months ended June 30, 2018 increased to $451.0 million, as compared to $390.5 million for the same period in 2017. FFO per share for the six months ended June 30, 2018 increased to $1.58, as compared to $1.46 for the same period in 2017.

Adjusted Funds From Operations Available to Common Stockholders (AFFO)
AFFO for the quarter ended June 30, 2018 increased 8.9% to $227.0 million, as compared to $208.4 million for the same quarter in 2017. AFFO per share for the quarter ended June 30, 2018 increased 5.3% to $0.80, as compared to $0.76 for the same quarter in 2017.

AFFO for the six months ended June 30, 2018 increased 10.2% to $451.5 million, as compared to $409.7 million for the same period in 2017. AFFO per share for the six months ended June 30, 2018 increased 3.9% to $1.59, as compared to $1.53 for the same period in 2017.

The company considers FFO and AFFO to be appropriate supplemental measures of a Real Estate Investment Trust’s (REIT’s) operating performance. Realty Income defines FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trusts’ (NAREIT’s) definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus impairments of real estate assets, and reduced by gains on property sales. AFFO further adjusts FFO for unique revenue and expense items, which the company believes are not as pertinent to the measurement of the company’s ongoing operating performance. Presentation of the information regarding FFO and AFFO is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and AFFO in the same way, so comparisons with other REITs may not be meaningful. FFO and AFFO should not be considered as alternatives to reviewing our cash flows from operating, investing, and financing activities. In addition, FFO and AFFO should not be considered as measures of liquidity, our ability to make cash distributions, or our ability to pay interest payments. See the reconciliations of net income available to common stockholders to FFO and AFFO on pages five and six of this press release.

Dividend Increases
In June 2018, Realty Income announced the 83^rd consecutive quarterly dividend increase, which is the 97^th increase in the amount of the dividend since the company’s listing on the New York Stock Exchange (NYSE) in 1994. The annualized dividend amount as of June 30, 2018 was $2.64 per share. The amount of monthly dividends paid per share increased 4.1% to $0.659 in the second quarter of 2018, as compared to $0.633 for the same quarter in 2017.

Real Estate Portfolio Update

As of June 30, 2018, Realty Income’s portfolio of freestanding, single-tenant properties consisted of 5,483 properties located in 49 states and Puerto Rico, leased to 257 different commercial tenants, and doing business in 48 industries. The properties are leased under long-term, net lease agreements with a weighted average remaining lease term of 9.3 years.

Portfolio Management Activities
The company’s portfolio of commercial real estate, owned primarily under long-term net leases, continues to perform well and provides dependable rental revenue supporting the payment of monthly dividends. As of June 30, 2018, portfolio occupancy was 98.7% with 69 properties available for lease out of a total of 5,483 properties in the portfolio, as compared to 98.6% as of March 31, 2018 and 98.5% as of June 30, 2017. Economic occupancy, or occupancy as measured by rental revenue, was 98.9% as of June 30, 2018, as compared to 98.8% as of March 31, 2018, and 99.1% as of June 30, 2017.

Since March 31, 2018, when the company reported 75 properties available for lease, the company had 57 lease expirations, re-leased 47 properties and sold 16 vacant properties during the quarter ended June 30, 2018. Of the 47 properties re-leased during the second quarter of 2018, 46 properties were re-leased to the same tenants and one was re-leased to a new tenant after a period of vacancy. The annual new rent on these re-leases was $16.9 million, as compared to the previous annual rent of $15.7 million on the same properties, representing a rent recapture rate of 107.6% on the properties re-leased during the quarter ended June 30, 2018.

Rent Increases
During the quarter ended June 30, 2018, same store rents on 4,731 properties under lease increased 1.0% to $272.6 million, as compared to $270.0 million for the same quarter in 2017. For the six months ended June 30, 2018, same store rents on 4,731 properties under lease increased 0.9% to $548.7 million, as compared to $543.7 million for the same period in 2017.

Investments in Real Estate
During the quarter ended June 30, 2018, Realty Income invested $347.0 million in 190 new properties and properties under development or expansion, located in 24 states. These properties are 100% leased with a weighted average lease term of approximately 13.6 years and an initial average cash lease yield of 6.5%. The tenants occupying the new properties operate in 15 industries, and are 85% retail and 15% industrial, based on rental revenue. Approximately 52% of the rental revenue generated from acquisitions during the second quarter of 2018 is from investment grade rated tenants.

During the six months ended June 30, 2018, Realty Income invested $856.8 million in 358 new properties and properties under development or expansion, located in 32 states. These properties are 100% leased with a weighted average lease term of approximately 13.8 years and an initial average lease yield of 6.3%. The tenants occupying the new properties operate in 17 industries, and the property types are 93.7% retail and 6.3% industrial, based on rental revenue. Approximately 71% of the rental revenue generated from acquisitions during the first six months of 2018 is from investment grade rated tenants.

Property Dispositions
During the quarter ended June 30, 2018, Realty Income sold 26 properties for $33.7 million, with a gain on sales of $7.8 million, as compared to 15 properties sold for $12.8 million, with a gain on sales of $2.8 million, during the same quarter in 2017.

During the six months ended June 30, 2018, Realty Income sold 40 properties for $47.5 million, with a gain on sales of $11.0 million, as compared to 29 properties sold for $44.0 million, with a gain on sales of $13.4 million, during the same period in 2017.

Liquidity and Capital Markets

Capital Raising
During the quarter ended June 30, 2018, Realty Income raised $300.4 million from the sale of common stock at a weighted average price of $53.44 per share.

In April 2018, Realty Income issued $500 million of senior unsecured notes due 2025 at an effective yield to maturity of 3.957%. The net proceeds of this offering were used to repay a portion of the borrowings outstanding under our $2.0 billion revolving credit facility, and to the extent not used for those purposes, to fund investment opportunities, and for other general corporate purposes.

Credit Facility
Realty Income has a $2.25 billion unsecured credit facility. This credit facility is comprised of a $2.0 billion revolving credit facility and a $250.0 million five-year unsecured term loan. The credit facility also has a $1.0 billion expansion feature. As of June 30, 2018, Realty Income had a borrowing capacity of approximately $1.5 billion available on its revolving credit facility.

2018 Earnings Guidance

We estimate FFO per share for 2018 of $3.13 to $3.20. FFO per share for 2018 is based on a net income per share range of $1.14 to $1.21, plus estimated real estate depreciation and impairments of $2.06 per share, and reduced by potential estimated gains on sales of investment properties of $0.07 per share (in accordance with NAREIT’s definition of FFO).

We estimate AFFO per share for 2018 of $3.16 to $3.21. AFFO further adjusts FFO for unique revenue and expense items, which are not as pertinent to the measurement of Realty Income’s ongoing operating performance.

Additional earnings guidance detail can be found in Realty Income’s supplemental materials available on Realty Income’s corporate website at www.realtyincome.com/investors/financial-information/quarterly-results.

Conference Call Information

In conjunction with the release of Realty Income’s operating results, the company will host a conference call on August 2, 2018 at 11:30 a.m. PT to discuss the results. To access the conference, dial (888) 394-8218. When prompted, provide the access code: 2995886.

A telephone replay of the conference call can also be accessed by calling (888) 203-1112 and entering the access code: 2995886. The telephone replay will be available through August 16, 2018. A live webcast will be available in listen-only mode by clicking on the webcast link on the company’s home page or in the investors section at www.realtyincome.com.

A replay of the conference call webcast will be available approximately two hours after the conclusion of the live broadcast. The webcast replay will be available through August 16, 2018. No access code is required for this replay.

Supplemental Materials

Supplemental materials on second quarter and year-to-date 2018 operating results are available on Realty Income’s corporate website at www.realtyincome.com/investors/financial-information/quarterly-results.

About Realty Income

Realty Income, The Monthly Dividend Company^®, is an S&P 500 company dedicated to providing stockholders with dependable monthly income. The company is structured as a REIT, and its monthly dividends are supported by the cash flow from over 5,400 real estate properties owned under long-term lease agreements with regional and national commercial tenants. To date, the company has declared 577 consecutive common stock monthly dividends throughout its 49-year operating history and increased the dividend 97 times since Realty Income’s public listing in 1994 (NYSE: O). Additional information about the company can be obtained from the corporate website at www.realtyincome.com.

Forward-Looking Statements

Statements in this press release that are not strictly historical are “forward-looking” statements. Forward-looking statements involve known and unknown risks, which may cause the company’s actual future results to differ materially from expected results. These risks include, among others, general economic conditions, local real estate conditions, tenant financial health, the availability of capital to finance planned growth, continued volatility and uncertainty in the credit markets and broader financial markets, property acquisitions and the timing of these acquisitions, charges for property impairments, and the outcome of any legal proceedings to which the company is a party, as described in the company’s filings with the Securities and Exchange Commission. Consequently, forward-looking statements should be regarded solely as reflections of the company’s current operating plans and estimates. Actual operating results may differ materially from what is expressed or forecast in this press release. The company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date these statements were made.

 

FUNDS FROM OPERATIONS (FFO)

(dollars in thousands, except per share amounts)

We define FFO, a non-GAAP measure, consistent with NAREIT’s definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus impairments of real estate assets, reduced by gains on real estate sales.