ricq109_10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x Quarterly report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the quarterly period ended March 31, 2009, or
o Transition report
pursuant to section 13 or 15(d) of the Securities Exchange Act of
1934
Commission
File Number 1-13374
REALTY
INCOME CORPORATION
(Exact
name of registrant as specified in its charter)
Maryland
|
|
33-0580106
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
|
(IRS
Employer Identification Number)
|
600
La Terraza Boulevard, Escondido, California 92025-3873
(Address
of Principal Executive Offices)
Registrant’s
telephone number, including area code: (760) 741-2111
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES x NO
o
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer x Accelerated
filer o Non-accelerated
filer o Smaller
reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
There
were 104,319,106 shares of common stock outstanding as of April 21,
2009.
REALTY
INCOME CORPORATION
Form
10-Q
March
31, 2009
|
|
Page
|
|
Item
1:
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
|
6
|
|
Item
2:
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
17
|
|
|
|
|
|
19
|
|
|
|
|
|
20
|
|
|
|
|
|
25
|
|
|
|
|
|
33
|
|
|
|
|
|
35
|
|
|
|
|
|
40
|
|
|
|
|
|
40
|
|
|
|
|
|
40
|
|
Item
3:
|
|
|
|
40
|
|
Item
4:
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
Item
1A:
|
|
|
|
42
|
|
Item
6:
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
44
|
|
REALTY
INCOME CORPORATION AND SUBSIDIARIES
March
31, 2009 and December 31, 2008
(dollars
in thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
(unaudited)
|
|
|
|
|
Real
estate, at cost:
|
|
|
|
|
|
|
Land
|
|
$ |
1,157,731 |
|
|
$ |
1,157,885 |
|
Buildings
and improvements
|
|
|
2,247,961 |
|
|
|
2,251,025 |
|
|
|
|
3,405,692 |
|
|
|
3,408,910 |
|
Less
accumulated depreciation and amortization
|
|
|
(573,039 |
) |
|
|
(553,417 |
) |
Net
real estate held for investment
|
|
|
2,832,653 |
|
|
|
2,855,493 |
|
Real
estate held for sale, net
|
|
|
7,725 |
|
|
|
6,660 |
|
Net
real estate
|
|
|
2,840,378 |
|
|
|
2,862,153 |
|
Cash
and cash equivalents
|
|
|
10,438 |
|
|
|
46,815 |
|
Accounts
receivable, net
|
|
|
10,122 |
|
|
|
10,624 |
|
Goodwill
|
|
|
17,206 |
|
|
|
17,206 |
|
Other
assets, net
|
|
|
53,487 |
|
|
|
57,381 |
|
Total
assets
|
|
$ |
2,931,631 |
|
|
$ |
2,994,179 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Distributions
payable
|
|
$ |
16,841 |
|
|
$ |
16,793 |
|
Accounts
payable and accrued expenses
|
|
|
17,860 |
|
|
|
38,027 |
|
Other
liabilities
|
|
|
11,485 |
|
|
|
14,698 |
|
Line
of credit payable
|
|
|
-- |
|
|
|
-- |
|
Notes
payable
|
|
|
1,350,000 |
|
|
|
1,370,000 |
|
Total
liabilities
|
|
|
1,396,186 |
|
|
|
1,439,518 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock and paid in capital, par value $1.00 per share,
|
|
|
|
|
|
|
|
|
20,000,000
shares authorized, 13,900,000 shares issued
|
|
|
|
|
|
|
|
|
and
outstanding
|
|
|
337,790 |
|
|
|
337,790 |
|
Common
stock and paid in capital, par value $1.00 per share,
|
|
|
|
|
|
|
|
|
200,000,000
shares authorized, 104,319,051 and 104,211,541
|
|
|
|
|
|
|
|
|
shares
issued and outstanding as of March 31, 2009 and
|
|
|
|
|
|
|
|
|
December
31, 2008, respectively
|
|
|
1,625,795 |
|
|
|
1,624,622 |
|
Distributions
in excess of net income
|
|
|
(428,140 |
) |
|
|
(407,751 |
) |
Total
stockholders’ equity
|
|
|
1,535,445 |
|
|
|
1,554,661 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
2,931,631 |
|
|
$ |
2,994,179 |
|
The
accompanying notes to consolidated financial statements are an integral
part of these statements.
|
REALTY
INCOME CORPORATION AND SUBSIDIARIES
For the
three months ended March 31, 2009 and 2008
(dollars
in thousands, except per share data)
(unaudited)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
Rental
|
|
$ |
82,140 |
|
|
$ |
81,241 |
|
Other
|
|
|
754 |
|
|
|
1,448 |
|
|
|
|
82,894 |
|
|
|
82,689 |
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
22,951 |
|
|
|
22,076 |
|
Interest
|
|
|
21,410 |
|
|
|
23,386 |
|
General
and administrative
|
|
|
5,950 |
|
|
|
5,544 |
|
Property
|
|
|
2,233 |
|
|
|
1,216 |
|
Income
taxes
|
|
|
303 |
|
|
|
398 |
|
|
|
|
52,847 |
|
|
|
52,620 |
|
Income
from continuing operations
|
|
|
30,047 |
|
|
|
30,069 |
|
Income
(loss) from discontinued operations:
|
|
|
|
|
|
|
|
|
Real
estate acquired for resale by Crest
|
|
|
(125 |
) |
|
|
(929 |
) |
Real
estate held for investment
|
|
|
162 |
|
|
|
621 |
|
|
|
|
37 |
|
|
|
(308 |
) |
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
30,084 |
|
|
|
29,761 |
|
Preferred
stock cash dividends
|
|
|
(6,063 |
) |
|
|
(6,063 |
) |
Net
income available to common stockholders
|
|
$ |
24,021 |
|
|
$ |
23,698 |
|
|
|
|
|
|
|
|
|
|
Basic
and diluted amounts per common share, available to common
stockholders:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.23 |
|
|
$ |
0.24 |
|
Net
income
|
|
$ |
0.23 |
|
|
$ |
0.24 |
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
103,439,114 |
|
|
|
100,280,264 |
|
Diluted
|
|
|
103,445,044 |
|
|
|
100,365,576 |
|
The
accompanying notes to consolidated financial statements are an integral part of
these statements.
REALTY
INCOME CORPORATION AND SUBSIDIARIES
For the
three months ended March 31, 2009 and 2008
(dollars
in thousands)(unaudited)
|
|
2009
|
|
|
2008
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
income
|
|
$ |
30,084 |
|
|
$ |
29,761 |
|
Adjustments
to net income:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
22,951 |
|
|
|
22,076 |
|
(Income)
loss from discontinued operations:
|
|
|
|
|
|
|
|
|
Real
estate acquired for resale
|
|
|
125 |
|
|
|
929 |
|
Real
estate held for investment
|
|
|
(162 |
) |
|
|
(621 |
) |
Gain
on sales of land and improvements
|
|
|
-- |
|
|
|
(439 |
) |
Amortization
of share-based compensation
|
|
|
1,397 |
|
|
|
1,143 |
|
Cash
provided by (used in) discontinued operations:
|
|
|
|
|
|
|
|
|
Real
estate acquired for resale
|
|
|
186 |
|
|
|
(506 |
) |
Real
estate held for investment
|
|
|
5 |
|
|
|
565 |
|
Proceeds
from sales of real estate acquired for resale
|
|
|
-- |
|
|
|
17,474 |
|
Collection
of notes receivable by Crest
|
|
|
32 |
|
|
|
13 |
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable and other assets
|
|
|
3,997 |
|
|
|
(171 |
) |
Accounts
payable, accrued expenses and other liabilities
|
|
|
(22,997 |
) |
|
|
(22,111 |
) |
Net
cash provided by operating activities
|
|
|
35,618 |
|
|
|
48,113 |
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from sales of investment properties:
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
-- |
|
|
|
439 |
|
Discontinued operations
|
|
|
1,093 |
|
|
|
369 |
|
Acquisition
of and improvements to investment properties
|
|
|
(2,439 |
) |
|
|
(180,657 |
) |
Intangibles
acquired in connection with acquisitions of
|
|
|
|
|
|
|
|
|
investment
properties
|
|
|
-- |
|
|
|
(397 |
) |
Net
cash used in investing activities
|
|
|
(1,346 |
) |
|
|
(180,246 |
) |
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Cash
distributions to common stockholders
|
|
|
(44,362 |
) |
|
|
(41,554 |
) |
Cash
dividends to preferred stockholders
|
|
|
(6,063 |
) |
|
|
(6,063 |
) |
Principal
payment on notes payable
|
|
|
(20,000 |
) |
|
|
-- |
|
Other
items
|
|
|
(224 |
) |
|
|
(8 |
) |
Net
cash used in financing activities
|
|
|
(70,649 |
) |
|
|
(47,625 |
) |
Net
decrease in cash and cash equivalents
|
|
|
(36,377 |
) |
|
|
(179,758 |
) |
Cash
and cash equivalents, beginning of period
|
|
|
46,815 |
|
|
|
193,101 |
|
Cash
and cash equivalents, end of period
|
|
$ |
10,438 |
|
|
$ |
13,343 |
|
For
supplemental disclosures, see note 12.
The
accompanying notes to consolidated financial statements are an integral part of
these statements.
REALTY
INCOME CORPORATION AND SUBSIDIARIES
March
31, 2009
(unaudited)
The
consolidated financial statements of Realty Income Corporation (“Realty Income”,
the “Company”, “we” or “our”) were prepared from our books and records without
audit and include all adjustments (consisting of only normal recurring accruals)
necessary to present a fair statement of results for the interim period
presented. Certain of the 2008 balances have been reclassified to conform to the
2009 presentation. Readers of this quarterly report should refer to our audited
financial statements for the year ended December 31, 2008, which are included in
our 2008 Annual Report on Form 10-K, as certain disclosures that would
substantially duplicate those contained in the audited financial statements have
not been included in this report.
At
March 31, 2009, we owned 2,347 properties, located in 49 states, containing over
19.0 million leasable square feet, along with five properties owned by our
wholly-owned taxable REIT subsidiary, Crest Net Lease, Inc. (“Crest”). Crest was
created to buy and sell properties, primarily to individual investors who are
involved in tax-deferred exchanges under Section 1031 of the Internal Revenue
Code of 1986, as amended (the “Tax Code”).
2.
|
Summary
of Significant Accounting Policies and Procedures and Recent Accounting
Pronouncements
|
A. The
accompanying consolidated financial statements include the accounts of Realty
Income, Crest and other entities for which we make operating and financial
decisions (i.e., control), after elimination of all material intercompany
balances and transactions. All of Realty Income’s and Crest’s
subsidiaries are wholly-owned. We have no unconsolidated or off-balance sheet
investments in variable interest entities.
B. We
have elected to be taxed as a real estate investment trust (“REIT”) under the
Tax Code. We believe we have qualified and continue to qualify as a REIT. Under
the REIT operating structure, we are permitted to deduct distributions paid to
our stockholders and generally will not be required to pay federal corporate
income taxes on such income. Accordingly, no provision has been made for federal
income taxes in the accompanying consolidated financial statements, except for
federal income taxes of Crest, which are included in discontinued
operations.
C. We
recognize an allowance for doubtful accounts relating to accounts receivable for
amounts deemed uncollectible. We consider tenant specific issues, such as
financial stability and ability to pay rent, when determining collectibility of
accounts receivable and appropriate allowances to record. The
allowance for doubtful accounts was $1.4 million at March 31, 2009 and $637,000
at December 31, 2008.
|
|
March
31,
|
|
|
December
31,
|
|
D. Other
assets consist of the following (dollars in thousands) at:
|
|
2009
|
|
|
2008
|
|
Notes
receivable issued in conjunction with Crest property sales
|
|
$ |
22,312 |
|
|
$ |
22,344 |
|
Deferred
bond financing costs, net
|
|
|
12,924 |
|
|
|
13,249 |
|
Value
of in-place and above-market leases, net
|
|
|
10,265 |
|
|
|
10,534 |
|
Prepaid
expenses
|
|
|
4,102 |
|
|
|
4,244 |
|
Credit
facility organization costs, net
|
|
|
2,267 |
|
|
|
2,552 |
|
Corporate
assets, net of accumulated depreciation and amortization
|
|
|
1,222 |
|
|
|
1,277 |
|
Escrow
deposits for Section 1031 tax-deferred exchanges
|
|
|
-- |
|
|
|
3,174 |
|
Other
items
|
|
|
395 |
|
|
|
7 |
|
|
|
$ |
53,487 |
|
|
$ |
57,381 |
|
|
|
|
|
|
|
|
E. Distributions
payable consist of the following declared
|
|
March
31,
|
|
|
December
31,
|
|
distributions
(dollars in thousands) at:
|
|
2009
|
|
|
2008
|
|
Common
stock distributions
|
|
$ |
14,820 |
|
|
$ |
14,772 |
|
Preferred
stock dividends
|
|
|
2,021 |
|
|
|
2,021 |
|
|
|
$ |
16,841 |
|
|
$ |
16,793 |
|
|
|
|
|
|
|
|
|
|
F. Accounts
payable and accrued expenses consist of the
|
|
March
31,
|
|
|
December
31,
|
|
following (dollars in thousands) at:
|
|
2009
|
|
|
2008
|
|
Bond
interest payable
|
|
$ |
9,499 |
|
|
$ |
26,706 |
|
Other
items
|
|
|
8,361 |
|
|
|
11,321 |
|
|
|
$ |
17,860 |
|
|
$ |
38,027 |
|
|
|
March
31,
|
|
|
December
31,
|
|
G. Other
liabilities consist of the following (dollars in thousands)
at:
|
|
2009
|
|
|
2008
|
|
Rent
received in advance
|
|
$ |
5,897 |
|
|
$ |
9,083 |
|
Security
deposits
|
|
|
3,955 |
|
|
|
3,937 |
|
Value
of in-place below-market leases, net
|
|
|
1,633 |
|
|
|
1,678 |
|
|
|
$ |
11,485 |
|
|
$ |
14,698 |
|
H. Impact
of Recent Accounting Pronouncements
In
April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (FSP) FAS No. 107-1 and APB No. 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which amends disclosure requirements in FASB
Statement No. 107, Disclosures
about Fair Value of Financial Instruments, and APB Opinion No. 28, Interim Financial Statements,
to require disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements. FSP No.
107-1 and APB No. 28-1, which is effective for interim and annual periods ending
after June
15, 2009, only applies to our disclosures in note 6 related to the estimated
fair value of notes receivable issued in conjunction with Crest property sales
and our notes payable and is not expected to have a significant impact on our
footnote disclosures.
3. Retail
Properties Acquired
We
acquire land, buildings and improvements that are used by retail
operators.
A. During
the first three months of 2009, Realty Income invested $1.3 million in
previously acquired properties with an initial weighted average contractual
lease rate of 8.7%. The initial weighted average contractual lease rate is
computed by dividing the estimated aggregate base rent for the first year of
each lease by the estimated total cost of the properties.
In
comparison, during the first three months of 2008, Realty Income invested
$181.4 million in 106 new retail properties and properties under
development with an initial weighted average contractual lease rate of 8.7%.
These 106 properties are located in 14 states, contain over 705,000 leasable
square feet, and are 100% leased with an average lease term of 20.6
years.
B. During
the first three months of 2009 and 2008, Crest did not invest in any new retail
properties.
C. Crest’s
property inventory at March 31, 2009 consisted of five properties valued at $5.7
million and, at December 31, 2008, consisted of five properties valued at $6.0
million. These amounts are included on our consolidated balance sheets in “real
estate held for sale, net.”
D. Of
the $181.4 million invested by Realty Income in the first three months of 2008,
$10.0 million was used to acquire two retail properties with existing leases. In
accordance with Statement No. 141, Business Combinations, Realty
Income recorded $397,000 as the intangible value of the in-place leases. This
amount is recorded to “other assets” on our consolidated balance sheets and
amortized over the life of the respective leases.
4. Credit
Facility
In May
2008, we entered into a $355 million revolving, unsecured credit facility which
replaced our previous $300 million acquisition credit facility. The term of our
credit facility is for three years, until May 2011, plus two, one-year extension
options. Under our credit facility, our investment grade credit ratings provide
for financing at the London Interbank Offered Rate, commonly referred to as
LIBOR, plus 100 basis points with a facility commitment fee of 27.5 basis
points, for all-in drawn pricing of 127.5 basis points over LIBOR. We also have
other interest rate options available to us. Our credit facility is unsecured
and accordingly, we have not pledged any assets as collateral for this
obligation.
We did
not utilize our credit facility during the first three months of 2009 or 2008.
Our effective borrowing rate at March 31, 2009 was 1.5% and at March 31,
2008 was 3.8%. Our current and prior credit facilities are and were subject to
various leverage and interest coverage ratio limitations. We are and have been
in compliance with these covenants.
5. Notes
Payable
A. General
Our
senior unsecured note obligations consist of the following, sorted by maturity
date (dollars in millions):
|
|
March
31,
2009
|
|
|
December
31,
2008
|
|
8%
notes, issued in January 1999 and due in January 2009
|
|
$ |
-- |
|
|
$ |
20.0 |
|
5.375%
notes, issued in March 2003 and due in March 2013
|
|
|
100.0 |
|
|
|
100.0 |
|
5.5%
notes, issued in November 2003 and due in November 2015
|
|
|
150.0 |
|
|
|
150.0 |
|
5.95%
notes, issued in September 2006 and due in September 2016
|
|
|
275.0 |
|
|
|
275.0 |
|
5.375%
notes, issued in September 2005 and due in September 2017
|
|
|
175.0 |
|
|
|
175.0 |
|
6.75%
notes, issued in September 2007 and due in August 2019
|
|
|
550.0 |
|
|
|
550.0 |
|
5.875%
bonds, issued in March 2005 and due in March 2035
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
$ |
1,350.0 |
|
|
$ |
1,370.0 |
|
B. Note
Redemption
In
January 2009, on their maturity date, we redeemed all of our outstanding 8.00%
notes issued in January 1999 at a redemption price equal to 100% of the
principal amount, plus accrued and unpaid interest, using cash on
hand.
6. Fair
Value of Financial Assets and Liabilities
FASB
Statement No. 157, Fair Value
Measurements, defines fair value as the price that would be received from
the sale of an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, and establishes a framework
for measuring fair value. Statement No. 157 also establishes a three-level
valuation hierarchy for disclosure of fair value measurements. The valuation
hierarchy is based upon the transparency of inputs to the valuation of an asset
or liability as of the measurement date. A financial instrument’s
categorization within this hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. This statement applies to
fair value measurements and disclosures that are already required or permitted
by most existing FASB accounting standards.
We
believe that the carrying values reflected in the consolidated balance sheets,
at March 31, 2009 and December 31, 2008, reasonably approximate the fair values
for cash and cash equivalents, accounts receivable, and all liabilities, due to
their short-term nature, except for notes payable and the notes receivable
issued in conjunction with Crest property sales, which are disclosed below
(dollars in millions):
|
|
Carrying
value per
|
|
|
Estimated
fair
|
|
At
March 31, 2009
|
|
balance
sheet
|
|
|
market
value
|
|
Notes
receivable issued in conjunction with Crest property sales
|
|
$ |
22.3 |
|
|
$ |
20.9 |
|
Notes
payable
|
|
$ |
1,350.0 |
|
|
$ |
959.3 |
|
|
|
Carrying
value per
|
|
|
Estimated
fair
|
|
At
December 31, 2008
|
|
balance
sheet
|
|
|
market
value
|
|
Notes
receivable issued in conjunction with Crest property sales
|
|
$ |
22.3 |
|
|
$ |
21.9 |
|
Notes
payable
|
|
$ |
1,370.0 |
|
|
$ |
949.4 |
|
The
estimated fair value of the notes receivable issued in conjunction with Crest
property sales has been calculated by discounting the future cash flows using an
interest rate based upon the current 7-year or
10-year Treasury yield curve plus an applicable credit-adjusted spread. Because
this methodology includes unobservable inputs that reflect our own internal
assumptions and calculations, the measurement of fair value related to these
notes receivable, issued in conjunction with Crest property sales, is
categorized as level 3 on the three-level valuation hierarchy, as defined by
Statement No. 157.
The
estimated fair value of the notes payable is based upon the closing market price
per note or indicative price per note. Because these note prices represent
inputs that are less observable by the public and are not necessarily reflected
in active markets, the measurement of the fair value related to these notes
payable is categorized as level 2 on the three-level valuation hierarchy, as
defined by Statement No. 157.
7.
|
Gain
on Sales of Real Estate Acquired for Resale by
Crest
|
During
the first three months of 2009, Crest did not sell any properties. In
comparison, during the first three months of 2008, Crest sold 15 properties for
$17.5 million, which resulted in a gain of $2.7 million. Crest’s gains on
sales are reported before income taxes and are included in discontinued
operations.
8. Gain
on Sales of Investment Properties by Realty Income
During
the first three months of 2009, we sold one investment property for $1.1
million, which resulted in a gain of $198,000. The results of operations for
this property have been reclassified to discontinued operations.
In
comparison, during the first three months of 2008, we sold one investment
property for $369,000, which resulted in a gain of $218,000. The
results of operations for this property have been reclassified to discontinued
operations. Additionally, we received proceeds from a sale of excess land from
one property, which resulted in a gain of $439,000. This gain is included in
“other revenue” on our consolidated statement of income for the three months
ended March 31, 2008 because this excess land was associated with a property
that continues to be owned as part of our core operations.
9.
|
Discontinued
Operations
|
In
accordance with FASB Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, Realty Income’s operations from eight
investment properties classified as held for sale at March
31, 2009, plus properties sold in 2009 and 2008, are reported as discontinued
operations. Their respective results of operations have been reclassified to
“income (loss) from discontinued operations, real estate held for investment” on
our consolidated statements of income. We do not depreciate properties once they
are classified as held for sale.
Crest
acquires properties with the intention of reselling them rather than holding
them for investment and operating the properties. Consequently, we
typically classify properties acquired by Crest as held for sale at the date of
acquisition and do not depreciate them. In accordance with Statement No. 144,
the operations of Crest’s properties are classified as “income (loss) from
discontinued operations, real estate acquired for resale by Crest” on our
consolidated statements of income.
No debt
was assumed by buyers of our investment properties, or repaid as a result of our
investment property sales, and we do not allocate interest expense to
discontinued operations related to real estate held for
investment. We allocate interest expense related to borrowings
specifically attributable to Crest’s properties. The interest expense amounts
allocated to the Crest properties held for sale are included in “income (loss)
from discontinued operations, real estate acquired for resale by Crest” on our
consolidated statements of income.
If
circumstances arise, which were previously considered unlikely and, as a result,
we decide not to sell a property previously classified as held for sale, the
property is reclassified as real estate held for investment. A property that is
reclassified to held for investment is measured and recorded at the lower of (i)
its carrying amount before the property was classified as held for sale,
adjusted for any depreciation expense that would have been recognized had the
property been continuously classified as held for investment, or (ii) the fair
value at the date of the subsequent decision not to sell.
For the
three months ended March 31, 2009, provisions for impairment of $311,000 were
recorded by Crest on five properties held for sale. For the three months ended
March 31, 2008, provisions for impairment of $2.4 million were recorded by Crest
on two properties held for sale. The above provisions for impairment reduced the
carrying values to the estimated fair-market values of those properties, net of
estimated selling costs, and are included in “income (loss) from discontinued
operations, real estate acquired for resale by Crest” on our consolidated
statements of income.
The
following is a summary of Crest’s “loss from discontinued operations, real
estate acquired for resale” on our consolidated statements of income (dollars in
thousands):
Crest’s
loss from discontinued operations, real
estate acquired for resale
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Gain
on sales of real estate acquired for resale
|
|
$ |
-- |
|
|
$ |
2,706 |
|
Rental
revenue
|
|
|
66 |
|
|
|
1,036 |
|
Other
revenue
|
|
|
351 |
|
|
|
71 |
|
Interest
expense
|
|
|
(173 |
) |
|
|
(632 |
) |
General
and administrative expense
|
|
|
(86 |
) |
|
|
(162 |
) |
Property
expenses
|
|
|
(34 |
) |
|
|
(11 |
) |
Provisions
for impairment
|
|
|
(311 |
) |
|
|
(2,394 |
) |
Depreciation
(1)
|
|
|
-- |
|
|
|
(735 |
) |
Income
taxes
|
|
|
62 |
|
|
|
(808 |
) |
Loss
from discontinued operations, real
estate acquired for resale by Crest
|
|
$ |
(125 |
) |
|
$ |
(929 |
) |
(1)
|
Depreciation
was recorded on one property that was classified as held for investment.
This property was sold in May 2008.
|
The
following is a summary of Realty Income’s “income from discontinued operations,
from real estate held for investment” on our consolidated statements of income
(dollars in thousands):
Realty
Income’s income from discontinued operations, real estate held for
investment
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Gain
on sales of investment properties
|
|
$ |
198 |
|
|
$ |
218 |
|
Rental
revenue
|
|
|
60 |
|
|
|
623 |
|
Other
revenue
|
|
|
12 |
|
|
|
-- |
|
Depreciation
and amortization
|
|
|
(41 |
) |
|
|
(162 |
) |
Property
expenses
|
|
|
(67 |
) |
|
|
(58 |
) |
Income
from discontinued operations, real
estate held for investment
|
|
$ |
162 |
|
|
$ |
621 |
|
The
following is a summary of our total income (loss) from discontinued operations
(dollars in thousands, except per share data):
Total
discontinued operations
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Real
estate acquired for resale by Crest
|
|
$ |
(125 |
) |
|
$ |
(929 |
) |
Real
estate held for investment
|
|
|
162 |
|
|
|
621 |
|
Income
(loss) from discontinued operations
|
|
$ |
37 |
|
|
$ |
(308 |
) |
Per
common share, basic and diluted
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
10. Distributions
Paid and Payable
A. Common
Stock
We pay
monthly distributions to our common stockholders. The following is a summary of
the monthly distributions paid per common share for the first three months of
2009 and 2008:
Month
|
|
2009
|
|
|
2008
|
|
January
|
|
$ |
0.14175 |
|
|
$ |
0.13675 |
|
February
|
|
|
0.14175 |
|
|
|
0.13675 |
|
March
|
|
|
0.14175 |
|
|
|
0.13675 |
|
Total
|
|
$ |
0.42525 |
|
|
$ |
0.41025 |
|
At
March 31, 2009, a distribution of $0.1420625 per common share was payable and
was paid in April 2009.
B. Preferred
Stock
In
2004, we issued 5.1 million shares of 7.375% Monthly Income Class D cumulative
redeemable preferred stock. Beginning May 27, 2009, the Class D
preferred shares are redeemable, at our option, for $25 per share. During each
of the first three months of 2009 and 2008, we paid three monthly dividends to
holders of our Class D preferred stock totaling $0.4609377 per share, or
$2.4 million, and at March 31, 2009, a monthly dividend of $0.1536459 per
share was payable and was paid in April 2009.
In
2006, we issued 8.8 million shares of 6.75% Monthly Income Class E cumulative
redeemable preferred stock. Beginning December 7, 2011, the Class E
preferred shares are redeemable, at our option, for $25 per share. During each
of the first three months of 2009 and 2008, we paid three monthly dividends to
holders of our Class E preferred stock totaling $0.421875 per share, or $3.7
million, and at March 31, 2009, a monthly dividend of $0.140625 per share was
payable and was paid in April 2009.
11. Net
Income Per Common Share
Basic
net income per common share is computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
during each period. Diluted net income per common share is computed by dividing
net income available to common stockholders for the period by the weighted
average number of common shares that would have been outstanding assuming the
issuance of common shares for all potentially dilutive common shares outstanding
during the reporting period.
The
following is a reconciliation of the denominator of the basic net income per
common share computation to the denominator of the diluted net income per common
share computation:
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Weighted
average shares used for the basic net income per share
computation
|
|
|
103,439,114 |
|
|
|
100,280,264 |
|
Incremental
shares from share-based compensation
|
|
|
5,930 |
|
|
|
85,312 |
|
Adjusted
weighted average shares used for diluted net income per share
computation
|
|
|
103,445,044 |
|
|
|
100,365,576 |
|
Unvested
shares from share-based compensation that were
anti-dilutive
|
|
|
823,488 |
|
|
|
646,758 |
|
No
stock options were anti-dilutive for the three months ended March 31, 2009 and
2008.
12.
|
Supplemental
Disclosures of Cash Flow
Information
|
Interest
paid in the first three months of 2009 was $37.9 million and in the first three
months of 2008 was $38.1 million.
There
was no interest capitalized to properties under development in the first three
months of 2009 and $14,000 of interest capitalized to properties under
development in the first three months of 2008.
Income
taxes paid by Realty Income and Crest in the first three months of 2009 was
$701,000 and in the first three months of 2008 was $755,000.
The
following non-cash investing and financing activities are included in the
accompanying consolidated financial statements:
A. Share-based
compensation expense for the first three months of 2009 was $1.4 million
and for the first three months of 2008 was $1.1 million.
B. See
note 9 for a discussion of impairments recorded by Crest in the first three
months of 2009
and 2008.
C. In
the first three months of 2009, we recorded $389,000 for an insurance
settlement, receivable upon the resolution of all contingencies. This insurance
settlement receivable is included in “other assets” on our consolidated balance
sheet at March 31, 2009.
D. Accrued
costs on properties under development resulted in an increase in buildings and
improvements and accounts payable of $981,000 at March 31, 2008.
We
evaluate performance and make resource allocation decisions on an industry by
industry basis. For financial reporting purposes, we have grouped our tenants
into 31 industry and activity segments (including properties owned by Crest that
are grouped together as a segment). All of the properties are incorporated into
one of the applicable segments. Because almost all of our leases require the
tenant to pay operating expenses, revenue is the only component of segment
profit and loss we measure.
The
following tables set forth certain information regarding the properties owned by
us, classified according to the business of the respective tenants as of March
31, 2009 (dollars in thousands):
|
|
March
31,
|
|
|
December
31,
|
|
Assets,
as of:
|
|
2009
|
|
|
2008
|
|
Segment
net real estate:
|
|
|
|
|
|
|
Automotive
service
|
|
$ |
105,846 |
|
|
$ |
106,581 |
|
Automotive
tire services
|
|
|
207,215 |
|
|
|
208,770 |
|
Child
care
|
|
|
83,882 |
|
|
|
85,120 |
|
Convenience
stores
|
|
|
470,336 |
|
|
|
472,588 |
|
Drug
stores
|
|
|
144,719 |
|
|
|
145,919 |
|
Health
and fitness
|
|
|
166,367 |
|
|
|
167,658 |
|
Restaurants
|
|
|
746,409 |
|
|
|
751,466 |
|
Theaters
|
|
|
297,362 |
|
|
|
299,690 |
|
23
other non-reportable segments
|
|
|
618,242 |
|
|
|
624,361 |
|
Total
segment net real estate
|
|
|
2,840,378 |
|
|
|
2,862,153 |
|
Other
intangible assets – Automotive tire services
|
|
|
691 |
|
|
|
706 |
|
Other
intangible assets – Drug stores
|
|
|
6,562 |
|
|
|
6,727 |
|
Other
intangible assets – Grocery stores
|
|
|
898 |
|
|
|
911 |
|
Other
intangible assets – Theaters
|
|
|
2,114 |
|
|
|
2,190 |
|
Goodwill
– Automotive service
|
|
|
1,338 |
|
|
|
1,338 |
|
Goodwill
– Child care
|
|
|
5,353 |
|
|
|
5,353 |
|
Goodwill
– Convenience stores
|
|
|
2,074 |
|
|
|
2,074 |
|
Goodwill
– Home furnishings
|
|
|
1,557 |
|
|
|
1,557 |
|
Goodwill
– Restaurants
|
|
|
3,779 |
|
|
|
3,779 |
|
Goodwill
– non-reportable segments
|
|
|
3,105 |
|
|
|
3,105 |
|
Other
corporate assets
|
|
|
63,782 |
|
|
|
104,286 |
|
Total
assets
|
|
$ |
2,931,631 |
|
|
$ |
2,994,179 |
|
Revenue
for the three months ended March 31:
|
|
2009
|
|
|
2008
|
|
Segment
rental revenue(1):
|
|
|
|
|
|
|
Automotive
service
|
|
$ |
4,187 |
|
|
$ |
3,999 |
|
Automotive
tire services
|
|
|
5,841 |
|
|
|
5,483 |
|
Child
care
|
|
|
5,992 |
|
|
|
6,250 |
|
Convenience
stores
|
|
|
13,593 |
|
|
|
11,738 |
|
Drug
stores
|
|
|
3,481 |
|
|
|
2,879 |
|
Health
and fitness
|
|
|
4,701 |
|
|
|
4,522 |
|
Restaurants
|
|
|
17,707 |
|
|
|
19,029 |
|
Theaters
|
|
|
7,498 |
|
|
|
7,182 |
|
23
non-reportable segments
|
|
|
19,140 |
|
|
|
20,159 |
|
Total
rental revenue
|
|
|
82,140 |
|
|
|
81,241 |
|
Other
revenue
|
|
|
754 |
|
|
|
1,448 |
|
Total
revenue
|
|
$ |
82,894 |
|
|
$ |
82,689 |
|
|
(1) Crest’s revenue
appears in “income (loss) from discontinued operations, real estate
acquired for resale by Crest” and is not included in this table, which
covers revenue but does not include revenue classified as part of income
(loss) from discontinued
operations.
|
14. Common
Stock Incentive Plan
In
2003, our Board of Directors adopted, and our stockholders approved, the 2003
Incentive Award Plan of Realty Income Corporation (the “Stock Plan”) to
enable us to attract and retain the services of directors, employees
and consultants, considered essential to our
long-term success. The Stock Plan offers our directors,
employees and consultants an opportunity to own stock in Realty
Income and/or rights that will reflect our growth, development and
financial success. The Stock Plan was amended and restated by our
Board of Directors in February 2006 and in May 2007.
The
amount of share-based compensation costs charged against income during the first
three months of 2009 was $1.4 million and during the first three months of 2008
was $1.1 million.
The
following table summarizes our common stock grant activity under our Stock
Plan. Our common stock grants vest over periods ranging from
immediately to 10 years.
|
|
For
the three
months
ended
March
31, 2009
|
|
|
For
the year ended
December
31, 2008
|
|
|
|
Number
of
shares
|
|
|
Weighted
average
price
(1)
|
|
|
Number
of
shares
|
|
|
Weighted
average
price
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
nonvested shares, beginning of year
|
|
|
994,453 |
|
|
$ |
19.70 |
|
|
|
994,572 |
|
|
$ |
19.46 |
|
Shares
granted
|
|
|
117,660 |
|
|
|
23.15 |
|
|
|
249,447 |
|
|
|
26.63 |
|
Shares
vested
|
|
|
(176,416 |
) |
|
|
23.12 |
|
|
|
(188,215 |
) |
|
|
21.96 |
|
Shares
forfeited
|
|
|
(577 |
) |
|
|
23.76 |
|
|
|
(61,351 |
) |
|
|
22.13 |
|
Outstanding
nonvested shares,
end of each period
|
|
|
935,120 |
|
|
$ |
22.36 |
|
|
|
994,453 |
|
|
$ |
19.70 |
|
(1) Grant
date fair value.
During
the first three months of 2009, we issued 117,660 shares of common stock under
our Stock Plan. These shares vest over the following service periods: 13,000
vested immediately, 2,500 vest over a service period of three years and 102,160
vest over a service period of five years.
In
August 2008, our Board of Directors approved a new vesting schedule for shares
granted to employees after August 20, 2008. The reason for this change was to
provide a shorter vesting period for employees who were closer to the age of
retirement, and to adjust the vesting period for employees age 55 and below to
be more in line with comparable vesting schedules in the market. The new vesting
schedule is as follows:
●
|
For
employees age 55 and below at the grant date, shares vest in 20%
increments on each of the first five anniversaries of the grant
date;
|
●
|
For
employees age 56 at the grant date, shares vest in 25% increments on each
of the first four anniversaries of the grant
date;
|
●
|
For
employees age 57 at the grant date, shares vest in 33.33% increments on
each of the first three anniversaries of the grant
date;
|
●
|
For
employees age 58 at the grant date, shares vest in 50% increments on each
of the first two anniversaries of the grant
date;
|
●
|
For
employees age 59 at the grant date, shares are 100% vested on the first
anniversary of the grant date; and
|
●
|
For
employees age 60 and above at the grant date, shares vest immediately on
the grant date.
|
Prior
to August 20, 2008, shares granted to employees age 49 and below at the grant
date vested in 10% increments on each of the first ten anniversaries of the
grant date, and shares granted to employees age 50 through 55 at the grant date
vested in 20% increments on each of the first five anniversaries of the grant
date. The consolidation of these two groups represents the only difference
between the new and prior vesting schedules.
As of
March 31, 2009, the remaining unamortized share-based compensation expense
totaled $20.9 million, which is being amortized on a straight-line basis
over the service period of each applicable award.
The
effect of pre-vesting forfeitures on our recorded expense has historically been
negligible. Any future pre-vesting forfeitures are also expected to be
negligible and we will record the benefit related to such forfeitures as they
occur. Under the terms of our Stock Plan, we pay non-refundable dividends to the
holders of our nonvested shares. Under FASB Statement No. 123R, Share-Based Compensation, the
dividends paid to holders of these nonvested shares should be charged as
compensation expense to the extent that they relate to nonvested shares that do
not or are not expected to vest. Given the negligible historical and prospective
forfeiture rate determined by us, we did not record any amount to compensation
expense related to dividends paid in 2009 or 2008.
As of
March 31, 2009, there were 20,992 vested stock options outstanding and
exercisable with a weighted average exercise price of $13.31. There
were 302 stock options exercised in the first three months of 2009 at an
exercise price of $14.70. There were no stock option forfeitures in the first
three months of 2009. No stock options were granted after January 1, 2002 and
all outstanding options are fully vested. Stock options were granted with an
exercise price equal to the underlying stock’s fair market value at the date of
grant. Stock options expire ten years from the date they were granted and vested
over service periods of one, three, four or five years.
15.
|
Commitments
and Contingencies
|
In the
ordinary course of business, we are party to various legal actions which we
believe are routine in nature and incidental to the operation of our business.
We believe that the outcome of the proceedings will not have a material adverse
effect upon our consolidated financial position or results of
operations.
At
March 31, 2009, we have contingent payments for tenant improvements and leasing
costs of $718,000.
This
quarterly report on Form 10-Q, including documents incorporated by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Exchange Act of 1934, as amended.
When used in this quarterly report, the words “estimated”, “anticipated”,
“expect”, “believe”, “intend” and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are subject to risks,
uncertainties, and assumptions about Realty Income Corporation, including, among
other things:
●
|
Our
anticipated growth strategies;
|
●
|
Our
intention to acquire additional properties and the timing of these
acquisitions;
|
●
|
Our
intention to sell properties and the timing of these property
sales;
|
●
|
Our
intention to re-lease vacant
properties;
|
●
|
Anticipated
trends in our business, including trends in the market for long-term
net-leases of freestanding, single-tenant retail
properties;
|
●
|
Future
expenditures for development projects;
and
|
●
|
Profitability
of our subsidiary, Crest Net Lease, Inc.
(“Crest”).
|
Future
events and actual results, financial and otherwise, may differ materially from
the results discussed in the forward-looking statements. In
particular, some of the factors that could cause actual results to differ
materially are:
●
|
Our
continued qualification as a real estate investment
trust;
|
●
|
General
business and economic conditions;
|
●
|
Fluctuating
interest rates;
|
●
|
Access
to debt and equity capital markets;
|
●
|
Continued
volatility and uncertainty in the credit markets and broader financial
markets;
|
●
|
Other
risks inherent in the real estate business including tenant defaults,
potential liability relating to environmental matters, illiquidity of real
estate investments, and potential damages from natural
disasters;
|
●
|
Impairments
in the value of our real estate
assets;
|
●
|
Changes
in the tax laws of the United States of
America;
|
●
|
The
outcome of any legal proceedings to which we are a party;
and
|
●
|
Acts
of terrorism and war.
|
Additional
factors that may cause risks and uncertainties include those discussed in the
sections entitled “Business”, “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2008.
Readers
are cautioned not to place undue reliance on forward-looking statements, which
speak only as of the date that this quarterly report was filed with the
Securities and Exchange Commission, or SEC. We undertake 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 of this quarterly report or to reflect the occurrence of
unanticipated events. In light of these risks and uncertainties, the
forward-looking events discussed in this quarterly report might not
occur.
Realty
Income Corporation, The Monthly Dividend Company®, is a
Maryland corporation organized to operate as an equity real estate investment
trust, or REIT. Our primary business objective is to generate dependable monthly
cash distributions from a consistent and predictable level of funds from
operations, or FFO per share. The monthly distributions are supported by the
cash flow from our portfolio of retail properties leased to regional and
national retail chains. We have in-house acquisition, leasing, legal, retail
research, real estate research, portfolio management and capital markets
expertise. Over the past 40 years, Realty Income and its predecessors have been
acquiring and owning freestanding retail properties that generate rental revenue
under long-term lease agreements (primarily 15 to 20 years).
In
addition, we seek to increase distributions to stockholders and FFO per share
through both active portfolio management and the acquisition of additional
properties. Our portfolio management focus includes:
●
|
Contractual
rent increases on existing leases;
|
●
|
Rent
increases at the termination of existing leases, when market conditions
permit; and
|
●
|
The
active management of our property portfolio, including re-leasing vacant
properties, and selectively selling properties, thereby mitigating our
exposure to certain tenants and
markets.
|
In
acquiring additional properties, we adhere to a focused strategy of primarily
acquiring properties that are:
●
|
Freestanding,
single-tenant, retail locations;
|
●
|
Leased
to regional and national retail chains;
and
|
●
|
Leased
under long-term, net-lease
agreements.
|
At
March 31, 2009, we owned a diversified portfolio:
●
|
Of
2,347 retail properties;
|
●
|
With
an occupancy rate of 96.4%, or 2,263 properties occupied of the 2,347
properties in the portfolio;
|
●
|
With
only 84 properties available for
lease;
|
●
|
Leased
to 117 different retail chains doing business in 30 separate retail
industries;
|
●
|
With
over 19.0 million square feet of leasable space;
and
|
●
|
With
an average leasable retail space per property of approximately 8,135
square feet.
|
Of the
2,347 properties in the portfolio, 2,336, or 99.5%, are single-tenant, retail
properties and the remaining 11 are multi-tenant, distribution and office
properties. At March 31, 2009, 2,253 of the 2,336 single-tenant properties were
leased with a weighted average remaining lease term (excluding extension
options) of approximately 11.8 years.
In
addition, at March 31, 2009, our wholly-owned taxable REIT subsidiary, Crest,
had an inventory of five properties valued at $5.7 million, which are classified
as held for sale. Crest was created to buy and sell properties, primarily to
individual investors who are involved in tax-deferred exchanges under Section
1031 of the Internal Revenue Code of 1986, as amended (the “Tax Code”). In
addition to the five properties, Crest also holds notes receivable of $22.3
million at March 31, 2009. We anticipate Crest will not acquire any properties
in 2009.
We
typically acquire retail store properties under long-term leases with retail
chain store operators. These transactions generally provide capital to owners of
retail real estate and retail chains for expansion or other corporate purposes.
Our acquisition and investment activities are concentrated in well-defined
target markets and generally focus on retail chains providing goods and services
that satisfy basic consumer needs.
Our
net-lease agreements generally:
●
|
Are
for initial terms of 15 to 20
years;
|
●
|
Require
the tenant to pay minimum monthly rent and property operating expenses
(taxes, insurance and maintenance);
and
|
●
|
Provide
for future rent increases based on increases in the consumer price index
(typically subject to ceilings), fixed increases, or to a lesser degree,
additional rent calculated as a percentage of the tenants’ gross sales
above a specified level.
|
Investment
Philosophy
We
believe that owning an actively managed, diversified portfolio of retail
properties under long-term, net leases produces consistent and predictable
income. Net leases typically require the tenant to be responsible for minimum
monthly rent and property operating expenses including property taxes, insurance
and maintenance. In addition, tenants are typically responsible for future rent
increases based on increases in the consumer price index (typically subject to
ceilings), fixed increases or, to a lesser degree, additional rent calculated as
a percentage of the tenants’ gross sales above a specified level. We believe
that a portfolio of properties under long-term leases, coupled with the tenant’s
responsibility for property expenses, generally produces a more predictable
income stream than many other types of real estate portfolios, while continuing
to offer the potential for growth in rental income.
Credit
Strategy
We
generally provide sale-leaseback financing to less than investment grade retail
chains. We typically acquire and lease back properties to regional
and national retail chains and believe that within this market we can achieve an
attractive risk-adjusted return on the financing we provide to
retailers. Since 1970, our overall weighted average occupancy rate at
the end of each year has been 98.4%, and the occupancy rate at the end of each
year has never been below 97%.
Acquisition
Strategy
We seek
to invest in industries in which several, well-organized, regional and national
retail chains are capturing market share through service, quality control,
economies of scale, advertising and the selection of prime retail locations. We
execute our acquisition strategy by acting as a source of capital to regional
and national retail chain store owners and operators, doing business in a
variety of industries, by acquiring and leasing back retail store locations. We
undertake thorough research and analysis to identify appropriate industries,
tenants and property locations for investment. Our research expertise is
instrumental to uncovering net-lease opportunities in markets where our real
estate financing program adds value. In selecting real estate for potential
investment, we generally seek to acquire properties that have the following
characteristics:
●
|
Freestanding,
commercially-zoned property with a single
tenant;
|
●
|
Properties
that are important retail locations for regional and national retail
chains;
|
●
|
Properties
that we deem to be profitable for the
retailers;
|
●
|
Properties
that are located within attractive demographic areas relative to the
business of their tenants, with high visibility and easy access to major
thoroughfares; and
|
●
|
Properties
that can be purchased with the simultaneous execution or assumption of
long-term, net-lease agreements, offering both current income and the
potential for rent increases.
|
Increases
in Monthly Distributions to Common Stockholders
We
continue our 40-year policy of paying distributions monthly. Monthly
distributions per share increased in April 2009 by $0.0003125 to $0.1420625. The
increase in April 2009 was our 46th
consecutive quarterly increase and the 53rd
increase in the amount of our dividend since our listing on the New York Stock
Exchange, or NYSE, in 1994. In the first three months of 2009, we paid three
monthly cash distributions per share in the amount of $0.14175, totaling
$0.42525. In March 2009 and April 2009, we declared distributions of $0.1420625
per share, which were paid in April 2009 and will be paid in May 2009,
respectively.
The
monthly distribution of $0.1420625 per share represents a current annualized
distribution of $1.70475 per share, and an annualized distribution yield of
approximately 7.8% based on the last reported sale price of our common stock on
the NYSE of $21.96 on April 21, 2009. Although we expect to continue our policy
of paying monthly distributions, we cannot guarantee that we will maintain our
current level of distributions, that we will continue our pattern of increasing
distributions per share, or what our actual distribution yield will be in any
future period.
Universal
Shelf Registration
In
March 2009, we filed a shelf registration statement with the SEC, which is
effective for a term of three years, to replace our prior shelf registration
statement which was set to expire in April 2009. Our new shelf registration
expires in March 2012. In accordance with the SEC rules, the amount of
securities to be issued pursuant to this shelf registration statement was not
specified when it was filed and there is no specific dollar limit. The
securities covered by this registration statement include common stock,
preferred stock, debt securities, or any combination of such
securities. We may periodically offer one or more of these securities
in amounts, prices and on terms to be announced when and if the securities are
offered. The specifics of any future offerings, along with the use of proceeds
of any securities offered, will be described in detail in a prospectus
supplement, or other offering materials, at the time of any
offering.
Note
Redemption
In
January 2009, upon their maturity, we redeemed the $20 million outstanding
principal amount of our 8% Notes (“2009 Notes”). The 2009 Notes were redeemed at
a redemption price equal to 100% of the principal amount, plus accrued and
unpaid interest. We now have no debt maturities until March 2013.
Retirement
of Board of Directors Members
William
E. Clark, our previous non-executive chairman, retired from the Board of
Directors in February 2009. Our Corporate Governance and Nominating Committee
recommended, and the Board of Directors elected, Donald R. Cameron as the new
non-executive chairman, effective upon Mr. Clark’s retirement. Mr.
Clark had served as our Chairman of the Board since the inception of Realty
Income.
Roger
P. Kuppinger and Willard H Smith Jr will retire from the Board of Directors on
May 12, 2009. Ronald L. Merriman will become the chairman of the
Audit Committee upon the retirement of Mr. Kuppinger.
Acquisitions
during the First Three Months of 2009
During
the first three months of 2009, Realty Income invested $1.3 million in
previously acquired properties. Our 2008 and 2009 portfolio acquisitions are
lower than in recent years primarily due to uncertainty in the commercial retail
real estate market. Property prices continued to decline and lease
rates rose throughout 2008 and the first three months of 2009. We continue to
monitor the acquisition market carefully and will acquire properties for
long-term investment when we believe the transactions are accretive to our
shareholders.
Investments
in Existing Properties
In the
first three months of 2009, we capitalized costs of $847,000 on existing
properties in our portfolio, consisting of $406,000 for re-leasing costs and
$441,000 for building improvements.
Net
Income Available to Common Stockholders
Net
income available to common stockholders was $24.0 million in the first three
months of 2009 versus $23.7 million in the same period of 2008, an increase
of $323,000. On a diluted per common share basis, net income was $0.23 per share
in the first three months of 2009, as compared to $0.24 per share in the first
three months of 2008.
The
calculation to determine net income available to common stockholders includes
gains from the sales of properties. The amount of gains varies from period to
period based on the timing of property sales and can significantly impact net
income available to common stockholders.
The
gain from the sales of properties during the first three months of 2009 was
$198,000, as compared to $657,000 during the first three months of
2008.
Funds
from Operations Available to Common Stockholders (FFO)
In the
first three months of 2009, our FFO increased by $797,000, or 1.7%, to
$46.7 million versus $45.9 million in the first three months of
2008. On a diluted per common share basis, FFO was $0.45 in the first
three months of 2009, as compared to $0.46 in the first three months of 2008, a
decrease of $0.01, or 2.2%.
See our
discussion of FFO later in this “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” which includes a reconciliation
of net income available to common stockholders to FFO.
Crest
During
the first three months of 2009, Crest did not sell any
properties. Crest had an inventory of five properties valued at $5.7
million at March 31, 2009 and $6.0 million at December 31, 2008, which is
included in “real estate held for sale, net” on our consolidated balance
sheets.
Buffets Emerges
from Reorganization
On April 28, 2009, Buffets Holdings,
Inc. ("Buffets") announced that it had emerged from Chapter 11
reorganization. In its press release, Buffets noted that "in addition to
strengthening its balance sheet and reducing its debt, Buffets has also used the
Chapter 11 process to right-size its organization, including streamlining its
portfolio of restaurants and reducing operating expenses across the
business." Buffets remains Realty Income's largest tenant, representing
approximately 6.0% of Realty Income's annualized rental
revenues.
Cash
Reserves
We are
organized to operate as an equity REIT that acquires and leases properties and
distributes to stockholders, in the form of monthly cash distributions, a
substantial portion of our net cash flow generated from leases on our retail
properties. We intend to retain an appropriate amount of cash as working
capital. At March 31, 2009, we had cash and cash equivalents totaling $10.4
million.
We
believe that our cash and cash equivalents on hand, cash provided from operating
activities and borrowing capacity is sufficient to meet our liquidity needs for
the foreseeable future. We intend, however, to use additional sources
of capital to fund property acquisitions and to repay future borrowings under
our credit facility.
$355
Million Acquisition Credit Facility
In May
2008, we entered into a $355 million revolving, unsecured credit facility which
replaced our previous $300 million acquisition credit facility. The term of our
credit facility is for three years until May 2011, plus two, one-year extension
options. Under our credit facility, our investment grade credit ratings provide
for financing at the London Interbank Offered Rate, commonly referred to as
LIBOR, plus 100 basis points with a facility fee of 27.5 basis points, for
all-in drawn pricing of 127.5 basis points over LIBOR. We also have other
interest rate options available to us. At April 21, 2009, we had a borrowing
capacity of $355 million available on our credit facility and no
outstanding balance.
We
expect to use the credit facility to acquire additional retail properties and
for other corporate purposes. Any additional borrowings will increase
our exposure to interest rate risk. We have the right to request an increase in
the borrowing capacity of the credit facility by up to $100 million, to a total
borrowing capacity of $455 million. Any increase in the borrowing capacity is
subject to approval by the lending banks participating in our credit
facility.
Mortgage
Debt
We have
no mortgage debt on any of our properties.
Conservative
Capital Structure
We
believe that our stockholders are best served by a conservative capital
structure. Therefore, we seek to maintain a conservative debt level on our
balance sheet and solid interest and fixed charge coverage ratios. At April 21,
2009, our total outstanding borrowings were $1.35 billion of senior
unsecured notes, or approximately 33.8% of our total market capitalization of
$3.99 billion. There were no outstanding borrowings on our credit facility
at April 21, 2009.
We
define our total market capitalization at April 21, 2009 as the sum
of:
·
|
Shares
of our common stock outstanding of 104,319,106 multiplied by the last
reported sales price of our common stock on the NYSE of $21.96 per share
on April 21, 2009, or
$2.29 billion;
|
·
|
Aggregate
liquidation value (par value of $25 per share) of the Class D preferred
stock of $127.5 million;
|
·
|
Aggregate
liquidation value (par value of $25 per share) of the Class E preferred
stock of $220 million; and
|
·
|
Outstanding
notes of $1.35 billion.
|
Historically,
we have met our long-term capital needs through the issuance of common stock,
preferred stock and long-term unsecured notes and bonds. Over the long term, we
believe that common stock should be the majority of our capital structure;
however, we may issue additional preferred stock or debt securities from time to
time. We may issue common stock when we believe that our share price is at a
level that allows for the proceeds of any offering to be accretively invested
into additional properties. In addition, we may issue common stock to
permanently finance properties that were financed by our credit facility or debt
securities. However, we cannot assure you that we will have access to the
capital markets at terms that are acceptable to us.
Credit Agency
Ratings
We are
currently assigned investment grade corporate credit ratings on our senior
unsecured notes. Fitch Ratings has assigned a rating of BBB+,
Moody’s Investors Service has assigned a rating of Baa1 and Standard &
Poor’s Ratings Group has assigned a rating of BBB to our senior notes. All of
these ratings have “stable” outlooks.
We have
also been assigned credit ratings on our preferred stock. Fitch Ratings has
assigned a rating of BBB, Moody’s has assigned a rating of Baa2 and Standard
& Poor’s has assigned a rating of BB+ to our preferred stock. All of these
ratings have “stable” outlooks.
The
credit ratings assigned to us could change based upon, among other things, our
results of operations and financial condition. These ratings are subject to
ongoing evaluation by credit rating agencies and we cannot assure you that any
rating will not be changed or withdrawn by a rating agency in the future if, in
its judgment, circumstances warrant. Moreover, a rating is not a recommendation
to buy, sell or hold our debt securities, preferred stock or common
stock.
Notes Outstanding
Our
senior unsecured note obligations consist of the following as of March 31, 2009,
sorted by maturity date (dollars in millions):
5.375%
notes, issued in March 2003 and due in March 2013
|
|
$ |
100.0 |
|
5.5%
notes, issued in November 2003 and due in November 2015
|
|
|
150.0 |
|
5.95%
notes, issued in September 2006 and due in September 2016
|
|
|
275.0 |
|
5.375%
notes, issued in September 2005 and due in September 2017
|
|
|
175.0 |
|
6.75%
notes, issued in September 2007 and due in August 2019
|
|
|
550.0 |
|
5.875%
bonds, issued in March 2005 and due in March 2035
|
|
|
100.0 |
|
|
|
$ |
1,350.0 |
|
All of
our outstanding notes and bonds have fixed interest rates.
Interest
on all of our senior note obligations is paid semiannually. All of these notes
contain various covenants, including: (i) a limitation on incurrence of any debt
which would cause our debt to total adjusted assets ratio to exceed 60%; (ii) a
limitation on incurrence of any secured debt which would cause our secured debt
to total adjusted assets ratio to exceed 40%; (iii) a limitation on incurrence
of any debt which would cause our debt service coverage ratio to be less than
1.5 times; and (iv) the maintenance at all times of total unencumbered assets
not less than 150% of our outstanding unsecured debt. We have been in compliance
with these covenants since each of the notes were issued.
The
following is a summary of the key financial covenants for our senior unsecured
notes, as defined and calculated per the terms of our notes. These calculations,
which are not based on GAAP measurements, are presented to investors to show our
ability to incur additional debt under the terms of our notes only and are not
measures of our liquidity or performance. The actual amounts as of March 31,
2009 are:
Note
Covenants
|
Required
|
|
Actual
|
|
Limitation
on incurrence of total debt
|
≤
60%
|
|
|
38.9 |
% |
Limitation
on incurrence of secured debt
|
≤
40%
|
|
|
0.0 |
% |
Debt
service coverage (trailing 12 months)
|
≥
1.5 x
|
|
|
3.4 |
x |
Maintenance
of total unencumbered assets
|
≥
150% of unsecured debt
|
|
|
257 |
% |
The
following table summarizes the maturity of each of our obligations as of March
31, 2009 (dollars in millions):
Table of
Obligations
|
|
|
|
|
|
|
|
|
|
|
Ground
|
|
|
Ground
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid
by
|
|
|
Paid
by
|
|
|
|
|
|
|
|
Year
of
|
|
Credit
|
|
|
|
|
|
|
|
|
Realty
|
|
|
Our
|
|
|
|
|
|
|
|
Maturity
|
|
Facility
(1)
|
|
|
Notes
|
|
|
Interest
(2)
|
|
|
Income(3)
|
|
|
Tenants(4)
|
|
|
Other
(5)
|
|
|
Totals
|
|
2009
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
61.8 |
|
|
$ |
0.1 |
|
|
$ |
2.8 |
|
|
$ |
0.7 |
|
|
$ |
65.4 |
|
2010
|
|
|
-- |
|
|
|
-- |
|
|
|
82.4 |
|
|
|
0.1 |
|
|
|
3.7 |
|
|
|
-- |
|
|
|
86.2 |
|
2011
|
|
|
-- |
|
|
|
-- |
|
|
|
82.4 |
|
|
|
0.1 |
|
|
|
3.6 |
|
|
|
-- |
|
|
|
86.1 |
|
2012
|
|
|
-- |
|
|
|
-- |
|
|
|
82.4 |
|
|
|
0.1 |
|
|
|
3.5 |
|
|
|
-- |
|
|
|
86.0 |
|
2013
|
|
|
-- |
|
|
|
100.0 |
|
|
|
78.1 |
|
|
|
0.1 |
|
|
|
3.4 |
|
|
|
-- |
|
|
|
181.6 |
|
Thereafter
|
|
|
-- |
|
|
|
1,250.0 |
|
|
|
427.9 |
|
|
|
0.9 |
|
|
|
40.4 |
|
|
|
-- |
|
|
|
1,719.2 |
|
Totals
|
|
$ |
-- |
|
|
$ |
1,350.0 |
|
|
$ |
815.0 |
|
|
$ |
1.4 |
|
|
$ |
57.4 |
|
|
$ |
0.7 |
|
|
$ |
2,224.5 |
|
|
(1)
There was no outstanding credit facility balance on April 21,
2009.
|
|
(2)
Interest on the credit facility and notes has been calculated based on
outstanding balances as of March 31, 2009 through their respective
maturity dates.
|
|
(3)
Realty Income currently pays the ground lessors directly for the rent
under the ground leases. A majority of this rent is reimbursed to Realty
Income as additional rent from our
tenants.
|
|
(4)
Our tenants, who are generally sub-tenants under ground leases, are
responsible for paying the rent under these ground leases. In the event a
tenant fails to pay the ground lease rent, we are primarily
responsible.
|
|
(5)
“Other” consists of $718,000 of contingent payments for tenant
improvements and leasing costs.
|
Our
credit facility and note obligations are unsecured. Accordingly, we
have not pledged any assets as collateral for these obligations.
Preferred
Stock Outstanding
In
2004, we issued 5.1 million shares of 7.375% Class D cumulative redeemable
preferred stock. Beginning May 27, 2009, shares of Class D preferred stock are
redeemable at our option for $25 per share, plus any accrued and unpaid
dividends. Dividends on shares of Class D preferred are paid monthly in
arrears.
In
2006, we issued 8.8 million shares of 6.75% Class E cumulative redeemable
preferred stock. Beginning December 7, 2011, shares of Class E preferred stock
are redeemable at our option for $25 per share, plus any accrued and unpaid
dividends. Dividends on shares of Class E preferred stock are paid monthly in
arrears.
No
Off-Balance Sheet Arrangements or Unconsolidated Investments
We have
no unconsolidated or off-balance sheet investments in “variable interest
entities” or off-balance sheet financing, nor do we engage in trading activities
involving energy or commodity contracts or other derivative
instruments.
As we
have no joint ventures, off-balance sheet entities, or mandatory redeemable
preferred stock, our financial position or results of operations are currently
not affected by Financial Accounting Standard Board Interpretation No. 46R,
Consolidation of Variable
Interest Entities and Statement of Financial Accounting Standard No. 150,
Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity.
Distribution
Policy
Distributions
are paid monthly to our common, Class D preferred and Class E preferred
stockholders if, and when, declared by our Board of Directors.
In
order to maintain our tax status as a REIT for federal income tax purposes, we
generally are required to distribute dividends to our stockholders aggregating
annually at least 90% of our REIT taxable income (determined without regard to
the dividends paid deduction and by excluding net capital gains), and we are
subject to income tax to the extent we distribute less than 100% of our REIT
taxable income (including net capital gains). In 2008, our cash distributions
totaled $193.9 million, or approximately 122.7% of our estimated REIT
taxable income of $158.0 million. Our estimated REIT taxable income
reflects non-cash deductions for depreciation and amortization. Our estimated
REIT taxable income is presented to show our compliance with REIT distribution
requirements and is not a measure of our liquidity or performance.
We
intend to continue to make distributions to our stockholders that are sufficient
to meet this distribution requirement and that will reduce our exposure to
income taxes. Our cash distributions to common stockholders for the first three
months of 2009 totaled $44.4 million, representing 95.1% of our funds from
operations available to common stockholders of $46.7 million. In comparison, our
2008 cash distributions to common stockholders totaled $169.7 million,
representing 91.5% of our funds from operations available to common stockholders
of $185.5 million.
The
Class D preferred stockholders receive cumulative distributions at a rate of
7.375% per annum on the $25 per share liquidation preference (equivalent to
$1.84375 per annum per share). The Class E preferred stockholders receive
cumulative distributions at a rate of 6.75% per annum on the $25 per share
liquidation preference (equivalent to $1.6875 per annum per share).
Future
distributions will be at the discretion of our Board of Directors and will
depend on, among other things, our results of operations, FFO, cash flow from
operations, financial condition and capital requirements, the annual
distribution requirements under the REIT provisions of the Tax Code, our debt
service requirements and any other factors the Board of Directors may deem
relevant. In addition, our credit
facility contains financial covenants that could limit the amount of
distributions payable by us in the event of a deterioration in our results of
operations or financial condition, and which prohibit the payment of
distributions on the common or preferred stock in the event that we fail to pay
when due (subject to any applicable grace period) any principal or interest on
borrowings under our credit facility.
Distributions
of our current and accumulated earnings and profits for federal income tax
purposes generally will be taxable to stockholders as ordinary income, except to
the extent that we recognize capital gains and declare a capital gains dividend,
or that such amounts constitute "qualified dividend income" subject to a reduced
rate of tax. The maximum tax rate of non-corporate taxpayers for “qualified
dividend income” has generally been reduced to 15% (until it “sunsets” or
reverts to the provisions of prior law, which under current law will occur with
respect to taxable years beginning after December 31, 2010). In general,
dividends payable by REITs are not eligible for the reduced tax rate on
corporate dividends, except to the extent the REIT’s dividends are attributable
to dividends received from taxable corporations (such as our taxable REIT
subsidiary, Crest), to income that was subject to tax at the corporate or REIT
level (for example, if we distribute taxable income that we retained and paid
tax on in the prior taxable year) or, as discussed above, dividends properly
designated by us as “capital gain dividends.” Distributions in excess of
earnings and profits generally will be treated as a non-taxable reduction in the
stockholders’ basis in their stock. Distributions above that basis, generally,
will be taxable as a capital gain to stockholders who hold their shares as a
capital asset. Approximately 18.8% of the distributions to our common
stockholders, made or deemed to have been made in 2008, were classified as a
return of capital for federal income tax purposes. We are unable to predict the
portion of future distributions that may be classified as a return of
capital.
Critical Accounting
Policies
Our
consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”). Our consolidated financial
statements are the basis for our discussion and analysis of financial condition
and results of operations. Preparing our consolidated financial statements
requires us to make a number of estimates and assumptions that affect the
reported amounts and disclosures in the consolidated financial statements. We
believe that we have made these estimates and assumptions in an appropriate
manner and in a way that accurately reflects our financial condition. We
continually test and evaluate these estimates and assumptions using our
historical knowledge of the business, as well as other factors, to ensure that
they are reasonable for reporting purposes. However, actual results may differ
from these estimates and assumptions.
In
order to prepare our consolidated financial statements according to the rules
and guidelines set forth by GAAP, many subjective judgments must be made with
regard to critical accounting policies. One of these judgments is our estimate
for useful lives in determining depreciation expense for our properties.
Depreciation of buildings and improvements is computed using the straight–line
method over an estimated useful life of 25 years. If we use a shorter or longer
estimated useful life it could have a material impact on our results of
operations. We believe that 25 years is an appropriate estimate of useful life.
No depreciation has been recorded on Crest’s properties that are classified as
held for sale.
When we
acquire a property for investment purposes, we allocate the purchase price to
the various components of the acquisition based upon the fair value of each
component. The components typically include land, building and improvements, and
the following which are associated with acquired leases: (i)
intangible assets related to above and below market leases and (ii) value of
costs to obtain tenants.
Another
significant judgment must be made as to if, and when, impairment losses should
be taken on our properties when events or a change in circumstances indicate
that the carrying amount of the asset may not be recoverable. Generally, a
provision is made for impairment loss if estimated future operating cash flows
(undiscounted and without interest charges) plus estimated disposition proceeds
(undiscounted) are less than the current book value. Impairment losses are
measured as the amount by which the current book value of the asset exceeds the
fair value of the asset. If a property is held for sale, it is carried at the
lower of carrying cost or estimated fair value, less cost to sell. The carrying
value of our real estate is the largest component of our consolidated balance
sheet. If events should occur that require us to reduce the carrying value of
our real estate by recording provisions for impairment losses, it could have a
material impact on our results of operations.
The
following is a comparison of our results of operations for the three months
ended March 31, 2009 to the three months ended March 31, 2008.
Rental
Revenue
Rental
revenue was $82.1 million for the first three months of 2009 versus $81.2
million for the first three months of 2008, an increase of $0.9 million, or
1.1%. The increase in rental revenue in the first three months of 2009 compared
to the first three months of 2008 is primarily attributable to:
●
|
The
108 retail properties acquired by Realty Income in 2008, which generated
$4.0 million of rent in the first three months of 2009 compared to $1.3
million in the first three months of 2008, an increase of
$2.7 million;
|
●
|
Same
store rents generated on 2,092 properties during the entire first three
months of 2009 and 2008 increased by $134,000, or 0.2%, to $75.87 million
from $75.73 million; net of
|
●
|
A
net decrease of $1.4 million relating to the aggregate of (i) development
properties acquired before 2008 that started paying rent in 2008, (ii)
properties that were vacant during part of 2009 or 2008, (iii) properties
sold during 2009 and 2008 and (iv) lease termination
settlements. In aggregate, these items totaled $2.0 million in
the first three months of 2009 compared to $3.4 million in the first three
months of 2008; and
|
●
|
A
decrease in straight-line rent and other non-cash adjustments to rent of
$493,000 in the first three months of 2009 as compared to the first three
months of 2008.
|
Excluding
104 leases with Buffets Holdings, Inc., same store rents generated on 1,988
properties during the entire first three months of 2009 and 2008 increased by
$811,000, or 1.2%, to $71.0 million from $70.19
million.
Of the
2,347 properties in the portfolio at March 31, 2009, 2,336, or 99.5%, are
single-tenant properties and the remaining 11 are multi-tenant, distribution and
office properties. Of the 2,336 single-tenant properties, 2,253, or 96.4%, were
net leased with a weighted average remaining lease term (excluding rights to
extend a lease at the option of the tenant) of approximately 11.8 years at
March 31, 2009. Of our 2,253 leased single-tenant properties, 2,052, or 91.1%,
were under leases that provide for increases in rents through:
●
|
Primarily
base rent increases tied to a consumer price index (typically subject to
ceilings);
|
●
|
To
a lesser degree, overage rent based on a percentage of the tenants’ gross
sales; or
|
●
|
A combination of two or more of the above rent
provisions.
|
Percentage
rent, which is included in rental revenue, was $675,000 in the first three
months of 2009 and $691,000 in the first three months of 2008. Percentage rent
in the first three months of 2009 was less than 1% of rental revenue and we
anticipate percentage rent to continue to be less than 1% of rental revenue for
2009.
Our
portfolio of retail real estate, leased primarily to regional and national
chains under net leases, continues to perform well and provides dependable lease
revenue supporting the payment of monthly dividends to our
stockholders. At March 31, 2009, our portfolio of 2,347 retail
properties was 96.4% leased with 84 properties available for lease, one of which
is a multi-tenant property.
As of
April 20, 2009, transactions to lease or sell 25 of the 84 properties available
for lease at March
31, 2009 were underway or completed. We anticipate these transactions will be
completed during the next several months, although we cannot guarantee that all
of these properties can be leased or sold within this period. It has been our
experience that approximately 1% to 3% of our property portfolio will be
unleased at any given time; however, we cannot assure you that the number of
properties available for lease will not exceed these levels.
Depreciation
and Amortization
Depreciation
and amortization was $23.0 million for the first three months of 2009 as
compared to $22.1 million for the first three months of 2008. The increase
in depreciation and amortization in 2009 was primarily due to the acquisition of
properties in 2008, which was partially offset by property sales in 2009 and
2008. As discussed in the section entitled “Funds from Operations Available to
Common Stockholders,” depreciation and amortization is a non-cash item that is
excluded from our calculation
of FFO.
Interest
Expense
Interest
expense was $2.0 million lower in the first three months of 2009 than in
the first three months of 2008, primarily due to lower average senior notes
outstanding and, to a lesser extent, lower interest rates. We
redeemed the $100 million outstanding principal amount of our 8.25% Monthly
Income Senior Notes in November 2008 and the $20 million outstanding principal
amount of our 8% Notes in January 2009, both of which contributed to the
decrease in average outstanding balances and lower average interest rates on our
debt.
The
following is a summary of the components of our interest expense (dollars in
thousands):
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Interest
on our notes
|
|
$ |
20,665 |
|
|
$ |
23,061 |
|
Interest
included in discontinued operations from real estate acquired for resale
by Crest
|
|
|
(173 |
) |
|
|
(632 |
) |
Credit
facility commitment fees
|
|
|
248 |
|
|
|
114 |
|
Amortization
of credit facility origination costs and deferred bond financing
costs
|
|
|
670 |
|
|
|
639 |
|
Amortization
of settlements on treasury lock agreement
|
|
|
-- |
|
|
|
218 |
|
Interest
capitalized
|
|
|
-- |
|
|
|
(14 |
) |
Interest
expense
|
|
$ |
21,410 |
|
|
$ |
23,386 |
|
Notes
outstanding
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Average
outstanding balances (dollars in thousands)
|
|
$ |
1,353,111 |
|
|
$ |
1,470,000 |
|
Average
interest rates
|
|
|
6.11 |
% |
|
|
6.28 |
% |
At
April 21, 2009, the weighted average interest rate on our notes payable of $1.35
billion was 6.10% and the average interest rate on our credit line was
1.44%. There was no outstanding balance on our credit line at April
21, 2009.
Interest
Coverage Ratio
Our
interest coverage ratio for the first three months of 2009 was 3.5 times and for
the first three months of 2008 was 3.2 times. Interest coverage ratio
is calculated as: the interest coverage amount (as calculated in the following
table) divided by interest expense, including interest recorded to discontinued
operations. We consider interest coverage ratio to be an appropriate
supplemental measure of a company’s ability to meet its interest expense
obligations. Our calculation of interest coverage ratio may be different from
the calculation used by other companies and, therefore, comparability may be
limited. This information should not be considered as an alternative to any GAAP
liquidity measures. The
following is a reconciliation of net cash provided by operating activities on
our consolidated statements of cash flow to our interest coverage amount
(dollars in thousands):
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Net
cash provided by operating activities
|
|
$ |
35,618 |
|
|
$ |
48,113 |
|
Interest
expense
|
|
|
21,410 |
|
|
|
23,386 |
|
Interest
expense included in discontinued operations(1)
|
|
|
173 |
|
|
|
632 |
|
Income
taxes
|
|
|
303 |
|
|
|
398 |
|
Income
taxes included in discontinued operations(1)
|
|
|
(62 |
) |
|
|
808 |
|
Proceeds
from sales of real estate acquired for resale(1)
|
|
|
-- |
|
|
|
(17,474 |
) |
Collection
of notes receivable by Crest(1)
|
|
|
(32 |
) |
|
|
(13 |
) |
Crest
provisions for impairment(1)
|
|
|
(311 |
) |
|
|
(2,394 |
) |
Gain
on sales of real estate acquired for resale(1)
|
|
|
-- |
|
|
|
2,706 |
|
Amortization
of share-based compensation
|
|
|
(1,397 |
) |
|
|
(1,143 |
) |
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable and other assets
|
|
|
(3,997 |
) |
|
|
171 |
|
Accounts
payable, accrued expenses and other liabilities
|
|
|
22,997 |
|
|
|
22,111 |
|
Interest
coverage amount
|
|
$ |
74,702 |
|
|
$ |
77,301 |
|
Divided
by interest expense(2)
|
|
$ |
21,583 |
|
|
$ |
24,018 |
|
Interest
coverage ratio
|
|
|
3.5 |
|
|
|
3.2 |
|
|
(2) Includes
interest expense recorded to “income (loss) from discontinued operations,
real estate acquired for resale by Crest” on our consolidated statements
of income.
|
Fixed
Charge Coverage Ratio
Our
fixed charge coverage ratio for the first three months of 2009 was 2.7 times and
for the first three months of 2008 was 2.6 times. Fixed charge coverage ratio is
calculated in exactly the same manner as interest coverage ratio, except that
preferred stock dividends are also added to the denominator. We consider fixed
charge coverage ratio to be an appropriate supplemental measure of a company’s
ability to make its interest and preferred stock dividend payments. Our
calculation of the fixed charge coverage ratio may be different from the
calculation used by other companies and, therefore, comparability may be
limited. This information should not be considered as an alternative to any GAAP
liquidity measures.
Interest
coverage amount divided by interest expense plus preferred stock dividends
(dollars in thousands):
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Interest
coverage amount
|
|
$ |
74,702 |
|
|
$ |
77,301 |
|
Divided
by interest expense plus preferred stock dividends(1)
|
|
$ |
27,646 |
|
|
$ |
30,081 |
|
Fixed
charge coverage ratio
|
|
|
2.7 |
|
|
|
2.6 |
|
|
(1)
Includes interest expense recorded to “income (loss) from discontinued
operations, real estate acquired for resale by Crest” on our consolidated
statements of income.
|
General
and Administrative Expenses
General
and administrative expenses increased by $406,000 to $5.95 million in the first
three months of 2009 as compared to $5.54 million in the first three months
of 2008. In the first three months of 2009, general and administrative expenses
as a percentage of total revenue were 7.2% as compared to 6.7% in the first
three months of 2008. General and administrative expenses increased during the
first three months of 2009 primarily due to increases in employee
costs.
In
April 2009, we had 70 permanent employees as compared to 73 permanent employees
in April 2008.
Property
Expenses
Property
expenses are broken down into costs associated with non-net leased multi-tenant
properties, unleased single-tenant properties and general portfolio expenses.
Expenses related to the multi-tenant and unleased single-tenant properties
include, but are not limited to, property taxes, maintenance, insurance,
utilities, property inspections, bad debt expense and legal fees. General
portfolio costs include, but are not limited to, insurance, legal, bad debt
expense, property inspections and title search fees. At March 31, 2009, 84
properties were available for lease, as compared to 70 at December 31, 2008 and
61 at March 31, 2008.
Property
expenses were $2.2 million in the first three months of 2009 and $1.2 million in
the first three months of 2008. The increase in property expenses in the first
three months of 2009 is primarily attributable to an increase in property taxes,
maintenance and utilities associated with properties available for lease and an
increase in bad debt expense.
Income
Taxes
Income
taxes were $303,000 in the first three months of 2009 as compared to $398,000 in
the first three months of 2008. These amounts are for city and state income
taxes paid by Realty Income.
In
addition, Crest recorded state and federal income tax benefits of $62,000 in the
first three months of 2009 as compared to tax expense of $808,000 in the first
three months of 2008. These amounts are included in “income (loss) from
discontinued operations, real estate acquired for resale by Crest” on our
consolidated statements of income.
Discontinued
Operations
Crest
acquires properties with the intention of reselling them rather than holding
them as investments and operating the properties. Consequently, we typically
classify properties acquired by Crest as held for sale at the date of
acquisition and do not depreciate them. The operation of Crest’s properties is
classified as “income (loss) from discontinued operations, real estate acquired
for resale by Crest” on our consolidated statements of income.
If we
decide not to sell a property previously classified as held for sale, the
property is reclassified as real estate held for investment. A property that is
reclassified to held for investment is measured and recorded at the lower of (i)
its carrying amount before the property was classified as held for sale,
adjusted for any depreciation expense that would have been recognized had the
property been continuously classified as held for investment, or (ii) the fair
value at the date of the subsequent decision not to sell.
The
following is a summary of Crest’s “loss from discontinued operations, real
estate acquired for resale” on our consolidated statements of income (dollars in
thousands, except per share data):
Crest’s
loss from discontinued operations, real
estate acquired for resale
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Gain
on sales of real estate acquired for resale
|
|
$ |
-- |
|
|
$ |
2,706 |
|
Rental
revenue
|
|
|
66 |
|
|
|
1,036 |
|
Other
revenue
|
|
|
351 |
|
|
|
71 |
|
Interest
expense
|
|
|
(173 |
) |
|
|
(632 |
) |
General
and administrative expense
|
|
|
(86 |
) |
|
|
(162 |
) |
Property
expenses
|
|
|
(34 |
) |
|
|
(11 |
) |
Provisions
for impairment
|
|
|
(311 |
) |
|
|
(2,394 |
) |
Depreciation
(1)
|
|
|
-- |
|
|
|
(735 |
) |
Income
taxes
|
|
|
62 |
|
|
|
(808 |
) |
Loss
from discontinued operations, real
estate acquired for resale by Crest
|
|
$ |
(125 |
) |
|
$ |
(929 |
) |
Per
common share, basic and diluted
|
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
(1)
|
Depreciation
was recorded on one property that was classified as held for investment.
This property was sold in May 2008.
|
Realty
Income’s operations from eight investment properties classified as held for sale
at March 31, 2009, plus properties sold in 2009 and 2008, have been classified
as discontinued operations. The following is a summary of Realty
Income’s “income from discontinued operations, real estate held for investment”
on our consolidated statements of income (dollars in thousands, except per share
data):
Realty
Income’s income from discontinued operations, real estate held for
investment
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Gain
on sales of investment properties
|
|
$ |
198 |
|
|
$ |
218 |
|
Rental
revenue
|
|
|
60 |
|
|
|
623 |
|
Other
revenue
|
|
|
12 |
|
|
|
-- |
|
Depreciation
and amortization
|
|
|
(41 |
) |
|
|
(162 |
) |
Property
expenses
|
|
|
(67 |
) |
|
|
(58 |
) |
Income
from discontinued operations, real
estate held for investment
|
|
$ |
162 |
|
|
$ |
621 |
|
Per
common share, basic and diluted
|
|
$ |
0.00 |
|
|
$ |
0.01 |
|
The
following is a summary of our total income (loss) from discontinued operations
(dollars in thousands, except per share data):
Total
discontinued operations
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Real
estate acquired for resale by Crest
|
|
$ |
(125 |
) |
|
$ |
(929 |
) |
Real
estate held for investment
|
|
|
162 |
|
|
|
621 |
|
Income
(loss) from discontinued operations
|
|
$ |
37 |
|
|
$ |
(308 |
) |
Per
common share, basic and diluted
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
The
above per share amounts have each been calculated independently.
Crest’s
Property Sales
During
the first three months of 2009, Crest did not sell any properties. In
comparison, during the first three months of 2008, Crest sold 15 properties for
$17.5 million, which resulted in a gain of $2.7 million. Crest’s gains on
sales are reported before income taxes and are included in discontinued
operations.
Crest’s
Property Inventory
At
March 31, 2009, Crest had an inventory of five properties valued at $5.7
million, all of which are classified as held for sale.
Gain
on Sales of Investment Properties by Realty Income
During
the first three months of 2009, we sold one investment property for $1.1
million, which resulted in a gain of $198,000. The results of operations for
this property have been reclassified to discontinued operations.
In
comparison, during the first three months of 2008, we sold one investment
property for $369,000, which resulted in a gain of $218,000. The
results of operations for this property have been reclassified to discontinued
operations. Additionally, we received proceeds from a sale of excess land from
one property, which resulted in a gain of $439,000. This gain is included in
“other revenue” on our consolidated statement of income for the three months
ended March 31, 2008 because the proceeds were associated with a property that
continues to be owned as part of our core operations.
We have
an active portfolio management program that incorporates the sale of assets when
we believe the reinvestment of the sale proceeds will generate higher returns,
enhance the credit quality of our real estate portfolio or extend our average
remaining lease term. At March 31, 2009, we classified real estate with a
carrying amount of $7.7 million as held for sale on our balance sheet,
which includes five properties owned by Crest, valued at $5.7
million. Additionally, we anticipate selling investment properties
from our portfolio that have not yet been specifically identified, from which we
anticipate receiving between $10 million and $35 million in proceeds during
the next 12 months. We intend to invest these proceeds into new property
acquisitions, if there are opportunities available. However, we cannot guarantee
that we will sell properties during the next 12 months.
Provisions
for Impairment on Real Estate Acquired for Resale by Crest
For the
three months ended March 31, 2009, provisions for impairment of $311,000 were
recorded by Crest on five properties held for sale. For the three months ended
March 31, 2008, provisions for impairment of $2.4 million were recorded by Crest
on two properties held for sale. The above provisions for impairment reduced the
carrying costs to the estimated fair-market value of those properties, net of
estimated selling costs, and are included in “income (loss) from discontinued
operations, real estate acquired for resale by Crest.”
Provisions
for Impairment on Realty Income Investment Properties
No
provisions for impairment were recorded in the first three months of 2009 and
2008.
Preferred
Stock Dividends
Preferred
stock cash dividends totaled $6.1 million in the first three months of 2009 and
2008.
Net
Income Available to Common Stockholders
Net
income available to common stockholders was $24.0 million in the first three
months of 2009, an increase of $323,000 as compared to $23.7 million in the
first three months of 2008.
The
calculation to determine net income available to common stockholders includes
gains from the sales of properties. The amount of gains varies from period to
period based on the timing of property sales and can significantly impact net
income available to common stockholders.
The
gain recognized during the first three months of 2009 from the sale of an
investment property was $198,000, as compared to a $657,000 gain recognized
from the sale of an investment property and from the additional proceeds
received from a sale of excess land during the first three months of
2008.
FFO for
the first three months of 2009 increased by $797,000, or 1.7%, to $46.7 million
as compared to $45.9 million in the first three months of 2008. The
following is a reconciliation of net income available to common stockholders
(which we believe is the most comparable GAAP measure) to FFO. Also presented is
information regarding distributions paid to common stockholders and the weighted
average number of common shares used for the basic and diluted computation per
share (dollars in thousands, except per share amounts):
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Net
income available to common stockholders
|
|
$ |
24,021 |
|
|
$ |
23,698 |
|
Depreciation
and amortization:
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
22,951 |
|
|
|
22,076 |
|
Discontinued
operations
|
|
|
41 |
|
|
|
897 |
|
Depreciation
of furniture, fixtures and equipment
|
|
|
(81 |
) |
|
|
(77 |
) |
Gain
on sales of land and investment properties:
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
-- |
|
|
|
(439 |
) |
Discontinued
operations
|
|
|
(198 |
) |
|
|
(218 |
) |
FFO
available to common stockholders
|
|
$ |
46,734 |
|
|
$ |
45,937 |
|
FFO
per common share:
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
0.45 |
|
|
$ |
0.46 |
|
Distributions
paid to common stockholders
|
|
$ |
44,362 |
|
|
$ |
41,554 |
|
FFO
in excess of distributions paid to common stockholders
|
|
$ |
2,372 |
|
|
$ |
4,383 |
|
Weighted
average number of common shares used for computation per
share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
103,439,114 |
|
|
|
100,280,264 |
|
Diluted
|
|
|
103,445,044 |
|
|
|
100,365,576 |
|
We
define FFO, a non-GAAP measure, consistent with the National Association of Real
Estate Investment Trust’s definition, as net income available to common
stockholders, plus depreciation and amortization of real estate assets, reduced
by gains on sales of investment properties and extraordinary items.
We
consider FFO to be an appropriate supplemental measure of a REIT’s operating
performance as it is based on a net income analysis of property portfolio
performance that excludes non-cash items such as depreciation. The historical
accounting convention used for real estate assets requires straight-line
depreciation of buildings and improvements, which implies that the value of real
estate assets diminishes predictably over time. Since real estate values
historically rise and fall with market conditions, presentations of operating
results for a REIT, using historical accounting for depreciation, could be less
informative. The use of FFO is recommended by the REIT industry as a
supplemental performance measure. In addition, FFO is used as a measure of our
compliance with the financial covenants of our credit facility.
Presentation
of this information 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 the same way, so comparisons with other REITs may not be
meaningful. Furthermore, FFO is not necessarily indicative of cash flow
available to fund cash needs and should not be considered as an alternative to
net income as an indication of our performance. In addition, FFO should not be
considered as an alternative to reviewing our cash flows from operating,
investing and financing activities as a measure of liquidity, of our ability to
make cash distributions or of our ability to pay interest payments.
Other
Non-Cash Items and Capitalized Expenditures
The
following information includes non-cash items and capitalized expenditures on
existing properties in our portfolio. These items are not included in the
adjustments to net income available to common stockholders to arrive at FFO.
Analysts and investors often request this supplemental information.
(dollars
in thousands)
|
|
Three
months
ended
3/31/09
|
|
|
Three
months
ended
3/31/08
|
|
Amortization
of deferred note financing costs(1)
|
|
$ |
341 |
|
|
$ |
454 |
|
Amortization
of settlement on treasury lock agreement(2)
|
|
|
-- |
|
|
|
218 |
|
Amortization
of share-based compensation
|
|
|
1,397 |
|
|
|
1,143 |
|
Capitalized
leasing costs and commissions
|
|
|
(406 |
) |
|
|
(131 |
) |
Capitalized
building improvements
|
|
|
(441 |
) |
|
|
(554 |
) |
Straight
line rent revenue(3)
|
|
|
(261 |
) |
|
|
(754 |
) |
Crest
provisions for impairment
|
|
|
311 |
|
|
|
2,394 |
|
(1)
|
Amortization
of deferred note financing costs includes the amortization of costs
incurred and capitalized when our notes were issued in May 1997, October
1998, January 1999, March 2003, November 2003, March 2005, September 2005,
September 2006 and September 2007. These costs are being amortized over
the lives of these notes. No costs associated with our credit facility
agreements or annual fees paid to credit rating agencies have been
included.
|
(2)
|
The
settlement on the treasury lock agreement resulted from an interest rate
risk prevention strategy that we used in 1998, which correlated to a
pending issuance of senior note securities. We have not
employed this strategy since
1998.
|
(3)
|
A
negative amount indicates that our straight-line rent revenue was greater
than our actual cash rent
collected.
|
At
March 31, 2009, we owned a diversified portfolio:
●
|
Of
2,347 retail properties;
|
●
|
With
an occupancy rate of 96.4%, or 2,263 properties occupied of the 2,347
properties in the portfolio;
|
●
|
With
only 84 properties available for
lease;
|
●
|
Leased
to 117 different retail chains doing business in 30 separate retail
industries;
|
●
|
With
over 19.0 million square feet of leasable space;
and
|
●
|
With
an average leasable retail space per property of approximately 8,135
square feet.
|
In
addition to our real estate portfolio, our subsidiary, Crest had an inventory of
five properties located in five states at March 31, 2009. These properties are
valued at $5.7 million and are classified as held for sale.
At
March 31, 2009, 2,253 of our 2,347 retail properties were leased under net-lease
agreements. A net lease typically requires the tenant to be responsible for
minimum monthly rent and property operating expenses including property taxes,
insurance and maintenance. In addition, our tenants are typically responsible
for future rent increases based on increases in the consumer price index
(typically subject to ceilings), fixed increases or, to a lesser degree,
additional rent calculated as a percentage of the tenants’ gross sales above a
specified level.
Our
net-leased retail properties primarily are leased to regional and national
retail chain store operators. Most buildings are single-story structures with
adequate parking on site to accommodate peak retail traffic periods. The
properties tend to be on major thoroughfares with relatively high traffic
counts, adequate access and proximity to a sufficient population base to
constitute a suitable market or trade area for the retailer’s
business.
Industry
Diversification
The
following table sets forth certain information regarding Realty Income’s
property portfolio (excluding properties owned by Crest) classified according to
the business of the respective tenants, expressed as a percentage of our total
rental revenue:
|
|
Percentage
of Rental Revenue(1)
|
|
|
|
For
the Quarter
|
|
|
For
the Years Ended
|
|
Industries
|
|
Ended
March
31,
2009
|
|
|
Dec
31,
2008
|
|
|
Dec
31,
2007
|
|
|
Dec
31,
2006
|
|
|
Dec
31,
2005
|
|
|
Dec
31,
2004
|
|
|
Dec
31,
2003
|
|
Apparel
stores
|
|
|
1.1 |
% |
|
|
1.1 |
% |
|
|
1.2 |
% |
|
|
1.7 |
% |
|
|
1.6 |
% |
|
|
1.8 |
% |
|
|
2.1 |
% |
Automotive
collision services
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
1.1 |
|
|
|
1.3 |
|
|
|
1.3 |
|
|
|
1.0 |
|
|
|
0.3 |
|
Automotive
parts
|
|
|
1.5 |
|
|
|
1.6 |
|
|
|
2.1 |
|
|
|
2.8 |
|
|
|
3.4 |
|
|
|
3.8 |
|
|
|
4.5 |
|
Automotive
service
|
|
|
5.1 |
|
|
|
4.8 |
|
|
|
5.2 |
|
|
|
6.9 |
|
|
|
7.6 |
|
|
|
7.7 |
|
|
|
8.3 |
|
Automotive
tire services
|
|
|
7.1 |
|
|
|
6.7 |
|
|
|
7.3 |
|
|
|
6.1 |
|
|
|
7.2 |
|
|
|
7.8 |
|
|
|
3.1 |
|
Book
stores
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.4 |
|
Business
services
|
|
|
* |
|
|
|
* |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Child
care
|
|
|
7.3 |
|
|
|
7.6 |
|
|
|
8.4 |
|
|
|
10.3 |
|
|
|
12.7 |
|
|
|
14.4 |
|
|
|
17.8 |
|
Consumer
electronics
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.9 |
|
|
|
1.1 |
|
|
|
1.3 |
|
|
|
2.1 |
|
|
|
3.0 |
|
Convenience
stores
|
|
|
16.5 |
|
|
|
15.8 |
|
|
|
14.0 |
|
|
|
16.1 |
|
|
|
18.7 |
|
|
|
19.2 |
|
|
|
13.3 |
|
Crafts
and novelties
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.5 |
|
|
|
0.6 |
|
Distribution
and office
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
0.6 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Drug
stores
|
|
|
4.2 |
|
|
|
4.1 |
|
|
|
2.7 |
|
|
|
2.9 |
|
|
|
2.8 |
|
|
|
0.1 |
|
|
|
0.2 |
|
Entertainment
|
|
|
1.2 |
|
|
|
1.2 |
|
|
|
1.4 |
|
|
|
1.6 |
|
|
|
2.1 |
|
|
|
2.3 |
|
|
|
2.6 |
|
Equipment
rental services
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.2 |
|
Financial
services
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
-- |
|
General
merchandise
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.7 |
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.5 |
|
Grocery
stores
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
0.8 |
|
|
|
0.4 |
|
Health
and fitness
|
|
|
5.7 |
|
|
|
5.6 |
|
|
|
5.1 |
|
|
|
4.3 |
|
|
|
3.7 |
|
|
|
4.0 |
|
|
|
3.8 |
|
Home
furnishings
|
|
|
1.4 |
|
|
|
2.4 |
|
|
|
2.6 |
|
|
|
3.1 |
|
|
|
3.7 |
|
|
|
4.1 |
|
|
|
4.9 |
|
Home
improvement
|
|
|
1.9 |
|
|
|
1.9 |
|
|
|
2.1 |
|
|
|
3.4 |
|
|
|
1.1 |
|
|
|
1.0 |
|
|
|
1.1 |
|
Motor
vehicle dealerships
|
|
|
3.0 |
|
|
|
3.1 |
|
|
|
3.1 |
|
|
|
3.4 |
|
|
|
2.6 |
|
|
|
0.6 |
|
|
|
-- |
|
Office
supplies
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
1.1 |
|
|
|
1.3 |
|
|
|
1.5 |
|
|
|
1.6 |
|
|
|
1.9 |
|
Pet
supplies and services
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
0.9 |
|
|
|
1.1 |
|
|
|
1.3 |
|
|
|
1.4 |
|
|
|
1.7 |
|
Private
education
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
1.1 |
|
|
|
1.2 |
|
Restaurants
|
|
|
21.6 |
|
|
|
21.8 |
|
|
|
21.2 |
|
|
|
11.9 |
|
|
|
9.4 |
|
|
|
9.7 |
|
|
|
11.8 |
|
Shoe
stores
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.9 |
|
Sporting
goods
|
|
|
2.3 |
|
|
|
2.3 |
|
|
|
2.6 |
|
|
|
2.9 |
|
|
|
3.4 |
|
|
|
3.4 |
|
|
|
3.8 |
|
Theaters
|
|
|
9.1 |
|
|
|
9.0 |
|
|
|
9.0 |
|
|
|
9.6 |
|
|
|
5.2 |
|
|
|
3.5 |
|
|
|
4.1 |
|
Travel
plazas
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
0.3 |
|
Video
rental
|
|
|
1.0 |
|
|
|
1.1 |
|
|
|
1.7 |
|
|
|
2.1 |
|
|
|
2.5 |
|
|
|
2.8 |
|
|
|
3.3 |
|
Other
|
|
|
1.9 |
|
|
|
1.9 |
|
|
|
2.3 |
|
|
|
2.7 |
|
|
|
3.0 |
|
|
|
3.4 |
|
|
|
3.8 |
|
Totals
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
(1)
|
Includes
rental revenue for all properties owned by Realty Income at the end of
each period presented, including revenue from properties reclassified to
discontinued operations.
|
Service
Category Diversification
The
following table sets forth certain information regarding the properties owned by
Realty Income (excluding properties owned by Crest) at March 31, 2009,
classified according to the retail business types and the level of services they
provide (dollars in thousands):
|
|
|
|
|
Rental
Revenue for
|
|
|
Percentage
of
|
|
|
|
Number
of
|
|
|
the
Quarter Ended
|
|
|
Rental
|
|
Industry
|
|
Properties
|
|
|
March
31, 2009(1)
|
|
|
Revenue
|
|
Tenants Providing Services
|
|
|
|
|
|
|
|
|
|
Automotive
collision services
|
|
|
13 |
|
|
$ |
854 |
|
|
|
1.0 |
% |
Automotive
service
|
|
|
235 |
|
|
|
4,187 |
|
|
|
5.1 |
|
Child
care
|
|
|
263 |
|
|
|
5,992 |
|
|
|
7.3 |
|
Entertainment
|
|
|
8 |
|
|
|
999 |
|
|
|
1.2 |
|
Equipment
rental services
|
|
|
2 |
|
|
|
150 |
|
|
|
0.2 |
|
Financial
services
|
|
|
13 |
|
|
|
194 |
|
|
|
0.2 |
|
Health
and fitness
|
|
|
26 |
|
|
|
4,701 |
|
|
|
5.7 |
|
Private
education
|
|
|
7 |
|
|
|
650 |
|
|
|
0.8 |
|
Theaters
|
|
|
34 |
|
|
|
7,498 |
|
|
|
9.1 |
|
Other
|
|
|
10 |
|
|
|
1,542 |
|
|
|
1.9 |
|
|
|
|
611 |
|
|
|
26,767 |
|
|
|
32.5 |
|
Tenants Selling Goods and
Services
|
|
|
|
|
|
|
|
|
|
Automotive
parts (with installation)
|
|
|
25 |
|
|
|
502 |
|
|
|
0.6 |
|
Automotive
tire services
|
|
|
155 |
|
|
|
5,841 |
|
|
|
7.1 |
|
Business
services
|
|
|
1 |
|
|
|
5 |
|
|
|
* |
|
Convenience
stores
|
|
|
574 |
|
|
|
13,593 |
|
|
|
16.5 |
|
Distribution
and office
|
|
|
3 |
|
|
|
847 |
|
|
|
1.0 |
|
Home
improvement
|
|
|
3 |
|
|
|
110 |
|
|
|
0.1 |
|
Motor
vehicle dealerships
|
|
|
21 |
|
|
|
2,448 |
|
|
|
3.0 |
|
Pet
supplies and services
|
|
|
10 |
|
|
|
665 |
|
|
|
0.9 |
|
Restaurants
|
|
|
642 |
|
|
|
17,707 |
|
|
|
21.6 |
|
Travel
plazas
|
|
|
1 |
|
|
|
187 |
|
|
|
0.2 |
|
Video
rental
|
|
|
31 |
|
|
|
829 |
|
|
|
1.0 |
|
|
|
|
1,466 |
|
|
|
42,734 |
|
|
|
52.0 |
|
Tenants Selling Goods
|
|
|
|
|
|
|
|
|
|
|
|
|
Apparel
stores
|
|
|
6 |
|
|
|
902 |
|
|
|
1.1 |
|
Automotive
parts
|
|
|
52 |
|
|
|
753 |
|
|
|
0.9 |
|
Book
stores
|
|
|
2 |
|
|
|
156 |
|
|
|
0.2 |
|
Consumer
electronics
|
|
|
13 |
|
|
|
644 |
|
|
|
0.8 |
|
Crafts
and novelties
|
|
|
5 |
|
|
|
260 |
|
|
|
0.3 |
|
Drug
stores
|
|
|
51 |
|
|
|
3,481 |
|
|
|
4.2 |
|
General
merchandise
|
|
|
34 |
|
|
|
647 |
|
|
|
0.8 |
|
Grocery
stores
|
|
|
9 |
|
|
|
578 |
|
|
|
0.7 |
|
Home
furnishings
|
|
|
43 |
|
|
|
1,126 |
|
|
|
1.4 |
|
Home
improvement
|
|
|
29 |
|
|
|
1,442 |
|
|
|
1.8 |
|
Office
supplies
|
|
|
10 |
|
|
|
788 |
|
|
|
1.0 |
|
Pet
supplies
|
|
|
2 |
|
|
|
32 |
|
|
|
* |
|
Sporting
goods
|
|
|
14 |
|
|
|
1,880 |
|
|
|
2.3 |
|
|
|
|
270 |
|
|
|
12,689 |
|
|
|
15.5 |
|
Totals
|
|
|
2,347 |
|
|
$ |
82,190 |
|
|
|
100.0 |
% |
* Less
than 0.1%
(1)
|
Includes
rental revenue for all properties owned by Realty Income at March 31,
2009, including revenue from properties reclassified as discontinued
operations of $50.
|
The
following table sets forth certain information regarding Realty Income’s
property portfolio (excluding properties owned by Crest) regarding the timing of
the lease term expirations (excluding extension options) on our 2,253 net
leased, single-tenant retail properties as of March 31, 2009 (dollars in
thousands):
|
|
Total
Portfolio
|
|
|
Initial
Expirations(3)
|
|
|
Subsequent
Expirations(4)
|
|
Year
|
|
Number
of Leases
Expiring(1)
|
|
|
Rental
Revenue
for
the
Quarter
Ended
March
31,
2009(2)
|
|
|
%
of
Total
Rental
Revenue
|
|
|
Number
of
Leases Expiring
|
|
|
Rental
Revenue
for
the
Quarter
Ended
March
31,
2009
|
|
|
%
of
Total
Rental
Revenue
|
|
|
Number
of
Leases
Expiring
|
|
|
Rental
Revenue
for
the
Quarter
Ended March 31,
2009
|
|
|
%
of
Total
Rental
Revenue
|
|
2009
|
|
|
132 |
|
|
$ |
2,684 |
|
|
|
3.4 |
% |
|
|
29 |
|
|
$ |
598 |
|
|
|
0.8 |
% |
|
|
103 |
|
|
$ |
2,086 |
|
|
|
2.6 |
% |
2010
|
|
|
98 |
|
|
|
2,043 |
|
|
|
2.6 |
|
|
|
47 |
|
|
|
1,074 |
|
|
|
1.4 |
|
|
|
51 |
|
|
|
969 |
|
|
|
1.2 |
|
2011
|
|
|
105 |
|
|
|
3,447 |
|
|
|
4.4 |
|
|
|
59 |
|
|
|
2,361 |
|
|
|
3.0 |
|
|
|
46 |
|
|
|
1,086 |
|
|
|
1.4 |
|
2012
|
|
|
115 |
|
|
|
2,721 |
|
|
|
3.4 |
|
|
|
74 |
|
|
|
1,846 |
|
|
|
2.3 |
|
|
|
41 |
|
|
|
875 |
|
|
|
1.1 |
|
2013
|
|
|
140 |
|
|
|
5,068 |
|
|
|
6.4 |
|
|
|
98 |
|
|
|
4,059 |
|
|
|
5.1 |
|
|
|
42 |
|
|
|
1,009 |
|
|
|
1.3 |
|
2014
|
|
|
61 |
|
|
|
2,250 |
|
|
|
2.8 |
|
|
|
36 |
|
|
|
1,806 |
|
|
|
2.3 |
|
|
|
25 |
|
|
|
444 |
|
|
|
0.5 |
|
2015
|
|
|
109 |
|
|
|
3,040 |
|
|
|
3.8 |
|
|
|
85 |
|
|
|
2,499 |
|
|
|
3.1 |
|
|
|
24 |
|
|
|
541 |
|
|
|
0.7 |
|
2016
|
|
|
114 |
|
|
|
2,040 |
|
|
|
2.6 |
|
|
|
112 |
|
|
|
1,995 |
|
|
|
2.5 |
|
|
|
2 |
|
|
|
45 |
|
|
|
0.1 |
|
2017
|
|
|
47 |
|
|
|
1,619 |
|
|
|
2.0 |
|
|
|
39 |
|
|
|
1,469 |
|
|
|
1.8 |
|
|
|
8 |
|
|
|
150 |
|
|
|
0.2 |
|
2018
|
|
|
42 |
|
|
|
1,789 |
|
|
|
2.3 |
|
|
|
34 |
|
|
|
1,617 |
|
|
|
2.0 |
|
|
|
8 |
|
|
|
172 |
|
|
|
0.3 |
|
2019
|
|
|
96 |
|
|
|
4,836 |
|
|
|
6.1 |
|
|
|
91 |
|
|
|
4,500 |
|
|
|
5.7 |
|
|
|
5 |
|
|
|
336 |
|
|
|
0.4 |
|
2020
|
|
|
76 |
|
|
|
2,894 |
|
|
|
3.6 |
|
|
|
73 |
|
|
|
2,821 |
|
|
|
3.5 |
|
|
|
3 |
|
|
|
73 |
|
|
|
0.1 |
|
2021
|
|
|
180 |
|
|
|
7,668 |
|
|
|
9.7 |
|
|
|
179 |
|
|
|
7,614 |
|
|
|
9.6 |
|
|
|
1 |
|
|
|
54 |
|
|
|
0.1 |
|
2022
|
|
|
100 |
|
|
|
2,923 |
|
|
|
3.7 |
|
|
|
99 |
|
|
|
2,875 |
|
|
|
3.6 |
|
|
|
1 |
|
|
|
48 |
|
|
|
0.1 |
|
2023
|
|
|
246 |
|
|
|
7,944 |
|
|
|
10.0 |
|
|
|
244 |
|
|
|
7,871 |
|
|
|
9.9 |
|
|
|
2 |
|
|
|
73 |
|
|
|
0.1 |
|
2024
|
|
|
61 |
|
|
|
1,726 |
|
|
|
2.2 |
|
|
|
61 |
|
|
|
1,726 |
|
|
|
2.2 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
2025
|
|
|
70 |
|
|
|
5,437 |
|
|
|
6.9 |
|
|
|
66 |
|
|
|
5,369 |
|
|
|
6.8 |
|
|
|
4 |
|
|
|
68 |
|
|
|
0.1 |
|
2026
|
|
|
120 |
|
|
|
6,815 |
|
|
|
8.6 |
|
|
|
118 |
|
|
|
6,757 |
|
|
|
8.5 |
|
|
|
2 |
|
|
|
58 |
|
|
|
0.1 |
|
2027
|
|
|
152 |
|
|
|
4,612 |
|
|
|
5.8 |
|
|
|
151 |
|
|
|
4,595 |
|
|
|
5.8 |
|
|
|
1 |
|
|
|
17 |
|
|
|
* |
|
2028
|
|
|
82 |
|
|
|
4,002 |
|
|
|
5.0 |
|
|
|
80 |
|
|
|
3,953 |
|
|
|
4.9 |
|
|
|
2 |
|
|
|
49 |
|
|
|
0.1 |
|
2029
|
|
|
46 |
|
|
|
1,124 |
|
|
|
1.4 |
|
|
|
45 |
|
|
|
1,109 |
|
|
|
1.4 |
|
|
|
1 |
|
|
|
15 |
|
|
|
* |
|
2030
|
|
|
20 |
|
|
|
921 |
|
|
|
1.2 |
|
|
|
20 |
|
|
|
921 |
|
|
|
1.2 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
2031
|
|
|
27 |
|
|
|
648 |
|
|
|
0.8 |
|
|
|
27 |
|
|
|
648 |
|
|
|
0.8 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
2032
|
|
|
2 |
|
|
|
57 |
|
|
|
0.1 |
|
|
|
2 |
|
|
|
57 |
|
|
|
0.1 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
2033
|
|
|
7 |
|
|
|
422 |
|
|
|
0.5 |
|
|
|
7 |
|
|
|
422 |
|
|
|
0.5 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
2034
|
|
|
2 |
|
|
|
230 |
|
|
|
0.3 |
|
|
|
2 |
|
|
|
230 |
|
|
|
0.3 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
2037
|
|
|
2 |
|
|
|
354 |
|
|
|
0.4 |
|
|
|
2 |
|
|
|
354 |
|
|
|
0.4 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
2043
|
|
|
1 |
|
|
|
13 |
|
|
|
* |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1 |
|
|
|
13 |
|
|
|
* |
|
Totals
|
|
|
2,253 |
|
|
$ |
79,327 |
|
|
|
100.0 |
% |
|
|
1,880 |
|
|
$ |
71,146 |
|
|
|
89.5 |
% |
|
|
373 |
|
|
$ |
8,181 |
|
|
|
10.5 |
% |
*Less
than 0.1%
(1)
|
Excludes
ten multi-tenant properties and 84 vacant unleased properties, one of
which is a multi-tenant property. The lease expirations for properties
under construction are based on the estimated date of completion of those
properties.
|
(2)
|
Includes
rental revenue of $50 from properties reclassified as discontinued
operations and excludes revenue of $2,863 from ten multi-tenant properties
and from 84 vacant and unleased properties at March 31,
2009.
|
(3)
|
Represents
leases to the initial tenant of the property that are expiring for the
first time.
|
(4)
|
Represents
lease expirations on properties in the portfolio, which have previously
been renewed, extended or
re-tenanted.
|
State
Diversification
The
following table sets forth certain state-by-state information regarding Realty
Income’s property portfolio (excluding properties owned by Crest) as of March
31, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
Approximate
|
|
|
Rental
Revenue for
|
|
|
Percentage
of
|
|
|
|
Number
of
|
|
|
Percent
|
|
|
Leasable
|
|
|
the
Quarter Ended
|
|
|
Rental
|
|
State
|
|
Properties
|
|
|
Leased
|
|
|
Square
Feet
|
|
|
March
31, 2009(1)
|
|
|
Revenue
|
|
Alabama
|
|
|
63 |
|
|
|
98 |
% |
|
|
425,300 |
|
|
$ |
1,924 |
|
|
|
2.4 |
% |
Alaska
|
|
|
2 |
|
|
|
100 |
|
|
|
128,500 |
|
|
|
277 |
|
|
|
0.3 |
|
Arizona
|
|
|
80 |
|
|
|
98 |
|
|
|
395,800 |
|
|
|
2,411 |
|
|
|
2.9 |
|
Arkansas
|
|
|
18 |
|
|
|
94 |
|
|
|
98,500 |
|
|
|
393 |
|
|
|
0.5 |
|
California
|
|
|
64 |
|
|
|
98 |
|
|
|
1,160,700 |
|
|
|
4,474 |
|
|
|
5.5 |
|
Colorado
|
|
|
53 |
|
|
|
96 |
|
|
|
486,300 |
|
|
|
1,839 |
|
|
|
2.2 |
|
Connecticut
|
|
|
24 |
|
|
|
96 |
|
|
|
276,600 |
|
|
|
1,181 |
|
|
|
1.4 |
|
Delaware
|
|
|
17 |
|
|
|
100 |
|
|
|
33,300 |
|
|
|
429 |
|
|
|
0.5 |
|
Florida
|
|
|
168 |
|
|
|
95 |
|
|
|
1,449,300 |
|
|
|
6,600 |
|
|
|
8.0 |
|
Georgia
|
|
|
132 |
|
|
|
97 |
|
|
|
926,900 |
|
|
|
3,998 |
|
|
|
4.9 |
|
Idaho
|
|
|
13 |
|
|
|
92 |
|
|
|
85,400 |
|
|
|
331 |
|
|
|
0.4 |
|
Illinois
|
|
|
74 |
|
|
|
97 |
|
|
|
877,800 |
|
|
|
4,175 |
|
|
|
5.1 |
|
Indiana
|
|
|
82 |
|
|
|
96 |
|
|
|
689,600 |
|
|
|
3,228 |
|
|
|
3.9 |
|
Iowa
|
|
|
22 |
|
|
|
95 |
|
|
|
296,100 |
|
|
|
1,010 |
|
|
|
1.2 |
|
Kansas
|
|
|
33 |
|
|
|
91 |
|
|
|
573,500 |
|
|
|
1,101 |
|
|
|
1.3 |
|
Kentucky
|
|
|
22 |
|
|
|
100 |
|
|
|
110,600 |
|
|
|
675 |
|
|
|
0.8 |
|
Louisiana
|
|
|
33 |
|
|
|
97 |
|
|
|
190,400 |
|
|
|
888 |
|
|
|
1.1 |
|
Maine
|
|
|
3 |
|
|
|
100 |
|
|
|
22,500 |
|
|
|
160 |
|
|
|
0.2 |
|
Maryland
|
|
|
29 |
|
|
|
97 |
|
|
|
271,200 |
|
|
|
1,581 |
|
|
|
1.9 |
|
Massachusetts
|
|
|
66 |
|
|
|
100 |
|
|
|
580,400 |
|
|
|
2,616 |
|
|
|
3.2 |
|
Michigan
|
|
|
52 |
|
|
|
98 |
|
|
|
257,300 |
|
|
|
1,246 |
|
|
|
1.5 |
|
Minnesota
|
|
|
21 |
|
|
|
100 |
|
|
|
392,100 |
|
|
|
1,547 |
|
|
|
1.9 |
|
Mississippi
|
|
|
71 |
|
|
|
97 |
|
|
|
347,600 |
|
|
|
1,505 |
|
|
|
1.8 |
|
Missouri
|
|
|
62 |
|
|
|
97 |
|
|
|
640,100 |
|
|
|
2,193 |
|
|
|
2.7 |
|
Montana
|
|
|
2 |
|
|
|
100 |
|
|
|
30,000 |
|
|
|
76 |
|
|
|
0.1 |
|
Nebraska
|
|
|
19 |
|
|
|
95 |
|
|
|
196,300 |
|
|
|
473 |
|
|
|
0.6 |
|
Nevada
|
|
|
15 |
|
|
|
93 |
|
|
|
191,000 |
|
|
|
749 |
|
|
|
0.9 |
|
New
Hampshire
|
|
|
14 |
|
|
|
100 |
|
|
|
109,900 |
|
|
|
563 |
|
|
|
0.7 |
|
New
Jersey
|
|
|
33 |
|
|
|
100 |
|
|
|
261,300 |
|
|
|
1,929 |
|
|
|
2.4 |
|
New
Mexico
|
|
|
8 |
|
|
|
100 |
|
|
|
56,400 |
|
|
|
178 |
|
|
|
0.2 |
|
New
York
|
|
|
40 |
|
|
|
93 |
|
|
|
502,300 |
|
|
|
2,332 |
|
|
|
2.8 |
|
North
Carolina
|
|
|
96 |
|
|
|
98 |
|
|
|
548,300 |
|
|
|
2,827 |
|
|
|
3.4 |
|
North
Dakota
|
|
|
6 |
|
|
|
100 |
|
|
|
36,600 |
|
|
|
57 |
|
|
|
0.1 |
|
Ohio
|
|
|
137 |
|
|
|
95 |
|
|
|
852,700 |
|
|
|
3,675 |
|
|
|
4.5 |
|
Oklahoma
|
|
|
25 |
|
|
|
96 |
|
|
|
145,900 |
|
|
|
584 |
|
|
|
0.7 |
|
Oregon
|
|
|
18 |
|
|
|
100 |
|
|
|
297,300 |
|
|
|
870 |
|
|
|
1.1 |
|
Pennsylvania
|
|
|
99 |
|
|
|
99 |
|
|
|
683,800 |
|
|
|
3,542 |
|
|
|
4.3 |
|
Rhode
Island
|
|
|
3 |
|
|
|
100 |
|
|
|
11,000 |
|
|
|
57 |
|
|
|
0.1 |
|
South
Carolina
|
|
|
100 |
|
|
|
99 |
|
|
|
374,400 |
|
|
|
2,176 |
|
|
|
2.7 |
|
South
Dakota
|
|
|
9 |
|
|
|
100 |
|
|
|
24,900 |
|
|
|
102 |
|
|
|
0.1 |
|
Tennessee
|
|
|
135 |
|
|
|
95 |
|
|
|
635,500 |
|
|
|
2,907 |
|
|
|
3.5 |
|
Texas
|
|
|
213 |
|
|
|
92 |
|
|
|
2,234,300 |
|
|
|
8,002 |
|
|
|
9.7 |
|
Utah
|
|
|
5 |
|
|
|
80 |
|
|
|
30,600 |
|
|
|
87 |
|
|
|
0.1 |
|
Vermont
|
|
|
4 |
|
|
|
100 |
|
|
|
12,700 |
|
|
|
124 |
|
|
|
0.2 |
|
Virginia
|
|
|
104 |
|
|
|
99 |
|
|
|
637,100 |
|
|
|
3,484 |
|
|
|
4.2 |
|
Washington
|
|
|
35 |
|
|
|
91 |
|
|
|
230,300 |
|
|
|
697 |
|
|
|
0.9 |
|
West
Virginia
|
|
|
2 |
|
|
|
100 |
|
|
|
23,000 |
|
|
|
121 |
|
|
|
0.1 |
|
Wisconsin
|
|
|
20 |
|
|
|
90 |
|
|
|
248,100 |
|
|
|
778 |
|
|
|
1.0 |
|
Wyoming
|
|
|
1 |
|
|
|
100 |
|
|
|
4,200 |
|
|
|
18 |
|
|
|
* |
|
Totals/Average
|
|
|
2,347 |
|
|
|
96 |
% |
|
|
19,093,700 |
|
|
$ |
82,190 |
|
|
|
100.0 |
% |
* Less
than 0.1%
(1)
|
Includes
rental revenue for all properties owned by Realty Income at March 31,
2009, including revenue from properties reclassified as discontinued
operations of $50.
|
Tenant
leases generally provide for limited increases in rent as a result of increases
in the tenants’ sales volumes, increases in the consumer price index (typically
subject to ceilings), and/or fixed increases. We expect that inflation will
cause these lease provisions to result in rent increases over time. During times
when inflation is greater than increases in rent, as provided for in the leases,
rent increases may not keep up with the rate of inflation.
Approximately
96.0% or 2,253 of our 2,347 retail properties in the portfolio are leased to
tenants under net leases where the tenant is responsible for property expenses.
Net leases tend to reduce our exposure to rising property expenses due to
inflation. Inflation and increased costs may have an adverse impact on our
tenants if increases in their operating expenses exceed increases in
revenue.
For
information on the impact of recent accounting pronouncements on our business,
see note 2 of the Notes to Consolidated Financial Statements.
Our
common stock is listed on the NYSE under the ticker symbol “O” with a cusip
number of 756109-104. Our central index key number is
726728.
Our
Class D cumulative redeemable preferred stock is listed on the NYSE under the
ticker symbol “OprD” with a cusip number of 756109-609.
Our
Class E cumulative redeemable preferred stock is listed on the NYSE under the
ticker symbol “OprE” with a cusip number of 756109-708.
We
maintain an Internet website at www.realtyincome.com. On our website we make
available, free of charge, copies of our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports, as soon as reasonably practicable after we electronically file these
reports with the SEC. None of the information on our website is
deemed to be a part of this report.
We are
exposed to interest rate changes primarily as a result of our credit facility
and long-term notes used to maintain liquidity and expand our real estate
investment portfolio and operations. Our interest rate risk management objective
is to limit the impact of interest rate changes on earnings and cash flow and to
lower our overall borrowing costs. To achieve these objectives we issue
long-term notes, primarily at fixed rates. We were not a party to any derivative
financial instruments at March 31, 2009. We do not enter into any derivative
transactions for speculative or trading purposes.
Our
interest rate risk is monitored using a variety of techniques. The following
table presents by year of expected maturity, the principal amounts, average
interest rates, and fair values as of March 31, 2009. This
information is presented to evaluate the expected cash flows and sensitivity to
interest rate changes (dollars in millions):
Expected Maturity
Data
Year
of maturity
|
|
Fixed
rate
debt
|
|
|
Average
interest rate
on
fixed rate debt
|
|
|
Variable
rate
debt
|
|
|
Average
interest rate
on
variable rate debt
|
|
2009
|
|
$ |
-- |
|
|
|
-- |
% |
|
$ |
-- |
|
|
|
-- |
% |
2010
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
2011(1)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
2012
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
2013(2)
|
|
|
100.0 |
|
|
|
5.375 |
|
|
|
-- |
|
|
|
-- |
|
Thereafter(3)
|
|
|
1,250.0 |
|
|
|
6.162 |
|
|
|
-- |
|
|
|
-- |
|
Totals
|
|
$ |
1,350.0 |
|
|
|
6.103 |
% |
|
$ |
-- |
|
|
|
-- |
% |
Fair
Value(4)
|
|
$ |
959.3 |
|
|
|
|
|
|
$ |
-- |
|
|
|
|
|
(1)
|
The
credit facility expires in May 2011. There was no outstanding
credit facility balance as of April 21,
2009.
|
(2)
|
$100
million matures in March
2013,
|
(3)
|
$150
million matures in November 2015, $275 million matures in September 2016,
$175 million matures in September 2017, $550 million matures in August
2019 and $100 million matures in March
2035.
|
(4)
|
We
base the fair value of the fixed rate debt at March 31, 2009 on the
closing market price or indicative price per each
note.
|
The
table incorporates only those exposures that exist as of March 31, 2009. It does
not consider those exposures or positions that could arise after that date. As a
result, our ultimate realized gain or loss, with respect to interest rate
fluctuations, would depend on the exposures that arise during the period, our
hedging strategies at the time, and interest rates.
All of
our outstanding notes and bonds have fixed interest rates. Our credit facility
balance is variable. At March 31, 2009, our credit facility balance was zero;
however, we intend to borrow funds on our credit facility in the
future. Based on a hypothetical credit facility borrowing of $50
million, a 1% change in interest rates would change our interest costs by
$500,000 per year.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures (as defined in Securities Exchange
Act 1934 Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
As of
and for the quarter ended March 31, 2009, we carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer. Based on the
foregoing, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective and were operating at
a reasonable assurance level.
Changes
in Internal Controls
There
have not been any significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation. There were no material weaknesses in our internal controls,
and therefore no corrective actions were taken.
Limitations
on the Effectiveness of Controls
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Internal
control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. Internal control over financial reporting also can be
circumvented by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial
reporting process. Therefore, it is possible to design into the process
safeguards to reduce, though not eliminate, this risk.
There
have been no material changes in our risk factors from those disclosed in our
2008 Annual Report on Form 10-K.
Articles of Incorporation
and By-Laws
|
3.1 |
|
Articles
of Incorporation of the Company, as amended by amendment No. 1 dated
May 10, 2005 and amendment No. 2 dated May 10, 2005 (filed as
exhibit 3.1 to the Company’s Form 10-Q dated June 30, 2005, and
incorporated herein by reference).
|
|
3.2 |
|
Amended
and Restated Bylaws of the Company dated December 12, 2007 (filed as
exhibit 3.1 to the Company’s Form 8-K, filed on December 13, 2007 and
dated December 12, 2007 and incorporated herein by reference), as amended
on May 13, 2008 (amendment filed as exhibit 3.1 to the Company’s Form 8-K,
filed on May 14, 2008 and dated May 13, 2008, and incorporated herein by
reference).
|
|
3.3 |
|
Articles
Supplementary to the Articles of Incorporation of the Company classifying
and designating the 7.375% Monthly Income Class D Cumulative Redeemable
Preferred Stock (filed as exhibit 3.8 to the Company’s Form 8-A, filed on
May 25, 2004 and incorporated herein by reference).
|
|
3.4 |
|
Articles
Supplementary to the Articles of Incorporation of the Company classifying
and designating additional shares of the 7.375% Monthly Income Class D
Cumulative Redeemable Preferred Stock (filed as exhibit 3.2 to the
Company’s Form 8-K, filed on October 19, 2004 and dated October 12, 2004
and incorporated herein by reference).
|
|
3.5
|
|
Articles
Supplementary to the Articles of Incorporation of the Company classifying
and designating the 6.75% Class E Cumulative Redeemable Preferred Stock
(filed as exhibit 3.5 to the Company’s Form 8-A, filed on December 5, 2006
and incorporated herein by
reference).
|
Instruments defining the
rights of security holders, including indentures
|
4.1 |
|
Indenture
dated as of October 28, 1998 between the Company and The Bank of New York
(filed as exhibit 4.1 to the Company’s Form 8-K, filed on October 28, 1998
and dated October 27, 1998 and incorporated herein by
reference).
|
|
4.2 |
|
Pricing
Committee Resolutions and Form of 8% Notes due 2009 (filed as exhibit 4.2
to the Company’s Form 8-K, filed on January 22, 1999 and dated January 21,
1999 and incorporated herein by reference).
|
|
4.3 |
|
Form
of 5.375% Senior Notes due 2013 (filed as exhibit 4.2 to the Company’s
Form 8-K, filed on March 7, 2003 and dated March 5, 2003 and incorporated
herein by reference).
|
|
4.4 |
|
Officer’s
Certificate pursuant to sections 201, 301 and 303 of the Indenture dated
October 28, 1998 between the Company and The Bank of New York, as
Trustee, establishing a series of securities entitled 5.375% Senior Notes
due 2013 (filed as exhibit 4.3 to the Company’s Form 8-K, filed on
March 7, 2003 and dated March 5, 2003 and incorporated herein by
reference).
|
|
4.5 |
|
Form
of 5.50% Senior Notes due 2015 (filed as exhibit 4.2 to the Company’s Form
8-K, filed on November 24, 2003 and dated November 19, 2003 and
incorporated herein by reference).
|
|
4.6 |
|
Officer’s
Certificate pursuant to sections 201, 301 and 303 of the Indenture dated
October 28, 1998 between the Company and The Bank of New York, as
Trustee, establishing a series of securities entitled 5.50% Senior Notes
due 2015 (filed as exhibit 4.3 to the Company’s Form 8-K, filed on
November 24, 2003 and dated November 19, 2003 and incorporated herein
by reference).
|
|
4.7 |
|
Form
of 5.875% Senior Notes due 2035 (filed as exhibit 4.2 to the Company’s
Form 8-K, filed on March 11, 2005 and dated March 8, 2005 and
incorporated herein by reference).
|
|
4.8 |
|
Officer’s
Certificate pursuant to sections 201, 301 and 303 of the Indenture dated
October 28, 1998 between the Company and The Bank of New York, as
Trustee, establishing a series of securities entitled 5.875% Senior
Debentures due 2035 (filed as exhibit 4.3 to the Company’s Form 8-K,
filed on March 11, 2005 and dated March 8, 2005 and incorporated
herein by reference).
|
|
4.9 |
|
Form
of 5.375% Senior Notes due 2017 (filed as exhibit 4.2 to the Company’s
Form 8-K, filed on September 16, 2005 and dated September 8, 2005 and
incorporated herein by reference).
|
|
4.10 |
|
Officer’s
Certificate pursuant to sections 201, 301 and 303 of the Indenture dated
October 28, 1998 between the Company and The Bank of New York, as
Trustee, establishing a series of securities entitled 5.375% Senior Notes
due 2017 (filed as exhibit 4.3 to the Company’s Form 8-K, filed on
September 16, 2005 and dated September 8, 2005 and incorporated
herein by
reference).
|
|
4.11 |
|
Form
of 5.95% Senior Notes due 2016 (filed as exhibit 4.2 to the Company’s Form
8-K,
filed on September 18, 2006 and dated September 6, 2006 and incorporated
herein by reference).
|
|
4.12 |
|
Officer’s
Certificate pursuant to sections 201, 301 and 303 of the Indenture dated
October 28, 1998 between the Company and The Bank of New York, as
Trustee, establishing a series of securities entitled 5.95% Senior Notes
due 2016 (filed as exhibit 4.3 to the Company’s Form 8-K, filed on
September 18, 2006 and dated September 6, 2006 and incorporated herein by
reference).
|
|
4.13 |
|
Form
of 6.75% Notes due 2019 (filed as exhibit 4.2 to Company’s Form 8-K, filed
on September 5, 2007 and dated August 30, 2007 and incorporated herein by
reference).
|
|
4.14 |
|
Officer’s
Certificate pursuant to sections 201, 301 and 303 of the Indenture dated
October 28, 1998 between the Company and The Bank of New York Trust
Company, N.A., as Trustee, establishing a series of securities entitled
6.75% Senior Notes due 2019 (filed as exhibit 4.3 to the Company’s
Form
8-K, filed on September 5, 2007 and dated August 30, 2007 and incorporated
herein by
reference).
|
Certifications
|
*
31.1 |
|
Rule
13a-14(a) Certifications as filed by the Chief Executive Officer pursuant
to SEC release No. 33-8212 and 34-47551.
|
|
*
31.2 |
|
Rule
13a-14(a) Certifications as filed by the Chief Financial Officer pursuant
to SEC release No. 33-8212 and 34-47551.
|
|
*
32 |
|
Section
1350 Certifications as furnished by the Chief Executive Officer and the
Chief Financial Officer pursuant to SEC release No. 33-8212 and
34-47551.
|
|
|
|
|
|
|
|
*
Filed
herewith
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
REALTY
INCOME CORPORATION
|
|
|
Date:
April 27, 2009
|
/s/ GREGORY J. FAHEY
|
|
Gregory
J. Fahey
|
|
Vice
President, Controller
|
|
(Principal
Accounting Officer)
|
44