How did Realty Income perform financially in 1996?

Total revenue increased to $56.96 million from $51.56 million, and net income rose to $32.2 million ($1.40 per share) from $25.6 million ($1.27 per share). FFO grew 4.0% to $2.08 per share, or $47.7 million in total. The 1995 results included a $0.23 special distribution and the 1994 results were reduced by $11.2 million of one-time Consolidation costs.

Is the dividend safe, and what is the current yield?

The company raised its monthly distribution to $0.1575 per share in December 1996 and paid that rate through March 1997, an annualized $1.89. At a February 24, 1997 price of $25.875, that is a yield of about 7.3%. Management does not guarantee the level will be maintained. 1996 distributions paid totaled $48.1 million, which exceeded FFO-based cash flow after excluding special distributions by about $4.9 million.

How much debt does the company carry and how is it financed?

Total liabilities were $79.9 million at year-end 1996, mostly a $70.0 million line of credit under a $130 million three-year unsecured facility expiring November 1999, priced at LIBOR plus 1.25%. The company redeemed $12.6 million of senior notes in March 1996. It has an unrecognized $80,000 loss on a $90 million treasury rate lock hedge, and it expects to issue debt in the second quarter of 1997. Management says the company keeps a conservative capital structure, with most capital in equity.

What are the main risks to investors?

Key risks include tenant concentration (child care 42.0%, restaurants 24.3%, after-market automotive 15.3% of rental revenue) and reliance on a few large tenants, including Children's World, La Petite Academy, Golden Corral, and CSK Auto. The strategy also targets less-than-investment-grade retailers, which carries higher default risk. Other risks include dilution from future equity issuance, interest rate exposure on floating-rate borrowings, and the loss of REIT status, which would substantially reduce distributions. About 13.2% of 1996 distributions were classified as return of capital.

O 10-K FY1996 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 26, 1997. Cited figures are marked; the original filing is the authoritative source.

Realty Income Corporation (NYSE: O) reported a steady, predictable 1996 for its freestanding, single-tenant retail net lease portfolio.

The company owned 740 properties in 42 states (5.2 million sq. ft.) at January 1, 1997, with approximately 99% leased. Total revenue rose to $56.96 million^a from $51.56 million, and net income increased to $32.2 million ($1.40 per share) from $25.6 million ($1.27 per share). Funds from operations (FFO) per share grew 4.0% to $2.08, and FFO totaled $47.7 million.

The company acquired 62 properties in 1996 for about $55.5 million^b at a weighted average estimated return of 10.6%, and it increased its monthly distribution to $0.1575 per share (an annualized $1.89, roughly a 7.3% yield at the February 24, 1997 price of $25.875). The balance sheet shows increased leverage. Total liabilities rose to $79.9 million from $36.2 million, driven by a $70.0 million outstanding balance on the $130 million unsecured acquisition credit facility, which had $49.5 million of availability as of March 10, 1997.

Stockholders' equity declined to $374.2 million^c. Management reports total indebtedness was about 12.8% of equity market capitalization at year-end 1996, and that the company redeemed $12.6 million of variable rate senior notes in March 1996. Investment-grade ratings were received from Duff & Phelps (BBB), Moody's (Baa3), and S&P (BBB-) in December 1996.

Investors should weigh concentration and credit risk. Child care tenants generated 42.0%^d of 1996 rental revenue, restaurants 24.3%, and after-market automotive 15.3%. The four largest tenants (Children's World, La Petite Academy, Golden Corral, and CSK Auto) accounted for roughly 61% of rental revenue combined.

The company's strategy focuses on sale-leaseback financing to middle-market and less-than-investment-grade retailers, which management believes offers better risk-adjusted returns but carries higher tenant credit risk. Distributions exceeded FFO-based cash needs modestly, and 13.2% of 1996 distributions were classified as return of capital.

02—Key points

Key Highlights

Portfolio of 740 properties in 42 states with 5.2 million sq. ft. leased at about 99% as of January 1, 1997; average remaining lease term of 8.6 years.
FFO per share rose 4.0% to $2.08 in 1996; net income increased 26% to $32.2 million ($1.40 per share).
Acquired 62 properties in 1996 for about $55.5 million, with an estimated weighted average initial return of 10.6%.
Monthly distribution increased to $0.1575 per share (annualized $1.89, approximately 7.3% yield at $25.875).
Investment-grade senior debt ratings received in December 1996: BBB (Duff & Phelps), Baa3 (Moody's), BBB- (S&P).
Leverage increased: total liabilities rose to $79.9 million from $36.2 million, with $70.0 million drawn on the $130 million credit facility; debt about 12.8% of equity market cap.
Concentration risk: child care tenants generated 42.0% of 1996 rental revenue and the four largest tenants roughly 61% combined.

03—Questions

Frequently Asked Questions

How did Realty Income perform financially in 1996?
Total revenue increased to $56.96 million from $51.56 million, and net income rose to $32.2 million ($1.40 per share) from $25.6 million ($1.27 per share). FFO grew 4.0% to $2.08 per share, or $47.7 million in total. The 1995 results included a $0.23 special distribution and the 1994 results were reduced by $11.2 million of one-time Consolidation costs.
Is the dividend safe, and what is the current yield?
The company raised its monthly distribution to $0.1575 per share in December 1996 and paid that rate through March 1997, an annualized $1.89. At a February 24, 1997 price of $25.875, that is a yield of about 7.3%. Management does not guarantee the level will be maintained. 1996 distributions paid totaled $48.1 million, which exceeded FFO-based cash flow after excluding special distributions by about $4.9 million.
How much debt does the company carry and how is it financed?
Total liabilities were $79.9 million at year-end 1996, mostly a $70.0 million line of credit under a $130 million three-year unsecured facility expiring November 1999, priced at LIBOR plus 1.25%. The company redeemed $12.6 million of senior notes in March 1996. It has an unrecognized $80,000 loss on a $90 million treasury rate lock hedge, and it expects to issue debt in the second quarter of 1997. Management says the company keeps a conservative capital structure, with most capital in equity.
What are the main risks to investors?
Key risks include tenant concentration (child care 42.0%, restaurants 24.3%, after-market automotive 15.3% of rental revenue) and reliance on a few large tenants, including Children's World, La Petite Academy, Golden Corral, and CSK Auto. The strategy also targets less-than-investment-grade retailers, which carries higher default risk. Other risks include dilution from future equity issuance, interest rate exposure on floating-rate borrowings, and the loss of REIT status, which would substantially reduce distributions. About 13.2% of 1996 distributions were classified as return of capital.

04—Continue

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