How did Realty Income's core earnings and cash flow perform in 2001?

FFO rose 15.8% to $77.8 million and AFFO rose 15.7% to $78.9 million, both comfortably above the $64.9 million paid to common stockholders. FFO exceeded distributions by about $13.0 million, a cushion that supports the dividend's sustainability. Net cash from operating activities increased to $90.0 million from $56.6 million.

How much of the 2001 earnings growth came from property sales rather than recurring operations?

Gains on sales of investment properties were $10.5 million in 2001, versus $6.7 million in 2000, and Crest Net recorded a $3.4 million gain on sales of properties held for resale. These gains are non-recurring in nature and vary year to year, so investors should focus on FFO and AFFO for a cleaner view of recurring performance.

What is the company's leverage and refinancing risk?

Total debt was $315.3 million at year-end 2001, including $85.3 million on credit lines and $230 million of senior notes. The credit facilities bear floating rates at LIBOR plus 1.225%, which exposes the company to rate changes, and the $25 million facility expires February 2003 while the $200 million facility expires December 2003. Interest coverage was 4.4 times for debt service in 2001, and the company reports compliance with its covenants.

What risks does the portfolio carry?

The portfolio is 98.2% leased, with 20 properties vacant or available for lease or sale at year-end, and eight of those were under lease or sale negotiations as of March 2002. Most leases are net leases where tenants bear property costs, and rent escalators are tied to CPI, percentage rent, or fixed increases. Concentration exists in child care (about $28 million of rental revenue) and Children's World Learning Centers, which represented about $14.8 million, or over 10% of revenue.

Why was this 10-K filed with restated income statement presentations?

The company is preparing a shelf registration statement and, under SFAS 144 effective January 1, 2002, reclassified results from 31 properties (22 sold in the first nine months of 2002 and nine held for sale) as discontinued operations for 1999-2001. This changes the presentation of income from operations but has no effect on net income, total assets, or stockholders' equity.

O 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K/A filed December 19, 2002. Cited figures are marked; the original filing is the authoritative source.

Realty Income Corporation (NYSE: O), 'The Monthly Dividend Company,' filed this 10-K on December 19, 2002 covering fiscal 2001, though the filing's primary purpose is to revise prior-period financials under SFAS 144 ahead of a shelf registration.

The company owned 1,124 freestanding retail properties at December 31, 2001, 98.2% leased, spread across 78 retail chains in 24 industries and 48 states, with primarily 15-20 year net leases. Financially, 2001 was a solid year: total revenue rose to $124.1 million^a from $116.1 million, net income available to common stockholders climbed 28% to $57.8 million ($1.98 per share versus $1.69), and FFO increased 15.8% to $77.8 million, which covered common distributions of $64.9 million with roughly $13 million to spare. The balance sheet strengthened meaningfully.

Total assets grew to $1.0 billion, and stockholders' equity rose to $671.8 million^b, driven by 6.25 million common shares issued in 2001 at prices of $27.80 to $28.50. Total debt fell to $315.3 million from $404.0 million, reducing borrowings on the $200 million acquisition facility, and the company reported no mortgage debt. Investment-grade ratings (BBB / Baa3 / BBB-) support its access to capital.

Management reports an 11.0% initial unleveraged return on 2001 acquisitions of $131.8 million^c across 91 properties. Investors should note several items. Gains on property sales ($10.5 million on investment properties plus $3.4 million from Crest Net) contributed meaningfully to 2001 net income and are inherently variable.

Interest rate exposure rose as the company relies on floating-rate credit facilities at LIBOR plus 1.225%^d, and both credit facilities expire in 2002-2003, so refinancing will be a near-term priority. The company's occupancy is high, but 20 properties were vacant at year-end, and the Crest Net taxable REIT subsidiary's contribution to FFO depends on the timing of property sales.

02—Key points

Key Highlights

Portfolio of 1,124 retail properties in 48 states, 98.2% leased, with 78 retail chains and 99.6% single-tenant properties.
Net income available to common stockholders rose 28% to $57.8 million ($1.98 per diluted share) in 2001, up from $45.1 million ($1.69) in 2000.
Funds from operations (FFO) grew 15.8% to $77.8 million; AFFO rose 15.7% to $78.9 million, covering common distributions of $64.9 million.
Total revenue increased 6.9% to $124.1 million, with same-store rental growth of 1.7% to $103.3 million.
Total debt decreased to $315.3 million from $404.0 million, while stockholders' equity increased to $671.8 million following $157 million in net common stock proceeds.
Acquired 91 properties for $131.8 million at an estimated initial unleveraged yield of 11.0%; the company has no mortgage debt.
Investment-grade senior note ratings (BBB by Fitch, Baa3 by Moody's, BBB- by S&P); the $200M acquisition facility expires December 2003 and the $25M facility February 2003.

03—Questions

Frequently Asked Questions

How did Realty Income's core earnings and cash flow perform in 2001?
FFO rose 15.8% to $77.8 million and AFFO rose 15.7% to $78.9 million, both comfortably above the $64.9 million paid to common stockholders. FFO exceeded distributions by about $13.0 million, a cushion that supports the dividend's sustainability. Net cash from operating activities increased to $90.0 million from $56.6 million.
How much of the 2001 earnings growth came from property sales rather than recurring operations?
Gains on sales of investment properties were $10.5 million in 2001, versus $6.7 million in 2000, and Crest Net recorded a $3.4 million gain on sales of properties held for resale. These gains are non-recurring in nature and vary year to year, so investors should focus on FFO and AFFO for a cleaner view of recurring performance.
What is the company's leverage and refinancing risk?
Total debt was $315.3 million at year-end 2001, including $85.3 million on credit lines and $230 million of senior notes. The credit facilities bear floating rates at LIBOR plus 1.225%, which exposes the company to rate changes, and the $25 million facility expires February 2003 while the $200 million facility expires December 2003. Interest coverage was 4.4 times for debt service in 2001, and the company reports compliance with its covenants.
What risks does the portfolio carry?
The portfolio is 98.2% leased, with 20 properties vacant or available for lease or sale at year-end, and eight of those were under lease or sale negotiations as of March 2002. Most leases are net leases where tenants bear property costs, and rent escalators are tied to CPI, percentage rent, or fixed increases. Concentration exists in child care (about $28 million of rental revenue) and Children's World Learning Centers, which represented about $14.8 million, or over 10% of revenue.
Why was this 10-K filed with restated income statement presentations?
The company is preparing a shelf registration statement and, under SFAS 144 effective January 1, 2002, reclassified results from 31 properties (22 sold in the first nine months of 2002 and nine held for sale) as discontinued operations for 1999-2001. This changes the presentation of income from operations but has no effect on net income, total assets, or stockholders' equity.

04—Continue

← View all 10-K filings