How did Realty Income perform financially in 2004?

Total revenue rose to $175.6 million from $145.3 million, and net income available to common stockholders increased 17.6% to $90.2 million ($1.15 per diluted share). FFO grew 14.3% to $118.2 million ($1.50 per diluted share). Growth came mainly from new property acquisitions and a full year of rent from 2003 acquisitions, partly offset by higher interest expense.

Is the dividend safe, and how much is it growing?

The company paid $1.24 per common share in 2004, about 82% of FFO available to common stockholders, and raised the monthly distribution to $0.11 in January 2005 (annualized $1.32). It has increased the dividend 32 times since its 1994 NYSE listing. However, the company cautions it cannot guarantee future increases, and distributions remain at the Board's discretion and subject to REIT distribution requirements and credit facility covenants.

What are the main risks to tenants and rental income?

Rental income depends heavily on convenience store operators (19.6% of rental revenue) and child care operators (13.7%). Most tenants are middle-market chains with more limited resources than upper-market chains, so they are more vulnerable to economic downturns. The company also has environmental liability exposure from fuel-selling tenants and relies on tenant indemnities and environmental insurance with a $10 million per occurrence limit.

How leveraged is the company and what are its debt maturities?

Total debt was $571.0 million at February 15, 2005, about 21.3% of total market capitalization. This included $480 million of fixed-rate unsecured notes (maturing 2007 to 2015, with a 6.7% weighted average rate) and $91.0 million on the variable-rate credit facility at about 3.5%. Interest coverage was 5.0x and fixed charge coverage was 3.9x. The $250 million credit facility expires in October 2005 and will need to be extended or replaced.

O 10-K FY2004 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 4, 2005. Cited figures are marked; the original filing is the authoritative source.

Realty Income Corporation (NYSE: O), 'The Monthly Dividend Company,' reported a strong 2004.

Net income available to common stockholders rose 17.6% to $90.2 million^a ($1.15 per diluted share, versus $1.08 in 2003), and FFO rose 14.3% to $118.2 million ($1.50 per diluted share, up 3.4%). Total revenue grew 20.9% to $175.6 million, driven largely by 172 properties acquired in 2004 and a full year of rent from 2003 acquisitions. The portfolio at year-end comprised 1,533 retail properties leased to 93 chains across 30 industries, 97.9% occupied, with a weighted average remaining lease term of about 12 years.

Crest Net, the taxable REIT subsidiary, sold 51 properties for $75.0 million^b, generating a $10.3 million gain. The company continued its dividend growth. The monthly distribution was raised to $0.11 in January 2005, an annualized $1.32 per share (about a 5.3% yield at the February 2005 price of $24.84), marking the 32nd increase since the 1994 NYSE listing.

Distributions in 2004 totaled $1.24^c per share, roughly 82% of FFO available to common stockholders. The company also split its stock 2-for-1 on December 31, 2004, redeemed its Class B and Class C preferred stock, and issued 5.1 million shares of 7.375% Class D preferred stock. The balance sheet remained conservative.

Total debt of $571.0 million^d (credit facility plus $480 million of fixed-rate unsecured notes) represented about 21% of total market capitalization as of February 15, 2005. Interest coverage was 5.0x and fixed charge coverage was 3.9x.

Investment-grade ratings were BBB/Baa2/BBB on senior notes. Key risks noted include tenant concentration in convenience stores (19.6% of rent) and child care (13.7%), the $250 million credit facility expiring in October 2005, and the REIT qualification requirement.

02—Key points

Key Highlights

Net income available to common stockholders increased 17.6% to $90.2 million, or $1.15 per diluted share, versus $1.08 in 2003.
FFO rose 14.3% to $118.2 million ($1.50 per diluted share); the company's stated primary objective is dependable monthly cash distributions supported by FFO.
Portfolio of 1,533 single-tenant retail properties in 48 states, 97.9% occupied, leased to 93 retail chains with a weighted average remaining lease term of about 12.0 years.
2004 investments totaled $215.3 million across 194 properties (172 Realty Income properties at a 9.5% initial weighted average lease yield), all 100% leased with 17.5-year initial lease terms.
Monthly distribution raised to $0.11 (annualized $1.32, about 5.3% yield); 2004 distributions of $1.24 were about 82% of FFO available to common stockholders.
Conservative capital structure: debt was about 21% of total market capitalization; the company has no mortgage debt, and its notes carry investment-grade ratings (BBB/Baa2/BBB).
Concentration risk: convenience stores (19.6% of rental revenue) and child care (13.7%) are the largest industries, and a $250 million credit facility expires in October 2005.

03—Questions

Frequently Asked Questions

How did Realty Income perform financially in 2004?
Total revenue rose to $175.6 million from $145.3 million, and net income available to common stockholders increased 17.6% to $90.2 million ($1.15 per diluted share). FFO grew 14.3% to $118.2 million ($1.50 per diluted share). Growth came mainly from new property acquisitions and a full year of rent from 2003 acquisitions, partly offset by higher interest expense.
Is the dividend safe, and how much is it growing?
The company paid $1.24 per common share in 2004, about 82% of FFO available to common stockholders, and raised the monthly distribution to $0.11 in January 2005 (annualized $1.32). It has increased the dividend 32 times since its 1994 NYSE listing. However, the company cautions it cannot guarantee future increases, and distributions remain at the Board's discretion and subject to REIT distribution requirements and credit facility covenants.
What are the main risks to tenants and rental income?
Rental income depends heavily on convenience store operators (19.6% of rental revenue) and child care operators (13.7%). Most tenants are middle-market chains with more limited resources than upper-market chains, so they are more vulnerable to economic downturns. The company also has environmental liability exposure from fuel-selling tenants and relies on tenant indemnities and environmental insurance with a $10 million per occurrence limit.
How leveraged is the company and what are its debt maturities?
Total debt was $571.0 million at February 15, 2005, about 21.3% of total market capitalization. This included $480 million of fixed-rate unsecured notes (maturing 2007 to 2015, with a 6.7% weighted average rate) and $91.0 million on the variable-rate credit facility at about 3.5%. Interest coverage was 5.0x and fixed charge coverage was 3.9x. The $250 million credit facility expires in October 2005 and will need to be extended or replaced.

04—Continue

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