10-KPeriod: FY2005

REALTY INCOME CORP Annual Report, Year Ended Dec 31, 2005

Filed February 23, 2006For Securities:O

Summary

Realty Income Corporation's (O) 2005 10-K report highlights a stable financial year characterized by strategic property acquisitions and a strong commitment to consistent monthly dividends. The company continued to execute its proven strategy of acquiring freestanding, single-tenant retail properties under long-term net lease agreements with regional and national retail chains. During 2005, Realty Income invested approximately $486.6 million in 156 new properties, reinforcing its diversified portfolio across 29 retail industries and 48 states, maintaining a high occupancy rate of 98.5%. The report emphasizes the company's continued growth in Funds from Operations (FFO), which increased by 9.6% to $129.6 million, or $1.62 per diluted share, demonstrating effective portfolio management and acquisition capabilities. Management also noted successful capital raises, including a $175 million issuance of 12-year senior unsecured notes and the issuance of $100 million in 30-year senior unsecured bonds, strengthening the company's balance sheet and providing capital for future investments. The company's credit ratings were also upgraded by Fitch Ratings and had a positive outlook from Moody's, reflecting its sound financial health.

Key Highlights

  • 1Acquired 156 new properties for $486.6 million in 2005, expanding its diversified portfolio.
  • 2Funds from Operations (FFO) increased by 9.6% to $129.6 million, or $1.62 per diluted share.
  • 3Maintained a high portfolio occupancy rate of 98.5% across 1,646 retail properties.
  • 4Completed significant debt financing with a $175 million 12-year note issuance and a $100 million 30-year bond issuance.
  • 5Received credit rating upgrades and positive outlooks from major agencies (Fitch, Moody's).
  • 6Continued the policy of paying monthly cash distributions, with the 37th increase since 1994.
  • 7Portfolio remains heavily weighted towards single-tenant net-leased retail properties (99.7% of properties).

Frequently Asked Questions

Realty Income's primary business strategy is to acquire and own freestanding, single-tenant retail properties that are net-leased to regional and national retail chains under long-term lease agreements (typically 15-20 years). The goal is to generate dependable monthly cash distributions from a consistent and predictable level of Funds from Operations (FFO) per share.

In 2005, Realty Income financed its acquisitions through a combination of equity and debt. This included issuing 4.1 million shares of common stock, raising approximately $92.7 million, and issuing $175 million in 12-year senior unsecured notes and $100 million in 30-year senior unsecured bonds. These funds were used for property acquisitions and general corporate purposes.

The company's credit ratings were upgraded by Fitch Ratings and Moody's Investors Service had a 'positive' outlook as of the filing date. Investment-grade ratings from major agencies like Fitch, Moody's, and S&P (BBB+ or equivalent) indicate a lower risk of default and generally result in a lower cost of capital, which is crucial for a real estate investment trust reliant on debt financing for growth.

At the end of 2005, Realty Income owned properties leased to 101 different retail chains across 29 separate retail industries. The company emphasizes diversification to provide predictable investment results, with no single industry accounting for more than 17.8% of its rental revenue in the fourth quarter of 2005. The portfolio is particularly strong in convenience stores (18.7% of revenue) and child care (12.7% of revenue), and over 81% of rental revenue comes from retailers with a service component.