10-K/APeriod: FY2018

REALTY INCOME CORP Annual Report (Amendment), Year Ended Dec 31, 2018

Filed March 1, 2019For Securities:O

Summary

Realty Income Corporation's (O) 2018 10-K filing, amended to correct an immaterial error, presents a strong financial and operational performance. The company, structured as a REIT, continued its long-standing policy of paying monthly dividends, with increases declared in both 2018 and early 2019. The portfolio remained robust, boasting a 98.6% occupancy rate across 5,797 properties leased to 262 tenants in 48 industries. Significant investments were made in new properties, totaling $1.8 billion, with a weighted average lease rate of 6.4% and a weighted average lease term of 14.8 years. Financially, Realty Income demonstrated growth in its key performance metrics. Funds From Operations (FFO) increased by 16.9% to $903.3 million, and Adjusted Funds From Operations (AFFO) grew by 10.3% to $924.6 million in 2018. The company also benefited from an upgrade in its credit rating by S&P to A- with a stable outlook. The firm has a conservative capital structure with total debt representing approximately 25.4% of its market capitalization as of December 31, 2018, and maintains significant liquidity through its credit facilities.

Financial Highlights

31 data points
Beta

Revenue

$1.33B

Net Income

$364.60M

27.5% Net Margin

EPS (Diluted)

$1.26

Total Assets

$15.26B

Cash & Equivalents

$10.39M

Free Cash Flow

$940.74M

Financial Statements
Beta
Revenue$1.33B
Interest Expense$266.02M
Net Income$364.60M
EPS (Basic)$1.26
EPS (Diluted)$1.26
Shares Outstanding (Basic)289.43M
Shares Outstanding (Diluted)289.92M

Key Highlights

  • 1Strong Portfolio Performance: Realty Income maintained a high occupancy rate of 98.6% across its diversified portfolio of 5,797 properties at year-end 2018.
  • 2Consistent Dividend Growth: The company continued its policy of monthly dividends, increasing them five times in 2018 and twice in early 2019, reflecting 85 consecutive quarterly increases.
  • 3Significant Investment Activity: Realty Income invested $1.8 billion in 764 new properties and properties under development/expansion during 2018.
  • 4Growth in FFO and AFFO: Funds From Operations (FFO) increased by 16.9% to $903.3 million, and Adjusted Funds From Operations (AFFO) grew by 10.3% to $924.6 million in 2018.
  • 5Credit Rating Improvement: S&P Global Ratings upgraded Realty Income's credit rating to A- with a stable outlook in August 2018.
  • 6Conservative Capital Structure: Total debt represented approximately 25.4% of the company's total market capitalization ($25.7 billion) as of December 31, 2018.
  • 7Enhanced Credit Facility: A new $3.25 billion unsecured credit facility was secured in October 2018, improving financing terms.

Frequently Asked Questions

Realty Income's investment strategy focuses on acquiring high-quality, freestanding, commercially-zoned, single-tenant properties that tenants consider critical for their operations. They prioritize locations in significant markets, with attractive demographics, good visibility, and accessibility. The company also seeks tenants with reliable cash flow, long-term lease commitments (10+ years), and those who are large owners and users of real estate. They frequently acquire large portfolios of single-tenant properties leased to different tenants across various industries.

Realty Income aims for a conservative capital structure, maintaining a conservative debt level on its balance sheet and solid interest and fixed charge coverage ratios. As of December 31, 2018, total outstanding borrowings were $6.5 billion, representing approximately 25.4% of its total market capitalization. The company historically funds its long-term capital needs through common stock, preferred stock, and long-term unsecured notes and bonds, while using its credit facility for short-term financing of acquisitions.

Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) are key non-GAAP financial measures used by Realty Income and the REIT industry to assess operating performance. FFO primarily adds back depreciation and amortization to net income, while AFFO further adjusts for items like straight-lining of rent, recurring capital expenditures, and amortization of lease intangibles. For Realty Income, AFFO is considered a useful measure of its performance and ability to fund its monthly dividends.

In October 2018, the company incurred a severance charge of $18.7 million (net of prior accruals) for its former CEO. This charge impacted General and Administrative Expenses and was also factored into the calculation of FFO and AFFO. Specifically, it reduced diluted EPS by $0.06 in 2018.