10-QPeriod: Q3 FY2008

REALTY INCOME CORP Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 31, 2008For Securities:O

Summary

Realty Income Corporation (O) reported its financial results for the third quarter and the first nine months of 2008. Despite a challenging economic environment marked by financial market disruptions, the company demonstrated resilience. Total assets saw a slight increase to $3.09 billion, while total liabilities decreased slightly to $1.52 billion. Net income available to common stockholders for the nine months ended September 30, 2008, was $79.3 million, a decrease from the prior year's $89.0 million, primarily due to lower gains from property sales compared to the strong prior year. Funds From Operations (FFO) also saw a modest decline. The company maintained a strong focus on its core strategy of acquiring and managing net-leased retail properties. Significant activity included the issuance of common stock to repay maturing debt and entering into a new, larger acquisition credit facility. The company continued its policy of monthly dividend payments, with a consistent pattern of increases, underscoring its commitment to shareholder returns.

Key Highlights

  • 1Total assets increased slightly to $3.09 billion as of September 30, 2008, while liabilities decreased to $1.52 billion.
  • 2Net income available to common stockholders for the nine months ended September 30, 2008, was $79.3 million, a decrease from $89.0 million in the same period of 2007, largely impacted by lower property sale gains.
  • 3Funds From Operations (FFO) for the nine months ended September 30, 2008, decreased by 2.4% to $138.5 million compared to the prior year.
  • 4The company successfully issued $74.5 million in common stock in September 2008 to repay upcoming senior notes.
  • 5A new $355 million acquisition credit facility was secured in May 2008, replacing the previous $300 million facility, providing enhanced financial flexibility.
  • 6Rental revenue for the nine months increased by 16.7% to $245.7 million, driven by property acquisitions.
  • 7The company continued its monthly dividend payments, with a 44th consecutive quarterly increase declared in October 2008, highlighting a consistent return to shareholders.

Frequently Asked Questions

For the nine months ended September 30, 2008, Realty Income reported a decrease in net income available to common stockholders to $79.3 million from $89.0 million in the prior year. This was primarily influenced by lower gains from property sales compared to the strong performance in 2007. Funds From Operations (FFO) also saw a slight decline. Despite these headwinds, the company's rental revenue increased by 16.7%, driven by acquisitions, indicating operational resilience.

Realty Income proactively managed its liquidity by issuing $74.5 million in common stock in September 2008, with proceeds designated to repay its $100 million 8.25% Senior Notes due November 2008 and $20 million 8% Notes due January 2009. Additionally, the company secured a new $355 million acquisition credit facility, providing ample borrowing capacity for future needs and replacing its prior facility.

The company's portfolio of 2,355 retail properties remained well-occupied at 96.9% as of September 30, 2008. The top contributing industries to rental revenue during the quarter were Convenience Stores (16.3%), Restaurants (21.4%), and Theaters (9.1%). The majority of properties are net-leased, reducing the company's exposure to property operating expenses and inflation.

Buffets Holdings, a major tenant, filed for Chapter 11 bankruptcy. While some leases were rejected, Realty Income successfully renegotiated terms for the remaining 105 properties (104 owned by Realty Income and 1 by Crest). Rents were modified from an annualized $22.4 million to $19.4 million for the Realty Income properties, representing approximately 87% of previous rents. Despite this modification, Buffets Holdings remains the largest tenant, accounting for about 5.9% of annualized lease revenue.