10-QPeriod: Q3 FY2012

REALTY INCOME CORP Quarterly Report for Q3 Ended Sep 30, 2012

Filed October 25, 2012For Securities:O

Summary

Realty Income Corporation (O) reported its financial results for the nine months ended September 30, 2012. The company's total assets grew to $5.04 billion from $4.42 billion at the end of 2011, primarily driven by significant investments in real estate. Rental revenue increased by 15.2% year-over-year for the nine-month period, reaching $348.7 million. Net income available to common stockholders saw a decrease to $86.0 million from $97.8 million in the prior year period, impacted by merger-related costs and preferred stock redemption charges. A major development during the period was the announcement of a pending acquisition of American Realty Capital Trust (ARCT) for approximately $2.95 billion, expected to close in late 2012 or early 2013. This strategic move aims to significantly expand Realty Income's property portfolio. The company also strengthened its liquidity by entering into a new $1 billion unsecured credit facility and issued new debt. Despite a slight decrease in net income per share, key performance indicators like Normalized FFO and AFFO showed year-over-year growth, indicating operational strength.

Financial Highlights

23 data points
Beta

Net Income

$37.46M

EPS (Diluted)

$0.20

Total Assets

$5.04B

Free Cash Flow

$52.59M

Financial Statements
Beta
Operating Income$107.86M
Interest Expense$29.72M
Net Income$37.46M
EPS (Basic)$0.20
EPS (Diluted)$0.20
Shares Outstanding (Basic)132.76M
Shares Outstanding (Diluted)132.93M

Key Highlights

  • 1Total assets increased to $5.04 billion as of September 30, 2012, up from $4.42 billion at December 31, 2011, reflecting substantial real estate investments.
  • 2Rental revenue for the nine months ended September 30, 2012, was $348.7 million, a 15.2% increase compared to $302.6 million in the same period of 2011.
  • 3Realty Income announced a significant pending acquisition of American Realty Capital Trust (ARCT) for approximately $2.95 billion, expected to close by early 2013.
  • 4The company entered into a new $1 billion unsecured acquisition credit facility in May 2012, increasing its borrowing capacity.
  • 5Net income available to common stockholders decreased to $86.0 million for the first nine months of 2012 from $97.8 million in the prior year, influenced by merger costs and preferred stock redemption charges.
  • 6Normalized Funds from Operations (FFO) available to common stockholders increased by 7.4% to $194.8 million for the first nine months of 2012 compared to the prior year.
  • 7Adjusted Funds from Operations (AFFO) available to common stockholders grew by 8.9% to $201.3 million for the first nine months of 2012 compared to the same period in 2011.

Frequently Asked Questions

Realty Income's primary growth strategy is to acquire additional properties, focusing on freestanding, single-tenant locations leased to regional and national commercial enterprises under long-term, net-lease agreements. They also aim to increase distributions through active portfolio management, including contractual rent increases and re-leasing vacant properties.

The acquisition of ARCT is expected to add approximately 500 properties to Realty Income's portfolio, significantly expanding its scale and diversification. However, it also introduces risks related to integration, potential costs, and operational challenges in new industries, as detailed in the 'Risk Factors' section. The transaction is valued at approximately $2.95 billion.

Realty Income maintains a conservative capital structure, aiming for a debt-to-total market capitalization ratio below 30%. They fund their operations and acquisitions through cash flow from operations, borrowing on their credit facility, and public securities offerings. In October 2012, they issued $350 million in 2.00% senior unsecured notes due 2018 and $450 million in 3.25% senior unsecured notes due 2022 to repay outstanding credit facility borrowings.

FFO (Funds from Operations) and AFFO (Adjusted Funds from Operations) are non-GAAP measures used to evaluate REIT performance. Normalized FFO excludes merger-related costs. For the first nine months of 2012, FFO increased by 4.4% to $189.3 million, Normalized FFO increased by 7.4% to $194.8 million, and AFFO increased by 8.9% to $201.3 million, indicating positive operational trends despite the decrease in net income.