EX-99.1 2 a05-2849_1ex99d1.htm EX-99.1

Exhibit 99.1

 

PLEASE CONTACT:

Tere Miller

Vice President,

Corporate Communications

760-741-2111 ext. 177

 

REALTY INCOME ANNOUNCES FOURTH QUARTER

AND YEAR-END 2004 OPERATING RESULTS

 

ESCONDIDO, CALIFORNIA, February 2, 2005...Realty Income Corporation (Realty Income), The Monthly Dividend Company®, (NYSE: O) today announced operating results for the fourth quarter and year ended December 31, 2004.

 

After the market close on December 31, 2004, a 2-for-1 stock split, declared on November 17, 2004, became effective. Shareholders received an additional share of common stock for each share they owned. The increase in the number of common shares outstanding after the stock split is reflected in all periods presented and all per share data has been adjusted for the stock split.

 

COMPANY HIGHLIGHTS

 

For the quarter ended December 31, 2004:

 

•                  Revenue increased 14.5% to $45.8 million

•                  Funds from Operations (FFO) available to common stockholders decreased 8.0% to $28.8 million

•                  FFO per diluted common share decreased 14.3% to $0.36 per share

•                  FFO per diluted share was reduced by a $0.03 per share non-cash charge for property impairments

•                  Net income available to common stockholders per diluted common share decreased to $0.31 per share

•                  Same store rents increased 1.3% to $33.64 million

•                  Invested $37.3 million in 12 additional properties

•                  Increased the monthly dividend amount for the 29th consecutive quarter to an annual rate of $1.32 per share

•                  Celebrated 10 years of trading on the New York Stock Exchange (NYSE)

 

For the year ended December 31, 2004:

 

•                  Revenue increased 20.9% to $175.6 million

•                  FFO available to common stockholders increased 14.3% to $118.2 million

•                  FFO per diluted common share increased 3.4% to $1.50 per share

•                  FFO per diluted common share was reduced by $0.08 per share in non-cash charges for property impairments and origination costs on redeemed preferred stock

•                  Net income available to common stockholders per diluted common share increased to $1.15 per share

•                  Same store rents increased 1.8% to $132.31 million

•                  Invested $215.3 million in 194 properties during 2004

•                  Portfolio occupancy was 97.9% at the end of the year

•                  Paid the 413th consecutive monthly dividend in December 2004

•                  Raised $71.6 million in a common stock offering

•                  Redeemed all outstanding shares of Class B and C Preferred shares

•                  Raised approximately $127.9 million in a Class D Preferred stock offering

•                  Total return to stockholders was 32.7% in 2004

 

1


 

Financial Results

 

Revenue Increases

Realty Income’s revenue for the quarter ended December 31, 2004 increased 14.5% to $45.8 million as compared to $40.0 million for the same quarter in 2003.

 

Revenue for the year ended December 31, 2004 increased 20.9% to $175.6 million from $145.3 million for the year ended 2003.

 

Net Income Available to Common Stockholders

Net income available to common stockholders for the quarter ended December 31, 2004 was $24.3 million as compared to $25.1 million for the same period in 2003. On a diluted per common share basis, net income for the quarter was $0.31 per share as compared to $0.34 per share for the same period in 2003.

 

Net income available to common stockholders, for the year ended December 31, 2004, was $90.2 million as compared to $76.7 million in 2003. On a diluted per common share basis, net income was $1.15 per share in 2004 as compared to $1.08 per share in 2003. During 2004, net income available to common stockholders included one-time, non-cash charges totaling $3.8 million, or approximately $0.05 per share. These non-cash charges represent the Class B and Class C preferred stock original issuance costs that were paid in 1999 and recorded as a reduction to net income available to common stockholders in 2004 when the stock was redeemed.

 

The calculation to determine net income for a real estate company includes gains from the sale of investment properties and impairments. The amount of gains on property sales and impairments varies from quarter to quarter. This variance can significantly impact net income.

 

During the fourth quarter of 2004, income from continuing operations available to common stockholders increased by $0.01 to $0.25 per diluted share as compared to $0.24 per diluted share for the same period in 2003.

 

During 2004, income from continuing operations available to common stockholders increased by $0.02 to $0.90 per diluted share as compared to $0.88 per diluted share in 2003.

 

FFO Available to Common Stockholders

For the quarter ended December 31, 2004, FFO decreased 8.0% to $28.8 million as compared to $31.3 million for the same quarter in 2003. FFO per diluted common share decreased 14.3% to $0.36 per share for the quarter ended December 31, 2004 as compared to $0.42 per share for the same period in 2003. FFO per diluted common share was reduced by a $0.03 per share non-cash charge for property impairment.

 

For the year ended December 31, 2004, FFO increased 14.3% to $118.2 million as compared to $103.4 million in 2003. FFO per diluted common share increased 3.4% to $1.50 per share as compared to $1.45 per share in 2003. FFO per diluted common share for 2004 was reduced by $0.08 per share in non-cash charges for property impairments and origination costs on redeemed preferred stock. For 2004, non-cash charges for property impairments equated to $0.03 in FFO per diluted common share and non-cash charges for origination costs on redeemed preferred stock equated to $0.05 in FFO per diluted common share.

 

In addition, the comparable FFO figures for the quarter and year ended December 31, 2003 have been adjusted to reflect additional impairments on the sale of certain properties during these periods. These additional impairments relate to properties where a contract for the sale of a property and the closing of the sale transaction occurred during the same quarterly period. As these transactions were contracted for and closed during the same quarter, losses on the sales were booked and reflected in the Company’s financial statements but no impairments were booked on these properties in the Company’s calculation of FFO. The Company now believes that such impairments on property sales should be deducted from the calculation of FFO. FFO for the quarter and year ended December 31, 2003 was reduced by $240,000 or $0.003 per share and $672,000 or $0.009 per share, respectively. The impact from these transactions were previously included in the Company’s calculation for net income and, as such, have no impact on the Company’s previously reported consolidated statements of income or consolidated balance sheets for these periods.

 

The Company considers FFO to be an appropriate supplemental measure of a Real Estate Investment Trust’s (REITs) operating performance as it is based on net income analysis of property portfolio performance that excludes non-cash items such as depreciation. FFO is an alternative, non-GAAP, measure that is also considered to be a good indicator of a company’s ability to generate income to pay dividends. Realty Income defines FFO consistent with the National Association of Real Estate Investment Trust’s (NAREIT) definition as net income available to common stockholders

 

2


 

plus depreciation and amortization of assets uniquely significant to the real estate industry. (See reconciliation of net income available to common stockholders to FFO on page eight.)

 

Dividend Information

In December 2004, Realty Income announced the 29th consecutive quarterly increase in the amount of the monthly dividend on its common stock. This marked the 32nd increase in the amount of the dividend since the Company’s listing on the New York Stock Exchange in 1994. The stock-split adjusted monthly dividend amount was increased to $0.11 per share from $0.109375 per share for an annualized amount of $1.32 per share. Through December 2004, on an annualized basis, the common stock dividend increased 10.0%.

 

During 2004, Realty Income paid twelve monthly dividends totaling $1.24125 per common share and increased the amount of the monthly dividend five times. Throughout its 36-year operating history, the Company has paid 413 consecutive monthly dividends. The Company continues its 36-year history of declaring and paying dividends every month.

 

During 2004, the Company also paid dividends totaling $1.01563 per share on its Class B preferred stock, $1.37882 per share on its Class C preferred stock, and $1.01406 per share on its Class D preferred stock.

 

Real Estate Portfolio Update

 

As of December 31, 2004, Realty Income’s portfolio of freestanding, single-tenant, retail properties consisted of 1,533 properties located in 48 states, leased to 93 retail chains doing business in 30 retail industries. The properties are leased under long-term, net leases with a weighted average remaining lease term of approximately 12.0 years.

 

Portfolio Management Activities

The Company’s portfolio of retail real estate, owned primarily under 15- to 20-year net leases, continues to perform well and provide dependable lease revenue supporting the payment of monthly dividends. As of December 31, 2004, portfolio occupancy was 97.9% with only 32 properties available for lease out of 1,533 properties in the portfolio.

 

Rent Increases

Same store rents, on the 1,052 properties under lease during the three months ended December 31, 2004 and 2003, increased 1.3% to $33.64 million from $33.21 million in 2003. Same store rents on the same 1,052 properties under lease during the years ended December 31, 2004 and 2003, increased 1.8% to $132.31 million compared to $129.94 million in 2003.

 

Property Acquisitions

During the fourth quarter, Realty Income invested $37.3 million in 12 new properties and properties under development with an initial average contractual lease yield of 9.1%. The 12 new properties are located in nine states and are 100% leased under net-lease agreements with an initial average lease length of  20.4 years. They are leased to seven different retail chains in six industries: automotive service, automotive collision service, health and fitness, motor vehicle dealership, restaurant and sporting goods.

 

For the year ended December 31, 2004, Realty Income and its wholly-owned subsidiary, Crest Net Lease, Inc., invested $215.3 million in 194 new properties and properties under development. Realty Income invested $193.8 million in 172 new properties and properties under development with an initial average contractual lease yield of 9.5%. The 172 new properties are located in 18 states and are 100% leased under net-lease agreements with an initial average lease length of 17.5 years. They are leased to 12 different retail chains in seven industries: automotive service, automotive collision service, convenience store, health and fitness, motor vehicle dealership, restaurant and sporting goods. Crest Net Lease invested $21.5 million in 22 new properties and properties under development.

 

Property Dispositions

Realty Income continued to successfully execute its asset disposition program. The objective of the program is to sell assets when the Company believes the reinvestment of the sale proceeds will generate higher returns, enhance the credit quality of the Company’s real estate portfolio or increase the average lease length.

 

During the fourth quarter ended December 31, 2004, Realty Income sold 16 properties and executed a partial sale of land from three properties for $14.8 million, which resulted in a gain on sales from 14 properties of $5.9 million and impairments on two properties of $1.3 million. The properties sold consisted of: five child care locations, one consumer electronics store, six convenience stores and four restaurants. The proceeds were, or will be, used to pay down the Company’s acquisition credit facility and invest in new properties.

 

3


 

For the year ended December 31, 2004, Realty Income sold 43 properties and executed a partial sale of land from three properties for $35.4 million, which resulted in a gain on sales for 38 properties of $12.7 million and impairments on five properties of $1.7 million. The properties sold consisted of: one automotive service location, 16 child care locations, three consumer electronics stores, 10 convenience stores, and 13 restaurants. The proceeds were, or will be, used to pay down the Company’s acquisition credit facility and invest in new properties.

 

Other Activities

 

Issued Common Stock

In March 2004, Realty Income issued 1.6 million common shares (prior to the stock split) priced at $44.75 per share. Gross proceeds from the offering were $71.6 million. The net proceeds from this offering were used to repay borrowings on the Company’s $250 million unsecured acquisition credit facility.

 

Redeemed Class B and Class C Preferred Shares

In June 2004, Realty Income redeemed all 2,745,700 shares outstanding of the Company’s 9-3/8% Class B Cumulative Redeemable Preferred stock. In July 2004, the Company redeemed all 1,380,000 shares outstanding of the Company’s 9-1/2% Class C Cumulative Redeemable Preferred stock.

 

Issued Class D Preferred Shares

Realty Income raised approximately $127.9 million by issuing 5.1 million shares of 7-3/8% Class D Cumulative Redeemable Preferred stock with dividends paid monthly. The shares were issued in an offering of 4.0 million preferred shares on May 27, 2004 priced at $25.00 per share and in an additional offering of 1.1 million preferred shares priced at $25.4311 per share on October 19, 2004. The net proceeds from both offerings were used to redeem all outstanding shares of the Company’s Class B and C preferred shares, repay borrowings on the Company’s $250 million unsecured acquisition credit facility and for other general corporate purposes.

 

Stock Split

Realty Income completed a 2-for-1 stock split after the market close on December 31, 2004. As a result of the stock split, total outstanding shares were increased from approximately 39.65 million shares to 79.30 million shares.

 

Crest Net Lease

Crest Net Lease is a wholly-owned subsidiary of Realty Income focused on acquiring and subsequently marketing net-leased properties for sale. During the fourth quarter ended December 31, 2004, Crest sold eight properties for $8.3 million and reported a gain on sales of $0.7 million.

 

For the year ended December 31, 2004, Crest sold 51 properties for $75.0 million and reported a gain on sales of $10.3 million. Crest also invested $21.5 million in 22 new properties and properties under development. As of the end of the year Crest carried a property inventory of $10.1 million, which consists of eight properties held for sale.

 

Management’s long-term goal is for Crest to carry an average inventory of approximately $20 to $25 million in properties. Crest generates an earnings spread on the difference between the lease payments it receives on the properties held in inventory and the cost of the capital used to acquire properties. Management believes that at this level of inventory, rental revenue will exceed the ongoing operating expenses of Crest without any property sales.

 

Crest’s contribution to Realty Income’s FFO depends on the timing and number of property sales, if any, in a given quarter. As such, Crest’s contribution can fluctuate and add volatility to the Company’s reported FFO on a comparable quarterly and annualized basis. During the fourth quarter ended December 31, 2004, Crest generated $598,000, or $0.01 per diluted common share, in FFO (and net income) for Realty Income as compared to $4.1 million, or $0.06 per diluted common share generated in the fourth quarter of 2003. For the year ended 2004, Crest generated $7.8 million, or $0.10 per diluted common share in FFO (and net income) for Realty Income as compared to $4.6 million, or $0.06 per diluted common share during 2003.

 

CEO Comments on 2004 Operating Results

Commenting on Realty Income’s financial results and real estate operations, Tom A. Lewis, Chief Executive Officer stated, “We are pleased to report that 2004 was an excellent year for operations of The Monthly Dividend Company®. We ended the year with increases in revenue, earnings, dividends and in the size and diversification of the Company’s real estate portfolio. We also enjoyed five dividend increases and saw the price of our common stock grow from $40.00 at the beginning of the year to $50.58 at the end of the year (prior to the stock split). Including dividends paid and share price increases, the total return to shareholders for 2004 was a healthy 32.7%.

 

4


 

“We were also gratified that we enjoyed another good year in property acquisitions. During 2004, Realty Income and Crest Net invested $215.3 million in 194 new properties. We continue to enjoy attractive lease yields on new acquisitions even in the current low interest rate environment. At the same time we were pleased with the Company’s continued access to the public capital markets during 2004. We issued both common and preferred shares over the course of the year, which allowed us to access capital to continue our growth while maintaining one of the most conservative balance sheets in our industry. We also redeemed all outstanding Preferred B and C shares, which will generate $2.1 million in annual savings based on the difference in the amount of the dividend paid on the new Preferred D shares in comparison to the amount of the dividend previously paid on the Preferred B and C shares.

 

“The Company’s core portfolio of real estate exhibited stable occupancy, ending the year with 97.9% of our properties occupied. We believe this excellent performance is due to our continued focus on acquiring properties leased to retailers that sell basic human needs goods and services which consumers use every day. Finally, our subsidiary, Crest Net Lease, continued to perform well, contributing $7.8 million, or $0.10 per share, to Realty Income’s funds from operations in 2004.

 

“Crest’s ability to acquire and subsequently sell properties has increased Realty Income’s overall ability to acquire large portfolios of properties and maintain excellent diversification by industry, tenant and geographic location in our core portfolio. While Crest’s contribution to the Company’s net income and FFO have been substantial, its dependence on property sales to generate earnings will add volatility to our results on a quarter to quarter basis. For example, while Crest generated $0.10 of FFO per diluted common share for Realty Income in 2004 as compared to $0.06 in 2003, during the fourth quarter of 2004, Crest’s contribution to Realty Income’s FFO per share was $0.01 per share as compared to $0.06 per share in the fourth quarter of 2003. We expect that Crest’s contribution to FFO will impact the Company positively over the coming years, but will continue to be volatile on a quarterly comparative basis.

 

“Looking forward to 2005, we are optimistic about the Company’s operations and financial performance for the year ahead. We enter the year with strong portfolio occupancy, a clean and uncomplicated balance sheet, access to acquisition opportunities as well as capital to fund our growth. As such, we believe we should be able to continue to deliver solid operational performance during 2005.

 

“We are fortunate that, as The Monthly Dividend Company®, we have continued to offer a dependable source of monthly income to our shareholders throughout market swings and economic uncertainties. We continue to grow our FFO at a rate that has allowed us to provide regular dividend increases as well as solid dividend coverage and a conservative payout ratio. Based on our continued strong performance in 2004, we were able to raise the dividend five times during the year, for a total increase in the amount of the annualized dividend of 10%.”

 

Earnings Commentary

 

Realty Income’s FFO per common share has historically tended to be stable and fairly predictable because of the long-term leases that are the primary source of the Company’s revenue. There are, however, several factors that can cause FFO per common share to vary from levels that have been anticipated by the Company. These factors include, but are not limited to, changes in interest rates, occupancy rates, periodically accessing the capital markets, the level and timing of property acquisitions and dispositions, lease rollovers, the general real estate market, the economy, charges for property impairments, and the operations of Crest Net Lease.

 

2005 Estimates

Management estimates that FFO per common share for 2005 should range from $1.59 to $1.62, which would equate to an increase of approximately 6% to 8% over 2004 FFO per share of $1.50. FFO for 2005 is based on an estimated diluted net income per share range of $1.11 to $1.14, adjusted (in accordance with NAREIT’s definition of FFO) for estimated real estate depreciation of $0.54 and potential gain on sales of investment properties of $0.06 per share.

 

Management further estimates Crest Net Lease could contribute between $0.03 to $0.05 per share to Realty Income’s FFO (and net income) during 2005. Crest’s primary business is the purchase and sale of properties for a profit. These sales may occur at various times during the course of the year, which could cause FFO, in certain quarters, to fluctuate from normal levels.

 

The Company does not intend to provide quarterly estimates of FFO. Absent any changes in annual FFO guidance at the end of each quarter, it may be presumed that the Company’s overall estimate for the year has not changed.

 

5


 

Forward-Looking Statements

Statements in this press release that are not strictly historical are “forward-looking” statements. Forward-looking statements involve known and unknown risks, which may cause the Company’s actual future results to differ materially from expected results. These risks include, among others, general economic conditions, local real estate conditions, the availability of capital to finance planned growth, property acquisitions and the timing of these acquisitions, charges for property impairments, the outcome of any legal proceedings to which the Company is a party, and the profitability of the Company’s subsidiary, Crest Net Lease, as described in the Company’s filings with the Securities and Exchange Commission. Consequently, such forward-looking statements should be regarded solely as reflections of the Company’s current operating plans and estimates. Actual operating results may differ materially from what is expressed or forecast in this press release. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date these statements were made.

 

Realty Income is The Monthly Dividend Company®, a New York Stock Exchange real estate company dedicated to providing shareholders with dependable monthly income. As of December 31, 2004, the Company had paid 413 consecutive monthly dividends throughout its 35-year operating history. The monthly income is supported by the cash flows from over 1,500 retail properties owned under long-term lease agreements with leading regional and national retail chains. The Company is an active buyer of net-leased retail properties nationwide.

 

Note to Editors:

Realty Income press releases are available at no charge by calling our toll-free investor hotline number: 888-811-2001, or through the internet at http://www.realtyincome.com/Investing/News.html

 

6


 

CONSOLIDATED STATEMENTS OF INCOME

For the three months and years ended December 31, 2004 and 2003

(dollars in thousands, except per share amounts)

 

 

 

Three Months Ended 12/31/04

 

Three Months Ended 12/31/03

 

Year Ended 12/31/04

 

Year Ended 12/31/03

 

REVENUE

 

 

 

 

 

 

 

 

 

Rental

 

$

45,340

 

$

39,711

 

$

174,446

 

$

144,703

 

Other

 

429

 

275

 

1,109

 

590

 

 

 

 

 

 

 

 

 

 

 

 

 

45,769

 

39,986

 

175,555

 

145,293

 

EXPENSES

 

 

 

 

 

 

 

 

 

Interest

 

8,599

 

7,402

 

34,132

 

26,413

 

Depreciation and amortization

 

10,411

 

8,946

 

40,339

 

32,676

 

General and administrative

 

3,496

 

2,861

 

13,119

 

10,616

 

Property

 

922

 

689

 

3,168

 

2,461

 

Income taxes

 

178

 

116

 

699

 

501

 

 

 

 

 

 

 

 

 

 

 

 

 

23,606

 

20,014

 

91,457

 

72,667

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

22,163

 

19,972

 

84,098

 

72,626

 

Income from discontinued operations:

 

 

 

 

 

 

 

 

 

Real estate acquired for resale by Crest

 

598

 

4,121

 

7,847

 

4,588

 

Real estate held for investment

 

3,795

 

3,391

 

11,452

 

9,221

 

 

 

4,393

 

7,512

 

19,299

 

13,809

 

 

 

 

 

 

 

 

 

 

 

Net income

 

26,556

 

27,484

 

103,397

 

86,435

 

Preferred stock cash dividends

 

(2,244

)

(2,428

)

(9,455

)

(9,713

)

Excess of redemption value over carrying value of preferred shares redeemed

 

—

 

—

 

(3,774

)

—

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

24,312

 

$

25,056

 

$

90,168

 

$

76,722

 

 

 

 

 

 

 

 

 

 

 

Funds from operations available to common stockholders (FFO)

 

$

28,792

 

$

31,305

 

$

118,181

 

$

103,366

 

 

After the market close on December 31, 2004, a 2-for-1 stock split declared on November 17, 2004 became effective.

Shareholders received an additional share of common stock for each share they owned. The increase in the number of shares outstanding after the stock split is reflected in all periods presented, and all per share data has been adjusted for the stock split.

 

Per share information for common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.25

 

$

0.24

 

$

0.90

 

$

0.89

 

Diluted

 

0.25

 

 

0.24

 

 

0.90

 

 

0.88

 

 

 

 

 

 

 

 

 

 

 

Net income, basic and diluted

 

$

0.31

 

$

0.34

 

$

1.15

 

$

1.08

 

 

 

 

 

 

 

 

 

 

 

FFO, basic from:

 

 

 

 

 

 

 

 

 

FFO before Crest Net contribution

 

$

0.36

 

$

0.36

 

$

1.41

 

$

1.39

 

Crest Net Lease

 

0.01

 

0.06

 

0.10

 

0.06

 

Total FFO

 

0.36

 

0.42

 

1.51

 

1.45

 

 

 

 

 

 

 

 

 

 

 

FFO, diluted from:

 

 

 

 

 

 

 

 

 

FFO before Crest Net contribution

 

$

0.36

 

$

0.36

 

$

1.40

 

$

1.39

 

Crest Net Lease

 

0.01

 

0.06

 

0.10

 

0.06

 

Total FFO

 

0.36

 

0.42

 

1.50

 

1.45

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid

 

$

0.328

 

$

0.298

 

$

1.241

 

$

1.181

 

 

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FUNDS FROM OPERATIONS

For the three months and years ended December 31, 2004 and 2003

 (dollars in thousands, except per share amounts)

 

 

 

Three Months
Ended 12/31/04

 

Three Months Ended 12/31/03

 

Year Ended 12/31/04

 

Year Ended 12/31/03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

24,312

 

$

25,056

 

$

90,168

 

$

76,722

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

Continuing operations

 

10,411

 

8,946

 

40,339

 

32,676

 

Discontinued operations

 

48

 

231

 

519

 

1,238

 

Depreciation of furniture, fixtures & equipment

 

(31

)

(28

)

(117

)

(114

)

Gain on sales of investment properties:

 

 

 

 

 

 

 

 

 

Continuing operations

 

(185

)

—

 

(185

)

—

 

Discontinued operations

 

(5,763

)

(2,900

)

(12,543

)

(7,156

)

 

 

 

 

 

 

 

 

 

 

Funds from operations available to common stockholders

 

$

28,792

 

$

31,305

 

$

118,181

 

$

103,366

 

 

 

 

 

 

 

 

 

 

 

Dividends paid to common stockholders

 

$

26,021

 

$

22,030

 

$

97,420

 

$

83,842

 

 

 

 

 

 

 

 

 

 

 

FFO in excess of dividends

 

$

2,771

 

$

9,275

 

$

20,761

 

$

19,524

 

 

 

 

 

 

 

 

 

 

 

FFO per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.36

 

$

0.42

 

$

1.51

 

$

1.45

 

Diluted

 

$

0.36

 

$

0.42

 

$

1.50

 

$

1.45

 

Weighted average number of common shares used for computation per share:

 

 

 

 

 

 

 

 

 

Basic

 

79,301,254

 

74,482,314

 

78,518,296

 

71,128,282

 

Diluted

 

79,383,964

 

74,575,552

 

78,598,788

 

71,222,628

 

 

CONTRIBUTIONS BY CREST NET LEASE TO FUNDS FROM OPERATIONS

For the three months and years ended December 31, 2004 and 2003

(dollars in thousands, except per share amounts)

 

Crest Net acquires properties with the intention of reselling them rather than holding them as investments and operating the properties. Consequently, we classify properties acquired by Crest Net as held for sale at the date of acquisition and do not depreciate them. The operations of Crest Net’s properties are classified as “income from discontinued operations, real estate acquired for resale.”

 

Gain on sales of real estate acquired for resale

 

$

706

 

$

5,329

 

$

10,254

 

$

6,217

 

Rental revenue

 

352

 

1,266

 

2,303

 

1,698

 

Other revenue

 

—

 

18

 

1

 

26

 

Interest expense

 

(154

)

(330

)

(674

)

(561

)

General and administrative expense

 

(105

)

(230

)

(464

)

(566

)

Property expenses

 

(21

)

(5

)

(93

)

(24

)

Income taxes

 

(180

)

(1,927

)

(3,480

)

(2,202

)

Funds from operations contributed by Crest

 

$

598

 

$

4,121

 

$

7,847

 

$

4,588

 

 

 

 

 

 

 

 

 

 

 

FFO per common share, basic and diluted

 

$

0.01

 

$

0.06

 

$

0.10

 

$

0.06

 

 

 

 

 

 

 

 

 

 

 

Total FFO

 

$

28,792

 

$

31,305

 

$

118,181

 

$

103,366

 

Less FFO contributed by Crest

 

(598

)

(4,121

)

(7,847

)

(4,588

)

FFO before Crest contribution

 

$

28,194

 

$

27,184

 

$

110,334

 

$

98,778

 

FFO before Crest contribution per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.36

 

$

0.36

 

$

1.41

 

$

1.39

 

Diluted

 

$

0.36

 

$

0.36

 

$

1.40

 

$

1.39

 

 

We define FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trust’s definition, as net income available to common stockholders, plus depreciation and amortization of assets uniquely significant to the real estate industry, reduced by gains on sales of investment property and extraordinary items.

 

8


 

HISTORICAL FFO COMPONENTS

 

 

 

2004

 

2003

 

2002

 

2001

 

2000

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

24,312

 

$

25,056

 

$

17,679

 

$

15,995

 

$

14,234

 

Depreciation and amortization

 

10,428

 

9,149

 

8,088

 

7,492

 

8,469

 

Gain on sales of investment properties

 

(5,948

)

(2,900

)

(903

)

(1,556

)

(4,881

)

 

 

 

 

 

 

 

 

 

 

 

 

Total FFO

 

$

28,792

 

$

31,305

 

$

24,864

 

$

21,931

 

$

17,822

 

 

 

 

 

 

 

 

 

 

 

 

 

Total FFO per diluted share

 

$

0.36

 

$

0.42

 

$

0.36

 

$

0.34

 

$

0.34

 

 

 

 

 

 

 

 

 

 

 

 

 

Total FFO

 

$

28,792

 

$

31,305

 

$

24,864

 

$

21,931

 

$

17,822

 

Less FFO contributed by Crest

 

(598

)

(4,121

)

(807

)

(819

)

(151

)

FFO before Crest contribution

 

$

28,194

 

$

27,184

 

$

24,057

 

$

21,112

 

$

17,671

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO components, per diluted share:

 

 

 

 

 

 

 

 

 

 

 

FFO before Crest’s contribution

 

$

0.36

 

$

0.36

 

$

0.34

 

$

0.33

 

$

0.33

 

Crest FFO contribution

 

0.01

 

0.06

 

0.01

 

0.01

 

0.00

 

 

 

 

 

 

 

 

 

 

 

 

 

Total FFO

 

$

0.36

 

$

0.42

 

$

0.36

 

$

0.34

 

$

0.34

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid per share

 

$

0.328

 

$

0.298

 

$

0.291

 

$

0.283

 

$

0.276

 

Diluted shares outstanding

 

79,383,964

 

74,575,552

 

69,856,588

 

64,259,202

 

53,191,148

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

90,168

 

$

76,722

 

$

68,954

 

$

57,846

 

$

45,076

 

Depreciation and amortization

 

40,741

 

33,800

 

31,091

 

29,010

 

28,875

 

Gain on sales of investment properties

 

(12,728

)

(7,156

)

(6,506

)

(10,478

)

(6,712

)

 

 

 

 

 

 

 

 

 

 

 

 

Total FFO

 

$

118,181

 

$

103,366

 

$

93,539

 

$

76,378

 

$

67,239

 

 

 

 

 

 

 

 

 

 

 

 

 

Total FFO per diluted share

 

$

1.50

 

$

1.45

 

$

1.38

 

$

1.30

 

$

1.26

 

 

 

 

 

 

 

 

 

 

 

 

 

Total FFO

 

$

118,181

 

$

103,366

 

$

93,539

 

$

76,378

 

$

67,239

 

Less FFO contributed by Crest

 

(7,847

)

(4,588

)

(2,748

)

(2,425

)

(422

)

FFO before Crest contribution

 

$

110,334

 

$

98,778

 

$

90,791

 

$

73,953

 

$

66,817

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO components, per diluted share:

 

 

 

 

 

 

 

 

 

 

 

FFO before Crest’s contribution

 

1.40

 

$

1.39

 

$

1.34

 

$

1.26

 

$

1.25

 

Crest FFO contribution

 

0.10

 

0.06

 

0.04

 

0.04

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

Total FFO

 

$

1.50

 

$

1.45

 

$

1.38

 

$

1.30

 

$

1.26

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid per share

 

$

1.241

 

$

1.181

 

$

1.151

 

$

1.121

 

$

1.091

 

Diluted shares outstanding

 

78,598,788

 

71,222,628

 

67,976,314

 

58,562,240

 

53,401,614

 

 

9


 

CONSOLIDATED BALANCE SHEETS

As of December 31, 2004 and 2003

(dollars in thousands, except per share data)

 

 

 

2004

 

2003

 

ASSETS

 

 

 

 

 

Real estate, at cost:

 

 

 

 

 

Land

 

$

624,558

 

$

557,288

 

Buildings and improvements

 

1,066,725

 

975,894

 

 

 

1,691,283

 

1,533,182

 

 

 

 

 

 

 

Less accumulated depreciation and amortization

 

(301,728

)

(272,647

)

 

 

 

 

 

 

Net real estate held for investment

 

1,389,555

 

1,260,535

 

Real estate held for sale, net

 

17,155

 

60,110

 

Net real estate

 

1,406,710

 

1,320,645

 

Cash and cash equivalents

 

2,141

 

4,837

 

Accounts receivable

 

4,075

 

3,950

 

Goodwill, net

 

17,206

 

17,206

 

Other assets

 

12,183

 

13,619

 

 

 

 

 

 

 

Total assets

 

$

1,442,315

 

$

1,360,257

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Distributions payable

 

$

9,115

 

$

7,582

 

Accounts payable and accrued expenses

 

9,579

 

11,479

 

Other liabilities

 

6,286

 

7,030

 

Line of credit payable

 

23,600

 

26,400

 

Notes payable

 

480,000

 

480,000

 

 

 

 

 

 

 

Total liabilities

 

528,580

 

532,491

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock and paid in capital, par value $1.00 per share, 20,000,000 shares authorized, 5,100,000 and 4,125,700 shares issued and outstanding in 2004 and 2003, respectively

 

123,787

 

99,368

 

Common stock and paid in capital, par value $1.00 per share, 100,000,000 shares authorized, 79,301,630 and 75,818,172 shares issued and outstanding in 2004 and 2003, respectively

 

1,038,973

 

969,030

 

Distributions in excess of net income

 

(249,025

)

(240,632

)

 

 

 

 

 

 

Total stockholders’ equity

 

913,735

 

827,766

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

1,442,315

 

$

1,360,257

 

 

10


 

The following table sets forth certain information regarding our properties classified according to the business of the respective tenants, expressed as a percentage of our total rental revenue:

 

 

 

Percentage of Rental Revenue (1)

 

 

 

For the
Quarter
Ended

 

For the Years Ended

 

Industries (30)

 

Dec. 31,
2004

 

Dec. 31,
2004

 

Dec. 31,
2003

 

Dec 31,
2002

 

Dec 31,
2001

 

Dec 31,
2000

 

Dec 31,
1999

 

Dec 31,
1998

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apparel Stores

 

1.7

%

1.8

%

2.1

%

2.3

%

2.4

%

2.4

%

3.8

%

4.1

%

Automotive Collision Services

 

1.3

 

1.0

 

0.3

 

—

 

—

 

—

 

—

 

—

 

Automotive Parts

 

4.0

 

3.8

 

4.5

 

4.9

 

5.7

 

6.0

 

6.3

 

6.1

 

Automotive Services

 

8.2

 

7.7

 

8.3

 

7.0

 

5.7

 

5.8

 

6.6

 

7.5

 

Automotive Tire Services

 

7.5

 

7.8

 

3.1

 

2.7

 

2.6

 

2.3

 

2.3

 

1.7

 

Book Stores

 

0.3

 

0.3

 

0.4

 

0.4

 

0.4

 

0.5

 

0.5

 

0.6

 

Business Services

 

0.1

 

0.1

 

0.1

 

0.1

 

0.1

 

0.1

 

0.1

 

 

*

Child Care

 

13.7

 

14.4

 

17.8

 

20.8

 

23.9

 

24.7

 

25.3

 

29.2

 

Consumer Electronics

 

1.8

 

2.1

 

3.0

 

3.3

 

4.0

 

4.9

 

4.4

 

5.4

 

Convenience Stores

 

19.6

 

19.2

 

13.3

 

9.1

 

8.4

 

8.4

 

7.2

 

6.1

 

Crafts and Novelties

 

0.5

 

0.5

 

0.6

 

0.4

 

0.4

 

0.4

 

0.4

 

 

*

Drug Stores

 

0.1

 

0.1

 

0.2

 

0.2

 

0.2

 

0.2

 

0.2

 

0.1

 

Entertainment

 

2.3

 

2.3

 

2.6

 

2.3

 

1.8

 

2.0

 

1.2

 

—

 

Equipment Rental Services

 

0.3

 

0.3

 

0.2

 

—

 

—

 

—

 

—

 

—

 

Financial Services

 

0.1

 

0.1

 

—

 

—

 

—

 

—

 

—

 

—

 

General Merchandise

 

0.5

 

0.4

 

0.5

 

0.5

 

0.6

 

0.6

 

0.6

 

 

*

Grocery Stores

 

0.8

 

0.8

 

0.4

 

0.5

 

0.6

 

0.6

 

0.5

 

 

*

Health and Fitness

 

3.9

 

4.0

 

3.8

 

3.8

 

3.6

 

2.4

 

0.6

 

0.1

 

Home Furnishings

 

3.9

 

4.1

 

4.9

 

5.4

 

6.0

 

5.8

 

6.5

 

7.8

 

Home Improvement

 

1.0

 

1.0

 

1.1

 

1.2

 

1.3

 

2.0

 

3.6

 

 

*

Motor Vehicle Dealerships

 

1.4

 

0.6

 

—

 

—

 

—

 

—

 

—

 

—

 

Office Supplies

 

1.6

 

1.6

 

1.9

 

2.1

 

2.2

 

2.3

 

2.6

 

3.0

 

Pet Supplies and Services

 

1.4

 

1.4

 

1.7

 

1.7

 

1.6

 

1.5

 

1.1

 

0.6

 

Private Education

 

1.1

 

1.1

 

1.2

 

1.3

 

1.5

 

1.4

 

1.2

 

0.9

 

Restaurants

 

9.9

 

9.7

 

11.8

 

13.5

 

12.2

 

12.3

 

13.3

 

16.2

 

Shoe Stores

 

0.1

 

0.3

 

0.9

 

0.8

 

0.7

 

0.8

 

1.1

 

0.8

 

Sporting Goods

 

3.3

 

3.4

 

3.8

 

4.1

 

0.9

 

—

 

—

 

—

 

Theaters

 

3.3

 

3.5

 

4.1

 

3.9

 

4.3

 

2.7

 

0.6

 

—

 

Travel Plazas

 

0.4

 

0.4

 

0.3

 

—

 

—

 

—

 

—

 

—

 

Video Rental

 

2.7

 

2.8

 

3.3

 

3.3

 

3.7

 

3.9

 

4.3

 

3.8

 

Other

 

3.2

 

3.4

 

3.8

 

4.4

 

5.2

 

6.0

 

5.7

 

6.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Totals

 

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

 

* Less than 0.1%

 

(1)          Includes rental revenue for all properties owned by Realty Income at the end of each period presented (including revenue from properties reclassified to discontinued operations) and excludes properties owned by our subsidiary, Crest Net.

 

11


 

The following table sets forth certain information regarding the timing of the initial lease term expirations (excluding extension options) on our 1,497 net leased, single-tenant retail properties as of December 31, 2004 (dollars in thousands):

 

Lease Expiration Schedule

(dollars in thousands)

 

 

 

Total Portfolio

 

Initial Expirations

 

Subsequent Expirations

 

Year

 

Total
Number of
Leases
Expiring(1)

 

Rental
Revenue for
the Quarter
Ended
12/31/04(2)

 

%of
Rental
Revenue

 

Number of
Leases
Expiring

 

Rental
Revenue for
the Quarter
Ended
12/31/04

 

% of
Total
Rental
Revenue

 

Number of
Leases
Expiring

 

Rental
Revenue for
the Quarter
Ended
12/31/04

 

%of
Total
Rental
Revenue

 

2005

 

99

 

$

1,848

 

4.2

%

64

 

$

1,211

 

2.7

%

35

 

$

637

 

1.5

%

2006

 

91

 

2,111

 

4.8

 

42

 

1,027

 

2.3

 

49

 

1,084

 

2.5

 

2007

 

118

 

2,199

 

5.0

 

87

 

1,645

 

3.8

 

31

 

554

 

1.3

 

2008

 

94

 

2,092

 

4.8

 

60

 

1,465

 

3.4

 

34

 

627

 

1.4

 

2009

 

85

 

1,906

 

4.3

 

28

 

646

 

1.4

 

57

 

1,260

 

2.9

 

2010

 

51

 

1,106

 

2.5

 

43

 

961

 

2.2

 

8

 

145

 

0.3

 

2011

 

40

 

1,545

 

3.5

 

32

 

1,333

 

3.0

 

8

 

212

 

0.5

 

2012

 

43

 

1,339

 

3.1

 

43

 

1,339

 

3.1

 

—

 

—

 

—

 

2013

 

74

 

3,331

 

7.6

 

66

 

3,091

 

7.0

 

8

 

240

 

0.6

 

2014

 

49

 

2,039

 

4.6

 

39

 

1,816

 

4.1

 

10

 

223

 

0.5

 

2015

 

33

 

1,050

 

2.4

 

31

 

1,003

 

2.3

 

2

 

47

 

0.1

 

2016

 

14

 

388

 

1.0

 

12

 

306

 

0.8

 

2

 

82

 

0.2

 

2017

 

16

 

1,269

 

2.9

 

12

 

1,202

 

2.7

 

4

 

67

 

0.2

 

2018

 

20

 

828

 

1.9

 

20

 

828

 

1.9

 

—

 

—

 

—

 

2019

 

84

 

3,284

 

7.5

 

83

 

3,091

 

7.0

 

1

 

193

 

0.4

 

2020

 

53

 

1,891

 

4.3

 

53

 

1,891

 

4.3

 

—

 

—

 

—

 

2021

 

130

 

4,333

 

9.9

 

130

 

4,333

 

9.9

 

—

 

—

 

—

 

2022

 

96

 

2,472

 

5.6

 

95

 

2,463

 

5.6

 

1

 

9

 

 

*

2023

 

233

 

6,332

 

14.4

 

232

 

6,307

 

14.4

 

1

 

25

 

 

*

2024

 

61

 

1,374

 

3.1

 

61

 

1,374

 

3.1

 

—

 

—

 

—

 

2025

 

1

 

87

 

0.2

 

1

 

87

 

0.2

 

—

 

—

 

—

 

2026

 

2

 

93

 

0.2

 

2

 

93

 

0.2

 

—

 

—

 

—

 

2028

 

2

 

54

 

0.1

 

2

 

54

 

0.1

 

—

 

—

 

—

 

2033

 

3

 

357

 

0.8

 

3

 

357

 

0.8

 

—

 

—

 

—

 

2034

 

2

 

244

 

0.6

 

2

 

244

 

0.6

 

—

 

—

 

—

 

2037

 

2

 

325

 

0.7

 

2

 

325

 

0.7

 

—

 

—

 

—

 

2043

 

1

 

13

 

 

*

0

 

0

 

0.0

 

1

 

13

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Totals

 

1,497

 

$

43,910

 

100.0

%

1,245

 

$

38,492

 

87.6

%

252

 

$

5,418

 

12.4

%

 

*Less than 0.1%

 

(1)  Excludes properties owned by our subsidiary, Crest Net, four multi-tenant properties and 32 vacant and unleased properties. The lease expirations for properties under construction are based on the estimated date of completion of those properties.

(2)  Includes rental revenue of $144 from properties reclassified to discontinued operations and excludes revenue of $1,574 from four multi-tenant properties and from 32 vacant and unleased properties at December 31, 2004.

 

12


 

The following table sets forth certain state-by-state information regarding Realty Income’s property portfolio as of December 31, 2004 (dollars in thousands):

 

State

 

Number of
Properties(1)

 

Percent
Leased

 

Approximate
Leasable
Square Feet(1)

 

Rental Revenue
for the
Quarter Ended
Dec.31, 2004(1)(2)

 

Percentage of
Rental
Revenue

 

Alabama

 

17

 

100

%

145,600

 

$

376

 

0.8

%

Alaska

 

2

 

100

 

128,500

 

251

 

0.5

 

Arizona

 

71

 

99

 

338,600

 

1,875

 

4.1

 

Arkansas

 

8

 

88

 

48,800

 

139

 

0.3

 

California

 

61

 

100

 

1,057,100

 

4,020

 

8.8

 

Colorado

 

45

 

98

 

367,300

 

1,547

 

3.4

 

Connecticut

 

16

 

100

 

245,600

 

927

 

2.0

 

Delaware

 

16

 

100

 

29,100

 

338

 

0.7

 

Florida

 

127

 

98

 

1,328,500

 

4,978

 

10.9

 

Georgia

 

94

 

99

 

580,400

 

2,267

 

5.0

 

Idaho

 

11

 

100

 

52,000

 

207

 

0.5

 

Illinois

 

44

 

100

 

391,300

 

1,292

 

2.8

 

Indiana

 

27

 

93

 

153,100

 

504

 

1.1

 

Iowa

 

9

 

89

 

57,500

 

142

 

0.3

 

Kansas

 

22

 

82

 

201,300

 

518

 

1.1

 

Kentucky

 

12

 

100

 

41,200

 

271

 

0.6

 

Louisiana

 

14

 

100

 

65,200

 

295

 

0.6

 

Maryland

 

24

 

100

 

207,600

 

1,136

 

2.5

 

Massachusetts

 

37

 

100

 

203,100

 

997

 

2.2

 

Michigan

 

13

 

100

 

81,600

 

298

 

0.7

 

Minnesota

 

18

 

100

 

211,600

 

553

 

1.2

 

Mississippi

 

19

 

79

 

145,300

 

302

 

0.7

 

Missouri

 

32

 

97

 

222,900

 

709

 

1.6

 

Montana

 

2

 

100

 

30,000

 

80

 

0.2

 

Nebraska

 

11

 

100

 

96,200

 

311

 

0.7

 

Nevada

 

10

 

100

 

102,300

 

444

 

1.0

 

New Hampshire

 

10

 

100

 

89,600

 

369

 

0.8

 

New Jersey

 

25

 

100

 

132,100

 

1,059

 

2.3

 

New Mexico

 

6

 

100

 

48,800

 

114

 

0.3

 

New York

 

27

 

100

 

327,900

 

1,492

 

3.3

 

North Carolina

 

50

 

100

 

290,100

 

1,315

 

2.9

 

North Dakota

 

1

 

100

 

22,000

 

25

 

 

*

Ohio

 

100

 

100

 

616,000

 

2,201

 

4.8

 

Oklahoma

 

17

 

100

 

94,300

 

358

 

0.8

 

Oregon

 

17

 

100

 

253,300

 

573

 

1.3

 

Pennsylvania

 

76

 

100

 

416,000

 

1,992

 

4.4

 

Rhode Island

 

1

 

100

 

3,500

 

29

 

0.1

 

South Carolina

 

52

 

98

 

156,200

 

1,125

 

2.5

 

South Dakota

 

1

 

100

 

6,500

 

24

 

 

*

Tennessee

 

98

 

100

 

461,900

 

2,213

 

4.9

 

Texas

 

170

 

94

 

1,656,700

 

4,406

 

9.7

 

Utah

 

6

 

100

 

35,100

 

119

 

0.3

 

Vermont

 

1

 

100

 

2,500

 

22

 

 

*

Virginia

 

55

 

100

 

412,600

 

2,073

 

4.6

 

Washington

 

37

 

100

 

243,900

 

751

 

1.7

 

West Virginia

 

2

 

100

 

16,800

 

41

 

0.1

 

Wisconsin

 

16

 

88

 

153,700

 

353

 

0.8

 

Wyoming

 

3

 

100

 

14,900

 

53

 

0.1

 

Totals/Average

 

1,533

 

98

%

11,986,100

 

$

45,484

 

100.0

%

 

* Less than 0.1%

(1)   Excludes properties owned by our subsidiary, Crest Net.

(2)   Includes rental revenue for all properties owned by Realty Income at December 31, 2004 (including revenue from properties reclassified to discontinued operations of $144).

 

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