Realty Income Announces Third Quarter and Nine Month Operating Results

• Press Release
• Source: Realty Income Corporation
• On 4:05 pm EDT, Wednesday October 28, 2009

ESCONDIDO, Calif.--(BUSINESS WIRE)--Realty Income Corporation (Realty Income), The Monthly Dividend Company^® (NYSE: O - News) today announced operating results for the third quarter ended September 30, 2009. All per share amounts presented in this press release are on a diluted per common share basis, unless stated otherwise.

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(For the quarter ended September 30, 2009, as compared to the same quarterly period in 2008)

• Revenue was $82.0 million as compared to $82.2 million
• Funds from Operations (FFO) available to common stockholders increased 5.5% to $48.2 million
• FFO per share increased 2.2% to $0.47
• FFO per share before Crest’s contribution increased 2.2% to $0.46
• Net income available to common stockholders per share was $0.26
• Portfolio occupancy increased to 96.8%
• Same store rents increased 0.4% to $75.1 million
• Dividends paid per common share increased 2.4%
• The monthly dividend increased for the 48^th consecutive quarter to an annualized amount of $1.71225 per share
• Invested $10.7 million in three new properties

Financial Results

Revenue

Realty Income’s revenue, for the quarter ended September 30, 2009, was $82.0 million as compared to $82.2 million for the same quarter in 2008. Revenue, for the nine months ended September 30, 2009, was $246.2 million as compared to $246.5 million for the same period in 2008. Overall, comparing 2009 to 2008, revenue has generally been flat as the company now owns 2,334 properties compared to 2,355 properties at the end of the third quarter of 2008.

Net Income Available to Common Stockholders

Net income available to common stockholders, for the quarter ended September 30, 2009, was $27.1 million as compared to $28.6 million for the same quarter in 2008. Net income per share for the quarter was $0.26 as compared to $0.29 for the same quarter in 2008.

Net income available to common stockholders, for the nine months ended September 30, 2009, was $77.6 million as compared to $79.3 million for the same period in 2008. Net income per share, for the nine months ended September 30, 2009, was $0.75 as compared to $0.79 for the same period in 2008.

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

During the third quarter of 2009, income from continuing operations available to common stockholders was $0.24 per share as compared to $0.22 per share for the same quarter in 2008.

During the first nine months of 2009, income from continuing operations available to common stockholders was $0.70 per share as compared to $0.68 per share for the same period in 2008.

FFO Available to Common Stockholders

FFO, for the quarter ended September 30, 2009, increased 5.5% to $48.2 million as compared to $45.7 million for the same quarter in 2008. FFO per share, for the quarter ended September 30, 2009, increased 2.2% to $0.47 as compared to $0.46 for the same quarter in 2008. FFO per share before Crest’s contribution, for the quarter ended September 30, 2009, increased 2.2% to $0.46 from $0.45 as compared to the same quarter in 2008. Crest Net Lease, Inc. (Crest) is a wholly-owned subsidiary of Realty Income.

FFO, for the nine months ended September 30, 2009, increased 2.6% to $142.1 million as compared to $138.5 million for the same period in 2008. FFO per share, for the nine months ended September 30, 2009, decreased 0.7% to $1.37 as compared to $1.38 for the same period in 2008. FFO before Crest’s contribution, for the nine months ended September 30, 2009, was unchanged at $1.37 per share as compared to the same period in 2008. For a calculation of FFO before Crest’s contribution, see pages 7 and 8.

The Company considers FFO to be an appropriate supplemental measure of a Real Estate Investment Trust’s (REIT’s) operating performance as it is based on a 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’s) definition as net income available to common stockholders plus depreciation and amortization of real estate assets, reduced by gains on sales of investment properties and extraordinary items. See reconciliation of net income available to common stockholders to FFO on pages 7 and 8.

Dividend Information

In September 2009, Realty Income announced the 48^th consecutive quarterly increase and the 55^th increase in the amount of the dividend since the Company’s listing on the New York Stock Exchange in 1994. The annualized dividend amount, as of September 30, 2009, was $1.71225 per share. The amount of the monthly dividends paid, for the nine months ended September 30, 2009, increased 3.2% to $1.279 per share from $1.239 per share for the same period in 2008. Through September 30, 2009, the Company has paid 470 consecutive monthly dividends and continues its 40-year history of declaring and paying dividends every month.

Real Estate Portfolio Update

As of September 30, 2009, Realty Income’s portfolio of freestanding, single-tenant, retail properties consisted of 2,334 properties located in 49 states, leased to 118 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 11.3 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 September 30, 2009, portfolio occupancy was 96.8% with 75 properties available for lease out of a total of 2,334 properties in the portfolio.

Rent Increases

During the three months ended September 30, 2009, same store rents on 2,080 properties under lease increased 0.4% to $75.1 million, as compared to $74.8 million for the same quarter in 2008. Excluding 104 properties leased to Buffets, Inc. (for which rents were renegotiated in September 2008), for the quarter ended September 30, 2009, same store rents on 1,976 properties under lease increased 1.2% to $70.2 million, as compared to $69.34 million for the same quarter in 2008.

During the nine months ended September 30, 2009, same store rents on 2,080 properties under lease increased 0.4% to $225.5 million, as compared to $224.7 million for the same period in 2008. Excluding 104 properties leased to Buffets, Inc. (for which rents were renegotiated in September 2008), for the nine months ended September 30, 2009, same store rents on 1,976 properties under lease increased 1.3% to $210.7 million, as compared to $208.0 million for the same period in 2008.

Property Acquisitions

During the third quarter of 2009, Realty Income invested $10.7 million in three new properties and previously acquired properties. The new properties are located in two states and are 100% leased with an initial average lease yield of 10.2%.

During the nine months ended September 30, 2009, Realty Income invested $11.9 million in three new properties and previously acquired properties with an initial average lease yield of 10.1%. Crest did not acquire any properties during the first nine months of 2009.

Realty Income maintains a $355 million unsecured acquisition credit facility, which is used to fund property acquisitions in the near term. There is currently no outstanding balance on the Company’s acquisition credit facility, and the full $355 million is available to fund new property acquisitions. In addition, the Company had cash and cash equivalents of $20 million at September 30, 2009.

Property Dispositions

Realty Income continued to successfully execute its asset disposition program in 2009. The objective of this program is to sell assets when the Company believes the reinvestment of the sales proceeds will generate higher returns, enhance the credit quality of the Company's real estate portfolio, increase the average lease length, or decrease tenant or industry concentration.

During the quarter ended September 30, 2009, Realty Income sold seven properties for $4.6 million, which resulted in a gain on sales of $1.8 million. During the nine months ended September 30, 2009, Realty Income sold 17 properties for $11.0 million, which resulted in a gain on sales of $4.2 million.

Other Activities

Crest Net Lease

Crest is focused on acquiring and subsequently marketing net-leased properties for sale. Crest did not acquire or sell any properties during the third quarter. At September 30, 2009, Crest’s property inventory consisted of five properties valued at $5.7 million.

Crest’s contribution to Realty Income’s FFO (and net income) depends on the timing and number of property sales, if any, in a given quarter. Therefore, Crest’s contribution can fluctuate and add volatility to Realty Income’s reported FFO and net income on a comparable quarterly and annualized basis. During the third quarter of 2009 and 2008, Crest contributed $0.00 per share to Realty Income’s FFO per share. During the nine months ended September 30, 2009, Crest contributed $0.00 per share to Realty Income’s FFO per share, as compared to $0.01 per share during the same period in 2008.

CEO Comments on Operating Results

Commenting on Realty Income’s financial results and real estate operations, Chief Executive Officer, Tom A. Lewis said, “We continue to be pleased with our results given the challenges in the overall economy and have remained focused on maintaining our liquidity and managing our portfolio to maximize occupancy and cash flow. Core FFO per share (before Crest) was up 2.2% for the quarter, as compared to the same period one year ago, which is a positive considering that we have sold 24 properties in the past year, while acquiring only three properties.”

“At September 30, occupancy increased to 96.8%, as compared to 96.6%, at the end of the second quarter, and same store rents increased 0.4% for both the quarter and nine months ended September 30, 2009, compared to the same period one year ago. Given the ongoing softness in the retail industry, we are pleased with the increasing results in occupancy and same store rents.”

“Our ongoing focus on liquidity and balance sheet health has provided us with $20 million in cash on hand, at the end of the quarter, and the entire balance of our $355 million credit facility available to take advantage of acquisition opportunities as they arise. We also have no debt maturities until 2013, and we carry no mortgages on any of our 2,334 properties. Nor do we have any properties under development, no joint ventures and no off balance sheet assets or liabilities of any kind.”

“With respect to real estate acquisitions, during the third quarter, we invested just over $10 million in three new properties with an initial lease yield of 10.2%. While we are starting to see more acquisition prospects within the 9% to 10% cap rate range, to date the level of transactions available in the marketplace that would meet the Company’s due diligence requirements remains modest. We continue to review and perform due diligence on a number of properties and anticipate additional acquisitions for our core portfolio over the next few quarters. Given our substantial liquidity position, as attractive opportunities arise, we are prepared to invest.”

“Our conservative operations during a challenging economic and retail environment allowed us to increase the amount of the monthly dividend for the 55^th time since our listing on the New York Stock Exchange in 1994, to an annualized amount of $1.71225 per share. We have been fortunate to own a portfolio of properties that have generally remained profitable to our retailers, which is key to the profitability of our tenants’ businesses. We believe this has kept occupancy high and, when coupled with our conservative balance sheet and strong liquidity, is providing us with a solid foundation during the current economic downturn.”

FFO Commentary

Realty Income’s FFO per 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 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.

2009 Estimates

Management estimates that FFO per share for 2009 should range from $1.83 to $1.84, which represents annual FFO per share growth of approximately 0.0% to 0.5%, as compared to 2008 FFO per share of $1.83. FFO for 2009 is based on an estimated net income per share range of $1.00 to $1.01, adjusted (in accordance with NAREIT’s definition of FFO) for estimated real estate depreciation of $0.88 and potential gain on sales of investment properties of $0.05 per share.

Management further estimates that Crest could contribute between $0.00 and $0.01 per share to Realty Income’s FFO during 2009. 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 and could cause FFO, in certain quarters, to fluctuate on a comparable quarterly and annualized basis.

2010 Estimates

Management estimates that FFO per share for 2010 should range from $1.86 to $1.92, which represents annual FFO per share growth of approximately 1.1% to 4.9%, as compared to an estimated 2009 FFO per share range of $1.83 to $1.84. FFO for 2010 is based on an estimated net income per share range of $0.99 to $1.05, adjusted (in accordance with NAREIT’s definition of FFO) for estimated real estate depreciation of $0.92 and potential gain on sales of investment properties of $0.05 per share.

Management notes that, given the volatility in the markets, it is more challenging than usual to estimate a number of factors that will impact the Company’s future results. For example, new property acquisition levels could vary depending on the number of opportunities, capitalization rates and the availability of attractively priced permanent financing. As such, management would add that the $1.86 FFO per share estimate assumes no new property acquisitions for 2010. The $1.92 FFO per share estimate assumes property acquisitions of approximately $250 million in 2010.

Management further estimates that Crest could contribute between $0.00 and $0.01 per share to Realty Income’s FFO during 2010. 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 and could cause FFO, in certain quarters, to fluctuate on a comparable quarterly and annualized basis.

About Realty Income

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 September 30, 2009, the Company had paid 470 consecutive monthly dividends throughout its 40-year operating history. The monthly income is supported by the cash flows from 2,334 retail properties owned under long-term lease agreements with leading regional and national retail chains. The Company is a buyer of net-leased retail properties nationwide.

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, continued volatility and uncertainty in the credit markets and broader

financial markets, 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 Crest, the Company’s subsidiary, 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.

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

⁽¹⁾ The above FFO per share amounts have been rounded to the nearest two decimals and, as such, the individual amounts may not add up to the “Total FFO” amount.

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 real estate assets reduced by gains on sales of investment properties and extraordinary items.

⁽¹⁾ The above FFO per share amounts have been rounded to the nearest two decimals and, as such, the individual amounts may not add up to the “Total FFO” amount.

Note: All of these Dividend Yields are calculated as annualized dividend based on last dividend paid in applicable time period divided by closing price as of period end. Dividend Yield sources: NAREIT website and Bloomberg.

⁽¹⁾ FTSE NAREIT US Equity REIT Index, as per NAREIT website.

⁽²⁾ Calculated as closing stock price as of period end plus dividends paid in period divided by closing stock price as of end of previous period. Does not include reinvestment of dividends.

⁽³⁾ Includes reinvestment of dividends. Sources: NAREIT website and Factset.

⁽⁴⁾ Price only index, does not include dividends. Source: Factset.

⁽⁵⁾ All of these Compounded Average Annual Total Return rates are calculated in the same manner: from Realty Income’s NYSE listing on October 18, 1994 through September 30, 2009, and assuming reinvestment of dividends, except for NASDAQ. Past performance does not guarantee future performance. Realty Income presents this data for informational purposes only and makes no representation about its future performance or how it will compare in performance to other indices in the future.

Industry Diversification

The following table sets forth certain information regarding Realty Income’s property portfolio (excluding properties owned by Crest) classified according to the business of the respective tenants, expressed as a percentage of our total rental revenue:

* 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 as discontinued operations.

* Less than 0.1%

⁽¹⁾ Excludes ten multi-tenant properties and 75 vacant unleased properties, one of which is a multi-tenant property. The lease expirations for properties under construction are based on the estimated date of completion of those properties.

⁽²⁾ Includes rental revenue of $127 from properties reclassified to discontinued operations and excludes revenue of $2,534 from ten multi-tenant properties and from 75 vacant and unleased properties at September 30, 2009.

⁽³⁾ Represents leases to the initial tenant of the property that are expiring for the first time.

⁽⁴⁾ Represents lease expirations on properties in the portfolio, which have previously been renewed, extended or re-tenanted.

Geographic Diversification

The following table sets forth certain state-by-state information regarding Realty Income’s property portfolio (excluding properties owned by Crest) as of September 30, 2009 (dollars in thousands):

* Less than 0.1%

⁽¹⁾ Includes rental revenue for all properties owned by Realty Income at September 30, 2009, including revenue from properties reclassified as discontinued operations of $127.

Realty Income Corporation
Tere Miller
Vice President, Corporate Communications
760-741-2111 ext. 1177