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Realty Income Corporation (O)

Q2 2012 Earnings Call

July 26, 2012 4:30 PM ET


Tom Lewis – Vice Chairman and CEO

Paul Meurer – EVP and CFO

John Case – EVP and CIO


RJ Milligan – Raymond James & Associates

Joshua Barber – Stifel Nicolaus

Rich Moore – RBC Capital Markets

Emanuel Porchman – Citi

Paul Lukasik – Morningstar

Todd Stender – Wells Fargo

Tom Lesnick – Robert W Baird



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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Realty Income Second Quarter 2012 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, July 26, 2012.

I would now like to turn the conference over to Tom Lewis, CEO of Realty Income. Please go ahead, sir.

Tom Lewis

Thank you, Liz, and good afternoon, everyone. Welcome to our conference call where we will discuss the operations activity of the second quarter and for six months of this year. In the room with me today is Gary Malino, our President and Chief Operating Officer; Mike Pfeiffer, our Executive Vice President and General Counsel; and as always, Tere Miller, our Vice President of Corporate Communications. And then on the call with me today will be Paul Meurer, our EVP and Chief Financial Officer, and John Case, our EVP and CIO.

And again, during this conference call, we will likely make certain statements that may be considered to be forward-looking statements under Federal Securities law, and the company’s actual future results may differ significantly from the matters discussed in any forward-looking statements. But we’ll discuss in greater detail in the company’s Form 10-Q the factors that may cause such differences.

And as our custom, we’ll start with Paul and you can do an overview of the numbers.

Paul Meurer

Thanks Tom. As usual, I’ll just comment on the income statement first and – providing a few highlights and then moving on to the balance sheet. Total revenue increased 13.8% for the quarter. Our revenue for the quarter was just over $115 million, or just over $460 million on an annualized basis. This obviously reflects a significant amount of new acquisitions over the past year.

On the expense side, depreciation and amortization expense increased by about $6.8 million in the comparative quarterly period, as that expense increases as our property portfolio, of course, continues to grow. Interest expense increased by almost $3.2 million. This increase was due to our credit facility borrowings during the quarter, as well as the June 2011 issuance of $150 million of notes and the reopening of our 2035 bonds some of which appears in this quarter and not all of which appeared in the comparative quarter last year.

On a related note, our coverage ratios both remain strong with interest coverage at 3.6 times and fixed charge coverage at 2.7 times. General and administrative expenses in the second quarter were approximately $9.3 million, as compared to about $8 million a year ago. Part of this increase is due to higher unexpected costs related to our proxy process this year, about $550,000 more than we expected.

Our G&A expense has also increased as our acquisition activity has increased and because we’ve added new personnel as we continue to grow the portfolio. We spent $392,000 of acquisition due diligence costs during the quarter, and our employee base has grown from 78 employees a year ago to 89 employees today. However, our current projection for total G&A for all of 2012 is approximately $35 million, which will still represent only about 7.5% of total revenues projected for the year.

Property expenses were just under $2.1 million for the quarter. These are the expenses primarily associated properties available for lease. Our current estimate for property expenses for all of 2012 is about $9 million.

Income taxes consist of income taxes paid to various states by the company, and they were just over $400,000 during the quarter. Income from discontinued operations for the quarter totaled $3.8 million. This income is associated with our property sales activity during the quarter. We sold 14 properties during the quarter for $15 million, and a reminder again that we do not include property sales gains in our FFO or in our AFFO.

Preferred stock cash dividends totaled approximately $10.5 million for the quarter, and this number obviously increased because of the issuance of our preferred F stock earlier this year.

Excess of redemption value over carrying value of preferred shares redeemed – a reminder again refers to the $3.7 million non-cash redemption charge stemming from the repayment of our outstanding 7.375% preferred B stock with some of the proceeds from our preferred F offering earlier this year.

Replacement of this preferred B stock in our capital structure did save us about $1 million cash annually, obviously due to the lower coupon of the newly-issued preferred.

Net income available to common stockholders was $32.95 million for the quarter. Funds from operations, or FFO per share, was $0.49 for the quarter, a 2.1% increase versus a year ago. It was $0.95 for the first 6 months of the year, but a reminder that excluding the $3.7 million preferred stock redemption charge, our FFO year-to-date would have been $0.98 per share.

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