Realty Income Announces Operating Results For Third Quarter And First Nine Months Of 2020

SAN DIEGO, Nov. 2, 2020 /PRNewswire/ -- Realty Income Corporation (Realty Income, NYSE: O), The Monthly Dividend Company^®, today announced operating results for the third quarter and nine months ended September 30, 2020. All per share amounts presented in this press release are on a diluted per common share basis unless stated otherwise.

COMPANY HIGHLIGHTS:

For the quarter ended September 30, 2020:

• Net income per share was $0.07
• AFFO per share was $0.81
• Collected 93.1% of contractual rent
• Invested $658.6 million in 89 properties and properties under development or expansion, including $230.0 million in seven properties in the U.K.
• Issued $350.0 million of 3.250% senior unsecured notes due 2031
• Raised $348.6 million from the sale of common stock, primarily through our At-The-Market (ATM) program
• Established $1.0 billion U.S. dollar-denominated commercial paper program

For the month ended October 31, 2020:

• Appointed Christie Kelly as Executive Vice President, Chief Financial Officer and Treasurer ("CFO"), effective January 2021
• Collected 92.9% of contractual rent due
• Issued £400.0 million through the issuance of 1.625% senior unsecured notes due 2030 in our debut Sterling public offering

CEO Comments

"I appreciate the continued commitment of our dedicated and talented team toward advancing the strategy and objectives of our company, as well as the support from our clients and partners," said Sumit Roy, Realty Income's President and Chief Executive Officer. "Our operating results during the third quarter demonstrate our commitment to judiciously managing through the COVID-19 pandemic while also proactively driving our business forward. During the third quarter, we invested $658.6 million, $230.0 million of which represents  investments in the U.K., primarily in high-quality real estate leased to leading operators in essential and resilient industries, like the grocery, home improvement and convenience store industries."

"We continued to have excellent access to well-priced capital, as during the quarter we issued $350.0 million of senior unsecured notes due 2031 with an effective yield to maturity of 2.341% and raised approximately $348.6 million of equity; and we established a $1.0 billion commercial paper program which further enhances our financial flexibility. Subsequent to quarter-end, we completed our debut Sterling-denominated public debt offering, issuing £400.0 million of senior unsecured notes due 2030 at an effective yield to maturity of 1.712%. Given the strength of our financial position and the continued performance of our business, we are increasing our 2020 acquisition guidance to approximately $2.0 billion."

Summarized Financial Results

The following summarizes our select financial results (dollars in millions, except per share data):

Impact of COVID-19

Percentages of Contractual Rent Collected as of October 31, 2020

We have executed deferral agreements or maintain ongoing deferral discussions with tenants that account for a majority of the unpaid contractual rent for each of the periods referenced in the table above. Additional detail on rent collections can be found in our supplemental materials available on our corporate website at www.realtyincome.com/investors/financial-information/quarterly-results.

Theater Industry Update

As of September 30, 2020, the theater industry represented 5.7% of annualized contractual rental revenue. Given the ongoing disruption to the industry due to the COVID-19 pandemic, we performed a property-level analysis on the collectability of rent for our 78 theater properties, including the gross receivables outstanding as of September 30, 2020, totaling $44.9 million. Our analysis involved the assignment of quartile rankings for each asset's pre-pandemic EBITDAR relative to each operator's overall footprint. Other criteria utilized included an analysis of the property's pre-pandemic annual EBITDA generation before corporate overhead, and real estate fundamentals.

As a result of this analysis, we determined that for 31 of the 78 theater properties it was no longer probable that we would collect substantially all of contractual rents due. As a conservative measure, we fully reserved for six additional theater properties for which we do not possess unit level financial information. Consequently, we reserved for 100% of the outstanding receivables for 37 theater properties and will account prospectively for these leases on a cash accounting basis. The aggregate reserve associated with outstanding receivables for these properties totaled $17.2 million, approximately $1.6 million of which was a reserve for straight-line rent receivables. The dilution for the third quarter of 2020 as a result of establishing these reserves for our theater portfolio is $0.05 per share to our net income and FFO and $0.04 per share to our AFFO. The monthly contractual rent associated with these properties totals approximately $2.8 million.

Additionally, during the third quarter, we recorded provisions for impairment on 12 of the 37 theater properties for $79.0 million. Impairment charges are not included in Nareit-defined FFO or in our calculation of AFFO.

See "Item 1A--Risk Factors" in Part II of our Quarterly Report on Form 10-Q for quarter ended September 30, 2020 for more information regarding the actual and potential future impacts of the COVID-19 pandemic and the measures taken to limit its spread on our tenants and our business, results of operations, financial condition and liquidity.

Dividend Increases 

In September 2020, we announced the 92^nd  consecutive quarterly dividend increase, which is the 108^th increase in the amount of the dividend since the company's listing on the New York Stock Exchange (NYSE) in 1994. The annualized dividend amount as of September 30, 2020 was $2.808 per share. The amount of monthly dividends paid per share increased 3.1% to $0.701 in the third quarter of 2020, as compared to $0.680 in the third quarter of 2019. During the third quarter of 2020, the company distributed $242.2 million in common dividends to stockholders, representing 85.7% of its AFFO of $282.5 million.

Real Estate Portfolio Update

As of September 30, 2020, our portfolio consisted of 6,588 properties located in 49 U.S. states, Puerto Rico and the U.K., and leased to approximately 600 different tenants doing business in 51 separate industries. The properties are primarily freestanding and leased under long-term, net lease agreements with a weighted average remaining lease term of approximately 9.0 years. The company's portfolio of commercial real estate has historically provided dependable rental revenue supporting the payment of monthly dividends. As of September 30, 2020, portfolio occupancy was 98.6% with 92 properties available for lease or sale out of 6,588, as compared to 98.5% as of June 30, 2020 and 98.3% as of September 30, 2019.

Changes in Occupancy

Investments in Real Estate
The following table summarizes our acquisitions in the U.S. and U.K. for the periods indicated below:

Same Store Rental Revenue
The following summarizes our same store rental revenue on 5,511 properties under lease (dollars in millions):

Our calculation of same store rental revenue includes rent deferred for future payment as a result of lease concessions we granted in response to the COVID-19 pandemic and recognized under the practical expedient provided by the Financial Accounting Standards Board (FASB). Same store rental income was negatively impacted by reserves recorded as reductions of rental revenue of $19.9 million for the three months ended September 30, 2020 compared to $241,000 for the three months ended September 30, 2019, and $26.5 million for the nine months ended September 30, 2020 compared to $1.2 million for the nine months ended September 30, 2019. Our calculation of same store rental revenue also includes uncollected rent for which we have not granted a lease concession. If these applicable amounts of rent deferrals and uncollected rent were excluded from our calculation of same store rental revenue, the decreases for the three and nine months ended September 30, 2020 relative to the comparable periods for 2019 would have been (4.6)% and (5.9)%, respectively.

Property Dispositions
The following summarizes our property dispositions (dollars in millions):

Liquidity and Capital Markets

Capital Raising
In July 2020, we issued $350.0 million of 3.250% senior unsecured notes due January 2031, which constituted a further issuance of, and formed a single series with, the $600.0 million senior notes issued in May 2020. The public offering price was 108.241% of the principal amount, for an effective yield to maturity of 2.341%. 

During the quarter ended September 30, 2020, we raised $348.6 million from the sale of common stock at a weighted average price of $62.57 per share, primarily through our At-The-Market-Program.

In October 2020, we issued £400.0 million of 1.625% senior unsecured notes due December 2030. The public offering price for these notes was 99.191% of the principal amount, for an effective yield to maturity of 1.712%. The issuance represented our debut public offering of Sterling-denominated notes.

Credit Facility and Commercial Paper Program
We have a $3.0 billion unsecured revolving credit facility, with an initial term that expires in March 2023 (subject to two six-month options to extend). The revolving credit facility also has a $1.0 billion accordion feature, which is subject to obtaining lender commitments. As of September 30, 2020, the balance of borrowings outstanding under our revolving credit facility was $556.1 million, consisting entirely of Sterling-denominated borrowings of £430.5 million. In addition, we had a cash balance of $724.8 million.

In August 2020, we established a U.S. dollar-denominated unsecured commercial paper program. Under the terms of this program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding of $1.0 billion, with note proceeds used for general corporate purposes. We expect to use our unsecured revolving credit facility as a liquidity backstop for the repayment of the notes issued under this program. As of September 30, 2020, the balance of our commercial paper program was $300.0 million.

2020 Acquisitions Guidance

Our current guidance relating to our acquisition volume is approximately $2.0 billion for 2020. We continue to evaluate the impacts of the COVID-19 pandemic on our business as the situation continues to evolve.

Conference Call Information

In conjunction with the release of our operating results, we will host a conference call on November 3, 2020 at 11:30 a.m. PT to discuss the results. To access the conference, dial (877) 701-6180 (United States) or (647) 689-4069 (International). When prompted, provide the conference ID 3665185.

A telephone replay of the conference call can also be accessed by calling (800) 585-8367 and entering the passcode 3665185. The telephone replay will be available through November 17, 2020. A live webcast will be available in listen-only mode by clicking on the webcast link on the company's home page or in the investors section at www.realtyincome.com. 

A replay of the conference call webcast will be available approximately one hour after the conclusion of the live broadcast. No access code is required for this replay.

Supplemental Materials

Supplemental materials on the third quarter and year-to-date 2020 operating results, including reconciliations for non-GAAP measures, are available on our corporate website at www.realtyincome.com/investors/financial-information/quarterly-results.

About Realty Income

Realty Income, The Monthly Dividend Company^®, is an S&P 500 company dedicated to providing stockholders with dependable monthly income. The company is structured as a REIT, and its monthly dividends are supported by the cash flow from over 6,500 real estate properties owned under long-term lease agreements with commercial tenants. To date, the company has declared 604 consecutive common stock monthly dividends throughout its 51-year operating history and increased the dividend 108 times since Realty Income's public listing in 1994 (NYSE: O). The company is a member of the S&P 500 Dividend Aristocrats^® index. Additional information about the company can be obtained from the corporate website at www.realtyincome.com.

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, domestic and foreign real estate conditions, tenant financial health, the availability of capital to finance planned growth, volatility and uncertainty in the credit markets and broader financial markets, changes in foreign currency exchange rates, property acquisitions and the timing of these acquisitions, charges for property impairments, the effects of the COVID-19 pandemic and the measures taken to limit its impact, the effects of pandemics or global outbreaks of contagious diseases or fear of such outbreaks, the company's tenants' ability to adequately manage its properties and fulfill their respective lease obligations to the company, and the outcome of any legal proceedings to which the company is a party, as described in the company's filings with the Securities and Exchange Commission. Consequently, 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. 

FUNDS FROM OPERATIONS (FFO)
(dollars in thousands, except per share amounts)

We define FFO, a non-GAAP measure, consistent with Nareit's definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus provisions for impairments of real estate assets, reduced by gains on real estate sales.

ADJUSTED FUNDS FROM OPERATIONS (AFFO)
(dollars in thousands, except per share amounts) 

We define AFFO as FFO adjusted for unique revenue and expense items, which the company believes are not as pertinent to the measurement of the company's ongoing operating performance. Most companies in our industry use a similar measurement to AFFO, but they may use the term "CAD" (for Cash Available for Distribution) or "FAD" (for Funds Available for Distribution).