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Realty Income Corp. Raises 2018 Acquisitions Guidance

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Realty Income Corp. was pleased with its results in the second quarter. According to CEO, John Case on the firm’s Q2 conference call, he said that during the quarter the REIT invested $347 million in high quality property acquisitions and increased AFFO per share by 5.3%.

“Given the momentum we see in our business, we are increasing our 2018 acquisitions guidance to approximately $1.75 billion from the prior range of $1 billion to $1.5 billion,” he said. “We’re also raising the range of our 2018 AFFO per share guidance from $3.14 to $3.20 to $3.16 to $3.21.”

Paul Meurer, CFO and treasurer, then provided highlights for a few items in its financial results for the quarter, starting with the income statement. “Other revenue in the quarter was $3.6 million. Other revenue typically consists of easements, take in, interest income and insurance proceeds and it will vary from quarter-to-quarter as we’ve mentioned in the past,” he said.

The REIT’s G&A as a percentage of total rental and other revenues was 5.7% for the quarter and 5.4% year-to-date, Meurer continued. “Consistent with prior year G&A tends to be slightly higher in the first half of the year due to the timing of stock vesting and the cost associated with their annual meeting and proxy. We continue to have the lowest G&A ratio in the net lease REIT sector and we continue to project G&A to be approximately 5% in all of 2018.”

He added that “Our non-reimbursable property expenses as a percentage of total rental and other revenues were 1.5% for the quarter and 1.6% year-to-date. We expect non-reimbursable property expenses to remain in the 1.5% to 2% range in 2018.

Funds from operation or FFO per share was $0.79 for the quarter. As a reminder our reported FFO follows the NAREIT-defined FFO definition. Adjusted funds from operations or AFFO or the actual cash we have available for distribution as dividends was $0.80 per share for the quarter, representing a 5.3% increase.”

He explained that the REIT has continued to maintain its conservative capital structure. “During the second quarter we issued $300 million of common stock primarily through our ATM program. The weighted average maturity of our bonds is now 9.2 years and our overall debt maturity schedule remains in excellent shape, with only $8.5 million of debt coming due the remainder of 2018, and only $91 million coming due in 2019, outside of our revolver. And our maturity schedule is very well laddered thereafter.”

Case then explained that occupancy based on the number of properties in the REIT’s portfolio was 98.7%, an increase of 20 basis points versus the year ago period. “We expect occupancy to remain north of 98% for 2018. During the quarter we re-leased 47 properties recapturing approximately 108% of the expiring rent, making this our 8th consecutive quarter of positive recapture rates.

The first half of 2018 we have re-leased 102 properties recapturing approximately 105% of the expiring rent. Since our listing in 1994 we have re-leased or sold 2750 properties with leases expiring.”

He also noted that same-store rental revenue increased 1% during the quarter and 0.9% for the first half of the year. These results, he said, were consistent with the firm’s projected run rate for 2018 of 1%. Approximately 90% of our leases continue to have contractual rent increases.

Case also pointed out that the company’s portfolio continues to be diversified by tenant, industry, geography, and to a certain extent, property type, which contributes to the stability of its cash flow. “At the end of the quarter, our properties were leased to 257 commercial tenants and 48 different industries, located in 49 states and Puerto Rico. 81% of our rental revenue is from our traditional retail properties. The largest component outside of retail is industrial properties at about 13% of rental revenue.”