Realty Income Corp 10-Q for FY2020 Q1

Realty Income Corp (O)

10-Q 2020-05-05 For: 2020-03-31

Added on April 02, 2026

About this 10-Q

Realty Income Corp filed this 10-Q on May 5, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $414.34M; up 16.9% from $354.37M a year earlier
Net income: $146.83M; up 32.3% from net income of $110.94M a year earlier

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	Maryland		33-0580106
	(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification Number)



Title of Each Class	Trading Symbol(s)	Name of Each Exchange On Which Registered
Common Stock, $0.01 Par Value	O	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐



PART I.	FINANCIAL INFORMATION	Page
Item 1:	Financial Statements

	Consolidated Balance Sheets	2
	Consolidated Statements of Income and Comprehensive Income	3
	Consolidated Statements of Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Forward-Looking Statements	22
	The Company	23
	Recent Developments	26
	Liquidity and Capital Resources	30
	Results of Operations	36
	Funds from Operations Available to Common Stockholders (FFO)	43
	Adjusted Funds from Operations Available to Common Stockholders (AFFO)	44
	Property Portfolio Information	45
	Impact of Inflation	50
	Impact of Recent Accounting Pronouncements	50
	Other Information	50

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4:	Controls and Procedures	51

PART II.	OTHER INFORMATION

Item 1A:	Risk Factors	52

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 6:	Exhibits	55

SIGNATURE		57



	March 31, 2020			December 31, 2019
ASSETS	(unaudited)
Real estate held for investment, at cost:
Land	$	5,742,023		$	5,684,034
Buildings and improvements	14,070,733			13,833,882
Total real estate held for investment, at cost	19,812,756			19,517,916
Less accumulated depreciation and amortization	(3,242,175		)	(3,117,919		)
Real estate held for investment, net	16,570,581			16,399,997
Real estate and lease intangibles held for sale, net	21,356			96,775
Cash and cash equivalents	41,804			54,011
Accounts receivable	185,632			181,969
Lease intangible assets, net	1,516,819			1,493,383
Other assets, net	460,250			328,661
Total assets	$	18,796,442		$	18,554,796

LIABILITIES AND EQUITY
Distributions payable	$	80,911		$	76,728
Accounts payable and accrued expenses	182,177			177,039
Lease intangible liabilities, net	328,748			333,103
Other liabilities	251,353			262,221
Line of credit payable	615,176			704,335
Term loans, net	499,151			499,044
Mortgages payable, net	408,158			410,119
Notes payable, net	6,013,129			6,288,049
Total liabilities	8,378,803			8,750,638
Commitments and contingencies
Stockholders’ equity:
Common stock and paid in capital, par value $0.01 per share, 740,200,000 shares authorized, 343,402,030 and 333,619,106 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively	13,604,055			12,873,849
Distributions in excess of net income	(3,173,468		)	(3,082,291		)
Accumulated other comprehensive loss	(42,572		)	(17,102		)
Total stockholders’ equity	10,388,015			9,774,456
Noncontrolling interests	29,624			29,702
Total equity	10,417,639			9,804,158
Total liabilities and equity	$	18,796,442		$	18,554,796



	Three months ended March 31,
	2020			2019
REVENUE
Rental (including reimbursable)	$	412,157		$	354,037
Other	2,184			328
Total revenue	414,341			354,365

EXPENSES
Depreciation and amortization	164,585			137,517
Interest	75,925			70,020
Property (including reimbursable)	25,606			21,636
General and administrative	20,964			15,108
Income taxes	2,763			1,445
Provisions for impairment	4,478			4,672
Total expenses	294,321			250,398
Gain on sales of real estate	38,506			7,263
Foreign currency and derivative losses, net	(1,564		)	—
Loss on extinguishment of debt	(9,819		)	—
Net income	147,143			111,230
Net income attributable to noncontrolling interests	(316		)	(288		)
Net income available to common stockholders	$	146,827		$	110,942

Amounts available to common stockholders per common share:
Net Income:
Basic and Diluted	$	0.44		$	0.37

Weighted average common shares outstanding:
Basic	336,624,567			303,528,336
Diluted	336,976,515			303,819,878

Other comprehensive income:
Net income available to common stockholders	$	146,827		$	110,942
Foreign currency translation adjustment	392			—
Unrealized loss on derivatives, net	(25,862		)	(3,699		)
Comprehensive income available to common stockholders	$	121,357		$	107,243



	Shares of common stock	Common stock and paid in capital			Distributions in excess of net income			Accumulated other comprehensive loss			Total stockholders’ equity			Noncontrolling interests			Total equity
Balance, December 31, 2018	303,742,090	$	10,754,495		$	(2,657,655	)	$	(8,098	)	$	8,088,742		$	32,236		$	8,120,978
Net income	—	—			110,942			—			110,942			288			111,230
Other comprehensive loss	—	—			—			(3,699		)	(3,699		)	—			(3,699		)
Distributions paid and payable	—	—			(206,062		)	—			(206,062		)	(273		)	(206,335		)
Share issuances, net of costs	31,898	2,151			—			—			2,151			—			2,151
Issuance of common partnership units	—	—			—			—			—			6,286			6,286
Redemption of common units	—	(6,869		)	—			—			(6,869		)	(13,356		)	(20,225		)
Share-based compensation, net	33,433	(1,310		)	—			—			(1,310		)	—			(1,310		)
Balance, March 31, 2019	303,807,421	$	10,748,467		$	(2,752,775	)	$	(11,797	)	$	7,983,895		$	25,181		$	8,009,076

Balance, December 31, 2019	333,619,106	$	12,873,849		$	(3,082,291	)	$	(17,102	)	$	9,774,456		$	29,702		$	9,804,158
Net Income	—	—			146,827			—			146,827			316			147,143
Other comprehensive loss	—	—			—			(25,470		)	(25,470		)	—			(25,470		)
Distributions paid and payable	—	—			(238,004		)	—			(238,004		)	(394		)	(238,398		)
Share issuances, net of costs	9,724,500	730,776			—			—			730,776			—			730,776
Share-based compensation, net	58,424	(570		)	—			—			(570		)	—			(570		)
Balance, March 31, 2020	343,402,030	$	13,604,055		$	(3,173,468	)	$	(42,572	)	$	10,388,015		$	29,624		$	10,417,639



	Three Months Ended March 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	147,143		$	111,230
Adjustments to net income:
Depreciation and amortization	164,585			137,517
Amortization of share-based compensation	5,518			2,764
Non-cash revenue adjustments	(1,352		)	(2,116		)
Loss on extinguishment of debt	9,819			—
Amortization of net premiums on mortgages payable	(354		)	(354		)
Amortization of deferred financing costs	2,581			1,957
Loss on interest rate swaps	686			678
Foreign currency and derivative losses, net	1,564			—
Gain on sales of real estate	(38,506		)	(7,263		)
Provisions for impairment on real estate	4,478			4,672
Change in assets and liabilities
Accounts receivable and other assets	3,005			(6,185		)
Accounts payable, accrued expenses and other liabilities	(33,951		)	(30,873		)
Net cash provided by operating activities	265,216			212,027
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in real estate	(473,245		)	(517,975		)
Improvements to real estate, including leasing costs	(3,658		)	(2,995		)
Proceeds from sales of real estate	126,233			22,456
Insurance and other proceeds received	539			—
Non-refundable escrow deposits	(1,280		)	—
Net cash used in investing activities	(351,411		)	(498,514		)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash distributions to common stockholders	(233,824		)	(204,546		)
Borrowings on line of credit	846,532			732,000
Payments on line of credit	(921,859		)	(146,000		)
Principal payment on term loan	—			(70,000		)
Principal payment on notes payable	(250,000		)	—
Principal payments on mortgages payable	(1,673		)	(1,235		)
Payments upon extinguishment of debt	(9,445		)	—
Proceeds from common stock offerings, net	728,883			—
Proceeds from dividend reinvestment and stock purchase plan	2,366			2,164
Redemption of common units	—			(20,225		)
Distributions to noncontrolling interests	(394		)	(321		)
Net receipts on derivative settlements	1,251			—
Other items, including shares withheld upon vesting	(6,561		)	(4,087		)
Net cash provided by financing activities	155,276			287,750
Effect of exchange rate changes on cash and cash equivalents	(2,929		)	—
Net increase in cash, cash equivalents and restricted cash	66,152			1,263
Cash, cash equivalents and restricted cash, beginning of period	71,005			21,071
Cash, cash equivalents and restricted cash, end of period	$	137,157		$	22,334



A.	Lease intangible assets, net, consist of the following at:	March 31, 2020			December 31, 2019
	In-place leases	$	1,667,826		$	1,612,153
	Accumulated amortization of in-place leases	(659,165		)	(627,676		)
	Above-market leases	720,341			710,275
	Accumulated amortization of above-market leases	(212,183		)	(201,369		)
		$	1,516,819		$	1,493,383



B.	Other assets, net, consist of the following at:	March 31, 2020		December 31, 2019
	Right of use asset - operating leases, net	$	119,648	$	120,533
	Right of use asset - financing leases	88,804		36,901
	Restricted escrow deposits	82,391		4,529
	Financing receivables	81,436		81,892
	Derivative assets and receivables - at fair value	25,173		12
	Prepaid expenses	16,113		11,839
	Goodwill	14,397		14,430
	Impounds related to mortgages payable	12,962		12,465
	Credit facility origination costs, net	10,274		11,453
	Corporate assets, net	5,534		5,251
	Non-refundable escrow deposits	1,280		14,803
	Value-added tax receivable	—		9,682
	Other items	2,238		4,871
		$	460,250	$	328,661



C.	Distributions payable consist of the following declared distributions at:	March 31, 2020		December 31, 2019
	Common stock distributions	$	80,803	$	76,622
	Noncontrolling interests distributions	108		106
		$	80,911	$	76,728



D.	Accounts payable and accrued expenses consist of the following at:	March 31, 2020		December 31, 2019
	Derivative liabilities and payables - at fair value	$	67,944	$	26,359
	Notes payable - interest payable	62,709		75,114
	Property taxes payable	16,478		18,626
	Accrued income taxes	4,429		4,450
	Value-added tax payable	4,301		13,434
	Accrued costs on properties under development	3,325		5,870
	Mortgages, term loans, credit line - interest payable and interest rate swaps	1,876		1,729
	Other items	21,115		31,457
		$	182,177	$	177,039



E.	Lease intangible liabilities, net, consist of the following at:	March 31, 2020			December 31, 2019
	Below-market leases	$	449,445		$	447,522
	Accumulated amortization of below-market leases	(120,697		)	(114,419		)
		$	328,748		$	333,103



F.	Other liabilities consist of the following at:	March 31, 2020		December 31, 2019
	Lease liability - operating leases, net	$	121,790	$	122,285
	Rent received in advance and other deferred revenue	117,291		127,687
	Security deposits	6,249		6,303
	Lease liability - financing leases	6,023		5,946
		$	251,353	$	262,221



	Number of Properties	Square Feet (in millions)	Investment ($ in millions)		Weighted Average Lease Term (Years)	Initial Average Cash Lease Yield
Three Months Ended March 31, 2020 ⁽¹⁾
Acquisitions - U.S. (in 22 states)	54	1.4	$	318.3	14.8	6.5	%
Acquisitions - U.K. ⁽²⁾	4	0.4	165.6		12.5	5.1	%
Total Acquisitions	58	1.8	483.9		14.2	6.0	%
Properties under Development - U.S.	7	0.2	2.1		10.6	7.5	%
Total ⁽³⁾	65	2.0	$	486.0	14.1	6.0	%


1.	Basis of Presentation


4.	Investments in Real Estate


⁽¹⁾	None of our investments during the first three months of 2020 caused any one tenant to be 10% or more of our total assets at March 31, 2020. All of our investments in acquired properties during the first three months of 2020 are 100% leased at the acquisition date.


⁽²⁾	Represents investments of £133.3 million Sterling during the three months ended March 31, 2020 converted at the applicable exchange rate on the date of acquisition.


⁽³⁾	The tenants occupying the new properties operate in 17 industries, and are 95.4% retail and 4.6% industrial, based on rental revenue. Approximately 36% of the rental revenue generated from acquisitions during the first three months of 2020 is from investment grade rated tenants, their subsidiaries or affiliated companies.



	Net decrease to rental revenue			Increase to amortization expense
2020	$	(17,775	)	$	96,203
2021	(22,683		)	120,617
2022	(21,135		)	108,643
2023	(19,618		)	96,339
2024	(18,031		)	87,650
Thereafter	(80,168		)	499,209
Totals	$	(179,410	)	$	1,008,661



As Of	Number of Properties ⁽¹⁾	Weighted Average Stated Interest Rate ⁽²⁾		Weighted Average Effective Interest Rate ⁽³⁾		Weighted Average Remaining Years Until Maturity	Remaining Principal Balance		Unamortized Premium and Deferred Financing Costs Balance, net		Mortgage Payable Balance
3/31/2020	92	4.9	%	4.7	%	2.9	$	406,746	$	1,412	$	408,158
12/31/2019	92	4.9	%	4.6	%	3.1	$	408,419	$	1,700	$	410,119



Year of Maturity	Principal
2020	$	82.6
2021	68.8
2022	111.8
2023	20.6
2024	112.1
Thereafter	10.8
Totals	$	406.7



	March 31, 2020			December 31, 2019
5.750% notes, issued in June 2010 and due in January 2021	$	—		$	250
3.250% notes, $450 issued in October 2012 and $500 issued in December 2017, both due in October 2022	950			950
4.650% notes, issued in July 2013 and due in August 2023	750			750
3.875% notes, issued in June 2014 and due in July 2024	350			350
3.875% notes, issued in April 2018 and due in April 2025	500			500
4.125% notes, $250 issued in September 2014 and $400 issued in March 2017, both due in October 2026	650			650
3.000% notes, issued in October 2016 and due in January 2027	600			600
3.650% notes, issued in December 2017 and due in January 2028	550			550
3.250% notes, issued in June 2019 and due in June 2029	500			500
2.730% notes, issued in May 2019 and due in May 2034 ⁽¹⁾	391			418
5.875% bonds, $100 issued in March 2005 and $150 issued in June 2011, both due in March 2035	250			250
4.650% notes, $300 issued in March 2017 and $250 issued in December 2017, both due in March 2047	550			550
Total principal amount	6,041			6,318
Unamortized net original issuance premiums and deferred financing costs	(28		)	(30		)
	$	6,013		$	6,288


⁽¹⁾	Represents the principal balance (in U.S. dollars) of the Sterling-denominated private placement of £315.0 million converted at the applicable exchange rates on March 31, 2020, and December 31, 2019, respectively.



	Realty Income, L.P. units ⁽¹⁾			Other Noncontrolling Interests			Total
Carrying value at December 31, 2019	$	24,596		$	5,106		$	29,702
Distributions	(323		)	(71		)	(394		)
Allocation of net income	277			39			316
Carrying value at March 31, 2020	$	24,550		$	5,074		$	29,624



	March 31, 2020		December 31, 2019
Net real estate	$	647,877	$	654,305
Total assets	737,990		744,394
Total liabilities	52,613		52,087



March 31, 2020	Carrying value		Estimated fair value
Mortgages payable assumed in connection with acquisitions ⁽¹⁾	$	406.7	$	410.3
Notes and bonds payable ⁽²⁾	6,041.2		6,008.4


⁽¹⁾	Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums was $2.6 million at March 31, 2020, and $3.0 million at December 31, 2019. Also excludes deferred financing costs of $1.2 million at March 31, 2020 and $1.3 million at December 31, 2019.


⁽²⁾	Excludes non-cash original issuance premiums and discounts recorded on notes payable. The unamortized balance of the net original issuance premiums was $6.2 million at March 31, 2020, and $6.3 million at December 31, 2019. Also excludes deferred financing costs of $34.3 million at March 31, 2020 and $35.9 million at December 31, 2019.



Derivative Type	Hedge Designation	Notional Amount				Strike	Effective Date	Maturity Date	Fair Value - asset (liability)
		March 31,		December 31,					March 31			December 31,
		2020		2019					2020			2019
Interest rate swap	Cash flow	$	7.0	$	7.0	6.03%	09/25/2012	09/03/2021	$	(0.3	)	$	(0.2	)
Interest rate swap	Cash flow	250.0		250.0		1.72%	06/30/2015	06/30/2020	(0.6		)	(0.1		)
Interest rate swap	Cash flow	250.0		250.0		3.04%	10/24/2018	03/24/2024	(25.3		)	(14.7		)
Cross-currency swap ⁽¹⁾	Cash flow	41.6		41.6		⁽²⁾	05/20/2019	05/22/2034	6.9			(2.6		)
Cross-currency swap ⁽¹⁾	Cash flow	41.6		41.6		⁽³⁾	05/20/2019	05/22/2034	6.4			(2.6		)
Cross-currency swap ⁽¹⁾	Cash flow	41.6		41.6		⁽⁴⁾	05/20/2019	05/22/2034	6.0			(2.9		)
Cross-currency swap ⁽¹⁾	Cash flow	41.6		41.6		⁽⁵⁾	05/20/2019	05/22/2034	5.8			(3.2		)
Treasury rate lock⁽⁶⁾	Cash flow	75.0		—		1.63%	⁽⁶⁾	06/30/2020	(6.9		)	—
Treasury rate lock⁽⁶⁾	Cash flow	75.0		—		1.63%	⁽⁶⁾	06/30/2020	(6.9		)	—
Treasury rate lock⁽⁶⁾	Cash flow	100.0		—		1.64%	⁽⁶⁾	06/30/2020	(9.2		)	—
Treasury rate lock⁽⁶⁾	Cash flow	100.0		—		1.57%	⁽⁶⁾	06/30/2020	(8.6		)	—
Treasury rate lock⁽⁶⁾	Cash flow	150.0		—		1.37%	⁽⁶⁾	06/30/2020	(10.0		)	—
		$	1,173.4	$	673.4				$	(42.7	)	$	(26.3	)


⁽¹⁾	Represents British Pound Sterling, or GBP, United States Dollar, or USD, cross-currency swap.


⁽²⁾	GBP fixed rates initially at 4.82% and escalating to 10.96%, and USD fixed rate at 9.800%.


⁽⁶⁾	These treasury rate locks were entered into during February 2020 to hedge our exposure to the changes in the 10-year US treasury rate on potential future debt offerings during the first half of 2020. In the event we do not execute a debt offering or offerings within the original contract maturity, we may elect to extend the maturity of all or a portion of these contracts.



Month	2020		2019
January	$	0.2275	$	0.2210
February	0.2325		0.2255
March	0.2325		0.2255
Total	$	0.6925	$	0.6720



	March 31, 2020		March 31, 2019
Cash and cash equivalents shown in the consolidated balance sheets	$	41,804	$	2,997
Restricted escrow deposits ⁽¹⁾	82,391		9,081
Impounds related to mortgages payable ⁽¹⁾	12,962		10,256
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows	$	137,157	$	22,334



Assets, as of:	March 31, 2020		December 31, 2019
Segment net real estate:
Automotive service	$	286,380	$	288,453
Automotive tire services	232,093		232,709
Beverages	278,318		279,373
Child care	217,120		208,326
Convenience stores	2,040,499		2,057,157
Dollar stores	1,430,852		1,427,950
Drug stores	1,603,799		1,618,854
Financial services	386,310		389,634
General merchandise	515,199		475,418
Grocery stores - U.S.⁽¹⁾	911,070		922,349
Grocery stores - U.K.⁽¹⁾	664,056		663,210
Health and fitness	1,092,881		1,019,796
Home improvement	503,092		495,305
Restaurants-casual dining	568,547		576,526
Restaurants-quick service	1,067,239		1,059,155
Theaters - U.S. ⁽¹⁾	869,621		878,103
Transportation services	720,929		769,614
Wholesale club	393,501		396,690
Other non-reportable segments	2,810,431		2,738,150
Total net real estate	16,591,937		16,496,772
Intangible assets:
Automotive service	57,833		58,854
Automotive tire services	6,940		7,322
Beverages	1,444		1,509
Child care	22,805		21,997
Convenience stores	129,145		131,808
Dollar stores	81,755		82,701
Drug stores	179,585		183,319
Financial services	16,468		17,130
General merchandise	74,187		66,135
Grocery stores - U.S.⁽¹⁾	176,030		180,197
Grocery stores - U.K.⁽¹⁾	177,001		153,407
Health and fitness	74,257		74,428
Home improvement	73,939		72,979
Restaurants-casual dining	22,629		23,289
Restaurants-quick service	51,372		52,353
Theaters - U.S. ⁽¹⁾	35,029		36,089
Transportation services	58,957		66,055
Wholesale club	22,594		23,372
Other non-reportable segments	254,849		240,439
Other corporate assets	687,686		564,641
Total assets	$	18,796,442	$	18,554,796


•	In April 2020, we declared a dividend of $0.233 per share to our common stockholders, which will be paid in May 2020.


•	In addition, on April 9, 2020, we withdrew our 2020 guidance that was provided on February 19, 2020 due to the ongoing uncertainty regarding the impact of the COVID-19 pandemic and the measures taken to limit its spread. We are continuing to evaluate these impacts on our business as the situation continues to evolve and feel it is not prudent to provide revised guidance at this time.