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Restaurant Vacancies Nibble Away at Realty Income’s Profits

Realty Income Corp. shares fell nearly 3 percent May 1 after the Escondido-based real estate investment trust reported lower quarterly earnings the previous afternoon and indicated business would continue to soften in 2008.

The lower income resulted from two properties vacated by Buffets Inc.

“During the first quarter of 2008, the economic environment, in general, became more challenging,” said Tom A. Lewis, chief executive officer. “Because of this, operating results of some retail businesses that lease properties from the company were softer than in the past. However, occupancy in Realty Income’s real estate portfolio remained strong at 97.4 percent.”

Lewis added, “We anticipate that, while retail chain results may continue to soften, our occupancy should remain towards the mid- to high 90 percent occupancy range during 2008.”

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Realty Income owns 2,375 retail properties in 49 states, which are leased to 119 retail chains.

For the quarter ending March 31, Realty says its FFO, which it uses as an expression of net income, fell 1.3 percent to $45.9 million, compared with net income of $46.5 million in the same period last year.

The company declared a dividend of 41 cents per share, compared with 38 cents per share in the same period in 2007.

Realty shares fell by as much as 5 percent before recovering at $25.53 to close on May 1. The company’s New York Stock Exchange symbol is O.

Realty says it would reduce property acquisitions through 2008.

Lewis said that adding properties now “presents more risk than is advisable in an unstable cap rate environment.”

“Further, we anticipate a weaker environment for buying and selling properties in the 1031 tax-deferred exchange market,” Lewis said.

Same-store rents on 1,816 properties increased 1.5 percent to $65.9 million compared with $64.9 million for the same quarter in 2007.

, Ned Randolph


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