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Realty Income's (O) CEO John Case on Q1 2016 Results - Earnings Call Transcript

Q1 2016 Earnings Conference Call

April 27, 2016 2:30 PM ET

Executives

Janeen Bedard - Vice President, Administration

John Case - Chief Executive Officer

Paul Meurer - Executive Vice President, Chief Financial Officer and Treasurer

Sumit Roy - President and Chief Operating Officer

Analysts

Juan Sanabria - Bank of America Merrill Lynch

Robert Stevenson - Janney Montgomery Scott LLC

Vikram Malhotra - Morgan Stanley

Nicholas Joseph - Citigroup

R.J. Milligan - Robert W. Baird & Co.

Vineet Khanna - Capital One Securities, Inc.

Tyler Grant - Green Street Advisors Inc.

Todd Stender - Wells Fargo Securities

Karin Ford - Mitsubishi UFJ Financial Group, Inc.

Collin Mings - Raymond James & Associates, Inc.

Rich Moore - RBC Capital Markets, LLC

Operator

Please stand by, we’re about to begin. Good day and welcome to the Realty Income First Quarter 2016 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Janeen Bedard. Please go ahead.

Janeen Bedard

Thank you all for joining us today for Realty Income’s first quarter 2016 Operating Results Conference Call. Discussing our results will be: John Case, Chief Executive Officer; Paul Meurer, Chief Financial Officer and Treasurer; and Sumit Roy, President and Chief Operating Officer. During this conference call, we will make certain statements that may be considered to be forward-looking statements under federal securities laws.

The company’s actual future results may differ significantly from the matters discussed in any forward-looking statements. We will disclose in greater detail the factors that may cause such differences in the company’s Form 10-Q. We will be observing a two-question limit the during the Q&A portion of the call in order to give everyone the opportunity to participate. I will now turn the call over to our CEO, John Case.

John Case

Thanks, Janeen, and welcome to our call today. And we’re pleased to begin the year with an active quarter for acquisitions and healthy AFFO per share growth of 4.5% to $0.70. As announced in yesterday’s press release we are increasing our 2016 acquisitions guidance from $750 million to approximately $900 million and reiterating our AFFO per share guidance for 2016 of $2.85 to $2.90 as we anticipate another solid year of earnings and dividend growth.

Let me hand it over to Paul to provide additional detail on our financial results. Paul?

Paul Meurer

Thanks, John. I’m going to provide highlights for a few items in our financial results for the quarter starting with the income statement. Interest expense increased in the quarter by $2.2 million to $60.7 million. This increase was due to the recognition of a non-cash loss of approximately $5.8 million on interest rate swaps during the quarter.

As a reminder, theses mark-to-market adjustments on our floating to fixed interest rate swaps will tend to cause volatility in our reported interest expense and FFO on a quarterly basis, particularly when there is significant movement in short-term forward curve rates as we saw in the first quarter.

Naturally, this evaluation will fluctuate based on the outlook for interest rates. Last quarter, it resulted in a $4.1 million non-cash gain. We do adjust for these non-cash gains or losses when computing our cash AFFO earnings.

The increase in interest expense was partially offset by less overall debt in our balance sheet. We repaid $150 million of bonds and over $300 million in mortgages over the last 12 months. On a related note, our coverage ratios both remain strong and continue to tick higher with interest coverage of 4.6 times and fixed charge coverage of 4.1 times.

Our fixed charge coverage is the highest it has been in well over 10 years. Our G&A as a percentage of total rental and other revenues was less than 4.8%, which continues to be the lowest percentage in the net-lease sector. Our non-reimbursable property expenses as a percentage of total rental and other revenues was 2.3%.