Good day, everyone. And welcome to the Realty Income Third Quarter 2014 Operating Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Janeen Bedard, Associate Vice President. Please go ahead, ma’am.

Thank you, operator. And thank you all for joining us today for Realty Income’s Third Quarter 2014 Operating Results Conference Call. Discussing our results will be John Case, Chief Executive Officer; Paul Meurer, Chief Financial Officer and Treasurer; and Sumit Roy, Chief Operating Officer and Chief Investment Officer. During this conference call, we will make certain statements that may be considered to be forward-looking statements under Federal Securities Law. 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. I will now turn the call over to our CEO, John Case.

Thanks, Janeen. And good afternoon, everyone and welcome to our call. We're pleased with our third quarter results with AFFO per share increasing by 6.7% to $0.64. As announced in yesterday’s press release, we are reiterating our 2014 AFFO guidance per share of $2.55 to $2.57 so we anticipate another solid year of earnings growth. Paul will provide you with an overview of the earnings numbers. Paul?

Thanks John. As usual, I will briefly comment on our financial statements and provide some highlights of our financial results for the quarter. I’ll start by highlighting a few line items in our income statement. Total revenue increased 16.6% for the quarter. This increase reflects our growth primarily from new acquisitions over the past year, as well as same-store rent growth. Our annualized rental revenue at September 30th was approximately $912 million. On the expense side, interest expense increased in the quarter to $52.8 million. This increase was primarily due to our two recent bond offerings, the $350 million tenure notes issued in June and a $250 million 12 year notes issued in September. Interest expense was also impacted this quarter by the reclassification of approximately one month of preferred dividends as interest expense. Because we issued the redemption notice for our outstanding Preferred E Stock before quarter-end, we needed to reclassify the Preferred E Stock as a liability at quarter-end and about one month of preferred dividends as interest expense. This increased interest expense during the quarter by $1.2 million. On a related note, our coverage ratios both remained strong with interest coverage at 3.7 times and fixed charge coverage at 3.3 times. General and administrative expenses in the quarter were approximately $11 million, a $5.6 million decrease from a year ago. G&A expenses year-to-date were $35.5 million, a $4.9 million decrease from the first nine months of last year. This decrease in G&A comes from lower acquisition transaction cost, $589,000 year-to-date versus $1.7 million of transaction cost for acquisitions in 2013 as well as lower stock compensation cost. We had a one-time unusual $3.7 million expense during the third quarter of 2013 due to accelerated vesting of our long-term stock compensation. Our projection for G&A for 2014 remains…

Thanks, Paul. I’ll begin with an overall of the portfolio, which is performing well and continues to generate dependable cash flow for our shareholders. Occupancy remains consistent with the previous quarter at 98.3% based on the number of properties with 74 properties available for lease out of 4,284 properties. Occupancy has held steady for three consecutive quarters now and is up 20 basis points from one year ago. Occupancy based on square footage and economic occupancy are both 99.1%. Based on what we're seeing today in our schedule rollover, we expect our occupancy to remain fairly stable for the remainder of the year. The third quarter was our most active quarter this year for lease rollover activity in the portfolio with leases expiring on 81 properties. Of these assets, we released 70 to existing tenants, 7 to new tenants and sold 4 properties recapturing a 100% of expiring rents on the properties we released. Our property portfolio management activities speak to the unique and extensive experience we have seen in our business full cycle where leases signed more than 20 years ago are rolling. Over our 45 year operating history, we have successfully executed more than 1,700 lease rollovers. We have a team of 36 professionals, many of whom have been with the company for over a decade working in our property portfolio management department. We believe our expertise in this area is a significant asset to our company. Our portfolio continues to be diversified by tenant industry, geography and to a certain extent, property type. At the end of the third quarter, our properties were leased to 231 commercial tenants and 47 different industries located in 49 states in Puerto Rico. 78% of rental revenue is from our traditional retail properties, while 22% is from non-retail, the largest component…

Thank you, John. During the third quarter of 2014, we invested $182 million in 49 properties located in 26 states at an average initial cash cap rate of 7.4% and with a weighted average lease term of 11.2 years. As a reminder, our initial cap rates or cash not GAAP which tend to be higher due to straight lining of rent. We define cash cap rates contractual cash net operating income for the first 12 months of each lease following the acquisition date, divided by the total cost of the property including all expenses borne by Realty Income. On a revenue basis, 53% of total acquisitions are from investment grade tenants. 96% of the revenues are generated from retail and 4% are from industrial and distribution. These assets are leased to 21 different tenants in 15 industries. Some of the most significant industries represented are home improvement and drugstores. Year-to-date 2014, we invested $1.24 billion in $439 properties located in 42 states at an average initial cash cap rate of 7.1% and with the weighted average lease term of 12.6 years. Of the total amount, approximately $329 million was invested in non-investment grade retail properties. On a revenue basis, 70% of total acquisitions are from investment grade tenants. 86% of the revenues are generated from retail, 7% are from industrial, distribution and manufacturing and 7% are from office. These assets are leased to 51 different tenants in 27 industries. Some of the more significant industries represented are Dollar stores, home improvements and drugstores. Transaction flow continues to remain healthy. We sourced more than $7 billion in the third quarter of 2014. Year-to-date we have sourced approximately $21 billion in potential transaction opportunities, which as we mentioned last quarter would put us on pace to make 2014 the year with the…

Thanks Sumit. Regarding our capital raising activities, as Paul mentioned, we've been quite active in the capital markets year-to-date. We have raised over $1.2 billion in permanent and long-term capital to finance our business. The majority being equity with the remainder being 10 and 12 year unsecured bonds. So, our balance sheet continues to be in excellent shape with two-thirds equity and one-third debt and that debt being predominantly long-term fixed rate. We currently have more than $1.2 billion available on the line to support future acquisitions activity so we continue to have excellent liquidity. Regarding earnings and guidance, we continue to generate healthy per share earnings growth, while maintaining a conservative capital structure. Our third quarter FFO and AFFO per share of $0.64 represented increases of 8.5% and 6.7% respectively from the period one year ago. As mentioned earlier, we are reiterating our 2014 AFFO guidance per share of $2.55 to $2.57, representing earnings growth of about 6% to 7%. We are anticipating another solid year for earnings growth next year and we are initiating 2015 guidance with AFFO per share from $2.66 to $2.71 implying year-over-year growth of approximately 4% to 6% over the midpoint of our 2014 range; and FFO per share of $2.67 to $2.72 which at the midpoint of the range represents an increase of approximately 4% over the midpoint of our 2014 range. Our focus continues to be the payment of reliable monthly dividends that grow over time. During the third quarter, we declared the 77th dividend increase since the company’s listing in 1994. Over this 20-year time period as a publicly traded company, we’ve grown the dividend by a compounded average annual growth rate of 4.6%. We remain committed to the durability and consistent growth of the dividend. Our payout ratio year-to-date has…

Thank you. (Operator Instructions). Our first question comes from Juan Sanabria with Bank of America.

Hi, good afternoon guys. I was just hoping you could give us a little color on the 2015 acquisition guidance, sort of how you came to that number and then background on any spreads or cap rates we should thinking about with regards to that number? And just optically, I know you've kind of stated and stressed that you want to be selective, but just how we should be thinking about that versus the number you put out there for 2014 for the year?

Okay Juan. Let me just spend a moment on acquisitions. We continue to see inactive pipeline of sourced acquisition opportunity, so there is good transaction flow. And as we said, our investment spreads are well above our historical average. But there is also a lot of capital pursuing these opportunities. So, it has been competitive and we remain disciplined and selective with our investment strategy. We're seeing some very aggressive pricing out there among some of our peers and structures, looking at replacement cost; we're seeing assets trade sometimes at 50% above the replacement costs. We’re seeing properties that have rents that are well above market rents trading at aggressive pricing. Then we’re seeing some pretty aggressive structures as well. So we’re seeing for instance and some of the casual dining transactions that have crossed our gas, we’re seeing them get dine at very high coverage ratios, ratios we’re not comfortable with. So we’ve been in this business a long time and I think we have a pretty good idea of what’s going to work and what’s not going to work long-term. Clearly, given our cost of capital, we could do these transactions and initially that would be quite accretive. But when you look at them over the long-term, if they’re not structured and priced properly, you’re going to have some low IRRs and pay the price on the residual, and they could actually the value destructive to our shareholders long-term. Our range for acquisitions for 2015 reflects the environment we’re in today. As you know that environment can change significantly from quarter-to-quarter even month-to-month. I mean if an aggressive buyers out there that all of a sudden slows down or exits the market that could have a material impact on our volume and potentially pricing. So at this point,…

Definitely very thorough. Thanks John. And just a quick follow-up if you don't mind. Given how aggressive pricing is, what’s the viewer on dispositions for 2015 is it anything big to the numbers?

We've assumed for 2015 $50 million for now and we're going to watch that pretty closely. We started out this year assuming $50 million and we're going to end up selling $100 million approximately. So, the environment continues to be heated. We're going to go ahead and move some assets, some additional assets off our watch list and take advantage of the strong bid in the market. And I think pricing will improve here in the next few months is my prediction in terms of disposition. So, in the model we have $50 million, but we’re going to watch that pretty closely and if the environment continues to look like it does today, we could see increasing that up to $100 million.

Great. Thank you very much for the time.

Okay. Thank you.

Our next question comes from Todd Stender with Wells Fargo.

Hi, thanks guys. Sumit you gave cap rate ranges for investment grade and non-investment grade, tentative properties. Were those for the properties you acquired in Q3? Just want to get the range of cap rates you acquired because the blended 7.4 yield I thought was pretty high even though it worth payable to land over 50% investment grade.

Yes. So, Todd those were the ranges of assets that we saw transact in the market. We didn’t -- I don’t believe we bought anything in the low or mid 5% cap rate range. The main reason for the yield that we were able to achieve in the third quarter of a 7.4 was being driven by 18% of the volume was coming from our build-to-suit development funding, as well as some of our forward commitments, which typically has been a much smaller portion of the total acquisition volume, it’s been right around 3%, but in the third quarter that represented closer to 18%. And clearly the mix of investment grade and non-investment grade also played a part in why we were able to achieve the higher yield.

That’s helpful. And then just kind of just switching gears, can you share how some of the re-leasing discussions went with tenants? It looks like while you renewed 77 leases, just looking back at the Q2 results, about 50, only 50 leases were coming due in the second half of the year. So, I just want to see, the tenants comfort level in renewing leases ahead of time, it looks like a fair amount of those were maturities not coming due just yet?

That's exactly right. I mean we're always looking for, Todd, managing our rollover and if we can enter into discussions that are advantageous for us and our tenants to re-lease early, we will do that. So, that's why you see that 77 number versus what was scheduled to roll in the quarter. So, we're pleased with that and we'll continue to do that. We're just trying to stay in front of these maturities and our leases and stay in front of them a couple of quarters or longer if we can even.

Is there a comfort level with tenants anything that you can, any trends are developing that tenants are able to renew or their willingness to renew it little early, anything there?

Yes. Well, I think in general our tenants are in better shape than they were certainly five years ago; their operations and balance sheets are much stronger; they are more likely to renew. So, we're leasing of the lease rollovers we're executing, 90% are going to the same tenant; 10% to a new tenant. If you look at the history of the company that's been more 70% to the same tenant and 20% to new tenant and then 10% sold. So, those statistics show you that the tenants are more comfortable renewing their leases on the properties and staying in those properties. And it’s a function of a better economic environment, but we also like to think it’s also a function of better underwriting, better tenant selection, site selection on our part having learned from 45 years history in this business.

Thanks John. And just was there cost or what was the cost associated with retaining and attracting new tenants; have you guys put out a TI number?

Yes. We are -- that will be in our supplemental. So we spent 125,000 in tenant improvements in the third quarter to re-lease 16.3 million in rental revenue. So that number is de minimis, it usually is dominants; it runs from less than 1% of revenues up to maybe 2%. So, it’s never a material number, but we’re actually including that in our supplement going forward.

Great. Thank you.

Thank you, Todd.

Our next question comes from Vikram Malhotra with Morgan Stanley.

Thank you. Sumit, could you just give us, sorry, I apologize if I missed this. But for the acquisitions that you’ve taking for next year, what are the cap rates you’re assuming or the range of cap rates?

We’re assuming 7% for next year.

Okay.

Year-to-date we’re at 7.1%. The 7.4%, if we were very pleased with but that’s little higher than what we’re expecting given the current market conditions.

And then just given the numbers you quoted on market cap rates between investment grade and non-investment grade, would you expect next year to be a little different in terms of just composition between the two for deals that you do?

No. I think listen, a lot of it is going to be a function of what's going to be available out there. And I think we've stated this in previous calls as well. We don't target a particular composition with regards to investment grade versus non-investment grade when we're looking at acquisitions. This particular quarter it just turned out where investment grade represented only 53% whereas year-to-date it's closer to 70%. So, we're going to look at opportunities that present themselves. There is a lot of discussion around certain retail asset classes that tend to be more non-investment grade in nature. So it's very difficult to predict as to what the composition of that 500 million to 800 million that John has mentioned is going to turn out to be at the end.

Okay. And then just maybe on the competition for deals, as you mentioned, it's obviously increased but maybe looking out into '15, maybe just give us your high level thoughts on did you see that competition changing in any way? I know new regulations on the non-traded side don't kick in for a while but could that be a factor as you get towards the year end or could there just be other factors that may make the environment just more competitive or less competitive from your standpoint?

Well, we continue to compete with the other public companies and certainly the non-listed REITs. As you've said, the capital raising has slowed down a little bit there but there is still a lot of equity in those entities. We compete with mortgage REITs and institutional investment managers who are running money for sovereign wealth funds, pension funds, endowments looking for yield. So we bump in to some of them as well. I think that the last few quarters have been some of the most competitive we've seen. And there is certainly some activities out there in the sector that would lead me to believe that the competition could become a little less than tense next year. Again it’s impossible to accurately forecast, but our sense is some of the more aggressive buyers maybe stepping back a bit from the market. So that would be the case. We certainly feel better about the higher-end of our acquisitions range.

Okay. And then some -- okay, okay. Just last clarification is on the timing of these acquisitions, is there anything different we should assume for next year versus just normal seasonality that we see during the year?

They’re normal, they’re lumpy and they’re really driven by portfolios. And again like last year 2013 we did $1.52 billion in property level acquisitions, the last quarter was a $140 million. This year the first quarter was $650 million and this quarter was a $182 million. You’re going to see that lumpiness because it’s associated with the amount of acquisitions that get done through portfolios. So, I think that will continue. So, we’ll have some heavy quarters and some light quarters like we always have.

Okay. Thanks guys.

Thank you.

Our next question comes from Todd Lukasik with Morningstar.

Hi. Good afternoon guys. Thanks for taking my questions. Just wondering if you could comment on the weighted average remaining lease term for the portfolio overall. And I guess let’s say 5 or more years ago I kind of assume that was going to fall in the range of 12 years or longer generally. And I think now it’s around 10.4 years. And just if you can comment around that I guess the change in properties that you guys own now may influence that, but also whether or not you manage to that number and what you'd expect it to be in five or ten years or how that will likely trend?

Yes. Well, I mean when you've got $15 billion in assets and each year passes the lease-term actually declines by year and it's offset partially by acquisitions. And so, if you're acquiring a $1.5 billion at 13 years, you're not going to fully offset the decrease in lease-term on the existing portfolio. On rollovers, you are typically -- if the rollovers go to the same tenant, they are five year lease-terms, if it's a new tenant it's closer to ten years. So, it's a natural evolution for a season that lease company like ourselves to see that lease-term overtime decline. We still focus on average lease-terms of 11, 12, 13, 14 years that’s what we're seeing, that's what we're doing. But you’ve got to remember on the rest of the portfolio, they're getting a bit shorter. And I think one of our strength is to effectively execute lease rollovers. We've executed over 1,700 lease rollovers in our company's history, recapturing nearly a 100% of the expiring rent. And we've got a team of almost 40 professionals dedicated to that effort that they have been with the company; many of them 10 to 20 years. And that’s where I’ve said this before where the rubber meets the road in the business, that’s where you really need to be able to execute and reserve value. And there are not a lot of net lease companies out there that have that expertise and that extensive experience. So, we’re very comfortable with our ability to extend the shorter lease terms and the longer lease terms that eventually need to be addressed as those leases expire. I mean some of the leases, we handled this quarter, we looked at and they were put in place 25 years ago. So again we’d have a very long-term perspective. Does that help Todd?

Yes, it does. That’s great. Thanks for all that color. And then just a follow-up question on the acquisition guidance for next year. I’m curious, if you are also expecting that the acquisition volume that source is going to be lower or whether you expect that to be relatively constant; you guys are just going to a little bit choosier about what you actually try to close?

It’s continuing to be active in this quarter. We would expect transaction flow in terms of sourced acquisition opportunities to be strong again next year; all indicators were pointing to that it will be. 2013 was a record at 39 billion. This year, we’re already a 21 billion, which is our second best year ever just nine months into the year. So I think that we’ll continue to see that momentum, but again we’ll continue to be selective and disciplined in what we buy. There are a number of discussions going on with respect to sale leasebacks with corporate board; corporate management teams; activist investors. We don't know how many of these are going to end up playing out but it's just one or two or three hit, you could see some very big sourced volumes that could lead to higher acquisition. So that activity in terms of activist investors and corporate boards and management teams scrutinizing their real estate holdings and making sure they’re properly and efficiently managing their real estate is accelerating. So there are more discussions. Unfortunately we're involved in those discussions and that really could impact source opportunities next year there to monetize some of that real estate.

Okay, great. Thanks a lot for taking my questions.

Okay, Todd. Thank you.

And this concludes the question and answer portion of Realty Income's conference call. I will now turn the call over to John Case for concluding remarks.

Just want to thank you and thank everyone for joining us today. We look forward to speaking with you next quarter and we'll see a lot of you next week in Atlanta NAREIT. So we look forward to catching up with you then. Take care everyone.