Realty Income - 10-Q quarterly report FY

(Exact name of registrant as specified in its charter)

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: (760) 741-2111

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x     NOo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YESo    NOo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer x   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES  o   NO  x

There were 104,286,381 shares of common stock outstanding as of October 22, 2009.

REALTY INCOME CORPORATION AND SUBSIDIARIES

 

September 30, 2009 and December 31, 2008

(dollars in thousands, except per share data)

REALTY INCOME CORPORATION AND SUBSIDIARIES

For the three and nine months ended September 30, 2009 and 2008

(dollars in thousands, except per share data)

(unaudited)

REALTY INCOME CORPORATION AND SUBSIDIARIES

 

For the nine months ended September 30, 2009 and 2008

(dollars in thousands)(unaudited)

For supplemental disclosures, see note 12.

REALTY INCOME CORPORATION AND SUBSIDIARIES

September 30, 2009

(unaudited)

The consolidated financial statements of Realty Income Corporation ("Realty Income", the "Company", "we", "our" or "us") were prepared from our books and records without audit and include all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim period presented. Certain of the 2008 balances have been reclassified to conform to the 2009 presentation. Readers of this quarterly report should refer to our audited financial statements for the year ended December 31, 2008, which are included in our 2008 Annual Report on Form 10-K, as certain disclosures that would substantially duplicate those contained in the audited financial statements have not been included in this report.

At September 30, 2009, we owned 2,334 properties, located in 49 states, containing over 19.0 million leasable square feet, along with five properties owned by our wholly-owned taxable REIT subsidiary, Crest Net Lease, Inc. ("Crest"). Crest was created to buy and sell properties, primarily to individual investors who are involved in tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Tax Code").

A.  The accompanying consolidated financial statements include the accounts of Realty Income, Crest and other entities for which we make operating and financial decisions (i.e., control), after elimination of all material intercompany balances and transactions. All of Realty Income’s subsidiaries are wholly-owned. We have no unconsolidated or off-balance sheet investments in variable interest entities.

B.  We have elected to be taxed as a real estate investment trust ("REIT") under the Tax Code. We believe we have qualified and continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct distributions paid to our stockholders and generally will not be required to pay federal corporate income taxes on such income. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for the federal income taxes of Crest, which are included in discontinued operations.

C.  We recognize an allowance for doubtful accounts relating to accounts receivable for amounts deemed uncollectible. We consider tenant specific issues such as financial stability and ability to pay rent when determining collectibility of accounts receivable and appropriate allowances to record.  Our allowance for doubtful accounts was $1.6 million at September 30, 2009 and $637,000 at December 31, 2008.

D.  We review long-lived investment properties for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Generally, a provision is made for impairment if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property. Key inputs that are estimated by us in this analysis include projected rental rates, capital expenditures and property sales capitalization rates. Additionally, a property classified as held for sale is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell.

I.   Impact of Recent Accounting Pronouncements

In August 2009, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2009-05, Fair Value Measurements and Disclosures.  Effective for the first interim period after the issuance date, ASU No. 2009-05 provides clarification to measuring the fair value of a liability. In circumstances in which a quoted market price in an active market for the identical liability is not available, a reporting entity is required to measure fair value by using either (1) a valuation technique that uses quoted prices for identical or similar liabilities or (2) another valuation technique, such as a present value technique or a technique that is based on the amount paid or received by the reporting entity to transfer an identical liability. ASU No. 2009-05 only applies to our disclosures in note 6 related to the estimated fair value of our notes payable and did not have a significant impact on our footnote disclosures.

We acquire land, buildings and improvements that are used by retail operators.

In comparison, during the first nine months of 2008, Realty Income invested $188.5 million in 108 new retail properties and properties under development with an initial weighted average contractual lease rate of 8.7%. These 108 properties are located in 14 states, contain over 714,000 leasable square feet, and are 100% leased with an average lease term of 20.6 years.

B.  During the first nine months of 2009 and 2008, Crest did not invest in any new retail properties.

C.  Crest’s property inventory at September 30, 2009 consisted of five properties valued at $5.7 million and, at December 31, 2008, consisted of five properties valued at $6.0 million. These amounts are included on our consolidated balance sheets in "real estate held for sale, net."

D.  When acquiring a property for investment purposes, we allocate the fair value of real estate acquired with in-place operating leases to: 1) land, 2) building and improvements, and 3) identified intangible assets and liabilities, based in each case on their fair values. Intangible assets and liabilities consist of above-market and below-market leases, the value of in-place leases and tenant relationships.

Of the $11.9 million invested by Realty Income in the first nine months of 2009, $10.5 million was used to acquire three retail properties with existing leases.  In accordance with the policy above, Realty Income recorded $1.4 million as the intangible value of the in-place leases, $150,000 as the intangible value of above-market leases and $655,000 as the intangible value of below-market leases for the first nine months of 2009.  The value of the in-place and above-market leases are recorded to "other assets" on our consolidated balance sheet, as of September 30, 2009, and the value of the below-market leases are recorded to "other liabilities" on our consolidated balance sheet as of September 30, 2009.  All of these amounts are amortized over the life of the respective leases.

Of the $188.5 million invested by Realty Income in the first nine months of 2008, $10.0 million was used to acquire two retail properties with existing leases. Realty Income recorded $397,000 as the intangible value of the in-place leases for the first nine months of 2008. This amount is recorded to "other assets" on our consolidated balance sheets and amortized over the life of the respective leases.

In May 2008, we entered into a $355 million revolving, unsecured credit facility that replaced our previous $300 million acquisition credit facility. The term of our credit facility is for three years, until May 2011, plus two, one-year extension options. Under our credit facility, our investment grade credit ratings provide for financing at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 100 basis points with a facility commitment fee of 27.5 basis points, for all-in drawn pricing of 127.5 basis points over LIBOR. We also have other interest rate options available to us. Our credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation.

In May 2008, as a result of entering into our current credit facility, we incurred $3.2 million of credit facility origination costs that were capitalized to "other assets" on our consolidated balance sheets and are being amortized over three years. Also in May 2008, we expensed $235,000 of unamortized credit facility origination costs from our prior credit facility, which are included in "interest expense" on our consolidated statements of income for the nine months ended September 30, 2008.

We did not utilize our credit facility during the first nine months of 2009 or 2008. Our effective borrowing rate at September 30, 2009 was 1.2% and at September 30, 2008 was 4.9%. Our current and prior credit facilities are and were subject to various leverage and interest coverage ratio limitations. We are and have been in compliance with these covenants.

Our senior unsecured note obligations consist of the following, sorted by maturity date (dollars in millions):

B.      Note Redemption

On their maturity date in January 2009, we redeemed, using cash on hand, all of our outstanding 8.00% notes issued in January 1999 at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest.

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework for measuring the fair value of an asset. The disclosure for assets and liabilities measured at fair value requires allocation to a three-level valuation hierarchy. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

We believe that the carrying values reflected in our consolidated balance sheets reasonably approximate the fair values for cash and cash equivalents, accounts receivable, and all liabilities, due to their short-term nature, except for the notes receivable issued in conjunction with property sales and the notes payable, which are disclosed below (dollars in millions):

The estimated fair value of the notes payable is based upon indicative market prices and recent trading activity of our notes payable.

During the first nine months of 2009, Crest did not sell any properties.

In comparison, during the third quarter of 2008, Crest sold three properties for $4.6 million, which resulted in a gain of $199,000. During the first nine months of 2008, Crest sold 25 properties for $50.7 million, which resulted in a gain of $4.6 million. As part of two sales during the first nine months of 2008, Crest provided buyer financing of $19.2 million. Crest’s gains on sales are reported before income taxes in discontinued operations.

In comparison, during the third quarter of 2008, we sold 13 investment properties for $11.0 million, which resulted in a gain of $5.7 million. During the first nine months of 2008, we sold 22 investment properties for $18.8 million, which resulted in a gain of $9.2 million. The results of operations for these properties have been reclassified as discontinued operations. Additionally, we received proceeds of $439,000 from the sale of excess land from one property, which resulted in a gain of $236,000. This gain is included in "other revenue" on our consolidated statement of income, for the nine months ended September 30, 2008, because this excess land was associated with a property that continues to be owned as part of our core operations.

For the nine months ended September 30, 2009 and 2008, no provisions for impairment were recorded by Realty Income. For the third quarter of 2009, provisions for impairment of $29,000 were recorded by Crest on two properties held for sale. For the nine months ended September 30, 2009, provisions for impairment of $340,000 were recorded by Crest on five properties held for sale. Provisions for impairment of $27,000 and $3.4 million were recorded by Crest on three properties held for sale for the three and nine months ended September 30, 2008, respectively. The above provisions for impairment adjusted the carrying values to the estimated fair-market values of those properties, net of estimated selling costs, and are included in "income from discontinued operations, real estate acquired for resale by Crest" on our consolidated statements of income.

Crest acquires properties with the intention of reselling them rather than holding them for investment and operating the properties. Consequently, we typically classify properties acquired by Crest as held for sale at the date of acquisition and do not depreciate them. As a result, the operations of Crest’s properties are classified as "income from discontinued operations, real estate acquired for resale by Crest" on our consolidated statements of income.

No debt was assumed by buyers of our investment properties, or repaid as a result of our investment property sales, and we do not allocate interest expense to discontinued operations related to real estate held for investment. We allocate interest expense related to borrowings specifically attributable to Crest’s properties. The interest expense amounts allocated to the Crest properties held for sale are included in "income from discontinued operations, real estate acquired for resale by Crest" on our consolidated statements of income.

If circumstances arise that were previously considered unlikely and, as a result, we decide not to sell a property previously classified as held for sale, the property is reclassified as real estate held for investment. A property that is reclassified as held for investment is measured and recorded at the lower of (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held for investment, or (ii) the fair value at the date of the subsequent decision not to sell.

The following is a summary of Crest’s "income from discontinued operations, real estate acquired for resale" on our consolidated statements of income (dollars in thousands):

 

The following is a summary of Realty Income’s "income from discontinued operations, from real estate held for investment" on our consolidated statements of income (dollars in thousands):

The following is a summary of our total income from discontinued operations (dollars in thousands, except per share data):

The per share amounts for "income from discontinued operations" above and the "income from continuing operations" and "net income" reported on the consolidated statements of income have each been calculated independently.

A.  Common Stock

We pay monthly distributions to our common stockholders.  The following is a summary of the monthly distributions paid per common share for the first nine months of 2009 and 2008:

At September 30, 2009, a distribution of $0.1426875 per common share was payable and was paid in October 2009.

B.  Preferred Stock

Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period.  Diluted net income per common share is computed by dividing net income available to common stockholders for the period by the weighted average number of common shares that would have been outstanding assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period.

The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation:

No stock options were anti-dilutive for the three and nine months ended September 30, 2009 and 2008.

Interest paid in the first nine months of 2009 was $79.1 million and in the first nine months of 2008 was $84.6 million.

Interest capitalized to properties under development in the first nine months of 2009 was $2,000 and in the first nine months of 2008 was $87,000.

Income taxes paid by Realty Income and Crest in the first nine months of 2009 was $1.0 million and in the first nine months of 2008 was $1.6 million.

The following non-cash investing and financing activities are included in the accompanying consolidated financial statements:

A.  Share-based compensation expense for the first nine months of 2009 was $3.7 million and for the first nine months of 2008 was $4.0 million.

B.  See note 9 for a discussion of impairments recorded by Crest in the first nine months of 2009 and 2008.

C.  In the first nine months of 2008, Crest sold two properties for $23.5 million and received notes totaling $19.2 million from the buyers, which are included in "other assets" on our consolidated balance sheets.

D.  At September 30, 2008, Realty Income had escrow deposits of $10.2 million for tax-deferred exchanges under Section 1031 of the Tax Code.

We evaluate performance and make resource allocation decisions on an industry by industry basis. For financial reporting purposes, we have grouped our tenants into 31 industry and activity segments (including properties owned by Crest that are grouped together as a segment). All of the properties are incorporated into one of the applicable segments. Because almost all of our leases require the tenant to pay operating expenses, revenue is the only component of segment profit and loss we measure.

The following tables set forth certain information regarding the properties owned by us, classified according to the business of the respective tenants, as of September 30, 2009 (dollars in thousands):

In 2003, our Board of Directors adopted, and our stockholders approved, the 2003 Incentive Award Plan of Realty Income Corporation (the "Stock Plan") to enable us to attract and retain the services of directors, employees and consultants, considered essential to our long-term success. The Stock Plan offers our directors, employees and consultants an opportunity to own stock in Realty Income and/or rights that will reflect our growth, development and financial success. The Stock Plan was amended and restated by our Board of Directors in February 2006 and in May 2007.

The amount of share-based compensation costs charged against income during the third quarter of 2009 was $994,000, during the third quarter of 2008 was $1.1 million, during the first nine months of 2009 was $3.7 million and during the first nine months of 2008 was $4.0 million.

The following table summarizes our common stock grant activity under our Stock Plan.  Our common stock grants vest over periods ranging from immediately to 10 years.

During the first nine months of 2009, we issued 142,260 shares of common stock under our Stock Plan. These shares vest over the following service periods: 25,000 vested immediately, 14,500 vest over a service period of three years and 102,760 vest over a service period of five years.

In August 2008, our Board of Directors approved a new vesting schedule for shares granted to employees after August 20, 2008. The reason for this change was to provide a shorter vesting period for employees who were closer to the age of retirement, and to adjust the vesting period for employees age 55 and below to be more in line with comparable vesting schedules in the market. The new vesting schedule is as follows:

 

Prior to August 20, 2008, shares granted to employees age 49 and below at the grant date vested in 10% increments on each of the first ten anniversaries of the grant date, and shares granted to employees age 50 through 55 at the grant date vested in 20% increments on each of the first five anniversaries of the grant date. The consolidation of these two groups represents the only difference between the new and prior vesting schedules.

As of September 30, 2009, the remaining unamortized share-based compensation expense totaled $17.3 million, which is being amortized on a straight-line basis over the service period of each applicable award.

The effect of pre-vesting forfeitures on our recorded expense has historically been negligible. Any future pre-vesting forfeitures are also expected to be negligible, and we will record the benefit related to such forfeitures as they occur. Under the terms of our Stock Plan, we pay non-refundable dividends to the holders of our nonvested shares. Applicable accounting guidance requires that the dividends paid to holders of these nonvested shares be charged as compensation expense to the extent that they relate to nonvested shares that do not or are not expected to vest. However, given the negligible historical and prospective forfeiture rate determined by us, we did not record any amount to compensation expense related to dividends paid in 2009 or 2008.

As of September 30, 2009, there were 6,138 vested stock options outstanding and exercisable with a weighted average exercise price of $14.70. There were 15,156 stock options exercised in the first nine months of 2009, with a weighted average exercise price of $12.77. There were no stock option forfeitures in the first nine months of 2009. No stock options were granted after January 1, 2002 and all outstanding options are fully vested. Stock options were granted with an exercise price equal to the underlying stock’s fair market value at the date of grant. Stock options expire ten years from the date they were granted and vested over service periods of one, three, four or five years.

In the ordinary course of business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated financial position or results of operations.

At September 30, 2009, we have contingent payments of $1.4 million for tenant improvements and leasing costs. In addition, we have committed $107,000 under construction contracts, which is expected to be paid in the next three months.

We evaluated all events subsequent to the balance sheet date of September 30, 2009, through October 28, 2009, which is the date our consolidated financial statements were issued.  We determined that no subsequent events require disclosure or adjustment to the consolidated financial statements.

This quarterly report on Form 10-Q, including documents incorporated by reference, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. When used in this quarterly report, the words "estimated", "anticipated", "expect", "believe", "intend" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks, uncertainties, and assumptions about Realty Income Corporation, including, among other things:

Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements.  In particular, some of the factors that could cause actual results to differ materially are:

Additional factors that may cause risks and uncertainties include those discussed in the sections entitled "Business", "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that this quarterly report was filed with the Securities and Exchange Commission, or SEC. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, the forward-looking events discussed in this quarterly report might not occur.

Realty Income Corporation, The Monthly Dividend Company®, is a Maryland corporation organized to operate as an equity real estate investment trust, or REIT. Our primary business objective is to generate dependable monthly cash distributions from a consistent and predictable level of funds from operations, or FFO per share. Our monthly distributions are supported by the cash flow from our portfolio of retail properties leased to regional and national retail chains. We have in-house acquisition, leasing, legal, retail research, real estate research, portfolio management and capital markets expertise. Over the past 40 years, Realty Income and its predecessors have been acquiring and owning freestanding retail properties that generate rental revenue under long-term lease agreements (primarily 15 to 20 years).

In addition, we seek to increase distributions to stockholders and FFO per share through both active portfolio management and the acquisition of additional properties. Our portfolio management focus includes:

In acquiring additional properties, we adhere to a focused strategy of primarily acquiring properties that are:

At September 30, 2009, we owned a diversified portfolio:

Of the 2,334 properties in the portfolio, 2,323, or 99.5%, are single-tenant, retail properties and the remaining 11 are multi-tenant, distribution and office properties. At September 30, 2009, 2,249 of the 2,323 single-tenant properties were leased with a weighted average remaining lease term (excluding extension options) of approximately 11.3 years.

In addition, at September 30, 2009, our wholly-owned taxable REIT subsidiary, Crest, had an inventory of five properties valued at $5.7 million, which are classified as held for sale. Crest was created to buy and sell properties, primarily to individual investors who are involved in tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Tax Code"). In addition to the five properties, Crest also holds notes receivable of $22.2 million at September 30, 2009. We anticipate Crest will not acquire any properties during the remainder of 2009.

We typically acquire retail store properties under long-term leases with retail chain store operators. These transactions generally provide capital to owners of retail real estate and retail chains for expansion or other corporate purposes. Our acquisition and investment activities are concentrated in well-defined target markets and generally focus on retail chains providing goods and services that satisfy basic consumer needs.

Our net-lease agreements generally:

We believe that owning an actively managed, diversified portfolio of retail properties under long-term, net leases produces consistent and predictable income.  Net leases typically require the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance.  In addition, tenants are typically responsible for future rent increases based on increases in the consumer price index (typically subject to ceilings), fixed increases or, to a lesser degree, additional rent calculated as a percentage of the tenants’ gross sales above a specified level. We believe that a portfolio of properties under long-term leases, coupled with the tenant’s responsibility for property expenses, generally produces a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income.

We generally provide sale-leaseback financing to less than investment grade retail chains. We typically acquire and lease back properties to regional and national retail chains and we believe that within this market we can achieve an attractive risk-adjusted return on the financing we provide to retailers. Since 1970, our overall weighted average occupancy rate at the end of each year has been 98.4%, and the occupancy rate at the end of each year has never been below 96%.

We seek to invest in industries in which several, well-organized, regional and national retail chains are capturing market share through service, quality control, economies of scale, advertising and the selection of prime retail locations. We execute our acquisition strategy by acting as a source of capital to regional and national retail chain store owners and operators, doing business in a variety of industries, by acquiring and leasing back retail store locations. We undertake thorough research and analysis to identify what we consider to be appropriate industries, tenants and property locations for investment. Our research expertise is instrumental to uncovering net-lease opportunities in markets where our real estate financing program adds value. In selecting real estate for potential investment, we generally seek to acquire properties that have the following characteristics:

In the commercial retail real estate market, property prices generally continued to decline and lease rates rose throughout 2008 and during the first nine months of 2009. Likewise, the United States (U.S.) credit markets have recently experienced significant price volatility, dislocations and liquidity disruptions, which have impacted our access to and cost of capital. We continue to monitor the commercial retail real estate and U.S. credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly. See our discussion of "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2008.

During the first nine months of 2009, Realty Income invested $11.9 million in three new properties and previously acquired properties with an initial weighted average contractual lease rate of 10.1%. These three properties are located in two states, will contain over 87,000 leasable square feet, and are 100% leased with an average lease term of 12.4 years.

Our 2008 and 2009 portfolio acquisitions are lower than in recent years because we decided to cease acquisition activity until commercial real estate prices became more favorable.  In general, property prices continued to decline and lease rates rose throughout 2008 and during the first nine months of 2009.  However, we are beginning to see a more attractive environment that could lead to investment activity in the remainder of 2009.  We will continue to monitor the acquisition market carefully and will acquire properties for long-term investment only when we believe the transactions are accretive to our results of operations.

In the third quarter of 2009, we capitalized costs of $786,000 on existing properties in our portfolio, consisting of $348,000 for re-leasing costs and $438,000 for building improvements.

In the first nine months of 2009, we capitalized costs of $2.2 million on existing properties in our portfolio, consisting of $957,000 for re-leasing costs and $1.3 million for building improvements.

In March 2009, we filed a shelf registration statement with the SEC, which is effective for a term of three years, to replace our prior shelf registration statement which was set to expire in April 2009. Our new shelf registration expires in March 2012. In accordance with the SEC rules, the amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit. The securities covered by this registration statement include common stock, preferred stock, debt securities, or any combination of such securities.  We may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

Upon their maturity in January 2009, we redeemed, using cash on hand, the $20 million outstanding principal amount of our 8% Notes ("2009 Notes"). The 2009 Notes were redeemed at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest. We have no debt maturities until March 2013.

Roger P. Kuppinger and Willard H Smith Jr retired from the Board of Directors in May 2009, upon which Ronald L. Merriman became the chairman of the Audit Committee.

Net income available to common stockholders was $77.6 million in the first nine months of 2009 versus $79.3 million in the same period of 2008, a decrease of $1.7 million. On a diluted per common share basis, net income was $0.75 in the first nine months of 2009 compared to $0.79 in the first nine months of 2008.

The calculation to determine net income available to common stockholders includes gains from the sale of properties. The amount of gains varies from period to period based on the timing of property sales and can significantly impact net income available to common stockholders.

The gain from the sale of properties during the third quarter of 2009 was $1.8 million, as compared to $5.7 million during the third quarter of 2008. The gain from the sale of properties during the first nine months of 2009 was $4.3 million, as compared to $9.4 million during the first nine months of 2008.

In the third quarter of 2009, our FFO increased by $2.5 million, or 5.5%, to $48.2 million versus $45.7 million in the third quarter of 2008. On a diluted per common share basis, FFO was $0.47 in the third quarter of 2009 compared to $0.46 in the third quarter of 2008, an increase of $0.01, or 2.2%.

In the first nine months of 2009, our FFO increased by $3.6 million, or 2.6%, to $142.1 million versus $138.5 million in the first nine months of 2008. On a diluted per common share basis, FFO was $1.37 in the first nine months of 2009 compared to $1.38 in the first nine months of 2008, a decrease of $0.01, or 0.7%.

See our discussion of FFO later in this "Management’s Discussion and Analysis of Financial Condition and Results of Operations," which includes a reconciliation of net income available to common stockholders to FFO.

During the first nine months of 2009, Crest did not acquire or sell any properties. Crest had an inventory of five properties valued at $5.7 million at September 30, 2009, and $6.0 million at December 31, 2008, which are included in "real estate held for sale, net" on our consolidated balance sheets.

We continue our 40-year policy of paying distributions monthly. Monthly distributions per share increased in October 2009 by $0.0003125 to $0.1426875. The increase in October 2009 was our 48thconsecutive quarterly increase and the 55thincrease in the amount of our dividend since our listing on the New York Stock Exchange, or NYSE, in 1994. In the first nine months of 2009, we paid three monthly cash distributions per share in the amount of $0.14175, three in the amount of $0.1420625 and three in the amount of $0.142375, totaling $1.2785625. In September 2009 and October 2009, we declared distributions of $0.1426875 per share, which were paid in October 2009 and will be paid in November 2009, respectively.

The monthly distribution of $0.1426875 per share represents a current annualized distribution of $1.71225 per share, and an annualized distribution yield of approximately 7.2% based on the last reported sale price of our common stock on the NYSE of $23.67 on October 22, 2009. Although we expect to continue our policy of paying monthly distributions, we cannot guarantee that we will maintain our current level of distributions, that we will continue our pattern of increasing distributions per share, or what our actual distribution yield will be in any future period.

Historically, we have met our long-term capital needs through the issuance of common stock, preferred stock and long-term unsecured notes and bonds. Over the long term, we believe that common stock should be the majority of our capital structure. However, we may issue additional preferred stock or debt securities from time to time. We may issue common stock when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties. In addition, we may issue common stock to permanently finance properties that were financed by our credit facility or debt securities. However, we cannot assure you that we will have access to the capital markets at terms that are acceptable to us.

We believe that our stockholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. At October 22, 2009, our total outstanding borrowings were $1.35 billion of senior unsecured notes, or approximately 32.4% of our total market capitalization of $4.17 billion. There were no outstanding borrowings on our credit facility at October 22, 2009.

We define our total market capitalization at October 22, 2009 as the sum of:

We have no mortgage debt on any of our properties.

We are organized to operate as an equity REIT that acquires and leases properties and distributes to stockholders, in the form of monthly cash distributions, a substantial portion of our net cash flow generated from leases on our retail properties. We intend to retain an appropriate amount of cash as working capital. At September 30, 2009, we had cash and cash equivalents totaling $20 million.

We believe that our cash and cash equivalents on hand, cash provided from operating activities and borrowing capacity is sufficient to meet our liquidity needs for the foreseeable future. We intend, however, to use additional sources of capital to fund property acquisitions and to repay future borrowings under our credit facility.

In May 2008, we entered into a $355 million revolving, unsecured credit facility that replaced our previous $300 million acquisition credit facility. The term of our credit facility is for three years, until May 2011, plus, two, one-year extension options. Under our credit facility, our investment grade credit ratings provide for financing at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 100 basis points with a facility fee of 27.5 basis points, for all-in drawn pricing of 127.5 basis points over LIBOR. We also have other interest rate options available to us. At October 22, 2009, we had a borrowing capacity of $355 million available on our credit facility and no outstanding balance.

We expect to use our credit facility to acquire additional retail properties and for other corporate purposes.  Any additional borrowings will increase our exposure to interest rate risk. We have the right to request an increase in the borrowing capacity of the credit facility by up to $100 million, to a total borrowing capacity of $455 million. Any increase in the borrowing capacity is subject to approval by the lending banks participating in our credit facility.

We are currently assigned investment grade corporate credit ratings on our senior unsecured notes.   Fitch Ratings has assigned a rating of BBB+, Moody’s Investors Service has assigned a rating of Baa1 and Standard & Poor’s Ratings Group has assigned a rating of BBB to our senior notes. All of these ratings have "stable" outlooks.

We have also been assigned credit ratings on our preferred stock. Fitch Ratings has assigned a rating of BBB, Moody’s has assigned a rating of Baa2 and Standard & Poor’s has assigned a rating of BB+ to our preferred stock. All of these ratings have "stable" outlooks.

The credit ratings assigned to us could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies and we cannot assure you that any rating will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover, a rating is not a recommendation to buy, sell or hold our debt securities, preferred stock or common stock.

Our senior unsecured note obligations consist of the following as of September 30, 2009, sorted by maturity date (dollars in millions):

All of our outstanding notes and bonds have fixed interest rates. Interest on all of our senior note obligations is paid semiannually. All of these notes contain various covenants, including: (i) a limitation on incurrence of any debt which would cause our debt to total adjusted assets ratio to exceed 60%; (ii) a limitation on incurrence of any secured debt which would cause our secured debt to total adjusted assets ratio to exceed 40%; (iii) a limitation on incurrence of any debt which would cause our debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of total unencumbered assets not less than 150% of our outstanding unsecured debt. We have been in compliance with these covenants since each of the notes was issued.

The following is a summary of the key financial covenants for our senior unsecured notes, as defined and calculated per the terms of our notes. These calculations, which are not based on GAAP measurements, are presented to investors to show our ability to incur additional debt under the terms of our notes only and are not measures of our liquidity or performance. The actual amounts as of September 30, 2009 are:

The following table summarizes the maturity of each of our obligations as of September 30, 2009 (dollars in millions):

Our credit facility and note obligations are unsecured. Accordingly, we have not pledged any assets as collateral for these obligations.

In 2004, we issued 5.1 million shares of 7.375% Class D cumulative redeemable preferred stock. In May 2009, shares of Class D preferred stock became redeemable at our option for $25 per share, plus any accrued and unpaid dividends. Dividends on shares of Class D preferred are paid monthly in arrears.

In 2006, we issued 8.8 million shares of 6.75% Class E cumulative redeemable preferred stock.  Beginning December 7, 2011, shares of Class E preferred stock are redeemable at our option for $25 per share, plus any accrued and unpaid dividends. Dividends on shares of Class E preferred stock are paid monthly in arrears.

We have no unconsolidated or off-balance sheet investments in "variable interest entities" or off-balance sheet financing, nor do we engage in trading activities involving energy or commodity contracts or other derivative instruments. Additionally, we have no joint ventures or mandatory redeemable preferred stock.  As such, our financial position and results of operations are not affected by accounting regulations regarding the consolidation of off-balance sheet entities and classification of financial instruments with characteristics of both liabilities and equity.

Distributions are paid monthly to our common, Class D preferred and Class E preferred stockholders if, and when, declared by our Board of Directors.

In order to maintain our tax status as a REIT for federal income tax purposes, we generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gains), and we are subject to income tax to the extent we distribute less than 100% of our REIT taxable income (including net capital gains). In 2008, our cash distributions totaled $193.9 million, or approximately 123.2% of our REIT taxable income of $157.4 million. Our REIT taxable income reflects non-cash deductions for depreciation and amortization.  Our REIT taxable income is presented to show our compliance with REIT distribution requirements and is not a measure of our liquidity or performance.

We intend to continue to make distributions to our stockholders that are sufficient to meet this distribution requirement and that will reduce our exposure to income taxes. Furthermore, we believe our funds from operations are more than sufficient to support our current level of cash distributions to our stockholders. Our cash distributions to common stockholders for the first nine months of 2009 totaled $133.4 million, representing 93.9% of our funds from operations available to common stockholders of $142.1 million.  In comparison, for the year 2008, our cash distributions to common stockholders totaled $169.7 million, representing 91.5% of our funds from operations available to common stockholders of $185.5 million.

The Class D preferred stockholders receive cumulative distributions at a rate of 7.375% per annum on the $25 per share liquidation preference (equivalent to $1.84375 per annum per share).  The Class E preferred stockholders receive cumulative distributions at a rate of 6.75% per annum on the $25 per share liquidation preference (equivalent to $1.6875 per annum per share).

Future distributions will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, FFO, cash flow from operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Tax Code, our debt service requirements and any other factors the Board of Directors may deem relevant. In addition, our credit facility contains financial covenants that could limit the amount of distributions payable by us in the event of a deterioration in our results of operations or financial condition, and which prohibit the payment of distributions on the common or preferred stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facility.

 

Distributions of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income, except to the extent that we recognize capital gains and declare a capital gains dividend, or that such amounts constitute "qualified dividend income" subject to a reduced rate of tax. The maximum tax rate of non-corporate taxpayers for "qualified dividend income" has generally been reduced to 15% (until it "sunsets" or reverts to the provisions of prior law, which under current law will occur with respect to taxable years beginning after December 31, 2010). In general, dividends payable by REITs are not eligible for the reduced tax rate on corporate dividends, except to the extent the REIT’s dividends are attributable to dividends received from taxable corporations (such as our taxable REIT subsidiary, Crest), to income that was subject to tax at the corporate or REIT level (for example, if we distribute taxable income that we retained and paid tax on in the prior taxable year) or, as discussed above, dividends properly designated by us as "capital gain dividends." Distributions in excess of earnings and profits generally will be treated as a non-taxable reduction in the stockholders’ basis in their stock. Distributions above that basis, generally, will be taxable as a capital gain to stockholders who hold their shares as a capital asset. Approximately 18.8% of the distributions to our common stockholders, made or deemed to have been made in 2008, were classified as a return of capital for federal income tax purposes. We are unable to predict the portion of future distributions that may be classified as a return of capital.

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. Our consolidated financial statements are the basis for our discussion and analysis of financial condition and results of operations. Preparing our consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. We believe that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions.

In order to prepare our consolidated financial statements according to the rules and guidelines set forth by GAAP, many subjective judgments must be made with regard to critical accounting policies. One of these judgments is our estimate for useful lives in determining depreciation expense for our properties. Depreciation of buildings and improvements is computed using the straight-line method over an estimated useful life of 25 years. However, if we use a shorter or longer estimated useful life, it could have a material impact on our results of operations. We believe that 25 years is an appropriate estimate of useful life. No depreciation has been recorded on Crest’s properties that are classified as held for sale.

When acquiring a property for investment purposes, we allocate the fair value of real estate acquired with in-place operating leases to: 1) land, 2) building and improvements, and 3) identified intangible assets and liabilities, based in each case on their fair values.  Intangible assets and liabilities consist of above-market and below-market leases, the value of in-place leases and tenant relationships.

Rental revenue was $81.5 million for the third quarter of 2009 versus $82.0 million for the third quarter of 2008, a decrease of $417,000, or 0.5%. The decrease in rental revenue in the third quarter of 2009 compared to the third quarter of 2008 is primarily attributable to:

Rental revenue was $244.9 million for the first nine months of 2009 versus $244.7 million for the first nine months of 2008, an increase of $226,000, or 0.1%.  The increase in rental revenue in the first nine months of 2009 compared to the first nine months of 2008 is primarily attributable to:

Overall, comparing 2009 versus 2008, revenue has been generally flat as we own 2,334 properties at September 30, 2009, compared to 2,355 properties at September 30, 2008.

Percentage rent, which is included in rental revenue, was $265,000 in the third quarter of 2009 and $163,000 in the third quarter of 2008. Percentage rent was $1.0 million in the first nine months of 2009 and $925,000 in the first nine months of 2008. Percentage rent in the third quarter and first nine months of 2009 was less than 1% of rental revenue and we anticipate percentage rent to continue to be less than 1% of rental revenue for 2009.

Our portfolio of retail real estate, leased primarily to regional and national chains under net leases, continues to perform well and provides dependable lease revenue supporting the payment of monthly dividends to our stockholders. At September 30, 2009, our portfolio of 2,334 retail properties was 96.8% leased with 75 properties available for lease.

For the third quarter of 2009, depreciation and amortization was $22.9 million as compared to $22.8 million in the third quarter of 2008. For the first nine months of 2009, depreciation and amortization was $68.7 million as compared to $67.5 million in the first nine months of 2008. The increase in depreciation and amortization in 2009 was primarily due to the acquisition of properties in 2009 and 2008, which was partially offset by property sales in these years. As discussed in the section entitled "Funds from Operations Available to Common Stockholders," depreciation and amortization is a non-cash item that is excluded from our calculation of FFO.

Interest expense was $2.5 million lower in the third quarter of 2009 than in the third quarter of 2008 and $7.1 million lower in the first nine months of 2009 than in the first nine months of 2008. Interest expense decreased in 2009 primarily due to lower average outstanding balances and, to a lesser extent, lower interest rates. We redeemed, in November 2008, the $100 million outstanding principal amount of our 8.25% Monthly Income Senior Notes and, in January 2009, the $20 million outstanding principal amount of our 8% Notes, both of which contributed to the decrease in average outstanding balances and lower average interest rates on our debt.

In May 2008, as a result of entering into our current credit facility, we incurred $3.2 million of credit facility origination costs that were capitalized to "other assets" on our consolidated balance sheets and are being amortized over three years. Also, in May 2008, we expensed $235,000 of unamortized credit facility origination costs from our prior credit facility, which are included in "amortization of credit facility origination costs and deferred bond financing costs" in the following table.

The following is a summary of the components of our interest expense (dollars in thousands):

At October 22, 2009, the weighted average interest rate on our notes payable of $1.35 billion was 6.10% and on our credit line was 1.24%. There was no outstanding balance on our credit line at October 22, 2009.

Our interest coverage ratio for the third quarter and first nine months of 2009 was 3.5 times. Our interest coverage ratio for the third quarter of 2008 was 3.1 times and for the first nine months of 2008 was 3.2 times. Interest coverage ratio is calculated as: the interest coverage amount (as calculated in the following table) divided by interest expense, including interest recorded to discontinued operations. We consider interest coverage ratio to be an appropriate supplemental measure of a company’s ability to meet its interest expense obligations. Our calculation of interest coverage ratio may be different from the calculation used by other companies and, therefore, comparability may be limited. This information should not be considered as an alternative to any GAAP liquidity measures.

 

The following is a reconciliation of net cash provided by operating activities on our consolidated statements of cash flows to our interest coverage amount (dollars in thousands):

Our fixed charge coverage ratio for the third quarter and first nine months of 2009 was 2.7 times. Our fixed charge coverage ratio for the third quarter and first nine months of 2008 was 2.5 times. Fixed charge coverage ratio is calculated in exactly the same manner as interest coverage ratio, except that preferred stock dividends are also added to the denominator. We consider fixed charge coverage ratio to be an appropriate supplemental measure of a company’s ability to make its interest and preferred stock dividend payments. Our calculation of the fixed charge coverage ratio may be different from the calculation used by other companies and, therefore, comparability may be limited. This information should not be considered as an alternative to any GAAP liquidity measures.

Interest coverage amount divided by interest expense plus preferred stock dividends (dollars in thousands):

General and administrative expenses decreased by $191,000 to $4.9 million in the third quarter of 2009, as compared to $5.1 million in the third quarter of 2008. In the third quarter of 2009, general and administrative expenses as a percentage of total revenue were 6.0%, as compared to 6.2% in the third quarter of 2008.

General and administrative expenses decreased by $702,000 to $15.9 million in the first nine months of 2009, as compared to $16.6 million in the first nine months of 2008. In the first nine months of 2009, general and administrative expenses as a percentage of total revenue were 6.4%, as compared to 6.7% in the first nine months of 2008. General and administrative expenses decreased during the first nine months of 2009 primarily due to decreases in employee costs.

For the third quarter and the first nine months of 2009, general and administrative expenses include transaction costs of $44,000 related to the acquisition of three new retail properties during the third quarter of 2009.

In October 2009, we had 71 employees as compared to 73 employees in October 2008.

Property expenses are broken down into costs associated with non-net leased multi-tenant properties, unleased single-tenant properties and general portfolio expenses. Expenses related to the multi-tenant and unleased single-tenant properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections, bad debt expense and legal fees. General portfolio costs include, but are not limited to, insurance, legal, bad debt expense, property inspections and title search fees. At September 30, 2009, 75 properties were available for lease, as compared to 70 at December 31, 2008 and 73 at September 30, 2008.

Property expenses were $1.6 million in the third quarter of 2009 and $1.7 million in the third quarter of 2008. Property expenses were $5.7 million in the first nine months of 2009 and $4.0 million in the first nine months of 2008. The increase in property expenses, in the first nine months of 2009, is primarily attributable to an increase in maintenance and utilities associated with properties available for lease and an increase in bad debt expense.

Income taxes were $74,000 in the third quarter of 2009, as compared to $308,000 in the third quarter of 2008. Income taxes were $684,000 in the first nine months of 2009, as compared to $922,000 in the first nine months of 2008. These amounts are for city and state income taxes paid by Realty Income.

In addition, Crest recorded state and federal income tax benefits of $70,000 in the third quarter of 2009, as compared to income tax benefits of $94,000 in the third quarter of 2008. Crest recorded state and federal income tax benefits of $206,000 in the first nine months of 2009, as compared to income tax expense of $328,000 in the first nine months of 2008. These amounts are included in "income from discontinued operations, real estate acquired for resale by Crest" on our consolidated statements of income.

Crest acquires properties with the intention of reselling them rather than holding them as investments and operating the properties. Consequently, we typically classify properties acquired by Crest as held for sale at the date of acquisition and do not depreciate them. The operation of Crest’s properties is classified as "income from discontinued operations, real estate acquired for resale by Crest" on our consolidated statements of income.

If we decide not to sell a property previously classified as held for sale, the property is reclassified as real estate held for investment. A property that is reclassified as held for investment is measured and recorded at the lower of (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held for investment, or (ii) the fair value at the date of the subsequent decision not to sell.

The following is a summary of Crest’s "income from discontinued operations, real estate acquired for resale" on our consolidated statements of income (dollars in thousands, except per share data):

Realty Income’s operations from five investment properties classified as held for sale at September 30, 2009, plus properties sold in 2009 and 2008, have been classified to discontinued operations. The following is a summary of Realty Income’s "income from discontinued operations, real estate held for investment" on our consolidated statements of income (dollars in thousands, except per share data):

The following is a summary of our total income from discontinued operations (dollars in thousands, except per share data):

The above per share amounts have each been calculated independently.

During the first nine months of 2009, Crest did not sell any properties.

In comparison, during the third quarter of 2008, Crest sold three properties for $4.6 million, which resulted in a gain of $199,000. During the first nine months of 2008, Crest sold 25 properties for $50.7 million, which resulted in a gain of $4.6 million. As part of two sales during the first nine months of 2008, Crest provided buyer financing of $19.2 million. Crest’s gains on sales are reported before income taxes and are included in discontinued operations.

At September 30, 2009, Crest had an inventory of five properties valued at $5.7 million, all of which are classified as held for sale.

In comparison, during the third quarter of 2008, we sold 13 investment properties for $11.0 million, which resulted in a gain of $5.7 million. During the first nine months of 2008, we sold 22 investment properties for $18.8 million, which resulted in a gain of $9.2 million. The results of operations for these properties have been reclassified as discontinued operations. Additionally, we received proceeds of $439,000 from the sale of excess land from one property, which resulted in a gain of $236,000. This gain is included in "other revenue" on our consolidated statement of income, for the nine months ended September 30, 2008, because this excess land was associated with a property that continues to be owned as part of our core operations.

We have an active portfolio management program that incorporates the sale of assets when we believe the reinvestment of the sale proceeds will generate higher returns, enhance the credit quality of our real estate portfolio or extend our average remaining lease term. At September 30, 2009, we classified real estate with a carrying amount of $8.2 million as held for sale on our balance sheet, which includes five properties owned by Crest, valued at $5.7 million. Additionally, we anticipate selling investment properties from our portfolio that have not yet been specifically identified, from which we anticipate receiving between $10 million and $35 million in proceeds during the next 12 months. We intend to invest these proceeds into new property acquisitions, if there are attractive opportunities available. However, we cannot guarantee that we will sell properties during the next 12 months.

For the third quarter of 2009, provisions for impairment of $29,000 were recorded by Crest on two properties held for sale. For the nine months ended September 30, 2009, provisions for impairment of $340,000 were recorded by Crest on five properties held for sale. Provisions for impairment of $27,000 and $3.4 million were recorded by Crest on three properties held for sale in the three and nine months ended September 30, 2008, respectively. These provisions for impairment adjusted the carrying values to the estimated fair-market values of those properties, net of estimated selling costs, and are included in "income from discontinued operations, real estate acquired for resale by Crest" on our consolidated statements of income.

No provisions for impairment were recorded in the first nine months of 2009 and 2008.

Net income available to common stockholders was $27.1 million in the third quarter of 2009, a decrease of $1.5 million, as compared to $28.6 million in the third quarter of 2008. Net income available to common stockholders was $77.6 million in the first nine months of 2009, a decrease of $1.7 million, as compared to $79.3 million in the first nine months of 2008.

The calculation to determine net income available to common stockholders includes gains from the sale of properties. The amount of gains varies from period to period based on the timing of property sales and can significantly impact net income available to common stockholders.

Gain from the sale of investment properties and the sale of excess land recognized, during the third quarter of 2009, was $1.8 million, as compared to $5.7 million during the third quarter of 2008. Gain from the sale of investment properties and from the sale of excess land recognized, during the first nine months of 2009, was $4.3 million, as compared to a $9.4 million gain recognized during the first nine months of 2008.

FFO for the third quarter of 2009 increased by $2.5 million, or 5.5%, to $48.2 million, as compared to $45.7 million in the third quarter of 2008. FFO for the first nine months of 2009 increased by $3.6 million, or 2.6%, to $142.1 million, as compared to $138.5 million in the first nine months of 2008. The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable GAAP measure) to FFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts):