All in a Year’s Work

Having branded itself “The Monthly Dividend Company,” Realty Income Corporation sets its bar high—with good reason. For 44 years, the real estate firm has provided continuous monthly dividends to its investors, totaling more than $2.6 billion. And, since 1994 alone, the company has increased its annualized dividend from $.90 to $2.182 per share.

To maintain its excellence in the market, Realty Income, which trades on the New York Stock Exchange under the symbol “O,” must source property acquisitions every day, targeting companies that are considering strategic alternatives for their real estate holdings and developing relationships with investment bankers, brokers, and developers. “Our acquisition team is always on the phone, trying to find opportunities for us, and when you have access to capital like we do, people listen if there is a deal they’re looking to do,” says Michael Pfeiffer, the firm’s executive vice president, general counsel, and secretary.

2013 was a particularly remarkable year for the company: it completed its first public-entity acquisition, a $3.2 billion transaction that added the 515 properties of American Realty Capital Trust (ARCT) to Realty Income’s more than 3,000-property portfolio. Now, the firm owns more than 3,600 commercial properties across 49 states and Puerto Rico, leased to companies serving 46 different industries. The ARCT acquisition made Realty Income the largest publicly traded net-lease real estate investment trust (REIT) in the nation, and Pfeiffer, who also sits on the company’s investment committee, played a major role in the merger.

The properties from ARCT include big-name tenants such as Walgreens, FedEx, and PNC Bank, and the acquisition helped diversify Realty Income’s property types between the retail, distribution, corporate, agricultural, manufacturing, and industrial sectors. “The merger hit all of our long-term goals,” Pfeiffer says. “Not only did it help to diversify our portfolio; it increased our size, which allows us to increase our monthly dividends.”

In completing the acquisition of ARCT and its 515 properties, Realty Income raised its equity market capitalization to approximately $8.4 billion, with the ability to generate yearly revenues of more than $700 million. The sheer size of the firm means it gets to review the majority of acquisition opportunities that arise in the industry. This is a huge advantage over competitors. “Everyone knows we’re able to perform, so we get to be selective,” Pfeiffer says.

ARCT presented an especially attractive opportunity because it was a smaller REIT that had just gone public, and Realty Income had the chance to acquire the company in a clean deal without taking on any employees or board members.

The transaction was not without its challenges, though. Realty Income had to pore over the details and data on each of ARCT’s buildings, and key to wading through them all was the company’s good relationship with outside counsel. Pfeiffer retained six law firms and divided the workload to let each one tackle a specific function of the acquisition, including the reviewing of leases, titles, surveys, environmental issues, and property-condition reports. Impressively, the work was completed less than two months after Realty Income and ARCT announced their merger. Once the deal was completed, Pfeiffer assisted with the integration of ARCT’s portfolio into the Realty Income fold, uniting existing systems with new properties in a seamless way through open communication.

After the merger, Pfeiffer met right back up with Realty Income’s investment committee—consisting of himself, the CEO, the COO, the CFO, and the executive vice president of portfolio management—to discuss other opportunities, reviewing new properties that were sourced by the acquisitions department and analyzed by the research department. The research department looks at the credit of tenants and factors such as store profitability, location, area demographics, traffic, and access, and as a result of its work, Realty Income also completed several property-level acquisitions in 2013 and expected the value of all its acquisitions to total $1.25 billion by the year’s end.

It’s the fast pace and varied work that keep Pfeiffer passionate in his career. “I love the diversity, and I enjoy being involved in all areas of the business,” he says. By managing a department of 20 people, he gets to guide each of Realty Income’s transactions from beginning to end, and he also serves as board secretary, advises on website legal issues, and even makes diligence trips to learn about different industries and businesses. This varied approach helps him broaden his expertise in order to better advise on the legal aspects of all matters that impact Realty Income’s day-to-day activities.

He has also worked hard to build a high-functioning legal team that can address issues quickly—a strategy that he says is critical to his company’s success. “We aren’t always offering the best price for sellers, but we perform very fast,” he says. “That makes us attractive and competitive, and we must remain nimble.” His legal department almost functions as a marketing team, working to complete deals by understanding objectives and minimizing risk while making the experience pleasant for both parties.

Much has changed over Pfeiffer’s 23-year tenure at Realty Income. “I used to come in to work each day and find a pile of deliveries or a fax machine printing incoming documents on roller paper,” he says. The company’s research department can now review, obtain, and access information through an array of new tools and applications, and it can even use Google Earth to research and view locations without ever leaving the office.

The advances help Pfeiffer and his colleagues discover new ways to keep the company on its upward climb. Since 1994, Realty Income’s average compounded annual return has been 17.3 percent, and the company routinely outperforms competitors and indexes. On September 10, 2013, it declared its 519th consecutive monthly dividend, and more are sure to follow if it keeps up its current acquisition pace.