Realty Income Corporation · NYSE:O
Realty Income — Q3 2023 Earnings Presentation
56 slides from Realty Income's earnings presentation, Nov 7, 2023
Slide 1: Investor Presentation
Investor Presentation CALCULATED CONSOLIDATION November 2023
Slide 2: Safe Harbor For Forward-Looking Statements
Safe Harbor For Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. When used in th
Slide 3: Table of Contents
Table of Contents • REALTY INCOME OVERVIEW AND INVESTMENT THESIS 45 • RECENT DEVELOPMENTS 109 • PERFORMANCE TRACK RECORD 14 15 • STRONG BALANCE SHEET 22 24 • DIVERSIFIED HIGH-QUALITY REAL ESTATE PORTFOLIO 25 • LEVERAGING SIZE AND SCALE TO DRIVE PROFITABLE GROWTH 31 31 • PRUDENT CAPITAL ALLOCATION FR
Slide 4: Realty Income is the Global Leader in a Fragmented Net Lease Sector
Realty Income is the Global Leader in a Fragmented Net Lease Sector SIZE, SCALE AND QUALITY GROWING INTERNATIONAL PRESENCE ~$56B ~$3.9B A3 /A- 7th largest global REIT(2) enterprise annualized credit ratings by $9.0B European Portfolio value base rent Moody’s & S&P 354 assets ~10 years remaining leas
Slide 5: Why Invest In Realty Income Now?
Why Invest In Realty Income Now? Consolidator in the Proven Track Record Prudent Balance Positioned for Long- 1 2 Fragmented 3 4 of Returns Sheet Management Term Value Creation Net Lease Sector • 26 of 27 years of positive • Global net lease • One of only eight US REITs • Dividend yield of 4-5% and
Slide 6: Secular Growth Thesis: Opportunity to Consolidate Addressable Net Lease Market
Secular Growth Thesis: Opportunity to Consolidate Addressable Net Lease Market Quantum of opportunity and low market Europe is an attractive growth saturation affords ample runway for growth avenue with limited direct competition AGGREGATE NET LEASE PUBLIC NET LEASE Market EUROPE Peers UNITED STATES
Slide 7: Corporate Sale-Leaseback Potential Driven by Rising Rates and Need for Capital
Corporate Sale-Leaseback Potential Driven by Rising Rates and Need for Capital Over $1.2 trillion of debt matures in 2024 – 2027 for S&P 500 companies in Realty Income’s MOMENTUM addressable universe, and elevated bond yields support continued attractiveness of SLB financing. Realty Income is Well-P
Slide 8: Crystallizing Value Creation: Illustrative Sale-Leaseback Scenarios
Crystallizing Value Creation: SLB transactions: Inherently a deleveraging Illustrative Sale-Leaseback Scenarios and value-enhancing exercise for shareholders of corporate sellers $500 MILLION SALE-LEASEBACK TRANSACTION AT 6.0% CAP RATE $30 MILLION ANNUAL LEASE PAYMENT CORPORATE SELLER USES PROCEEDS
Slide 9: Structural Advantage: Investment Spreads Persevere Even as Interest Rates Rise
Structural Advantage: Investment Spreads Persevere Even as Interest Rates Rise RISING INTEREST RATES DO NOT POSE SIGNIFICANT EARNINGS HEADWIND TO THE NET LEASE BUSINESS MODEL 12.0% 5 11.5% 11.0% Realty Income Acquisition Cap Rate (1) 10.5% 10.0% Average 10y US T-Note (12M lag) 9.5% 9.0% 8.5% 8.0% 9
Slide 10: Recent Developments
Recent Developments 10
Slide 11: Third Quarter 2023 Highlights
Third Quarter 2023 Highlights • Increasing our 2023 AFFO/sh guidance to a range of $3.98 to $4.01. Modestly increasing acquisitions guidance to approx. $9.0 billion, reflecting third quarter and year to date activity of $2.0 billion and $6.8 billion, and deals in the closing pipeline. (see page 54)
Slide 12: Realty Income to Acquire Spirit Realty: Transaction Rationale
Realty Income to Acquire Spirit Realty: Transaction Rationale Immediate AFFO Accretion and Meaningful Anticipated Annual Cost Synergies 1 • Transaction expected to be over 2.5% accretive to Realty Income AFFO per share • Expected annual synergies of approximately $50 million, or approximately $30 mi
Slide 13: Cineworld Resolution Summary
Cineworld Resolution Summary • Realty Income owns 35 locations leased to Cineworld as of 9/30/23 • Of 41 locations owned by Realty Income pre-bankruptcy, Cineworld has signed long-term leases at 28 locations, entered into short-term leases at 7 locations, and vacated 6 locations • Total rent recaptu
Slide 14: Performance Track Record
Performance Track Record Superior operating metrics with limited downside volatility relative to peers 14
Slide 15: Track Record of Attractive Total Return Through Consistent Earnings and Dividend Growth
Track Record of Attractive Total Return Through Consistent Earnings and Dividend Growth PROVEN TRACK RECORD STABILITY AND GROWTH OF RETURNS... OF EARNINGS... 13.4% 0.5 26 of 27 5% Compound Annual Total Beta vs. S&P 500 Years of Positive Earnings Median AFFO Per Share Return Since ‘94 NYSE Listing Si
Slide 16: Stable Earnings and Low Dividend Volatility Support Low Share Price Volatility
Stable Earnings and Low Dividend Volatility Support Low Share Price Volatility ANNUAL TOTAL SHAREHOLDER RETURN AMONG S&P 500 COMPANIES: Downside Volatility Since 1994(1) 25% Realty Income is among names, such as JNJ, AZO, ROST, SO distinguished by low volatility of their total shareholder returns 20
Slide 17: Consistently Positive Total Operational Return with Limited Historical Downside Volatility
Consistently Positive Total Operational Return with Limited Historical Downside Volatility 4%-5% + 4%-5% = 8%-10% Dividend Yield AFFO per Share Growth Total Operational Return 26.2% From 2015 to 2022 Realty Income’s Cumulative TOTAL OPERATIONAL RETURN(1) TOR(1) has performed in-line with the S&P 500
Slide 18: Attractive Risk/Reward vs. S&P 500 Companies and REIT Peers
Attractive Risk/Reward vs. S&P 500 Historically, Realty Income delivered more Companies and REIT Peers return per unit of risk vs. majority of S&P 500 companies and S&P 500 REITs S&P 500 Members(1)(2) S&P 500 REITs(1) 30% 20% Realty Income return per unit of market risk is in the 90th percentile of
Slide 19: Superior Stability vs S&P 500 REITs
Superior Stability vs S&P 500 REITs: Favorable Occupancy, Dividend Growth, Credit Rating and Total Return PORTFOLIO OCCUPANCY(1) DIVIDEND GROWTH(2) 98.2% 10.7% 96.6% 94.2% 91.9% 4.3%(3) 3.1% 0% % of Years w/ Negative Growth Dividend CAGR Historical Median Lowest Year-End REALTY INCOME S&P 500 REIT A
Slide 20: Lowest Operational and Financial Volatility During Great Recession
Realty Income Exhibited the Lowest Operational and Financial Volatility During Great Recession vs. A-Rated S&P 500 REITs(1) 2007 – 2009 relative volatility rankings RENTAL GROSS EBITDA DEBT/ UNSECURED/ OCCUPANCY RANK EBITDA(2) REVENUE(2) MARGIN(2) MARGIN(2) EBITDA(3) TOTAL DEBT(3) RATE(2) 1 Realty I
Slide 21: Superior Stability vs. Peers: Consistent Growth Through 2020 Pandemic
Superior Stability vs. Peers: Demonstrated Consistent Growth Through 2020 Pandemic 2020 EARNINGS PER SHARE Growth(1) Retail S&P 500 Retail REIT Net Lease REIT Peers Peers 2.1% Peers 0% +3.1% 2020 Dividend Growth -5% -10% -5.2% -6.8% -13.1% -15% 1 of 8 Retail Net Lease REITs(2) 1 of 15 S&P 500 REITs(
Slide 22: Strong Balance Sheet
Strong Balance Sheet Our conservative capital structure supports superior financial flexibility. 22
Slide 23: Strong Balance Sheet – One of Only Eight S&P 500 REITs with Two A3/A- Ratings
Strong Balance Sheet – One of Only Eight S&P 500 REITs with Two A3/A- Ratings or Better Commercial Paper (1) STAGGERED DEBT MATURITY PROFILE EUR Denominated Notes in millions GBP Denominated Notes $3,609 $3,639 Term Loan Revolver (2) Mortgages(3) $2,051 $2,015 $1,840 $1,842 $1,871 Unsecured Notes $1
Slide 24: Significant Liquidity and Low Borrowing Costs Support Enhanced Financial Flexibility
Significant Liquidity and Low Borrowing Costs Support Enhanced Financial Flexibility $4,485 $1,842 Liquidity(1) Debt Obligations through 2024(2) Revolver Excess Availability, Liquidity, $3,392 $2,643 (Net of $377 million borrowings under $1.5 billion Term Loan, $250 commercial paper programs)(1) Not
Slide 25: High-Quality Real Estate Portfolio
High-Quality Real Estate Portfolio Diversified exposure to cash flows guaranteed by best-in- class, blue-chip operators 25
Slide 26: Diversified High-Quality Portfolio
Diversified High-Quality Portfolio INDUSTRY DIVERSIFICATION % of Annualized Contractual Rent(1) CLIENT DIVERSIFICATION – TOP 20 CLIENTS Grocery stores 11.4% % of Annualized Contractual Rent(1) Convenience stores 10.6% Dollar stores 7.2% 1.7% Drug stores 5.9% 3.9% Home improvement 5.8% 3.9% 1.6% Rest
Slide 27: Top 20 Clients Insulated from Changing Consumer Behavior
Service Oriented Non-Discretionary Top 20 Clients Insulated from Changing Consumer Behavior All top 20 clients fall into at least one category: Non-Discretionary Low Price Point Service Oriented Non-Retail Low Price Point Non-Retail 27 Note: Walmart represented by both Neighborhood Markets a
Slide 28: Historically Stable Cash Flows Supported by High-Quality Real Estate Portfolio
Historically Stable Cash Flows Supported by High-Quality Real Estate Portfolio CONSISTENCY BY DESIGN: Industry-Leading Occupancy(1) Levels, Careful underwriting at acquisition Strategy of owning “mission critical” locations Consistent During Various Economic Cycles Long initial lease term Diversifie
Slide 29: Proven Track Record of Value-Add Asset and Portfolio Management
Proven Track Record of Value-Add Asset and Portfolio Management Lease Expiration Schedule(1) Provides Visibility into Future Cash Flows MAXIMIZING REAL ESTATE VALUE: 50.2% Weighted average lease Strategic management of rollovers term of 9.7 years Proactively addressing portfolio “watch list” Resolve
Slide 30: Diligent Underwriting Process Has Resulted in Minimal Exposure to Retail Bankruptcies
Diligent Underwriting Process Has Resulted in Minimal Exposure to Retail Bankruptcies Realty Income’s strategy is to invest in clients with a 132 of 179 U.S. retailer bankruptcies since non-discretionary, low price point, and / or 2018 are associated with companies lacking at least service-oriented
Slide 31: Leveraging Size and Scale to Drive Profitable Growth
Leveraging Size and Scale to Drive Profitable Growth Earnings growth remains strong as size of portfolio continues to increase. 31
Slide 32: Size and Scale as a Competitive Advantage
Size and Scale as a Competitive CALCULATED CONSOLIDATION 3 Advantage Take advantage of attractive consolidation opportunities in the extremely fragmented net Inherent advantages of size and lease space scale drive… DISCIPLINED CREATIVITY 2 Selectively pursue large-scale sale-leaseback or portfolio t
Slide 33: Earnings Growth Remains Strong As Size of Portfolio Continues to Increase
ANNUAL AFFO/sh(3) Earnings Growth 20% Growth Large portfolio transactions create upside “lumpiness”… Remains Strong 17.0%(4) 15% As Size of Portfolio 10% 9.2% (4) Continues to Increase 5% 0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Slide 34: Benefits of Size and Scale: Greater EBITDA Flow-Through to Bottom Line
Benefits of Size and Scale: Greater EBITDA Flow-Through to Bottom Line Portfolio growth resulted in improved operating margins, which compare favorably vs. industry peers Operating efficiencies continue to scale as Realty Income grows G&A as % rental revenue(1) 6.4% 3.8% NET LEASE S&P 500 REIT 2001
Slide 35: Benefits of Size and Scale
Benefits of Size and Scale Capacity to Buy in Bulk at “Wholesale” Prices While Maintaining Diversification SCALE AND SIZE BENEFITS ILLUSTRATED LARGER SIZE PROVIDES GROWTH OPTIONALITY $1.7B Encore Boston Harbor Transaction (Dec 2022) TRANSACTION SIZE & IMPACT TO RENT CONCENTRATION(1) • The Encore Bos
Slide 36: Prudent Capital Allocation
Prudent Capital Allocation Building a high-quality real estate portfolio through prudent, top-down, data-driven investment process. 36
Slide 37: Realty Income's External Growth Opportunities are Broad and Diverse
Realty Income’s External Growth Opportunities International opportunities added >30% to Realty Income’s combined sourcing volume since 2019 are Broad and Diverse SOURCED VOLUME $95 in $ billions $85 INTERNATIONAL UNITED STATES $64 $57 $49 $39 $32 $28 $30 $32 $24 $13 $17 $6 2010 2011 2012 2013 2014 2
Slide 38: Curating Best-in-Class Portfolio Through Thoughtful Investment Process
Curating Best-in-Class Portfolio Through Thoughtful Investment Process Supported by Proprietary Data From Over 13,250 Properties RESEARCH AND REVIEW OF REAL ANALYSIS OF CLIENT INVESTMENT COMMITTEE SELECTIVITY: ~ 14% STRATEGY ESTATE FUNDAMENTALS FINANCIAL STRENGTH DISCUSSION AND DECISION $48.6 BILLIO
Slide 39: Leveraging Advanced Analytics to Enhance Decision-Making
Leveraging Advanced Analytics to Enhance Decision-Making Through predictive analytics, Realty Income’s unique dataset of owned property information spanning 54+ years is employed to enhance investment underwriting and generate insights that power lease renewal discussions Medium Risk Store Low Risk
Slide 40: Investment Strategy Illustration: Returns Must Exceed Long-Term WACC
Investment Strategy Illustration: Returns Must Exceed Long-Term WACC WACC viewpoint balances near-term earnings per share growth with long-term value accretion KEY ASSUMPTIONS & CALCULATION: KEY ASSUMPTIONS & CALCULATION: LONG-TERM LONG-TERM COST OF EQUITY LONG-TERM WACC Weighted Average Cost of Cap
Slide 41: Growing International Portfolio
Growing International Portfolio Sale-leaseback transaction with Sainsbury’s in May 2019 was a foundation for a growth platform in Europe 41
Slide 42: European Portfolio Snapshot
European Portfolio Snapshot REALTY INCOME HAS CONTINUED TO GROW ITS EUROPEAN PRESENCE WITH INVESTMENTS OF ~$9.0 BILLION THROUGH SEPTEMBER 30, 2023 354 38 ~32.8mm ~$530mm ~10 13.7% properties industries leasable square annualized years wtd. avg. of total portfolio annualized feet contractual rent rem
Slide 43: European Portfolio Snapshot (cont'd)
European Portfolio Snapshot (cont’d) CLIENT DIVERSIFICATION – TOP EUROPEAN CLIENTS(1) EUROPEAN PORTFOLIO BY INDUSTRY(1) % of European Annualized Contractual Rent % of European Annualized Contractual Rent 13.5% Grocery stores, 51.1% Other, 26.3% 13.4% 12.7% General Merchandise, 4.4% Home Improvement,
Slide 44: ESG Overview
ESG Overview We are committed to partnering with our clients on ESG initiatives to uphold our corporate responsibilities as a public company for the benefit of our stakeholders. 44
Slide 45: Commitment to ESG
Commitment to ESG Environmental Social Governance Investing in green certified buildings. Hiring and Retention – Competitive pay & Overseeing ESG while embedding sustainability benefits; Internal Talent Mobility; Mentorship. into our strategy and leadership. Financing with Green Bonds. Engagement –
Slide 46: 2022 Sustainability Report: Environmental Responsibility Highlights
2022 Sustainability Report: Environmental Responsibility Highlights Key Sustainability Initiatives at our San Diego Headquarters: Reduced irrigation water LED retrofit of >1,000 Installed 10 EV chargers Purchased Green-e® RECs use by ~42% vs 2018 fixtures reduced 2022 and subsidized and carbon remov
Slide 47: Appendix
Appendix • Top Industry Investment Theses • 2023 Guidance • Non-GAAP Reconciliations 47
Slide 48: Grocery Stores (11.4% of ABR)
Grocery Stores (11.4% of ABR) U.S. Grocery Market Share(1) EXPOSURE TO TOP OPERATORS IN AN ESSENTIAL, U.K. Grocery Market Share(2) E-COMMERCE RESISTANT INDUSTRY 53% 65% Realty Income’s top two U.K. grocery Big 4 clients control ~42% of U.K. grocery Discounters Realty Income’s top two U.S. grocery ma
Slide 49: Convenience Stores (10.6% of ABR)
Convenience Stores (10.6% of ABR) 2040 SNAPSHOT Quality real estate locations with inelastic demand In 2040, EVs will make up about 6% of all vehicles on the road, ~20% of all shoppers claim to visit a c-store while EVs will account for about to purchase food-to-go(1). 10% of all new vehicle sales.
Slide 50: Dollar Stores (7.2% of ABR)
Dollar Stores (7.2% of ABR) Growing industry: 89% of all shoppers across geographies, US Discount Store Market Size Dollar General & Dollar Tree: Counter-cyclical protection due to a trade income levels, and demographics shop at discount retailers. down effect and e-commerce resiliency. (in billions
Slide 51: Drug Stores (5.9% of ABR)
Drug Stores (5.9% of ABR) Of the scope of a typical primary care 80% physician treatable at an on-site clinic(1). Bundled service partnerships and vertical integration among incumbents insulates industry from outside threats. Of the US population lives within 85% 3 miles of a Walgreens or CVS(2). Co
Slide 52: Home Improvement (5.8% of ABR)
Home Improvement (5.8% of ABR) Aging U.S. Housing Stock Supports Home Improvement Spend(1) 2022 2019 40+ Years 30-39 Years 20-29 Years 10-19 Years 0-9 Years ~$1T estimated home improvement market size in the U.S.(1)(2) 2/3 of Lowe’s sales are non-discretionary . 2016 2013 (2) 2010 2007 of homes in t
Slide 53: 2023 Guidance and Non-GAAP Reconciliations
2023 Guidance and Non-GAAP Reconciliations 53
Slide 54: 2023 Guidance
2023 Guidance Summarized below are approximate estimates of the key components of our 2023 earnings guidance, which do not give effect to the announced merger between us and Spirit that is expected to close in the first quarter of 2024: PRIOR 2023 GUIDANCE(1) REVISED 2023 GUIDANCE NET INCOME PER SHA
Slide 55: Adjusted Funds From Operations (AFFO)
Adjusted Funds From Operations (AFFO) (in thousands, except per share and share count data) Three months ended Nine months ended September 30, Septemeber 30, 2023 2022 2023 2022 Net income available to common stockholders $ 233,473 $ 219,567 $ 653,904 $ 642,143 Cumulative adjustments to calculate No
Slide 56: Adjusted EBITDAre
Adjusted EBITDAre (dollars in thousands) Adjusted EBITDAre, Annualized Adjusted EBITDAre, Pro Forma Adjusted EBITDAre, Annualized Pro Forma Adjusted EBITDAre, Net Debt/Annualized Adjusted EBITDAre and Net Debt/Annualized Pro Forma Adjusted EBITDAre are non-GAAP financial measures. Please see the Glo