Realty Income Corporation · NYSE:O
Realty Income — Q3 2020 Earnings Presentation
59 slides from Realty Income's earnings presentation, Nov 3, 2020
Slide 1: Institutional Investor Presentation
January 2021 INSTITUTIONAL INVESTOR PRESENTATION
Slide 2: Contents
Contents Company Overview 4 Summary of COVID-19 Impact 6 Performance Track Record 11 Our Approach and YTD 2020 Results 20 Portfolio Diversification 21 Defensive Retail Portfolio 26 Asset Management & Real Estate Operations 31 Investment Strategy 35 Capital Structure & Scalability 41 Dependable Divid
Slide 3: Safe Harbor For Forward-Looking Statements
Safe Harbor For Forward-Looking Statements Statements in this investor presentation that are not strictly historical are “forward-looking” statements. Forward-looking statements involve known and unknown risks, which may cause the company’s actual future results to differ materially from expected re
Slide 4: Realty Income Company Overview
Realty Income Company Overview Business model has generated above-market returns with below-market volatility since 1994 S&P 500 DIVERSIFIED, HIGH-QUALITY TRACK RECORD OF SAFETY REAL ESTATE COMPANY “NET LEASE” PORTFOLIO AND CONSISTENCY $29B A3 / A- 6,588 9.0 23 OF 24 enterprise value credit ratings
Slide 5: Valuation Considerations Normalizing for Historically Low Treasury Yields
Valuation Considerations Normalizing for Historically Low Treasury Yields Historically, O’s equity valuation spread has normalized following periods of economic uncertainty… Realty Income Historical AFFO Yield Spread(1) vs. US 10-Year Treasury Yield 750 bps European sovereign Economic debt crisis Fi
Slide 6: Summary of COVID-19 Impact
Summary of COVID-19 Impact Rent collection results supported by core real estate portfolio the majority of which is open for consumers Contractual rent collected(1) October November December across: 2020 2020 2020 Total portfolio 93.4% 93.7% 93.6% Top 20 tenants 89.8% 90.2% 89.7% Investment grade te
Slide 7: Rent Collections from Top Industries
Rent Collections from Top 20 Industries Tenants operating in core industries selling ‘essential goods’ paid almost all rent due December Rent Collections(1) 12.0% % of Dec Contractual Rent Collected % of Dec Contractual Rent Not Collected 9.6% 8.2% 7.6% Received 93.6% of contractual rent due for Dec
Slide 8: Theater Update
Theater Update Less than 6% of contractual base rent, 76% of unpaid base rent in December Theater Portfolio at a Glance % of Total Portfolio Contractual Base Rent (December) 5.6% • Realty Income has pre- % of Theater Rent Collected (December) 13% pandemic unit-level financials on 72 of % of Total Po
Slide 9: Cyclical Comparison – Entered Current Recession from a Position of Strength
Cyclical Comparison – Entered Current Recession from a Position of Strength Favorable balance sheet, scale and capital markets backdrop relative to Great Financial Crisis SCALE AND LIQUIDITY YE 2007 Q3 2020 Enterprise Value (in billions) $4.3 $29.0 Available Liquidity (in millions)(1) $593 $3,169 Fi
Slide 10: Ample Covenant Headroom
Ample Covenant Headroom Strong coverage metrics, minimal secured debt, healthier overall covenant cushion vs. 2007 Unsecured Notes Covenant Requirement FY 2007 Q3 2020 Total ≥ 150% Unencumbered 239% Assets 257% (Unencumbered Assets / Unsecured Debt) Debt Service ≥ 1.5x 4.2x Coverage 5.2x (Pro forma
Slide 11: Performance Track Record
REALTY “INCOME The Monthly Dividend Company®
Slide 12: Consistent Annual Earnings Growth Since NYSE Listing
Consistent Annual Earnings Growth Since NYSE Listing Positive earnings growth(1) in 23 out of 24 years as a public company Historical Earnings Growth Rates (Median) 17.0% Realty Income (1): 5.1% Current REITs (2): 3.3% 9.4% 8.1% 6.8% 6.6% 6.6% 6.4% 6.3% 6.0% 6.0% 5.1% 5.4% 5.1% 5.1% 4.9% 4.4% 4.2% 4
Slide 13: Low Earnings Volatility Supports Low Share Price Volatility
Low Earnings Volatility Supports Low Share Price Volatility Since 1994 NYSE listing, “O” annual TSR downside volatility is one of the lowest in the S&P 500 Annual Total Shareholder Return Among S&P 500 Companies: 25% Downside Volatility Since 1994(1) 20% Realty Income’s TSR Downside Volatility Since
Slide 14: Track Record of Favorable Returns to Shareholders
Track Record of Favorable Returns to Shareholders Since 1994 NYSE listing, Realty Income shares have outperformed benchmark indices Compound Average Annual Total Shareholder Return Since 1994 15.3% 10.9% 10.4% 10.0% 9.9% O Nasdaq Composite DJIA S&P 500 Equity REIT Index 14
Slide 15: Attractive Risk/Reward vs. S&P Companies
Attractive Risk/Reward vs. S&P 500 Companies Higher returns and lower volatility than majority of S&P 500 companies since 1994 NYSE listing Realty RealtyIncome return return Income per 35% unit per of market risk in the unit of market 98th percentile risk is inofthe all S&P 95th 30% 500 companies (1
Slide 16: Attractive Risk/Reward vs. Blue Chip S&P Equities
Attractive Risk/Reward vs. Blue Chip S&P 500 Equities Historically, more return per unit of risk vs. the 10 largest S&P 500 constituents and S&P 500 REITs 30% AAPL Average Annual Total Shareholder Return 25% 20% MSFT O ADBE UNH 15% HD JNJ JPM REITs WMT PG 10% S&P 500 5% VZ Top 10 largest S&P 500 con
Slide 17: Consistency: Steady Portfolio, Solid Fundamentals
Consistency: Steady Portfolio, Solid Fundamentals Focus on quality underwriting and real estate supports predictable cash flow generation Consistent Occupancy Levels, Never Below 96% Tenets of Consistency: ˃ Careful underwriting at acquisition ˃ Solid retail store performance ˃ Strong underlying rea
Slide 18: Snapshot vs. S&P REIT Peers
Snapshot vs. S&P 500 REIT Peers Superior stability: Favorable occupancy, dividend growth, credit rating and total return metrics Portfolio Occupancy Dividend Growth(1) 98.4% 96.6% 8% 93.8% 91.2% 4.5% (2) 3.1% 0% Tenets of Consistency: Historical Median Lowest Year-End % of Years w/ Negative Dividend
Slide 19: Superior Relative Volatility Metrics vs. A-Rated REITs During Recession
Superior Relative Volatility Metrics vs. A-Rated REITs During Recession 2007 – 2009 relative rankings Rank Less Volatile 0.3% 0.3% 0.4% 0.6% 0.1x 0% 0.1% 1 0.7% 0.5% 0.6% 0.8% 0.3x 1.2% 0.2% 2 3.1% 1.1% 3.8% 1.3% 0.5x 1.5% 0.3% 3 3.7% 1.4% 4.3% 2.0% 1.5x 2.0% 0.3% 4 4.0% 1.7% 5.7% 2.2% 2.2x 2.2% 0.7
Slide 20: Our Approach and YTD 2020 Results
Our Approach and YTD 2020 Results Acquire well-located commercial properties 1 ✓ ~$1.3 billion in YTD acquisitions Remain disciplined in our acquisition underwriting 2 ✓ Acquired <3% of sourced volume Execute long-term net lease agreements 3 ✓ ~13 years weighted average lease term on new acquisition
Slide 21: Portfolio Diversification
PORTFOLIO DIVERSIFICATION
Slide 22: Portfolio Diversification: Tenant
Portfolio Diversification: Tenant Diverse tenant roster, investment grade concentration reduces overall portfolio risk 5.8% 2.5% TOP 20 TENANTS REPRESENT 4.9% 1.8% 4.4% 1.7% 3.8% 1.6% 52.6% 3.3% 1.6% Of annualized rental revenue 3.3% 1.6% 2.8% 1.5% 2.7% 2.6% 1.4% 1.4% 11 12 Different Investment-grad
Slide 23: Portfolio Diversification: Industry
Portfolio Diversification: Industry Exposure to 51 industries enhances predictability of cash flow (See Appendix for Industry Theses) Exposure to defensive industries: 96% of total portfolio rent is protected against retail e-commerce threats and economic downturns Non-Discretionary ❶ Convenience St
Slide 24: Portfolio Diversification: Property Type
Portfolio Diversification: Property Type Core exposure in retail and industrial single-tenant freestanding net lease properties RETAIL (84.6%) INDUSTRIAL (10.4%) Number of Properties: 6,410 Number of Properties: 120 Average Leasable Square Feet: 12,200 Average Leasable Square Feet: 223,300 Percentag
Slide 25: Portfolio Diversification: Geography
Portfolio Diversification: Geography Balanced presence in 49 states, Puerto Rico and the United Kingdom <1 <1 <1 <1 <1 <1 1.1 2.7 <1 4.3 <1 2.0 <1 <1 2.4 <1 <1 2.8 1.8 1.1 4.3 <1 <1 <1 5.7 2.4 <1 1.6 <1 1.5 2.7 8.8 1.5 2.4 1.4 3.0 3.1 Top 7 Geographies 2.0 2.1 <1 <1 2.2 % of Rental Revenue 1.4 2.0 3
Slide 26: Defensive Retail Portfolio
REALTY “INCOME The Monthly Dividend Company®
Slide 27: Top Tenants Highly Insulated from Changing Consumer Behavior
Top 20 Tenants Highly Insulated from Changing Consumer Behavior All top 20 tenants fall into at least one category (Non-Discretionary, Low Price Point, Service Retail or Non-Retail) Service / Experiential Non-Discretionary Non-Retail Low Price Point Walmart represented by both Neighborhood Markets a
Slide 28: Top Tenant Exposure: 2009 vs. Today
Top Tenant Exposure: 2009 vs. Today Less cyclicality and superior credit and diversification vs. prior downturn Bold tenants represent investment-grade rated credit TOP 15 TENANTS AS OF YE 2009 TOP 15 TENANTS AS OF Q3 2020 Tenant Industry % of Rent Tenant Industry % of Rent Hometown Buffet Casual Di
Slide 29: Differentiated Business Model from Traditional Retail REITs
Differentiated Business Model from “Traditional” Retail REITs Lease structure and growth drivers support predictable revenue stream relative to other forms of retail real estate Unique “net lease” structure drives lower cash flow volatility Shopping Centers and Malls Initial Length of Lease 15+ Year
Slide 30: Realty Income Not Materially Impacted by Recent Retailer Bankruptcies
Realty Income Not Materially Impacted by Recent Retailer Bankruptcies 96 of 132 U.S. retailer bankruptcies since 2017 associated with companies lacking a non-discretionary, low price point, and / or service-oriented component to their business # of RI Retail Industry BK Retailer Bankruptcy Exposure
Slide 31: Asset Management & Real Estate Operations
ASSET MANAGEMENT & REAL ESTATE OPERATIONS
Slide 32: Active Real Estate Management: Re-leasing Experience
Active Real Estate Management: Re-leasing Experience Since 1996, Realty Income has achieved 100.4% recapture of prior rent on re-leasing activity Recapture vs. Prior Rent: (All Re-Leasing Activity) 1996 - 2005 95.9% 2006 - 2012 95.6% 2013 - Present 101.9% 3,469 Lease Expirations since 1996 2,967 502
Slide 33: Actively-Managed Real Estate Portfolio
Actively-Managed Real Estate Portfolio Proven track record of value creation, cash flow preservation and risk mitigation Asset Management & Healthy Leasing Results Real Estate Operations Blended rent recapture ✓ Largest department in the company 94.5% rate of 99.8% on expired leases ✓ Distinct manag
Slide 34: Realty Incurs Immaterial Recurring CapEx Obligations
Realty Incurs Immaterial Recurring CapEx Obligations Capital-light portfolio maintenance is a differentiating factor versus other CRE sectors 2012 – 2019 “Hidden” Cost of Supporting Portfolio Revenue: Recurring Capital Expenditures as % of NOI: Rarely captured in NAREIT-defined FFO multiples…. Realt
Slide 35: Investment Strategy
INVESTMENT STRATEGY ?
Slide 36: Investment Strategy: Key Considerations
Investment Strategy: Key Considerations Cost of capital advantage, size, track record represent competitive advantage COMPETITIVE ADVANTAGES VS. NET LEASE PEERS LOW COST OF CAPITAL SIZE AND TRACK RECORD 1 Supports investment selectivity 1 Ability to buy “wholesale” (at a discount) without creating t
Slide 37: Investment Strategy: Aim to Exceed Long-Term WACC
Investment Strategy: Aim to Exceed Long-Term WACC WACC viewpoint balances near-term earnings per share growth with long-term value accretion Long-term Weighted Average Cost of Capital “Nominal” 1st-Year Weighted Average Cost of Capital • Drives investment decision- • Long-term WACC is the • Used to
Slide 38: Utilizing Low Cost of Capital Advantage
Investment Strategy: Utilizing Low Cost of Capital Advantage Low cost of capital allows Realty Income to acquire the highest quality assets in the net lease industry 8.0% “High Yield” Investment Characteristics (higher cap rates): Higher cost of capital forces companies to invest in riskier Acquisit
Slide 39: Investment Strategy: The Importance of Market Rents
Investment Strategy: The Importance of Market Rents Realty Income avoids lease structures with above-market rents, which can inflate initial cap rates Illustrative Sale-Leaseback Example Assumptions Annual EBITDAR (000s) $8,500 Replacement cost (psf) $200 Total square footage (000s) 175 Market rent
Slide 40: Investment Strategy: Disciplined Execution
Investment Strategy: Disciplined Execution Consistent, selective underwriting philosophy on strong sourced volume Key Metrics Since 2010 (Excluding $3.2 billion ARCT transaction): $17.3 billion 52% 87% in property-level acquisition volume of volume leased to of volume associated with Investment grad
Slide 41: Capital Structure & Scalability
CAPITAL STRUCTURE & SCALABILITY
Slide 42: Conservative Capital Structure
Conservative Capital Structure Modest leverage, low cost of capital, ample liquidity provides financial flexibility Total Enterprise Value: $29.0 billion (1) Unsecured Notes: $7.01 billion Common Stock, 73% Revolving Credit Facility: $556 million (2) Net Debt, 22% Mortgages: $335 million 27% Equity
Slide 43: Laddered, Largely Fixed-Rate, Unsecured Debt Stack
Laddered, Largely Fixed-Rate, Unsecured Debt Stack Limited re-financing and variable interest rate risk throughout debt maturity schedule 7.2 Years 3.5% Debt Profile $2,164 Weighted Average Years Weighted Average Until Maturity Interest Rate(1) Unsecured £ (2) 96% Unsecured Secured $1,327 $1,062 Fix
Slide 44: Scalability as a Competitive Advantage
Scalability as a Competitive Advantage Leaders in the net lease industry in efficiency and ability to buy in bulk Larger Size Drives Superior Overhead Efficiency Larger Size Provides Growth Optionality G&A as % of Rental Revenue(1) in millions Transaction Size & Impact(2) to Rent Concentration Curre
Slide 45: Dependable Dividends
DEPENDABLE DIVIDENDS ?
Slide 46: Dependable Dividends That Grow Over Time
Dependable Dividends That Grow Over Time Steady dividend track record supported by inherently stable business model, disciplined execution Strong Dividend Track Record 92 consecutive quarterly increases $2.808 $2.73 $2.65 108 total increases since 1994 NYSE listing $2.53 82.0% AFFO payout (based on
Slide 47: Corporate Responsibility
REALTY’ )JINCOME The Monthly Dividend Company®
Slide 48: Corporate Responsibility
Corporate Responsibility Realty Income strives to lead the net lease industry in Environmental, Social, and Governance initiatives Overview Focus • We remain committed to sustainable • HQ energy efficiency, waste business practices in our day-to-day diversion, and water efficiency activities by enco
Slide 49: Summary
Summary ˃ Long term-focused business strategy ˃ Diversified and actively managed portfolio ˃ Proven and disciplined relationship-driven acquisition strategy ˃ Conservative capital structure able to withstand economic volatility ˃ Precedent of outperforming S&P 500 and REITs since 1994 listing ˃ Attr
Slide 50: Appendix
APPENDIX ? 50
Slide 51: Top Industries Overview
TOP INDUSTRIES OVERVIEW ENO PARKING
Slide 52: Convenience Stores (12.1% of Rent)
Convenience Stores (12.1% of Rent) Strong store-level performance is supported by the essential nature of the business Industry Considerations (I) Strong performance independent of gas sales: ~70% of gross profit generated from inside sales which is generally not impacted by gasoline demand(1); and
Slide 53: Drug Stores (8.4% of Rent)
Drug Stores (8.4% of Rent) Industry tailwinds, high barriers to entry, and key real estate presence support the evolution of a retail pharmacy Physical locations matter: CVS and Walgreens are becoming epicenters of healthcare delivery providing primary care services 275 HealthHUB locations across 26
Slide 54: Grocery (8.4% of Rent)
Grocery (8.4% of Rent) Exposure to top operators in an essential, e-commerce resistant industry 2020 Grocery Sales(1) 40% (YoY growth for 4 weeks ended) 33% Retail food sales have remained robust through duration of pandemic 22% 19% 18% 17% 15% 14% 14% 13% 12% 11% 10% 10% 11% 3% 4% 5% 0% 1% 8-Mar 22
Slide 55: Grocery: Overview of the U.K. Grocery Industry
Grocery: Overview of the U.K. Grocery Industry Traditional grocery retailers remain the core distribution channel and dominate online sales 2020 UK Grocery Sales(2) (YoY growth for 4 weeks ended) 20.6% 18.9% 17.1% 14.6% 9.7% 10.6% 8.0% 5.6% 0.8% 1.5% 22-Mar 6-Sep 4-Oct 19-Apr 17-May 12-Jul 9-Aug 14-
Slide 56: Dollar Stores (7.8% of Rent)
Dollar Stores (7.8% of Rent) Counter-cyclical protection due to a trade down effect and e-commerce resiliency $120 US Discount Store Market Size (in billions)(1) +6% $100 $80 +5% $60 $40 $20 $0 2015 2020E 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016 2017 2018 2019 2021E 2022E 2023E 2024E Indust
Slide 57: Health & Fitness (7.1% of Rent)
Health & Fitness (7.1% of Rent) E-commerce resilient supported by favorable demographic trends Industry Considerations (I) Favorable consumer trends and demographic tailwinds: • Growing market as consumers increasingly value health • Consumer surveys indicate that members are returning to gyms as th
Slide 58: Theaters (5.7% of Rent)
Theaters (5.7% of Rent) Short-term disruptions do not obstruct long-term industry viability Industry Considerations (I) Theatrical releases are significant revenue generators for studios: Hollywood studios receive 55%-60% of theater ticket sales, incentivizing them to distribute through the theater
Slide 59: Quick-Service Restaurants (5.6% of Rent)
Quick-Service Restaurants (5.6% of Rent) Resilient business model, high-quality real estate Industry Considerations (I) Resilient business model: QSRs are less dependent on “dine-in” traffic as their revenue model is based on an “off-premise” and drive-thru (historically 65%+ of sales) offerings (II