Realty Income Corporation · NYSE:O
Realty Income — Q4 2023 Earnings Presentation
59 slides from Realty Income's earnings presentation, Feb 21, 2024
Slide 1: Investor Presentation
Investor Presentation CALCULATED CONSOLIDATION February 2024
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 • CONSISTENT CURATION OF NEW GROWTH VERTICALS 129 • PERFORMANCE TRACK RECORD 17 15 • STRONG BALANCE SHEET 25 24 • DIVERSIFIED HIGH-QUALITY REAL ESTATE PORTFOLIO 28 • LEVERAGING SIZE AND SCALE TO DRIVE PROFITABLE GROWTH 31 35 • PRUDE
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 ~$65B ~$4.0B A3 /A- 5th largest global REIT(3) enterprise annualized credit ratings by $10.1B European Portfolio value base rent Moody’s & S&P 451 assets ~9.7 years remaining le
Slide 5: Fourth Quarter 2023 Highlights
Fourth Quarter 2023 Highlights • During the 4th quarter, we deployed over $2.7 billion in investments at an initial weighted average cash yield of 7.6%. These investments encompassed $858 million in other investments at a weighted average cash yield of 8.7%, which included the preferred equity inves
Slide 6: Secular Growth Thesis: Opportunity to Consolidate Significant Addressable Market
Secular Growth Thesis: Opportunity to Consolidate Significant Addressable 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 STAT
Slide 7: Expansive Market Potential in the US is $5.4 Trillion
Expansive Market Potential in the US is… $1.5 Trillion $2.0 Trillion Freestanding Industrial Retail(1) $0.4 Trillion $0.3 Trillion Data Center Gaming(3) Development(4) $1.1 Trillion Consumer Centric $0.1 Trillion Existing $5.4 Trillion Medical(2) Data Centers Total Addressable Market in U.S. $4.7 Tr
Slide 8: Complemented by the Breadth of Opportunities in Europe
…Complemented by the Breadth of Opportunities in Europe Rest of Developed U.K. Europe(1) $8.5 Trillion Total Addressable Market in Europe $2.6 Trillion $5.9 Trillion United Kingdom Rest of Developed Europe(1) Realty Income’s existing markets account for over 75% of the European total addressable mar
Slide 9: Corporate Sale-Leaseback Potential Driven by Higher Rates and Need for Capital
Corporate Sale-Leaseback Potential Driven by Higher Rates and Need for Capital Over $1.5 trillion of debt matures in 2024 – 2028 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 10: 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 11: 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 5 Realty Income Acquisition Cap Rate (1) Average 10y US T-Note (12M lag) 9 It takes ~12 months for cap rates to adjust to cha
Slide 12: Consistent Curation of New Growth Verticals
Consistent Curation of New Growth Verticals Size, scale, and access to capital allows for significant opportunity to grow earnings through multiple channels. Recently incubated real estate verticals include: • Data Center Development • France, Germany, Portugal 12
Slide 13: Joint Venture with Digital Realty Presents an Attractive Investment Opportunity
Joint Venture with Digital Realty Presents an Attractive Investment Opportunity that Aligns with Realty Income’s “Net Lease” Investment Criteria Establishing an Investment Vertical Poised For Rapid Growth Amidst Mounting Demand $200mm $640mm 6.9% 10 years +2.0% Initial Equity Contribution Total Equi
Slide 14: Strong Global Data Center Fundamentals Support Long-Term Growth
Strong Global Data Center Fundamentals Support Long-Term Growth NORTHERN VIRGINIA IS THE LARGEST DATA CENTER MARKET IN THE WORLD Inventory (MW) (1) Shortage of power 2,132 956 is a constraint on 753 707 659 623 508 434 418 future development Long Term Tailwind: N. Virginia London Tokyo Frankfurt Syd
Slide 15: Partnering with a Blue-Chip Operator in One of the Largest European Retail Transactions
Partnering with a Blue-Chip Operator in One of the Largest European Retail Single Tenant Net Lease Transactions in 2023 Realty Income purchased 82 assets across 5 countries for €527M and… Client The world’s third largest sporting goods retailer generating over €15B in revenues across 1,751 stores(
Slide 16: Decathlon Sale-Leaseback: Broadening Realty Income's European Platform
Decathlon Sale-Leaseback: Broadening Realty Income’s European Platform FRANCE EUROPEAN UNION COUNTRIES – 2022 GDP $ in billions 3rd largest commercial real estate market in Europe Germany $3,870 2nd largest population in the EU with a median income of over France $2,639 Italy $1,909 $16,000 (com
Slide 17: Performance Track Record
Performance Track Record Superior operating metrics with limited downside volatility relative to peers. 17
Slide 18: 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... 13.9% 0.5 27 of 28 5% Compound Annual Total Beta vs. S&P 500 Years of Positive Earnings Median AFFO Per Share Return Since ‘94 NYSE Listing Si
Slide 19: 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 20: 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 From 2015 to 2023 Realty Income’s Cumulative TOTAL OPERATIONAL RETURN(1) TOR(1) has performed relatively in-line with the S&
Slide 21: 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 22: Superior Stability vs S&P 500 REITs: Occupancy, Dividend Growth, Credit Rating
Superior Stability vs S&P 500 REITs: Favorable Occupancy, Dividend Growth, Credit Rating and Total Return PORTFOLIO OCCUPANCY(1) DIVIDEND GROWTH(2) 98.2% 10.3% 96.6% 94.2% 91.9% 4.3%(3) 2.9% 0% % of Years w/ Negative Growth Dividend CAGR Historical Median Lowest Year-End REALTY INCOME S&P 500 REIT A
Slide 23: Lowest Operational and Financial Volatility During Great Recession vs. A-Rated REITs
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 24: 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 25: Strong Balance Sheet
Strong Balance Sheet Our conservative capital structure supports superior financial flexibility. 25
Slide 26: Strong Balance Sheet – One of Only Eight S&P 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) EUR Denominated Notes GBP Denominated Notes Term Loan STAGGERED DEBT MATURITY PROFILE (2) (3) in millions Revolver Mortgages Unsecured Notes Pro-Rata UJV Debt $3,169 $2,847 $2,605 $2,050 $2,05
Slide 27: Significant Liquidity and Low Borrowing Costs Support Enhanced Financial Flexibility
Significant Liquidity and Low Borrowing Costs Support Enhanced Financial Flexibility $4,056 $2,935 Liquidity(1) Debt obligations through 2025(2) Excess Liquidity, $1,122 Revolver Term Loan, $250 Availability, $3,486 (Net of $764 million Notes & Bonds borrowings Payable, $1,900 under $1.5 billion com
Slide 28: High-Quality Real Estate Portfolio
High-Quality Real Estate Portfolio Diversified exposure to cash flows guaranteed by best-in- class, blue-chip operators. 28
Slide 29: Diversified High-Quality Portfolio
Diversified High-Quality Portfolio INDUSTRY DIVERSIFICATION % of Annualized Contractual Rent(1) Grocery stores 11.4% CLIENT DIVERSIFICATION – TOP 20 CLIENTS % of Annualized Contractual Rent(1)(2) Convenience stores 10.2% Dollar stores 7.1% Home improvement 5.9% 3.8% 1.6% Drug stores 5.5% Restaurants
Slide 30: 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 30 Note: Walmart represented by both Neighborhood Markets a
Slide 31: 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 32: 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: Weighted average lease 45.1% Strategic management of rollovers term of 9.8 years Proactively addressing portfolio “watch list” Resolve
Slide 33: 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 133 of 183 U.S. retailer bankruptcies since non-discretionary, low price point, and / or 2018 are associated with companies lacking at least service-oriented
Slide 34: Diversified Real Estate Portfolio Supports Cash Flow Stability
Diversified Real Estate Portfolio Supports Cash Flow Stability HISTORICAL BAD DEBT AS A PERCENTAGE OF TOTAL REVENUE(1) 3.1% 0.6% 0.2% 0.4% 0.2% 0.1% 0.1% 0.0% 0.1% -0.3% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Aggregate bad debt represented 37 bps of the aggregate PORTFOLIO QUALITY EVIDE
Slide 35: 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. 35
Slide 36: 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 37: 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 38: 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 39: 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 40: Prudent Capital Allocation
Prudent Capital Allocation Building a high-quality real estate portfolio through prudent, top-down, data-driven investment process. 40
Slide 41: 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 $59 $39 $32 $28 $30 $32 $24 $13 $17 $6 2010 2011 2012 2013 2014 2
Slide 42: Curating Best-in-Class Portfolio Through Thoughtful Investment Process
Curating Best-in-Class Portfolio Through Thoughtful Investment Process Supported by Proprietary Data From Over 15,450 Properties RESEARCH AND REVIEW OF REAL ANALYSIS OF CLIENT INVESTMENT COMMITTEE SELECTIVITY: ~ 16% STRATEGY ESTATE FUNDAMENTALS FINANCIAL STRENGTH DISCUSSION AND DECISION $59.0 BILLIO
Slide 43: 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 44: Growing International Portfolio
Growing International Portfolio Sale-leaseback transaction with Sainsbury’s in May 2019 was a foundation for a growth platform in Europe. 44
Slide 45: European Portfolio Snapshot
European Portfolio Snapshot REALTY INCOME HAS CONTINUED TO GROW ITS EUROPEAN PRESENCE WITH INVESTMENTS OF ~$10.1 BILLION THROUGH DECEMBER 31, 2023 451 39 ~39.3mm ~$627mm ~9.7 15.3% properties industries leasable square annualized years wtd. avg. of total portfolio annualized feet contractual rent re
Slide 46: 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 12.2% Grocery Stores, 47.1% Other, 26.1% 12.0% 11.3% Sporting Goods, 9.2% Home Improvement, 17.6
Slide 47: 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. 47
Slide 48: 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 49: 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 50: Appendix
Appendix • Top Industry Investment Theses • 2024 Guidance • Non-GAAP Reconciliations 50
Slide 51: 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 66% Realty Income’s top two U.K. grocery Big 4 clients control ~43% of U.K. grocery Discounters Realty Income’s top two U.S. grocery 34% ma
Slide 52: Convenience Stores (10.2% of ABR)
Convenience Stores (10.2% 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 53: Dollar Stores (7.1% of ABR)
Dollar Stores (7.1% 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 54: Home Improvement (5.9% of ABR)
Home Improvement (5.9% 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 2016 2013 of Lowe’s sales are non-discretionary(2). 2010 2007 of homes in the
Slide 55: Drug Stores (5.5% of ABR)
Drug Stores (5.5% 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 56: 2024 Guidance and Non-GAAP Reconciliations
2024 Guidance and Non-GAAP Reconciliations 56
Slide 57: 2024 Guidance
2024 Guidance Summarized below are approximate estimates of the key components of our 2024 earnings guidance, which gives effect to the merger between us and Spirit, which closed on January 23, 2024: 2024 GUIDANCE NET INCOME PER SHARE(1) $1.22 to $1.34 REAL ESTATE DEPRECIATION AND IMPAIRMENTS PER SH
Slide 58: 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 December 31, December 31, 2023 2022 2023 2022 Net income available to common stockholders $ 218,405 $ 227,265 $ 872,309 $ 869,408 Cumulative adjustments to calculate Norma
Slide 59: 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