Realty Income Corporation · NYSE:O
Realty Income — Q3 2024 Earnings Presentation
59 slides from Realty Income's earnings presentation, Nov 5, 2024
Slide 1: Investor Presentation
Investor Presentation REAL ESTATE PARTNER TO THE WORLD’S LEADING COMPANIES November 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 4 5 • TIME-TESTED TOTAL OPERATIONAL RETURN APPROACH 10 • CONSISTENT CURATION OF NEW GROWTH VERTICALS 139 • PERFORMANCE TRACK RECORD 18 15 • STRONG BALANCE SHEET 25 24 • DIVERSIFIED, HIGH-QUALITY REAL ESTATE PORTFOLIO 28 • LEVERAGING SI
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 GLOBAL PRESENCE 7th largest ~$83B ~$4.9B A3 /A- global REIT(2) enterprise annualized credit ratings by with properties value base rent Moody’s & S&P in 8 countries and nearly $58B(3) in gross 55 15,45
Slide 5: Highlights of the Quarter
Highlights of the Quarter Third Quarter Results • Deployed $740 million in investments at an initial weighted average cash yield of 7.4%, including $378 million invested in the U.S. at an initial weighted average cash yield of 7.4%, with the balance of $362 million invested in Europe at an initial w
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
Expansive Market Potential in the US $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 Trilli
Slide 8: Vast Breadth of Opportunities in Europe
Vast 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 market 8 Source: EP
Slide 9: 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 10: Time-Tested Total Operational Return Approach
Time-Tested Total Operational Return Approach Realty Income has generated a positive Total Operational Return in each year as a public company. 10
Slide 11: Stable Growth in a Variety of Interest Rate Environments
Stable Growth in a Variety of Interest Rate Environments On average, Realty Income has generated ~5% AFFO growth and ~11% total operational return in a variety of interest rate environments 10-YR TREASURY YIELD Average 10-yr Treasury Yield 2009 - 2022: 2.3% Average 10-yr Treasury Yield 1996 - 2008:
Slide 12: Structural Advantage: Investment Spreads Persist Even as Interest Rates Rise
Structural Advantage: Investment Spreads Persist 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 chang
Slide 13: Consistent Curation of New Growth Verticals
Consistent Curation of New Growth Verticals Size, scale, and access to capital allow for significant opportunity to grow earnings through multiple channels. 13
Slide 14: Data Center JV Presents an Attractive Net Lease Investment
Data Center JV Presents an Attractive Net Lease Investment in Rapidly Expanding Vertical Key Deal Terms $200mm $640mm $800mm 6.9% +2.0% Initial Equity Contribution Total Equity Contribution if Client Total Development Cost Initial Cash Lease Yield Contractual Rent Escalators Exercises Full Expansion
Slide 15: 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 16: Partnering with a Blue-Chip Operator in One of the Largest European Retail Single Tenant Net Lease Transactions
Partnering with a Blue-Chip Operator in One of the Largest European Retail Single Tenant Net Lease Transactions in 2023 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 1,75
Slide 17: Decathlon Sale-Leaseback: Broadening Realty Income's European Platform
Decathlon Sale-Leaseback: Broadening Realty Income’s European Platform EUROPEAN UNION COUNTRIES – 2022 GDP FRANCE $ in billions Germany $3,870 3rd largest commercial real estate market in Europe France $2,639 Italy $1,909 2nd largest population in the EU with a median income of over Spain $1,327
Slide 18: Performance Track Record
Performance Track Record Superior operating metrics with limited downside volatility relative to peers. 18
Slide 19: 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 STABILITY AND GROWTH RECORD OF RETURNS OF EARNINGS 14.1% 0.5 29 of 29 5.7% Compound Annual Beta vs. S&P 500 Years of Positive Median AFFO Per Total Return Since Since 1994 NYSE Total Operational Shar
Slide 20: 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 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 91St percentile of
Slide 22: 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% 10.3% 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 23: Realty Income Exhibited the 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 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 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 EUR Denominated Notes CURRENT DEBT MATURITY PROFILE(1) in millions GBP Denominated Notes $5,356 Term Loan Revolver Mortgages $3,944 Unsecured Notes Pro-Rata UJV Debt $2,893 $2,501 $2,420 $2,438 $
Slide 27: Significant Liquidity and Low Borrowing Costs Support Enhanced Financial Flexibility
Significant Liquidity and Low Borrowing Costs Support Enhanced Financial Flexibility $5,178 $2,010 Liquidity(1) Debt obligations through 2025(2) Revolver Excess Availability, Liquidity, $3,822 $1,812 (No borrowings outstanding under $3.0 billion global commercial paper programs)(1) Term Loan, $800 U
Slide 28: Diversified, High-Quality Real Estate Portfolio
Diversified, 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 10.4% CLIENT DIVERSIFICATION – TOP 20 CLIENTS Convenience Stores % of Total Annualized Contractual Rent(1)(2) 9.4% Denotes IG- Rated Client Dollar Stores 6.5% Home Improvement 6.0% 3.3% 1.6% Resta
Slide 30: Top 20 Clients Resistant to Changing Consumer Behavior
Service Oriented Non-Discretionary Top 20 Clients Resistant to 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 and
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: Careful underwriting at acquisition Strategy of owning “mission critical” locations Long initial lease term Diversified client industries with strong fundamentals Strong underlying real estate quali
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: 48.1% Weighted average lease Strategic management of rollovers term of 9.4 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 Vast majority of the 207 U.S. retailer bankruptcies non-discretionary, low price point, and/or since 2018 are associated with companies that lack at service-o
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 Remains Strong 15% As Size of Portfolio 10% 5% Continues to Increase 0% (4) (4) -5% AFFO/SH GROWTH: 5% AFFO/sh CAGR MEDIAN GROWTH(3) Benchmarked to 1995 (1995-2023) 6% 5.1% 5.2% 5.3% 5.3% 5.3% 5.3% 5.2% 5.1% 5.1% 5.3% 5.2% 5.0% (1) 5% • Stronger historica
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 G&A as % rental revenue(1) Operating efficiencies continue to scale as Realty Income grows 5.8% 3.5% NET LEASE S&P 500 REIT 2000
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 $1.7B Encore Boston Harbor Transaction (Dec 2022) LARGER SIZE PROVIDES GROWTH OPTIONALITY TRANSACTION SIZE & IMPACT • The Encore Boston Harbor is a LEED Plat
Slide 40: Prudent Capital Allocation Framework
Prudent Capital Allocation Framework 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 have added nearly 30% to Realty Income’s sourcing volume since 2019 are Broad and Diverse SOURCED VOLUME $95 in $ billions $85 INTERNATIONAL UNITED STATES $64 $57 $59 $39 $34 $32 $28 $30 $32 $24 $13 $17 $6 2010 2011 2012 2013
Slide 42: Curating Best-in-Class Portfolio Through Thoughtful Investment Process
Curating Best-in-Class Portfolio Through Thoughtful Investment Process Supported by Proprietary Data Across More than 15,450 Properties RESEARCH AND REVIEW OF REAL ANALYSIS OF CLIENT INVESTMENT COMMITTEE SELECTIVITY: 6% STRATEGY ESTATE FUNDAMENTALS FINANCIAL STRENGTH DISCUSSION AND DECISION $33.9 BI
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 LONG-TERM KEY ASSUMPTIONS & CALCULATION: KEY ASSUMPTIONS & CALCULATION: Weighted Average Cost of Capital LONG-TERM COST OF EQUITY LONG-TERM
Slide 44: Growing International Portfolio
Growing International Portfolio After entering the European market in May 2019 via a sale-leaseback transaction with Sainsbury’s, Realty Income has continued to expand its presence in the region, positioning the company for future growth. 44
Slide 45: European Portfolio Snapshot
European Portfolio Snapshot SINCE ENTERING THE MARKET IN MAY 2019, REALTY INCOME HAS CONTINUED TO GROW ITS EUROPEAN PRESENCE, WITH INVESTMENTS OF ~$11.3 BILLION TO-DATE 483 43 41M >$700M ~8.9 14.6% properties industries leasable square annualized years weighted of total portfolio annualized feet con
Slide 46: European Portfolio Snapshot (continued)
European Portfolio Snapshot (continued) EUROPEAN PORTFOLIO BY INDUSTRY(1) % of European Annualized Contractual Rent CLIENT DIVERSIFICATION – TOP 5 EUROPEAN CLIENTS(1) % of European Annualized Contractual Rent Grocery Stores, 45.5% Other, 29.5% 11.2% 11.1% Home Improvement, 16.6% Sporting Goods, 8.4%
Slide 47: Sustainability Overview
Sustainability Overview As real estate and sustainability landscapes continue to evolve, Realty Income is harnessing the power of partnerships to meet challenges head-on and pioneer solutions that will help us and our clients meet our mutual sustainability goals. From our employees to our clients, a
Slide 48: Committed to Advancing Sustainability Strategy
Committed to Advancing Sustainability Strategy As real estate partner to the world’s leading companies, Realty Income’s thoughtful collaborations with clients and strategic partners allow the company to adopt sustainable practices across the value chain to contribute to a more equitable, inclusive,
Slide 49: Sustainability Focus Areas
Sustainability Focus Areas 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. Enga
Slide 50: Top Industry Investment Theses
Top Industry Investment Theses 50
Slide 51: Grocery Stores (10.4% of ABR)
Grocery Stores (10.4% of ABR) EXPOSURE TO TOP OPERATORS IN AN ESSENTIAL, E-COMMERCE RESISTANT INDUSTRY U.S. Grocery Market Share(1) U.K. Grocery Market Share(2) 65% Big 4 (Tesco, Sainsbury's, Asda, Morrisons) Realty Income’s top two U.K. grocery Discounters Walmart and Kroger represent ~30% 34% clie
Slide 52: Convenience Stores (9.4% of ABR)
Convenience Stores (9.4% 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 (6.5% of ABR)
Dollar Stores (6.5% 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 (6.0% of ABR)
Home Improvement (6.0% 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 (4.8% of ABR)
Drug Stores (4.8% 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 PRIOR 2024 GUIDANCE(1) REVISED 2024 GUIDANCE NET INCOME PER SHARE(2) $1.21 to $1.30 $1.15 to $1.20 REAL ESTATE DEPRECIATION AND IMPAIRMENTS PER SHARE $2.92 $2.96 OTHER ADJUSTMENTS PER SHARE(3) $0.06 $0.05 NORMALIZED FFO PER SHARE(2)(4) $4.19 to $4.28 $4.16 to $4.21 AFFO PER SHARE(4) $4
Slide 58: Adjusted Funds From Operations (AFFO)
Adjusted Funds From Operations (AFFO) (in thousands, except per share data) (1) See Normalized FFO calculations on page 10 of earnings press release for reconciling items. (2) Includes the amortization of the purchase price allocated to interest rate swaps acquired in the Spirit merger. (3) Credit l
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 Gl