Realty Income Corporation · NYSE:O
Realty Income — Q2 2023 Earnings Presentation
64 slides from Realty Income's earnings presentation, Aug 3, 2023
Slide 1: Investor Presentation: Calculated Consolidation
Investor Presentation CALCULATED CONSOLIDATION August 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: Key Takeaways
Key Takeaways • Realty Income’s track record illustrates superior total return per unit of volatility. • Our external growth opportunities are broad including diverse property types and geographies. • Realty Income’s strategic merger with VEREIT® created the premier net lease REIT with increased siz
Slide 4: Table of Contents
Table of Contents • REALTY INCOME OVERVIEW, INVESTMENT THESIS, AND PROVEN TRACK RECORD 55 • PERFORMANCE TRACK RECORD 129 • DIVERSIFIED HIGH-QUALITY REAL ESTATE PORTFOLIO 18 15 • STRONG BALANCE SHEET 24 24 • LEVERAGING SIZE AND SCALE TO DRIVE PROFITABLE GROWTH 27 31 • PRUDENT CAPITAL ALLOCATION FRAME
Slide 5: Investment Thesis
Investment Thesis PROVEN TRACK RECORD STABILITY AND GROWTH OF RETURNS... OF EARNINGS... 14.2% 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 Since ‘94 NYSE Listing(1) Per Share(2) Growth Growth Since 1996(2) CONSI
Slide 6: 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 ~$62B ~$3.8B A3 /A- 4th largest global REIT(2) enterprise annualized credit ratings by $7.6B European Portfolio value base rent Moody’s & S&P 303 assets ~9 years remaining lease
Slide 7: Proven Track Record of Value Creation
Proven Track Record of Value Creation Real estate gross asset value has grown by over 100X since NYSE listing(1) $47 billion 25 Consecutive years of dividend growth 2020 1994 2015 Realty Income Realty Income added to the S&P Realty Income began 500 Dividend trading on the NYSE under added to the S&P
Slide 8: Proven Track Record of Establishing New Verticals for Growth
Proven Track Record of Establishing New Verticals for Growth Italy $47 billion U.K. Spain Advent into PROPERTY TYPES Italy with GEOGRAPHIES Metro, AG acquisition. Ireland 2010 2022 Initiated industrial real 2019 2021 estate strategy, which 1st international Entered Spain via a now represents 13% inv
Slide 9: Consistently Positive Total Operational Return with Limited Historical Downside Volatility
Consistently Positive Total Operational Return with Limited Historical Downside Volatility TOTAL OPERATIONAL RETURN(1) CUMULATIVE TOTAL OPERATIONAL RETURN(1) O S&P 500 Median From 2015-2022: 110.1% 111.2% Realty ≈ S&P 500 11.4% 9.8% Income Median 10.6% 8.4% 10.6% 12.4% 8.9% TOR(1) Cumulative TOR(1)
Slide 10: Sale-Leaseback Market Opportunities in the S&P 500 Face Potential Structural and Cyclical Tailwinds
Sale-Leaseback Market Opportunities in Over $1.2 trillion of debt matures in 2024 – 2027 for S&P 500 companies in Realty Income’s addressable universe, and elevated bond yields support the S&P 500 Face Potential Structural continued attractiveness of SLB financing. and Cyclical Tailwinds S&P 500 ADD
Slide 11: Crystallizing Value Creation: Illustrative Sale-Leaseback Scenarios
Crystallizing Value Creation: SLB transactions: Inherently a deleveraging and value-enhancing exercise for Illustrative Sale-Leaseback Scenarios shareholders of corporate sellers $500 MILLION SALE-LEASEBACK TRANSACTION AT 6.0% CAP RATE $30 MILLION ANNUAL LEASE PAYMENT CORPORATE SELLER USES PROCEEDS
Slide 12: Performance Track Record
Performance Track Record Superior risk-adjusted returns, particularly during economic downturns 12
Slide 13: 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 14: Stable Earnings and Low Dividend Volatility Supports Low Share Price Volatility
Stable Earnings and Low Dividend Volatility Supports 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 2
Slide 15: 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% 4.4%(3) 3.1% 0% % of Years w/ Negative Growth Dividend CAGR Historical Median Lowest Year-End REALTY INCOME S&P 500 REIT A
Slide 16: 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 17: 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 18: High-Quality Real Estate Portfolio
High-Quality Real Estate Portfolio Diversified exposure to cash flows guaranteed by best-in- class, blue-chip operators 18
Slide 19: Diversified High-Quality Portfolio
Diversified High-Quality Portfolio INDUSTRY DIVERSIFICATION % of Annualized Contractual Rent(1) CLIENT DIVERSIFICATION – TOP 20 CLIENTS Convenience stores 11.1% % of Annualized Contractual Rent(1) Grocery stores 9.9% Dollar stores 7.1% Home improvement 5.9% 3.8% 1.6% Drug stores 5.8% Restaurants - q
Slide 20: 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 Note: Walmart represented by both Neighborhood Markets and Sam’s Club. Low Price Point
Slide 21: 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 130 of 176 U.S. retailer bankruptcies since non-discretionary, low price point, and / or 2018 are associated with companies lacking at least service-oriented
Slide 22: 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 23: 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: 49.0% Weighted average lease Strategic management of rollovers term of 9.6 years Proactively addressing portfolio “watch list” Resolve
Slide 24: Strong Balance Sheet
Strong Balance Sheet Our conservative capital structure supports superior financial flexibility. 24
Slide 25: One of Only Eight S&P REITs with Two A3/A- Ratings or Better
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 GBP Denominated Notes $4,033 in millions Term Loan Revolver (2) $3,109 Mortgages (3) Unsecured Notes $2,051 $2,048 $1,841 $1,888 $1,287 $1,094 $1,101 $950 $137
Slide 26: Significant Liquidity and Low Borrowing Costs Support Enhanced Financial Flexibility
Significant Liquidity and Low Borrowing Costs Support Enhanced Financial Flexibility $3,513 $14 Liquidity(1) Debt Obligations through 2023(3) Revolver Availability, $3,260 Excess Liquidity, (Net of $123 million $3,499 borrowings under $1.5 billion commercial paper programs)(2) Mortgages Payable, $14
Slide 27: Leveraging Size and Scale to Drive Profitable Growth
Leveraging Size and Scale to Drive Profitable Growth The net lease opportunity set is broad and diverse. 27
Slide 28: 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 29: 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 30: 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 50+ years is employed to enhance investment underwriting and generate insights that power lease renewal discussions Medium Risk Store Low Risk
Slide 31: Global Net Lease Investable Universe is Immense
Global Net Lease Investable Universe is Immense 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 EUROPE Combined enterprise val
Slide 32: Filling the Void as a Premier Sale-Leaseback Financing Partner
Filling the Void as a Premier Sale-Leaseback Financing Partner THE OPPORTUNITY MOMENTUM Aggregate Corporate-Owned Realty Income is Well-Positioned to Continue to Execute Real Estate(1) on Large-Scale Sale-Leaseback Transactions AGGREGATE ACQUISITIONS VOLUME(2) ~$1.6 TRILLION 2015 – YTD 2023 ~ 42% of
Slide 33: Efficiency of the Net Lease Business Model Supports Cash Flow Stability
Efficiency of the Net Lease Business Lease structure and growth drivers support a more predictable revenue stream relative to Model Supports Cash Flow Stability other forms of retail real estate UNIQUE “NET LEASE” STRUCTURE DRIVES LOWER CASH FLOW VOLATILITY REALTY INCOME(1) SHOPPING CENTERS AND MALL
Slide 34: Prudent Capital Allocation
Prudent Capital Allocation Building a high-quality real estate portfolio through prudent, top-down, data-driven investment process. 34
Slide 35: Curating Best-in-Class Portfolio Through Thoughtful Investment Process
Curating Best-in-Class Portfolio Through Thoughtful Investment Process Supported by Proprietary Data From Over 13,100 Properties RESEARCH AND REVIEW OF REAL ANALYSIS OF CLIENT INVESTMENT COMMITTEE SELECTIVITY: ~ 15% STRATEGY ESTATE FUNDAMENTALS FINANCIAL STRENGTH DISCUSSION AND DECISION $31.2 BILLIO
Slide 36: External Growth Opportunities are Broad and Diverse
Realty Income’s External Growth Opportunities International opportunities added >31% to Realty Income’s combined sourcing volume since 2019 are Broad and Diverse SOURCED VOLUME $95 in $ billions $85 INTERNATIONAL UNITED STATES $64 $57 $39 $32 $28 $30 $32 $31 $24 $13 $17 $6 2010 2011 2012 2013 2014 2
Slide 37: 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 38: Investment Spreads Tend to Persevere Even as Interest Rates Rise
Investment Spreads Tend to Persevere Even as Interest Rates Rise RISING INTEREST RATES DO NOT POSE SIGNIFICANT EARNINGS HEADWIND TO THE NET LEASE BUSINESS MODEL 12% 5 Realty Income Acquisition Cap Rate (1) 10% Average 10Y UST Yield (12M Lag) 8% 9 It takes ~12 months for cap rates to adjust to 6% cha
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 Encore Boston Harbor Transaction (Dec 2022) TRANSACTION SIZE & IMPACT $1.7B • The Encore Boston Harbor is a LEED Plat
Slide 40: 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% 3.9% NET LEASE S&P 500 REIT 2001
Slide 41: Consistent Curation of Growth Verticals
Consistent Curation of Growth Verticals Size, scale, access to capital allows for significant opportunity to grow earnings through multiple channels Recently incubated real estate verticals include: • Consumer-centric medical • Italy • Gaming(1) 41 (1) See Wynn Encore Boston Harbor case study in pri
Slide 42: Defining Consumer-Centric Medical Real Estate
Defining “Consumer-Centric Medical Real Estate” ~10% of existing portfolio is human and animal health PROPERTY TYPE DIVERSIFICATION INDUSTRY CLASSIFICATION 1.7% Other The “Consumer-Centric” Medical Real 2.7% Gaming Estate includes industries categorized as: Drug Stores 13.1% Industrial Dialysis Infu
Slide 43: Demographic Trends Supporting Consumer-Centric Medical Real Estate
Demographic Trends Supporting Consumer-Centric Medical Real Estate Aging demographics support increased healthcare spending Total US Population(1) 85+ US Population(1) millions 65+ US Population(1) millions millions 0.7% 2.7% 3.1% CAGR 355 CAGR 9 73 CAGR 333 56 7 2020 2030 2020 2030 2020 2030 PERSON
Slide 44: Delivery of Care is Increasingly Moving Towards Outpatient Visits
Delivery of Care is Increasingly Moving Towards Outpatient Visits US HOSPITAL ADMISSIONS vs. OUTPATIENT VISITS % Change vs. 2002(1) Healthcare delivery is shifting toward an outpatient 40% model in the United States 35% 30% Inpatient Outpatient 39% 25% 20% Cumulative growth in Outpatient visits comp
Slide 45: Significant Addressable Market >$2 Trillion
Significant Addressable Market Depth of product and industry demand tailwinds expected to provide material runway for investment The U.S. leads the developed world in national healthcare expenditures ▪ Per capita spending of $13k per year is double the OECD average(1) Investment Criteria However, qu
Slide 46: Clear Fit with Realty Income's Capital Allocation Philosophy
Clear Fit with Realty Income’s Capital Allocation Philosophy Real estate and industry characteristics are well-aligned with Realty Income’s investment criteria Investment Alignment ▪ Typical unit size range aligns with our footprint ▪ Fungible real estate located in major population centers ▪ High d
Slide 47: Recent Investment Illustrates the Opportunity
Recent Investment Illustrates the Opportunity Acquisition of $520 million Dental Portfolio in 2022 Captive density (average 5-mile population greater than 100k) in high growth markets supports EBITDAR Client ▪ Leading Dental Support Organization ▪ Largest scale operator in its markets Investment The
Slide 48: Italy: Investment in Metro Wholesale Club Portfolio
Italy: Investment in Metro Wholesale Club Portfolio Demonstrates Prudent International Expansion Metro Wholesale Club ● Attractive portfolio in third international market. In 2022, Realty Income purchased a portfolio of seven wholesale clubs operated by Metro Group for €166.6 million, located across
Slide 49: Growing International Portfolio
Growing International Portfolio Sale-leaseback transaction with Sainsbury’s in May 2019 was a foundation for a growth platform in Europe 49
Slide 50: European Portfolio Snapshot
European Portfolio Snapshot REALTY INCOME HAS CONTINUED TO GROW ITS EUROPEAN PRESENCE WITH INVESTMENTS OF ~$7.6 BILLION THROUGH JUNE 30, 2023 303 38 ~28.3mm ~$452mm ~9 11.9% properties industries leasable square annualized years wtd. avg. of total portfolio annualized feet contractual rent remaining
Slide 51: 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 15.8% Grocery, 45.4% Other, 28.6% 15.5% 10.7% General Merchandise, 5.0% Home Improvement, 21.0%
Slide 52: 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. 52
Slide 53: ESG Overview
ESG Overview OUR COMMITMENT GOVERNANCE Realty Income is committed to conducting our KEY BOARD CHARACTERISTICS business according to the highest ethical standards. We seek to compose our Board of directors with members who We are dedicated to providing an engaging, inclusive, contribute to diversity
Slide 54: Social Responsibility
Social Social Responsibility OUR COMMITMENT: We put great effort into cultivating an inclusive company culture. We are one team, and together we are committed to providing an engaging work environment centered on our One Team values of Do the right thing, Take ownership, Empower each other, Celebrat
Slide 55: Environmental Responsibility
Environmental Environmental Responsibility OUR COMMITMENT: We remain committed to sustainable business practices in our day-to-day activities by encouraging a culture of environmental responsibility at our corporate offices and within our communities. We work with our clients to promote environmenta
Slide 56: Appendix
Appendix • International Expansion Opportunity • Top Industry Investment Theses 56
Slide 57: UK Density Supports Long-Term Real Estate Stability
UK Density Supports Long-Term Real Estate Stability The UK, by population, 67.6M is approximately the Limited retail supply and supply growth also supports size of California and Current Population(1) long-term viability of stable cash flow generation. Texas combined. UK POPULATION AND PROJECTIONS(1
Slide 58: Convenience Stores (11.1% of ABR)
Convenience Stores (11.1% 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 59: Grocery (9.9% of ABR)
Grocery (9.9% 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% 64% 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 market sha
Slide 60: 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 61: Drug Stores (5.8% of ABR)
Drug Stores (5.8% 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 62: Quick-Service Restaurants (5.5% of ABR)
Quick-Service Restaurants (5.5% of ABR) 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. STRONG VALUE PROPOSITION: In a recessionary environment, consumers tend to be more
Slide 63: Adjusted Funds From Operations (AFFO)
Adjusted Funds From Operations (AFFO) (in thousands, except per share and share count data) Three months ended Six months ended June 30, June 30, 2023 2022 2023 2022 Net income available to common stockholders $ 195,415 $ 223,207 $ 420,431 $ 422,576 Cumulative adjustments to calculate Normalized FFO
Slide 64: 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