Realty Income Corporation · NYSE:O
Realty Income — Investor Presentation (2017)
43 slides from Realty Income's investor presentation, 2017
Slide 1: Investor Presentation 4Q 2016
INVESTOR PRESENTATION 4Q 2016
Slide 2: Contents
Contents Company Overview & Historical Risk/Reward 3 Investment Thesis 8 Portfolio Diversification 13 Asset and Portfolio Management 18 Investment Strategy 21 Capital Structure and Scalability 33 Dependable Dividends 37 2017 Guidance 41 Summary 42 All data as of December 31, 2016 unless otherwise sp
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: Company Overview
Company Overview S&P 500 Real Estate Investment Trust with Proven Track Record of Strong Total Returns Leading real estate company: Equity market cap of $15.0 billion and EV of $21.3 billion Largest net lease REIT by equity market cap and enterprise value Member of S&P 500 index Member of S&
Slide 5: Our Approach as "The Monthly Dividend Company"
Our Approach as “The Monthly Dividend Company®” Generate lease revenue to support the payment of growing monthly dividends Execute long-term net lease agreements Remain disciplined Actively manage the in our acquisition portfolio to maintain underwriting high occupancy Target well-located, Freestand
Slide 6: 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 35% Realty Income return Lower volatility correlated with per unit of market risk Total Return CAGR Since 10/18/94 (NYSE Listing) higher returns over the long-t
Slide 7: Attractive Risk/Reward vs. Blue Chip S&P Equities
Attractive Risk/Reward vs. Blue Chip S&P 500 Equities Proven long-term investment provides an attractive risk/reward Average Annual Compound 30% TSR per Unit of Market Risk Greater return per unit of market risk than O O Total Return CAGR Since 10/18/94 43% 25% each of top 10 largest S&P constituent
Slide 8: Attractive Risk/Reward vs. Blue Chip REITs
Attractive Risk/Reward vs. Blue Chip REITs Proven long-term investment vs. Blue Chip S&P 500 REITs Average Annual Compound 30% TSR per Unit of Market Risk Greater return per unit of market risk than each of the OO 43% Total Return CAGR Since 10/18/94 25% other 16 REITs in S&P 500 PSA 39% with compar
Slide 9: Investment Thesis: Earnings Growth Outperformance Consistency
INVESTMENT THESIS: Earnings Growth Outperformance Consistency 8
Slide 10: Consistent Earnings Growth Outperformance vs. REITs
Consistent Earnings Growth Outperformance vs. REITs Annual FFO/sh growth has exceeded REIT median in 14 of the last 15 years 1,649 Realty Income Annual FFO/sh Growth Outperformance vs. REIT Median (in bps) 800 909 670 356 500 337 254 228 127 140 65 9 12 -670 2001 2002 2003 2004 2005 2006 2007 2008 2
Slide 11: Interest Rate Sensitivity: Earnings Growth Undeterred by Rising Rates
Interest Rate Sensitivity: Earnings Growth Undeterred by Rising Rates Realty Income earnings growth outperformed other REITs during last rising rate era 10-year US 10-year TreasurUS Treasury Yield y Yield Spread investing dynamics persist 7.0% throughout the cycle During the prior cycle period of st
Slide 12: Consistency: Steady Portfolio, Solid Fundamentals
Consistency: Steady Portfolio, Solid Fundamentals Consistent occupancy, same-store rent growth reflect limited operational volatility Consistent Occupancy Levels, Never Below 96% 99.1% 99.2% 99.5% 98.4% 97.7% 98.2% 97.7% 98.1% 97.9% 98.5% 98.7% 97.9% 97.0% 96.8% 96.6% 96.7% 97.2% 98.2% 98.4% 98.4% 9
Slide 13: Safety: Lowest Volatility, Highest Return Relative to Market Indices
Safety: Lowest Volatility, Highest Return Relative to Market Indices Long-term performance exceeds widely followed benchmark indices Annualized Total Return Since '94 Since 1994 NYSE listing, Realty Income shares have Standard Deviation of Total Returns Since '94 outperformed benchmark indices while
Slide 14: Portfolio Diversification
PORTFOLIO DIVERSIFICATION 13
Slide 15: Portfolio Diversification: Tenant
Portfolio Diversification: Tenant Diverse tenant roster, investment grade concentration reduces overall portfolio risk 7.0% Top 20 Tenants represent: 5.5% 4.2% 4.0% 53% 2.6% 3.8% of total rental revenue 2.6% 2.4% 2.2% 11 2.0% 2.0% different industries 1.9% Investment grade rated (1) 1.9% 1.9% (1) In
Slide 16: Portfolio Diversification: Industry
Portfolio Diversification: Industry No industry represents more than 11.4% of rent Exposure to defensive industries: Top 10 industries represent strong diversification, significant exposure to non-discretionary, low price-point, service-oriented industries Industry Retail Characteristics Drug Stores
Slide 17: Portfolio Diversification: Geography
Portfolio Diversification: Geography Balanced presence in 49 states and Puerto Rico 1.1 <1 <1 <1 <1 <1 <1 3.5 1.3 <1 <1 2.0 2.3 4.5 <1 <1 <1 1.5 2.7 <1 <1 1.6 5.3 3.1 5.4 <1 <1 9.6 1.6 <1 1.8 3.2 2.8 1.6 1.5 2.7 1.6 <1 3.2 % of Rental Revenue 2.3 <1 1.9 California 9.6% 1.7 1.9 4.4 1.4 Texas 9.4% 9.4
Slide 18: Portfolio Diversification: Property Type
Portfolio Diversification: Property Type Roots in retail with growing exposure to mission-critical industrial properties RETAIL INDUSTRIAL OFFICE AGRICULTURE Percentage of Rental Revenue 78.9% 13.2% 5.5% 2.4% Number of Properties 4,774 111 44 15 Average Leasable Square Feet 11,522 220,289 77,345 12,
Slide 19: Asset and Portfolio Management
ASSET AND PORTFOLIO MANAGEMENT 18
Slide 20: Active Management: Significant Re-leasing Experience
Active Management: Significant Re-leasing Experience Since 1996, Realty Income has achieved 98.4% recapture of prior rent on re-leasing activity Strong Track Record of Leasing Results Recapture vs. Prior Rent: (Renewal Activity) (101.6% Since 1996) Since 1996: 1996 - 2005 100.3% • Re-leased 2,028 ou
Slide 21: Active Management: Leasing and Dispositions
Active Management: Leasing and Dispositions Proven track record of value creation, cash flow preservation and risk mitigation Healthy Leasing Results Portfolio Management >98% recapture of expiring rents since 1996 Largest department in the company • Over 2,300 rollovers • Includes renewals and re
Slide 22: Investment Strategy
REALTY ppincome | INVESTMENT The Monthly Dividend Company® STRATEGY
Slide 23: Investment Strategy: Underwriting Approach
Investment Strategy: Underwriting Approach Real estate focused / Motivated to exceed long-term cost of capital Retail Non-Retail (principally Industrial) Strong unit-level cash flow Significant markets (generally MSAs coverage (specific to each industry) of ≥350,000 people) and/or mission critic
Slide 24: Investment Strategy: Key Considerations
Investment Strategy: Key Considerations Cost of capital advantage, size, track record: Supports investment selectivity, strong risk-adjusted spreads Competitive Advantages Lowest cost of capital among net lease peers Size and track record • Lower cost of capital supports investment selectivity • Abi
Slide 25: Investment Strategy: Aim to Exceed Long-Term WACC
Investment Strategy: Aim to Exceed Long-Term WACC Cost of capital 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-making at the property l
Slide 26: Investment Strategy: Benefits of Low Cost of Capital
Investment Strategy: Benefits of Low Cost of Capital Low cost of capital (high equity multiple) is the most important competitive advantage in the net lease industry 4.5% Benefits of Low Cost of Capital 4.2% 4.0% • More growth per dollar invested 3.8% Annualized AFFO/sh Growth from Acquisitions • Lo
Slide 27: Investment Strategy: 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 and leases in the net lease industry 9.0% Acquisition Cap Rate to Achieve 250 bps Spreads Higher cost of capital forces “High Yield” Investment Characteristics
Slide 28: Investment Strategy: Focused on Market Rents
Investment Strategy: Focused on Market Rents Realty Income avoids lease structures with above-market rents, which can often 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 29: Investment Strategy: Focused on Maximizing Long-Term IRR
Investment Strategy: Focused on Maximizing Long-Term IRR Realty Income IRR analysis favors long-term cash flow consistency; higher initial cap rates ≠ higher IRR • Underwriting criteria geared towards long-term unlevered IRR exceeding long-term WACC • Net lease acquisition market is very efficient
Slide 30: Investment Strategy: Results of Conservative Underwriting
Investment Strategy: Results of Conservative Underwriting Industry exposure reflects defensive, cycle-resilient business models Over 90% of retail portfolio: Top non-retail tenants: Has service, non-discretionary and/or low price Comprised primarily of investment grade tenants point component such a
Slide 31: 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): $3.5 billion 79% 57% $8.9 billion in non-investment grade retail acquisitions of volume associated with retail propertie
Slide 32: Investment Strategy: ARCT Example (M&A Activity)
Investment Strategy: ARCT Example (M&A Activity) Cost of capital advantage drives ability to source, fund, close on accretive M&A deals Increased Quality ARCT Transaction (2013) SIZE, QUALITY, DIVERSIFICATION 11.1 11.4 34% $3.2 515 billion properties 19% 75% 54% investment grade retail properties Wt
Slide 33: Investment Strategy: Inland Diversified Example (Portfolio Activity)
Investment Strategy: Inland Diversified Example (Portfolio Activity) Large, diversified portfolio offers capacity to absorb co-mingled portfolio opportunities Inland Transaction (1H 2014) Inland Diversified was a non-traded REIT seeking a liquidity event in 2H13 – motivation to minimize counter-pa
Slide 34: Capital Structure and Scalability
CAPITAL STRUCTURE AND SCALABILITY 33
Slide 35: Conservative Capital Structure
Conservative Capital Structure Modest leverage, low cost of capital, ample liquidity provides financial flexibility Common Stock: $15.0 billion – 70% • Shares/Units outstanding – 260.6 million Debt: $5.9 billion – 28% Debt 28% • Unsecured Notes/Bonds - $4.0 billion • Unsecured Term Loans - $320 mill
Slide 36: Well-Laddered Debt Maturity Schedule
Well-Laddered Debt Maturity Schedule Limited re-financing and variable interest rate risk throughout debt maturity schedule Laddered Maturity Schedule with Primarily Unsecured Investment Grade Rated Debt Key Metrics $1,800 3.3% Weighted average interest rate (1) • 80% fixed rate debt $1,600 $1,400 •
Slide 37: Scalability of Costs Contributes to Higher Relative Valuation
Scalability of Costs Contributes to Higher Relative Valuation Relative NAV valuation comparisons should consider G&A efficiencies ~93% EBITDA margins, never below 90% since 2000 Adjusted EBITDA per Employee ($000s) • Efficiency and scalability of business model leads net lease industry $7,110 • G&A
Slide 38: Dependable Dividends
REALTY (pINcome | DEPENDABLE The Monthly Dividend Company® D VI D EN DS
Slide 39: Consistent Dividends That Grow Over Time
Consistent Dividends That Grow Over Time Steady dividend track record supported by inherently stable business model, disciplined execution Strong Dividend Track Record 77 consecutive quarterly increases 90 total increases since 1994 NYSE listing $2.526 ~83% AFFO payout (midpoint of 2017 guidance) $2
Slide 40: Dividend Track Record: Growth Through Variety of Economic Cycles
Dividend Track Record: Growth Through Variety of Economic Cycles Zero dividend cuts in 22 years as public company 21.2% $3.2B ARCT acquisition supports 20%+ dividend increase Realty Income increased dividend in 2009 as median REIT cut eclipsed 25% 8.5% 8.6% 6.8% 6.5% 6.1% 5.1% 5.3% 4.7% 3.8% 3.6% 2.
Slide 41: The "Magic" of Rising Dividends: Yield on Cost, Dividend Payback
The “Magic” of Rising Dividends: Yield on Cost, Dividend Payback Long-term, yield-oriented investors have been rewarded with consistent income 28.4% Yield on Cost 23.6% Reflects yield on cost as of 12/31/2016 assuming shareholder bought 21.6% shares at end of each corresponding year 20.4% 19.1% 19.5
Slide 42: Guidance
Guidance Consistent earnings growth while maintaining conservative leverage metrics Earnings 2017 $3.00 - $3.06 FFO/sh (4.2% - 6.3% growth) $3.00 - $3.06 AFFO/sh (proxy for cash earnings) (4.2% - 6.3% growth) Key Assumptions Acquisitions $1.0 billion Dispositions $75 million - $100 million Occupancy
Slide 43: 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