Realty Income Corporation · NYSE:O
Realty Income — Q4 2020 Earnings Presentation
46 slides from Realty Income's earnings presentation, Feb 23, 2021
Slide 1: Fourth Quarter 2020 Retail Investor Presentation
FOURTH QUARTER 2020 RETAIL INVESTOR PRESENTATION
Slide 2: Contents
Contents Company Overview 4 Summary of COVID-19 Impact 7 Performance Track Record 10 Dependable Dividends 14 Portfolio Diversification 18 Asset Management & Real Estate Operations 25 Investment Strategy 28 Capital Structure and Scalability 31 Corporate Responsibility 35 Business Plan 37 Appendix 38
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 $31B A3 / A- 6,592 9.0 24 OF 25 enterprise value credit ratings
Slide 5: 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 6: Progression to a Blue-Chip, S&P 500 REIT
Progression to a Blue-Chip, S&P 500 REIT Received Added to investment- Completed Closed S&P High grade credit first Yield Realty ratings from acquisition Credit international Dividend Income Moody’s, of American rating acquisition Aristocrats® S&P, and Realty upgraded to (Sainsbury’s founded by and
Slide 7: 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 October November December Q4 2020 collected(1) across: 2020 2020 2020 Total portfolio 93.5% 93.7% 93.6% 93.6% Top 20 clients 89.8% 90.2% 89.7% 89.9%
Slide 8: Rent Collections from Top 20 Industries
Rent Collections from Top 20 Industries Clients operating in core industries selling ‘essential goods’ paid almost all rent due Q4 2020 Rent Collections(1) % of Q4 Contractual Rent Collected % of Q4 Contractual Rent Not Collected 12.1% 9.3% 8.3% Received 93.6% of contractual rent due for Q4 2020 7.7
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 YE 2020 Enterprise Value (in billions) $4.3 $30.5 Available Liquidity (in millions)(1) $593 $3,824 Fi
Slide 10: Performance Track Record
REALTY “INCOME The Monthly Dividend Company®
Slide 11: Our Approach and 2020 Results
Our Approach and 2020 Results Acquire well-located commercial properties 1 ✓ ~$2.3 billion in 2020 real estate investments Remain disciplined in our acquisition underwriting 2 ✓ Acquired <4% of sourced volume Execute long-term net lease agreements 3 ✓ ~13 years weighted average lease term on new acq
Slide 12: 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% 11.4% 10.7% 10.4% 10.1% O Nasdaq Composite DJIA S&P 500 Equity REIT Index 12
Slide 13: Track Record of Favorable Risk-Adjusted Returns to Shareholders
Track Record of Favorable Risk-Adjusted Returns to Shareholders Adding Realty Income to a balanced portfolio generates higher return with lower risk Stocks and Bonds With 10% REITs 0% With 10% “O” 10% 10% 40% 50% 50% 60% 40% 40% Stocks Bonds REITs Realty Income Return 8.9% Return 8.9% Return 9.4% Ri
Slide 14: Dependable Dividends
DEPENDABLE DIVIDENDS ?
Slide 15: Dividends Matter to Long-Term Investor Returns
Dividends Matter to Long-Term Investor Returns In a low growth, low-yield environment, consistent dividend growth generates significant value for investors S&P 500 Index Returns: With and Without Dividends Realty Income Returns: With and Without Dividends (October 18, 1994 – December 31, 2020) (1) (
Slide 16: 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 93 consecutive quarterly increases $2.814 $2.73 $2.65 109 total increases since 1994 NYSE listing $2.53 82.4% AFFO payout (based on
Slide 17: 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 35% Yield on Cost 33% Reflects yield on cost assuming shareholder bought shares at the end of each 27% corresponding period (as of 12/31/2020) 25% 24% 22% 23
Slide 18: Portfolio Diversification
PORTFOLIO DIVERSIFICATION
Slide 19: Portfolio Diversification: Client
Portfolio Diversification: Client Diverse client roster, investment grade concentration reduces overall portfolio risk 5.7% 2.4% TOP 20 CLIENTS REPRESENT 4.8% 1.8% 4.3% 1.7% 3.7% 1.6% 52.2% 3.3% 1.5% Of annualized rental revenue 3.1% 1.5% 3.0% 1.5% 2.9% 2.7% 1.4% 1.3% 10 12 Different Investment-grad
Slide 20: Top 20 Clients Highly Insulated from Changing Consumer Behavior
Top 20 Clients Highly Insulated from Changing Consumer Behavior All top 20 clients 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 21: Top Client Exposure: 2009 vs. Today
Top Client Exposure: 2009 vs. Today Less cyclicality and superior credit and diversification vs. prior downturn Bold clients represent investment-grade rated credit TOP 15 CLIENTS AS OF YE 2009 TOP 15 CLIENTS AS OF YE 2020 Clients Industry % of Rent Clients Industry % of Rent Hometown Buffet Casual
Slide 22: Portfolio Diversification: Industry
Portfolio Diversification: Industry Exposure to 51 industries enhances predictability of cash flow (See Appendix for Industry Theses) Exposure to defensive industries: 97% of total portfolio rent is protected against retail e-commerce threats and economic downturns Non-Discretionary ❶ Convenience St
Slide 23: Portfolio Diversification: Geography
Portfolio Diversification: Geography Balanced presence in 49 states, Puerto Rico and the United Kingdom <1 <1 <1 1.0 <1 <1 1.0 2.7 <1 4.2 <1 2.0 <1 <1 2.6 <1 <1 2.7 1.8 1.1 4.0 <1 <1 <1 5.8 2.4 <1 1.5 <1 1.4 2.7 8.8 1.5 2.3 1.3 3.1 3.0 Top 7 Geographies 1.9 1.9 <1 <1 2.1 % of Rental Revenue 1.4 1.8
Slide 24: Portfolio Diversification: Property Type
Portfolio Diversification: Property Type Core exposure in retail and industrial single-client freestanding net lease properties RETAIL (84.4%) INDUSTRIAL (10.9%) Number of Properties: 6,419 Number of Properties: 115 Average Leasable Square Feet: 12,300 Average Leasable Square Feet: 245,300 Percentag
Slide 25: Asset Management & Real Estate Operations
ASSET MANAGEMENT & REAL ESTATE OPERATIONS
Slide 26: 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 94.3% rate of 100% on expired leases ✓ Distinct manage
Slide 27: 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 28: Investment Strategy
INVESTMENT STRATEGY ?
Slide 29: 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 c
Slide 30: 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): $18.3 billion 53% 86% in property-level acquisition volume of volume leased to of volume associated with Investment grad
Slide 31: Capital Structure and Scalability
CAPITAL STRUCTURE AND SCALABILITY
Slide 32: Conservative Capital Structure
Conservative Capital Structure Modest leverage, low cost of capital, ample liquidity provides financial flexibility Total Enterprise Value: $30.5 billion (1)(2) Unsecured Notes: $8.30 billion Common Stock, 72% (3) Revolving Credit Facility: $0 balance Debt, 25% 28% Equity Mortgages: $300 million Mar
Slide 33: 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 Debt Profile 7.8 Years 3.5% $2,585 Weighted Average Years Unsecured Until Maturity Weighted Average Interest Rate(1) 97% Unsecured Secured Fixed Rate $1,062 (2) 1
Slide 34: 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 35: Corporate Responsibility
REALTY’ )JINCOME The Monthly Dividend Company®
Slide 36: 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 37: Business Plan
Business Plan • Pay 12 monthly dividends • Raise the dividend • Remain disciplined in our acquisitions underwriting approach • Acquire additional properties according to our selective investment strategy • Maintain high occupancy through active portfolio management • Maintain a conservative balance
Slide 38: Appendix
APPENDIX ? 38
Slide 39: Convenience Stores (11.9% of Rent)
Convenience Stores (11.9% 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 40: Grocery (9.8% of Rent)
Grocery (9.8% of Rent) Exposure to top operators in an essential, e-commerce resistant industry 2020–2021 Grocery Sales(1) 40% (YoY growth for 4 weeks ended) 33% Retail food sales have remained robust through duration of pandemic 22% 19% 17% 18% 15% 14% 14% 13% 12% 11% 11% 12% 11% 10% 10% 10% 10% 3%
Slide 41: 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 2020–2021 UK Grocery Sales(2) (YoY growth for 4 weeks ended) 20.6% 18.9% 17.1% 14.6% 13.9% 10.6% 11.4% 12.2% 9.7% 9.4% 8.0% 5.6% 0.8% 1.5% 22-Mar 6-Sep 4-Oct 1-
Slide 42: Drug Stores (8.2% of Rent)
Drug Stores (8.2% 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 650+ HealthHUB locations(1) COVID
Slide 43: Dollar Stores (7.6% of Rent)
Dollar Stores (7.6% 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 44: Health & Fitness (6.7% of Rent)
Health & Fitness (6.7% 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 45: Theaters (5.6% of Rent)
Theaters (5.6% 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 46: Quick-Service Restaurants (5.3% of Rent)
Quick-Service Restaurants (5.3% 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