Realty Income Corporation · NYSE:O
Realty Income — Q1 2021 Earnings Presentation
60 slides from Realty Income's earnings presentation, May 4, 2021
Slide 1: Investor Presentation: Calculated Consolidation
Investor Presentation CALCULATED CONSOLIDATION May 2021
Slide 2: 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 our actual future results to differ materially from expected results. The
Slide 3: Realty Income: A Path to Continued Long-Term Profitable Growth
Realty Income: A Path to Continued Long-Term Profitable Growth WHERE WE ARE: WHERE WE ARE GOING: • S&P 500 company • To become a $50+ billion global company, as measured by enterprise • One of 65 companies in the elite value S&P 500 Dividend Aristocrats® Index • To consolidate the ~$12 trillion glob
Slide 4: Key Takeaways
Key Takeaways • Realty Income’s track record illustrates superior total return per unit of volatility. • Our external growth opportunities are broad and unconstrained by property type or geography. • Realty Income’s size and scale is a competitive advantage supporting long-term growth through consol
Slide 5: Table of Contents
Table of Contents • REALTY INCOME OVERVIEW AND INVESTMENT THESIS 65 • PERFORMANCE TRACK RECORD 99 • LEVERAGING SIZE AND SCALE TO DRIVE PROFITABLE GROWTH 16 15 • PRUDENT CAPITAL ALLOCATION FRAMEWORK 25 24 • FORTRESS BALANCE SHEET 32 31 • DIVERSIFIED HIGH-QUALITY REAL ESTATE PORTFOLIO 35 34 • ESG OVER
Slide 6: Investment Thesis
Investment Thesis PROVEN TRACK RECORD STABILITY AND GROWTH OF RETURNS... OF EARNINGS... 15.2% 0.4 24 of 25 5.1% 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 CONSIS
Slide 7: Global Leader in a Highly Fragmented Net Lease Sector
Realty Income is the Global Leader in a Highly Fragmented Net Lease Sector SIZE, SCALE AND QUALITY GROWING INTERNATIONAL PRESENCE 9th largest global REIT(2) $32B $1.7B A3 /A- $2.2B UK Portfolio enterprise annualized credit ratings by 54 assets value base rent Moody’s & S&P 100% occupancy 12 years re
Slide 8: Valuation Considerations Normalizing for Historically Low Treasury Yields
Valuation Considerations Normalizing for Historically Low Treasury Yields Historically, O’s equity valuation spread has normalized following periods of economic uncertainty… HISTORICAL AFFO YIELD SPREAD(1) VS 10 YEAR US TREASURY 590 bps 600 bps 30 Day Moving Average European sovereign COVID-19 crisi
Slide 9: Performance Track Record
Performance Track Record Superior risk-adjusted returns, particularly during economic downturns 9
Slide 10: Attractive Risk/Reward vs. S&P 500 Companies and Blue-Chip REITs
Attractive Risk/Reward vs. S&P 500 Historically, Realty Income delivered more Companies and Blue-Chip REITs return per unit of risk vs. majority of S&P 500 companies and S&P 500 REITs(2) S&P 500 Members S&P 500 REIT Peers 30% 20% Realty Income return per unit of market risk is in the 95th percentile
Slide 11: Low Earnings and Dividend Volatility Supports Low Share Price Volatility
Low Earnings and 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 bellwether names, such as JNJ, ROST, CHD, AZO, SO, distinguished by their earnings predictability, cash flow
Slide 12: Superior Stability vs. Peers Through Pandemic
Superior Stability vs. Peers: Consistent Growth Maintained Through Pandemic 2020 EARNINGS PER SHARE Growth(1) Net Lease S&P 500 Retail REIT Peers REIT Peers Peers 2.1% 0% +3.1% 2020 Dividend Growth -5% -10% -6.7% -6.8% -15% 1 of 7 Net Lease REITs(2) -19.0% 1 of 15 S&P 500 REITs(3) -20% 1 of 6 Retail
Slide 13: Emerged Stronger and Better Positioned After Pandemic
Superior Stability Through Pandemic: Despite volatility brought upon by the pandemic, the overall portfolio and balance Realty Income Emerged Stronger and Better Positioned sheet weathered the storm due to our commitment to a prudent capital structure and the resiliency of our portfolio. SIZE, SCALE
Slide 14: 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 DIVIDEND GROWTH(1) 98.3% 10% 96.6% 93.9% 91.3% 4.4%(2) 2.9% 0% % of Years w/ Negative Growth Dividend CAGR Historical Median Lowest Year-End REALTY INCOME S&P 500 REIT AVG. C
Slide 15: 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 2007 – 2009 relative rankings RENTAL GROSS EBITDA DEBT/ UNSECURED/ OCCUPANCY RANK EBITDA(1) REVENUE(1) MARGIN(1) MARGIN(1) EBITDA(2) TOTAL DEBT(2) RATE(1) 1 Realty Income LESS VOL
Slide 16: Leveraging Size and Scale to Drive Profitable Growth
Leveraging Size and Scale to Drive Profitable Growth The net lease opportunity set is broad and unconstrained. 16
Slide 17: 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 18: 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 19: External Growth Opportunities are Broad and Unconstrained
Realty Income’s External Growth Opportunities International opportunities added ~30% to Realty Income’s combined sourcing volume in 2019-2020 are Broad and Unconstrained SOURCED VOLUME in $ billions $64 INTERNATIONAL $57 UNITED STATES $39 $32 $28 $30 $32 $24 $17 $20 $13 $6 2010 2011 2012 2013 2014 2
Slide 20: Earnings Growth Remains Strong As Size of Portfolio Increases
ANNUAL AFFO/sh(3) Earnings Growth 20% Growth Large portfolio transactions create upside “lumpiness”… Remains Strong 17.0% 15% As Size of Portfolio 10% 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 2018 2019 2
Slide 21: 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 ~$1.5 TRILLION 2015 – Q1 2021 ~45% of tota
Slide 22: 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 23: Net Lease Opportunity Not Constrained by Property Type
Net Lease Investment Opportunity Set is Not Constrained by Property Type Diageo Transaction in 2010: Template for Creative Sale-Leaseback Opportunities QUANTIFYING VALUE OF THE REALTY INCOME DIAGEO PORTFOLIO INVESTMENT GRADE CREDIT INVESTMENT CRITERIA ATTRIBUTES In 2016-2017, Diageo paid $75 mm for
Slide 24: Efficiency of the Net Lease Business Model
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 SHOPPING CENTERS AND MALLS I
Slide 25: Prudent Capital Allocation
Prudent Capital Allocation Building a high-quality real estate portfolio through prudent, top-down, data-driven investment process. 25
Slide 26: Curating Best-in-Class Portfolio Through Thoughtful Investment Process
Curating Best-in-Class Portfolio Through Thoughtful Investment Process Supported by Proprietary Data From Over 6,600 Properties RESEARCH AND REVIEW OF REAL ANALYSIS OF CLIENT INVESTMENT COMMITTEE SELECTIVITY: ~5% STRATEGY ESTATE FUNDAMENTALS FINANCIAL STRENGTH DISCUSSION AND DECISION $20 BILLION Q1
Slide 27: Investment Strategy: Returns Must Exceed Long-Term WACC
Investment Strategy: Returns Must Exceed Long-Term WACC WACC viewpoint balances near-term earnings per share growth with long-term value accretion KEY ASSUMPTIONS & CALCULATION: LONG-TERM LONG-TERM COST OF EQUITY Weighted Average Cost of Capital Beta vs. S&P 500 (since S&P 500 Index Inclusion on 4/6
Slide 28: Philosophical Capital Allocation Mindset
Philosophical Capital Allocation Mindset: Utilizing Low Cost of Capital to Assemble Highest-Quality Portfolio in Marketplace Net lease peers with higher cost of capital than Realty Income cannot “afford” 8.0% to pursue higher-quality opportunities “HIGH YIELD” INVESTMENT CHARACTERISTICS (HIGHER CAP
Slide 29: 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 Acquisition Cap Rate 10% Average 10Y UST Yield (12M Lag) 9 8% It takes ~12 months for cap rates to adjust to 6% changing interest rat
Slide 30: Benefits of Size and Scale
Benefits of Size and Scale Capacity to Buy in Bulk at “Wholesale” Prices While Maintaining Diversification LARGER SIZE PROVIDES GROWTH OPTIONALITY SCALE AND SIZE BENEFITS ILLUSTRATED TRANSACTION SIZE & IMPACT(1) TO RENT CONCENTRATION $1.2B portfolio transaction CIM Transaction (Dec 2019) TOTAL at ~7
Slide 31: Benefits of Size and Scale: Greater EBITDA Flow-Through
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) 5.8% 4.9% NET LEASE S&P 500 REIT 2000
Slide 32: Fortress Balance Sheet
Fortress Balance Sheet Our conservative capital structure supports superior financial flexibility. 32
Slide 33: Fortress Balance Sheet – One of Only Eight U.S. REITs with Two A3/A- Ratings
Fortress Balance Sheet – One of Only Eight U.S. REITs with Two A3/A- Ratings or Better Commercial Paper STAGGERED DEBT MATURITY PROFILE in $ millions GBP Denominated Notes (1) Term Loan $1,644 (2) Revolver Mortgages $975 $950 Unsecured Notes $701 $771 $712 $600 $550 $551 $501 $500 $112 2021 2022 202
Slide 34: Ample Liquidity and Low Borrowing Costs
Ample Liquidity and Low Borrowing Costs Support Enhanced Financial Flexibility $2,509 $813 Liquidity Debt Obligations through 2022 Revolver Availability Excess $2,325 Liquidity $1,696 (Excludes availability under $1.0 billion commercial paper program)(1) Mortgages Payable $138 CP Borrowings $675 Cas
Slide 35: High-Quality Real Estate Portfolio
High-Quality Real Estate Portfolio Diversified exposure to cash flows guaranteed by best-in- class, blue-chip operators 35
Slide 36: Diversified High-Quality Portfolio
Diversified High-Quality Portfolio INDUSTRY DIVERSIFICATION(1) % of Revenue CLIENT DIVERSIFICATION – TOP 20 CLIENTS Convenience Stores 12.0% Grocery Stores 10.0% Drug Stores 7.9% Dollar Stores 7.4% 5.5% 2.3% Health and Fitness 6.4% Theaters 5.6% 4.6% 1.7% Restaurants - Quick Service 5.2% Home Improv
Slide 37: Top 20 Clients Highly Insulated from Changing Consumer Behavior
Top 20 Clients Highly SERVICE-ORIENTED NON-DISCRETIONARY Insulated from Changing Consumer Behavior All top 20 clients fall into at least one category: ▪ Non-Discretionary ▪ Low Price Point ▪ Service Retail ▪ Non-Retail LOW PRICE POINT NON-RETAIL Note: Walmart represented by both Neighborhood Markets
Slide 38: Diligent Underwriting Results in Minimal Exposure to Retail Bankruptcies
Diligent Underwriting Process Results in Minimal Exposure to Retail Bankruptcies Realty Income’s strategy is to invest in clients with a 105 of 143 U.S. retailer bankruptcies since non-discretionary, low price point, and / or 2017 are associated with companies lacking at least service-oriented compo
Slide 39: Diversified Credit Exposure to Best-in-Class Operators
Investing in Realty Income = Diversified Credit Exposure to Best-in-Class Operators Realty Income dividend yield is superior to 10-year bond yields of its underlying clients Investing in Realty Income vs investing in individual bonds of top clients(1) CONVENIENCE GROCERY DRUG DOLLAR STORES STORES ST
Slide 40: Credit Valuation Arbitrage
Credit Valuation Arbitrage: Acquiring Cash Flow from Blue-Chip Operators at Attractive Real Estate Spreads NET LEASE ACQUISITIONS GENERATE PREMIUM INCOME STREAM RELATIVE TO BONDS Top 50 Clients Represent(2) ~70% ~40% ~60% BBB-/Baa3 Realty Income’s acquisitions generate of total annual of total annua
Slide 41: Stable and Predictable Cash Flows Supported by High-Quality Portfolio
Stable and Predictable Cash Flows Supported by High-Quality Real Estate Portfolio O Industry-Leading Occupancy Levels, S&P 500 REIT Consistent During Various Economic Cycles O Median S&P 500 REIT Median (1) CONSISTENCY BY DESIGN: 99.5% 98.5% 98.7% 98.4% 97.7% 98.2% 97.7% 98.1% 97.9% 97.9% 98.2% 98.4
Slide 42: Proven Track Record of Value-Add Asset and Portfolio Management
Proven Track Record of Value-Add Asset and Portfolio Management Strong client retention rates are a testament to real estate quality, operator quality, active asset management and mutually beneficial client relationships(1) 85.0% 91.0% 94.0% 93.0% 94.0% 77.0% 68.5% Strong client retention supports i
Slide 43: Capital-Light Real Estate Portfolio is a Differentiating Factor
Capital-Light Real Estate Portfolio “HIDDEN” COST OF SUPPORTING PORTFOLIO REVENUE: is a Differentiating Factor vs Other RARELY CAPTURED IN NAREIT-DEFINED FFO MULTIPLES…. Property Types NAREIT-DEFINED FUNDS FROM OPERATIONS (FFO) (NOT INTENDED TO MEASURE CASH GENERATION OR DIVIDEND PAYING CAPACITY) Re
Slide 44: 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. 44
Slide 45: 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 46: 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 headquarters and within our communities. We work with our clients to promote environmental res
Slide 47: 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 values of integrity, respect, and humility. We hire talented employees with diverse
Slide 48: Latest Developments
Latest Developments Capital Markets January 2021: Raised ~$670 million of attractively • Allowed us to pre-fund active investment pipeline priced equity capital • Refinanced via dual-tranche note offering in December with January 2021: Redeemed $950 million of 3.25% 9.1 years wtd. avg. term at 1.48%
Slide 49: VEREIT Merger Rationale
VEREIT Merger Rationale: Combination Further Distances Realty Income as the Premier Net Lease REIT • 10%+ accretive relative to the midpoint of Realty Income’s 2021 Immediately Accretive AFFO per share guidance • Increased size, scale and diversification unlocks additional Scale Driving Growth flexi
Slide 50: Refinancing Opportunity Quantified
Refinancing Opportunity Quantified Synergies amplified: As capital allocation progresses throughout Europe, refinancing opportunities support natural hedging needs Superior credit ratings and access to international capital markets provide organic growth lever for value creation… Cumulative Annualiz
Slide 51: Appendix
Appendix • International Expansion Opportunity • Top Industry Investment Theses 51
Slide 52: UK Density Supports Long-Term Real Estate Stability
UK Density Supports Long-Term Real Estate Stability The UK, by population, is approximately the 67.9M 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 53: Convenience Stores (12.0% of Rent)
Convenience Stores (12.0% of Rent) 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 54: Grocery (10.0% of Rent)
Grocery (10.0% of Rent) U.S. Grocery Market Share(1) EXPOSURE TO TOP OPERATORS IN AN ESSENTIAL, U.K. Grocery Market Share(2) E-COMMERCE RESISTANT INDUSTRY… 46% 68% Realty Income’s top two U.K. grocery Big 4 Realty Income’s top two U.S. grocery clients control 42% of U.K. grocery Discounters 26% clie
Slide 55: Drug Stores (7.9% of Rent)
Drug Stores (7.9% of Rent) 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). C
Slide 56: Dollar Stores (7.4% of Rent)
Dollar Stores (7.4% of Rent) 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 billion
Slide 57: Health & Fitness (6.4% of Rent)
Health & Fitness (6.4% of Rent) FAVORABLE CONSUMER TRENDS AND DEMOGRAPHIC TAILWINDS: Growing market as consumers increasingly value health. Consumer surveys indicate that 94% of pre-pandemic gym-goers will return in some capacity(1). E-COMMERCE RESILIENT INDUSTRY: Illustrative Gym Rent Coverage Sens
Slide 58: Theaters (5.6% of Rent)
Theaters (5.6% of Rent) Hollywood studios receive 55%-60% of theater Theatrical Releases are Significant ticket sales, incentivizing them to distribute Revenue Generators for Studios through the theater channel PVOD RELEASE THEATER RELEASE Release Date 9/4/2020 Release Date 7/21/2019 Budget $200M Bu
Slide 59: Quick-Service Restaurants (5.2% of Rent)
Quick-Service Restaurants (5.2% of Rent) 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 mor
Slide 60: Investor Presentation: Calculated Consolidation
Investor Presentation CALCULATED CONSOLIDATION May 2021