Realty Income Corporation · NYSE:O
Realty Income — Q2 2024 Earnings Presentation
62 slides from Realty Income's earnings presentation, Aug 6, 2024
Slide 1: Investor Presentation
Investor Presentation REAL ESTATE PARTNER TO THE WORLD’S LEADING COMPANIES August 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 169 • PERFORMANCE TRACK RECORD 21 15 • STRONG BALANCE SHEET 28 24 • DIVERSIFIED HIGH-QUALITY REAL ESTATE PORTFOLIO 31 • LEVERAGING SIZ
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 INTERNATIONAL PRESENCE ~$73B ~$4.9B A3 /A- 7th largest global REIT(2) enterprise annualized credit ratings by $11.0B European Portfolio value base rent Moody’s & S&P 467 assets ~9.2 years remaining le
Slide 5: Second Quarter 2024 Highlights
Second Quarter 2024 Highlights • During the 2nd quarter, we deployed $805.8 million in investments at an initial weighted average cash yield of 7.9%. Of this volume, $543.8 million was invested in the UK and Europe at an initial weighted average cash yield of 8.0%. • 2nd quarter investment volume in
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: Full-Cycle Consistency: High-Single Digit Total Operational Returns
Full-Cycle Consistency: High-Single Digit Total Operational Returns in a Variety of Environments Realty Income’s business model supports 8% to 11% Total Operational Returns(1) throughout a business cycle ~6% ~2% (2) ~2-3% (3) 8 -11% 8 to 9% Total Operational Return No Reliance on External Funding Di
Slide 12: Full-Cycle Consistency: Building Blocks of Internal Growth
Full-Cycle Consistency: Building Blocks of Internal Growth Realty Income can generate 2-3% AFFO/sh growth with no reliance on equity markets ~1.5% ~0.4% ~2-3% ~1-2% ~2% (1) Same Store Rent Growth Bad Debt Expense (% of AFFO Growth from Internally Refinancing Impact on AFFO Internally Generated AFFO
Slide 13: Full-Cycle Consistency: Additive Contribution from External Funding
Full-Cycle Consistency: Additive Contribution from External Funding 8.0% Yield 6.5% WACC 1.5% Investment Spread ($15m Annualized AFFO Accretion per $1B) 65% Equity 35% debt $1B $1B ~0.5% (In addition to internally Funding AFFO Growth funded acquisitions) Annualized Contribution Per $1 Billion Invest
Slide 14: Stable Growth in a Variety of Interest Rate Environments
Stable Growth in a Variety of Interest Rate Environments O has generated ~5% AFFO growth and 10+% TOR in both higher and lower interest rate environments than today’s 10-YR TREASURY YIELD Average 10-yr Treasury Yield 2009 - 2022: 2.3% Average 10-yr Treasury Yield 1996 - 2008: 5.0% ~6% ~5% ~11% Histo
Slide 15: 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 16: 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. 16
Slide 17: 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 18: 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 19: Partnering with a Blue-Chip Operator in European Single Tenant Net Lease
Partnering with a Blue-Chip Operator in One of the Largest European Retail Single Tenant Net Lease Transactions 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 1,751 stores(
Slide 20: Decathlon Sale-Leaseback: Broadening Realty Income's European Platform
Decathlon Sale-Leaseback: Broadening Realty Income’s European Platform FRANCE EUROPEAN UNION COUNTRIES – 2022 GDP $ in billions 3rd largest commercial real estate market in Europe Germany $3,870 2nd largest population in the EU with a median income of over France $2,639 Italy $1,909 $16,000 (com
Slide 21: Performance Track Record
Performance Track Record Superior operating metrics with limited downside volatility relative to peers. 21
Slide 22: 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 RECORD STABILITY AND GROWTH OF RETURNS... OF EARNINGS... 13.5% 0.5 27 of 28 5.7% Compound Annual Total Beta vs. S&P 500 Years of Positive Earnings Median AFFO Per Share Return Since ‘94 NYSE Listing
Slide 23: 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 24: 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 90th percentile of
Slide 25: Superior Stability vs S&P REITs: Occupancy, Dividend Growth, Credit Rating
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 26: 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 27: Superior Stability vs. Peers 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 28: Strong Balance Sheet
Strong Balance Sheet Our conservative capital structure supports superior financial flexibility. 28
Slide 29: Strong Balance Sheet – One of Only Eight S&P 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 (1) EUR Denominated Notes STAGGERED DEBT MATURITY PROFILE in millions GBP Denominated Notes Term Loan $4,306 $4,277 (2) Revolver Mortgages Unsecured Notes $2,844 Pro-Rata UJV Debt $2,501 $2,373 $
Slide 30: Significant Liquidity and Low Borrowing Costs Support Financial Flexibility
Significant Liquidity and Low Borrowing Costs Support Enhanced Financial Flexibility $3,792 $2,362 Liquidity(1) Debt obligations through 2025(2) Excess Liquidity, Revolver $1,430 Availability, $3,101 Term Loan, $800 (Net of $302 million borrowings under $3.0 billion global commercial paper programs)
Slide 31: High-Quality Real Estate Portfolio
High-Quality Real Estate Portfolio Diversified exposure to cash flows guaranteed by best-in- class, blue-chip operators. 31
Slide 32: Diversified High-Quality Portfolio
Diversified High-Quality Portfolio INDUSTRY DIVERSIFICATION % of Annualized Contractual Rent(1) Grocery stores 10.2% CLIENT DIVERSIFICATION – TOP 20 CLIENTS Convenience stores % of Total Annualized Contractual Rent(1)(2) 9.4% Dollar stores 6.6% Home improvement 5.9% 3.4% 1.6% Drug stores 4.9% Restau
Slide 33: 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 33 Note: Walmart represented by both Neighborhood Markets and
Slide 34: 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: High Occupancy(1) Levels That Have Been Careful underwriting at acquisition Strategy of owning “mission critical” locations Consistent During Various Economic Cycles Long initial lease term Diversif
Slide 35: 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: 47.9% Weighted average lease Strategic management of rollovers term of 9.6 years Proactively addressing portfolio “watch list” Resolve
Slide 36: 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 148 of 196 U.S. retailer bankruptcies since non-discretionary, low price point, and/or 2018 are associated with companies lacking at least service-oriented co
Slide 37: 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 38: 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. 38
Slide 39: 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 40: Earnings Growth Remains Strong As Size of Portfolio Increases
ANNUAL AFFO/sh(3) Earnings Growth 20% Growth Remains Strong 15% As Size of Portfolio 10% 5% Continues to Increase 0% -5% (4) (4) AFFO/SH GROWTH: AFFO/sh CAGR 5% HISTORICAL MEDIAN(3) 6% Benchmarked to 1995 5.1% 5.2% 5.3% 5.3% 5.3% 5.3% 5.2% 5.1% 5.1% 5.3% 5.2% 5.1% 5% • Stronger historical growth rat
Slide 41: 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) 5.8% 3.6% NET LEASE S&P 500 REIT 2000
Slide 42: 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 43: Prudent Capital Allocation
Prudent Capital Allocation Building a high-quality real estate portfolio through prudent, top-down, data-driven investment process. 43
Slide 44: External Growth Opportunities are Broad and Diverse
Realty Income’s External Growth Opportunities International opportunities added ~30% to Realty Income’s combined sourcing volume since 2019 are Broad and Diverse SOURCED VOLUME $95 in $ billions $85 INTERNATIONAL UNITED STATES $64 $57 $59 $39 $32 $28 $30 $32 $24 $20 $13 $17 $6 2010 2011 2012 2013 20
Slide 45: Curating Best-in-Class Portfolio Through Thoughtful Investment Process
Curating Best-in-Class Portfolio Through Thoughtful Investment Process Supported by Proprietary Data Across 15,450 Properties RESEARCH AND REVIEW OF REAL ANALYSIS OF CLIENT INVESTMENT COMMITTEE SELECTIVITY: ~7% STRATEGY ESTATE FUNDAMENTALS FINANCIAL STRENGTH DISCUSSION AND DECISION $20.0 BILLION YTD
Slide 46: 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 47: Growing International Portfolio
Growing International Portfolio Sale-leaseback transaction with Sainsbury’s in May 2019 was a foundation for a growth platform in Europe. 47
Slide 48: European Portfolio Snapshot
European Portfolio Snapshot REALTY INCOME HAS CONTINUED TO GROW ITS EUROPEAN PRESENCE WITH INVESTMENTS OF ~$11.0 BILLION THROUGH JUNE 30, 2024 467 43 ~40.4mm ~$660mm ~9.2 13.5% properties industries leasable square annualized years wtd. avg. of total portfolio annualized feet contractual rent remain
Slide 49: 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 (5) 11.5% Grocery Stores, 45.9% Other, 28.7% 11.5% 10.7% Home Improvement, 16.7% Sporting Goods,
Slide 50: 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. 50
Slide 51: Commitment to ESG
Commitment to ESG 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. Engagement –
Slide 52: 2022 Sustainability Report: Environmental Responsibility Highlights
2022 Sustainability Report: Environmental Responsibility Highlights Key Sustainability Initiatives at our San Diego Headquarters: Reduced irrigation water LED retrofit of >1,000 Installed 10 EV chargers Purchased Green-e® RECs use by ~42% vs 2018 fixtures reduced 2022 and subsidized and carbon remov
Slide 53: Appendix
Appendix • Top Industry Investment Theses • 2024 Guidance • Non-GAAP Reconciliations 53
Slide 54: Grocery Stores (10.2% of ABR)
Grocery Stores (10.2% 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 65% Realty Income’s top two U.K. grocery Big 4 clients control ~43% of U.K. grocery Discounters Walmart and Kroger represent ~31% of 34% ma
Slide 55: 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 56: Dollar Stores (6.6% of ABR)
Dollar Stores (6.6% 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 57: Home Improvement (5.9% of ABR)
Home Improvement (5.9% 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 58: Drug Stores (4.9% of ABR)
Drug Stores (4.9% 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 59: 2024 Guidance and Non-GAAP Reconciliations
2024 Guidance and Non-GAAP Reconciliations 59
Slide 60: 2024 Guidance
2024 Guidance PRIOR 2024 GUIDANCE(1) REVISED 2024 GUIDANCE NET INCOME PER SHARE(2) $1.26 to $1.35 $1.21 to $1.30 REAL ESTATE DEPRECIATION AND IMPAIRMENTS PER SHARE(3) $2.84 $2.92 OTHER ADJUSTMENTS PER SHARE(3) $0.09 $0.06 NORMALIZED FFO PER SHARE(2)(4) $4.19 to $4.28 $4.19 to $4.28 AFFO PER SHARE(4)
Slide 61: 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, 2024 2023 2024 2023 Net income available to common stockholders $ 256,804 $ 195,415 $ 386,500 $ 420,431 Cumulative adjustments to calculate Normalized FFO
Slide 62: 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