Realty Income Corporation

Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Realty Income Third Quarter 2021 Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Julie Hasselwander, Investor Relations at Realty Income. You may begin your conference.

Thank you all for joining us today for Realty Income's third quarter operating results conference call. Discussing our results will be Sumit Roy, President and Chief Executive Officer, and Christy Kelly, Executive Vice President, Chief Financial Officer and Treasurer. During this conference call, we will make certain statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in any forward-looking statement. We will disclose in greater detail the factors that may cause such differences in the company's Form 10-Q. We will be observing a two-question limit during the Q&A portion of the call in order to give everyone the opportunity to participate. If you would like to ask additional questions, you may reenter the queue. I will now turn the call over to our CEO, Sumit Roy.

Thanks, Julie. Welcome, everyone. Our strong relationships with all our stakeholders enable the success of our business, and we thank everyone listening for your continued support. Additionally, I would like to express my appreciation of our expanded Realty Income team for their tireless efforts in executing on our strategic objectives. Today, our business is at an inflection point where the advantages of our growing size and scale provide us an accelerating number of opportunities, compounding our aptitude for growth. We see momentum accelerating across all facets of our business as a result of the following growth catalysts. The depth and breadth of our active global pipeline remains robust. During the third quarter, we acquired over $1.6 billion of real estate across three countries, resulting in approximately $3.8 billion year to date. We now expect to invest in over $5 billion of real estate in 2021, an increase from our prior guidance of $4.5 billion. Second, We believe our expansion into continental Europe during the third quarter will significantly deepen our addressable market at attractive spreads relative to our weighted average cost of capital, particularly given the comparatively low unsecured borrowing rates in the European bond market. Third, our asset management activities continue to generate strong results. At the end of the third quarter, our portfolio was 98.8% occupied, and we achieved a rent recapture rate of 107.2%, illustrating the relentless efforts of our asset management team and highlighting the quality of our real estate. And finally, with the closing of the VARIT merger, we believe our size, scale, and diversification will further enhance many of our competitive advantages, which we suspect should allow us to augment our investment activities in the future. The closing of our merger with VARIT as well as the anticipated and subsequent spin-off of substantially all the combined company's office properties, which, as previously announced, is expected to be completed on November 12th, allows us to provide enhanced clarity on our near-term earnings run rate. To that end, we are increasing our 2021 A for Foco share guidance to $3.55 to $3.60, representing 5.5% annual growth at the midpoint. And we're introducing 2022 AFFO per share guidance of $3.84 to $3.97, representing 9.2% annual growth at the midpoint. Our 2022 guidance assumes over $5 billion of acquisitions and over $40 million of year one G&A synergies we have identified as a result of economies of scale from the merger. These guidance ranges also assume that the anticipated spin-off of our office properties is consummated as anticipated on November 12th. With the closing of the merger, our combined company eclipses $50 billion in enterprise value with size and scale to support numerous growth verticals, providing flexibility to close large transactions without creating concentration risk. Additionally, through this merger, Realty Income has inherited a pipeline, platform, and talented acquisition team focused in sourcing higher-yielding products that will be additive to our existing pipeline. Further, over time, we expect to generate meaningful earnings accretion by refinancing various outstanding debt supported by our comparatively lower borrowing costs driven by our A3A-minus ratings and capacity to issue debt in lower yielding markets. Finally, we are excited to integrate the capabilities of many talented, varied colleagues into the realty income business as we continue to execute our growth initiatives as one team. Now turning to the results for the quarter. We continue to add attractive real estate to our portfolio at a rapid pace. During the third quarter, we sourced nearly $24 billion of acquisition opportunities, ultimately selecting and closing on less than 6%. Of the $1.6 billion of real estate we added to the portfolio in Q3, the largest industry represented was UK grocery stores. On a revenue basis, approximately 38% of the acquisitions made during the quarter were leased to investment-grade rated clients. And our total investment-grade client exposure remains approximately 50%. The weighted average remaining lease term of the assets added to our portfolio during the quarter was 13.4 years. And in aggregate, All of our acquisition activities during the quarter resulted in healthy investment spreads of approximately 164 basis points. As of quarter end, our portfolio remains well diversified, including over 7,000 assets leased to approximately 650 clients who operate in 60 separate industries located in all 50 US states, Puerto Rico, the UK, and Spain. Giving pro forma effect to the closing of the merger, and the anticipated spin-off of our combined office assets as of September 30th, 2021, our portfolio now includes over 10,500 assets located in all 50 US states, Puerto Rico, the UK, and Spain. Our international pipeline continues to add meaningful value to our portfolio, and we believe it will remain an important driver of growth going forward. In total, of the nearly $24 billion in acquisition opportunities that we sourced this quarter, Approximately 34% was associated with international opportunities. During the third quarter, we added approximately $532 million of high quality real estate in the UK and Spain across 31 properties, bringing our total international portfolio to over $3.2 billion. This quarter, our international acquisition accounted for approximately 33% of total acquisition volume. As previously announced in September, We made our debut acquisitions in continental Europe through a sale these back transaction with Carrefour in Spain. Subsequent to quarter end, we announced the completion of an additional Carrefour transaction in Spain, bringing the value of our continental Europe portfolio to approximately 160 million euros. We are optimistic about our momentum in Spain as we look to replicate the success of our international growth platform throughout the continent with best in class operators who are leaders in their respective industries. The health of our core portfolio remains of utmost importance as we continue to expand our platform. At the end of the third quarter, occupancy was 98.8% based on property count, which represents an increase of 30 basis points as compared to last quarter. During the quarter, we released 50 units, recapturing 107.2% of expiring rent, bringing our year-to-date recapture rate to 105.5%, We continue to report on quarterly recapture rates and believe this is one of the most objective ways to measure underlying portfolio quality in the net lease industry. Since our listing in 1994, we have executed over 3,800 releases or sales on expiring leases, recapturing over 100% of rent on those released contracts. At this time, I'll pass it over to Christy, who will further discuss results from the quarter.