Realty Income Corporation

Good afternoon. My name is David and I'll be your conference operator today. At this time, I'd like to welcome everyone to Realty Income's first quarter 2022 operating results conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one once again. We ask that you please limit yourself to two questions. If you'd like to ask additional questions, you may re-enter the queue. Thank you. Julie Hasselwander, Senior Manager of Investor Relations at Realty Income. You may begin your conference.

Thank you all for joining us today for Realty Income's first quarter 2022 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 statements. 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 re-enter the queue. I will now turn the call over to our CEO, Suman Roy.

Thanks, Julie. Welcome, everyone. 2022 is off to a strong start, and we are continuing to build momentum in our business. I want to express my deep appreciation of our one team, whose dedication and collaboration showcase the strength of our team through a timely closing of the first quarter while integrating new processes and systems following the close of the varied merger last November. All integration efforts are progressing and we remain committed to delivering continued scalability. We continue to make progress on our ESG initiatives in partnerships with our clients. In April, we published our second annual sustainability report which details our commitments, goals, and progress on our ESG efforts. I welcome all realty income stakeholders to share in our dedication to build sustainable relationships for the benefit of those we serve and encourage everyone listening to read through our 2021 sustainability report, which can be found in the corporate responsibility page of our website. Looking at macro trends, inflation persists as an important topic on the minds of many stakeholders. And I want to emphasize that we believe our business is, by design, well-positioned to drive value in this climate. Our business model is one that generates significant recurring revenue that flows through to the bottom line. As a triple net lease read, our business is insulated from inflation. Our clients are responsible for covering taxes, insurance, and other operating expenses. And as prices increase, many of our clients pass the incremental cost burden onto their consumers or suppliers. The efficiency of our model is reflected in our adjusted EBITDA margin, which is routinely around 94%. Maintaining a conservative capital structure has been a key tenet of our business since our founding, and having a well-staggered fixed-rate debt maturity schedule with no corporate bond maturities until 2024 limits our debt refinancing risk in a rising-rate environment. In summary, we believe the appeal of our consistent and predictable stream of cash flows is amplified during periods of volatility like we find ourselves in today. To that end, we look at the last period in which the Federal Reserve increased interest rates from December 2015 through 2018 as a helpful case study. During this period, Realty Income's total return outperformed the S&P 500 and the MSCI US REIT index, both in year one of the rate hike cycle and throughout the three-year duration of that cycle. And during the Great Recession, realty income exhibited less operational and financial volatility as compared to many other S&P 500 REITs that carry A credit ratings. From an organic growth standpoint, our asset management team continues to report impressive rent recapture rates. This quarter, we recaptured over 106% of rental revenue on expiring leases. Given our lease expiration schedule and proven rent recapture track record, we believe we are well positioned to manage through an inflationary environment. Through 2024, nearly 12% of our portfolio annualized contractual rent is set to expire. And in this regard, inflation could serve as a tailwind to our business as rents and costs to build rise. On the acquisition front, our transaction flow remains strong. Certain categories of the market have seen discernible increase in cap rates, which we believe should accrue to our advantage as a net acquirer. Historically, we have observed that when interest rates increase, cap rates adjust following a lag period of 6 to 12 months. Much of this cap rate expansion can be attributed to levered buyers who have relied upon record low debt pricing to underwrite their returns. Given the current yield environment, we are in a comparatively strong position given our financing strategy, and as such, we would expect our competitive standing to strengthen further. Now turning to the results for the quarter. Our size and scale in conjunction with strong relationships we have across the marketplace continue to provide benefits through robust sourcing and acquisition volumes. This quarter, we sourced over $34 billion of acquisition opportunities, and approximately 40% of this amount was sourced from international markets. Our total property-level acquisitions for the quarter was approximately $1.6 billion. Approximately half of our volume in the first quarter was the result of international investments bringing our total international portfolio to approximately $5 billion of invested capital. As we announced in February, we signed a definitive agreement to acquire the Encore Boston Harbor Resort and Casino lease to win resorts under a 30-year triple net lease with favorable annual rent increases. The $1.7 billion transaction includes more than 3.1 million square feet of high-quality real estate less than five miles from downtown Boston. Pending regulatory procedures, we continue to anticipate this transaction closing during the fourth quarter of 2022. We believe the market is efficient, and while cap rates have stabilized, significant competition remains for the high-quality assets we pursue. Our average initial cash cap rate for the quarter was 5.6%, which reflects the quality of locations and clients we are adding to our portfolio. As a reminder, we report our cap rates on a cash basis, We estimate the difference between cash and straight line cap rates to be approximately an additional 70 basis points in the first quarter. The weighted average remaining lease term of the assets added to our portfolio during the quarter was 12.3 years. And the top industry invested during the quarter was grocery stores. We continue to have access to attractively priced capital which has allowed us to maintain healthy spreads on our investments even as interest rates rise. We are pleased with the continued strength of our core operations. We ended the quarter with our portfolio at 98.6% occupancy based on property count. The weighted average remaining lease term of our overall portfolio is approximately 8.9 years, which as I mentioned in my opening remarks, we see as an advantage. As leases roll, we continue to favorably recapture rent as a result of diligent underwriting and the inherent quality of our real estate, enhanced by the proactive efforts of our experienced asset management team. This quarter, we released 119 leases, recapturing 106.2% of expiring rent. And since our public listing in 1994, we have executed 4,260 releases or sales on expiring leases, recapturing over 101% of rent on those released contracts. We continue to report our quarterly recapture rates because we believe this is one of the most objective ways to measure underlying portfolio quality in the net lease industry. During the quarter, we sold 34 properties generating net proceeds of approximately 122 million. Approximately 84% of the sales volume during the quarter related to former varied properties that was sold vacant. And our portfolio delivered healthy same-store rent growth, increasing 4.1% during the quarter. This was largely attributed to the reversal of 9.4 million of rental revenue reserves during the quarter within the same store pool, compared to a reserve of 8 million recognized for the same pool during the year-ago period. Excluding the impact of reserves in both periods, we estimate that our same-store rent growth would have been approximately 1.2%. At this time, I'll pass it over to Christine, who will further discuss results from the quarter.