Realty Income Corporation

Good day and welcome to the Realty Income Third Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Andrea Behr, Director, Corporate Communications. Please go ahead.

Thank you for joining us today for Realty Income's 2025 Third Quarter Operating Results Conference Call. Discussing our results will be Sumit Roy, President and Chief Executive Officer, Jonathan Tong, Chief Financial Officer and Treasurer, Neil Abraham, President, Realty Income International, and Mark Hagan, Chief Investment Officer. During this conference call, we will make 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 filing on Form 10-Q. During the Q&A portion of the call, we will be observing a two-question limit. If you would like to ask additional questions, you may re-answer the queue. I will now turn the call over to our CEO, Sumit Roy.

Thank you, Andrea. Welcome, everyone. Realty Income's platform, which is 56 years in the making, is a historically proven income generator with the ability to perform through a variety of economic conditions. The data-driven nature of our model, accompanied by decades of institutional experience, and our top-tier talent positions us to capitalize on an ever-increasing investor appetite for consistent long-duration income given aging global demographics. Additionally, our scale and diversification, spanning over 15,500 properties across 92 industries and more than 1,600 clients, provides strategic proprietary data insights that position us advantageously comparative to subscale platforms. Recently, we have seen an acceleration in capital formation for net lease vehicles in the marketplace, and we believe our platform is especially positioned to benefit from capital floors yearning for long-duration income. As we establish ourselves in the private capital arena, our long track record of producing equity-like total returns with bond-like stability is resonating with investors. We recently launched a perpetual life fund and expect that initiative will provide additional capital to support our growth objectives and enhance our liquidity position. Turning to our operating results for the third quarter, our investment activity continues to reflect the multiple levels of growth we have at our disposal. Our addressable market is sizable, enabling us to look at opportunities substantially free from geographical, property, or industry constraints. This allows us to pursue the most optimal risk-adjusted returns for our shareholders and to pivot with ease when we identify capital allocation opportunities that others might be unable to execute on. Globally, we invested $1.4 billion at a 7.7% weighted average initial cash yield, equating to a spread of approximately 220 basis points over our short-term weighted average cost of capital. This brings our total year-to-date investment volume to north of $3.9 billion, surpassing the investment volume we completed in all of 2024, excluding the Spirit merger. This quarter, we sourced $31 billion in volume, resulting in a selectivity ratio of 4.4%. This brings our total year-to-date sourcing volume to $97 billion, eclipsing our prior high watermark for annual source volume of 95 billion reached in 2022. This is a testament to the size of our addressable market and our visibility to global net lease transaction opportunities, given the breadth and depth of our platform. Turning back to our investment volumes for the quarter, we again leaned into Europe, which accounted for approximately 1 billion, or 72% of our investment volume, at an 8% weighted average initial cash yield. The European investment opportunity continues to screen more favorably on a risk-adjusted basis relative to the US, which has become increasingly competitive from smaller platforms competing for similarly sized transactions. In contrast, the European investment opportunity remains compelling, driven by a fragmented competitive landscape. a larger total addressable market than the United States, and a current cost of debt for Euro-denominated 10-year notes that is approximately 100 basis points inside of U.S. dollar costs. Since entering the U.K. market in 2019, our disciplined underwriting and balance sheet strengths have enabled significant expansion across the continent, with Europe now representing almost $16 billion in gross asset value and approximately 18% of our total annualized base rent. Transitioning to the U.S., we invested $380 million at a 7% weighted average initial cash yield, while transaction volumes have moderated domestically. This reflects selectivity, not a lack of opportunity, as we continue to prioritize long-term risk-adjusted returns over pace of deployment of capital. Moving to our operations, the third quarter reflects the structural advantages of our business model, including portfolio diversification, which mitigates exposure to idiosyncratic credit risk and supports advanced data analytic capabilities. To that point, a proprietary predictive analytics AI tool developed over the past six years informs decision across sourcing, underwriting, lease negotiations, and capital recycling. We believe this allows us to be proactive operators and reinforce the reliability of our long-term cash flows. As of quarter end, our portfolio comprised over 15,500 properties spanning 92 industries and more than 1600 clients. The naturally defensive nature of our essential retail-oriented portfolio, including grocery and convenience stores, combined with our scale and diversification, position us to perform through a variety of economic environments. We ended the quarter with 98.7% portfolio occupancy, approximately 10 basis points ahead of the prior quarter. During the quarter, our rent recapture rate across 284 leases was 103.5%, representing $71 million in new cash rents, with 87% of leasing activity generated from renewals by existing clients. And we remained active in our approach to optimize the portfolio. In the quarter, we sold 140 properties for total net proceeds of $215 million. During the quarter, we sold 18 convenience store properties for approximately $55 million at a blended 5.5% cap rate and a weighted average remaining lease term of 11.3 years. This pricing is approximately 75 basis points lower than where we are acquiring portfolios of superior assets. This transaction reflects strategic portfolio optimization, first by leveraging our scale to acquire assets at a portfolio discount, and then by monetizing more mature properties individually at tighter cap rates. The sale allowed us to redeploy capital into superior opportunities and demonstrates our ability to unlock value through selective dispositions. Finally, we recognized $27.3 million, or approximately 3 cents per share of lease termination income during the quarter. We realize such income in situations where our asset management team, in conjunction with input from predictive analytics, determines that lease termination presents the best probability-weighted risk-adjusted net present value outcome. While we do not guide to this line item, we have added historical lease termination disclosure at the bottom of our consolidated income statement in our supplemental. The purpose of the disclosure is to add improved transparency on the separate and inherently different revenue streams of base rent and termination income. Overall, the stability of our results continue to demonstrate how the benefits of our platform enable us to stay agile, manage risks effectively, and drive long-term portfolio performance. Now moving to our outlook for 2025. Given the continued momentum in our acquisitions pipeline and our progress year to date, we are increasing our 2025 investment volume guidance from $5 billion to approximately $5.5 billion. In addition, we are increasing the low end of our AFFO per share guidance, now anticipated to be in the range of $4.25 to $4.27. As discussed previously, Our guidance contemplates approximately 75 basis points of potential credit loss, most of which results from certain tenants acquired through public completed M&A transactions. Our credit watch list remains manageable and granular, staying flat to the prior quarter at 4.6% of our annualized base rent, and with median client exposure of just two basis points. With that, I will turn it over to Jonathan.