Realty Income Corporation (O) Earnings

Management highlights

• 2025 was a year where Realty Income's platform, discipline, and global reach contributed to steady results. It delivered specific AFFO per share figures for the quarter and full year. • The company made significant investments in the fourth quarter and full year with favorable initial cash yields. • It proactively addressed risks related to At Home using predictive analytics. • Internationally, it expanded into Mexico and has a joint venture with GIC for industrial property development, and has partnerships with Blackstone. • The company maintains operational efficiency with a low cash G&A margin and is adding talented team members.

Guidance

• AFFO per share guidance is 438 to 442. • There is an $8 billion investment guidance for 2026. • Credit-related loss is expected to be 40 to 50 basis points of revenue, a decline from 2025. • Lease termination income is forecasted to be $30 to $40 million in 2026. • Unreimbursed property expense margins are expected to be approximately 1.5% of revenue, and cash G&A expenses are guided to be 20 to 23 basis points of gross asset value. • Approximately $10 million of base management fees from the open-end fund are expected in 2026.

Segment performance

In the fourth quarter, Realty Income had an AFFO per share of $1.08, and for the full year, AFFO per share was $4.28. In the fourth quarter, the company invested approximately $2.4 billion or $2.3 billion pro rata at a 7.1% initial cash yield. For the full year, approximately $6.3 billion or $6.2 billion pro rata was deployed at a 7.3% initial cash yield. The company also sold 425 properties for approximately $744 million. Regarding At Home, over 18 months before its Chapter 11 filing, eight properties were sold for nearly $80 million, with a blended recapture rate of just over 80% across remaining 31 stores. Internationally, the company expanded into Mexico and has a joint venture with GIC for built-to-suit industrial development, with the joint venture having closed its first transaction.

Risks & headwinds

• Near-term conditions in markets like Mexico are fluid and market sentiment can be volatile. • Cap rate environment is affected by cost of capital and competition. • Unidentified credit losses could impact the guidance if not managed properly. • AI disruption poses a risk that requires proper infrastructure and data organization to fully leverage its benefits.

Analyst Q&A

• Q: Linda Tsai from Jefferies inquired about how Realty Income will appear in 3-5 years;

  A: Sumit Roy responded that various initiatives will mature to enable growth in line with historical rates.

• Q: Michael Goldsmith from UBS asked about the acquisition cap rate;

  A: Jonathan Pong stated that the cap rate movement is not indicative of the overall trend, being influenced by what closes and competition.

• Q: John Kachowski from Wells Fargo questioned the conservatism in the AFFO guide;

  A: Sumit Roy said the conservatism lies in the credit loss guidance.

• Q: Jaina Galen from Bank of America asked about the $8 billion investment volume;

  A: Sumit Roy mentioned that the fund has deployed $1.1 billion and disposition is expected to be similar to that in 2025.

• Q: Brad Heffern from RBC Capital Markets asked about the impact of AI;

  A: Sumit Roy replied that AI is an excellent tool for the business.

• Q: Steve Rose from Citi asked about occupancy and same-store rent assumptions;

  A: Sumit Roy said the assumptions are based on asset expirations and credit losses.

• Q: Ronald Camden from Morgan Stanley asked about investment geographies and areas;

  A: Sumit Roy said there is momentum in all geographies and provided details on gaming, retail park, and data center strategies.

• Q: Jay Kornreich from Cancer Fitzgerald asked about the cost of capital and investment outlook;

  A: Sumit Roy said the improved cost of capital allows for higher spreads but underwriting remains asset-by-asset.

• Q: Spencer Glimcher from Green Street Advisors asked about the private fund and public vehicle deals;

  A: Jonathan Pong stated that the fund takes on lower cap rate transactions with growth and gave details on the deal volume foregone without the fund.

• Q: Wes Galladay from Beard asked about the incremental spread for the private fund;

  A: Jonathan Pong said the math indicates potential for higher returns.

• Q: Jim Hammer from Evercore asked about partnerships with other sovereigns;

  A: Sumit Roy said partnerships with other sovereigns are not prohibited but there is no need for other partnerships with GIC in built-to-suit industrial.

• Q: Jason Wayne from Barclays asked about credit loss details;

  A: Sumit Roy said identified properties include some restaurant chains and the unidentified part is larger.

• Q: Yupal Rana from KeyBank asked about the ATM strategy and Red Lobster exposure;

  A: Jonathan Pong said there are multiple ways to raise equity and Red Lobster is not a significant part of the business.

• Q: Greg McGinnis from Deutsche Bank asked about the maturity of growth avenues;

  A: Sumit Roy said the avenues will mature to historical growth rates.

• Q: Eric Borden from BMO Capital Markets asked about the recapture rate and vacant assets;

  A: Sumit Roy said the recapture rate depends on asset expirations and vacant assets are at a natural rate.

• Q: Teo Okasanya from Deutsche Bank asked about AI in the business;

  A: Sumit Roy said AI is integral to all business functions and Realty Income is well-positioned to benefit from it.