Realty Income Corp (O) — Q4 2025 Earnings Call Transcript

Thank you for joining Realty Income's Fourth Quarter and Full Year 2025 Operating Results Conference Call. Discussing our results are Sumit Roy, President and Chief Executive Officer; Jonathan Pong, Chief Financial Officer and Treasurer; Neil Abraham, President, Realty Income International; and Mark Hagan, Chief Investment Officer. During this conference call, we will make forward-looking statements as defined under federal securities laws. The actual future results of the company may vary significantly from what is discussed in these statements. We will provide more detailed information on the factors that may lead to these differences in our Form 10-K filing. I will now turn the call over to our CEO, Sumit Roy.

Thank you, Lauren. Welcome, everyone. 2025 was a year in which our platform, discipline, and global reach came together to deliver steady results and position Realty Income for its next chapter of growth. We delivered AFFO per share of $1.08 for the fourth quarter and $4.28 for the full year, supported by 98.9% occupancy and 103.9% rent recapture, reinforcing the stability and diversity of our cash flows. In the fourth quarter, we invested approximately $2.4 billion, or $2.3 billion pro-rata for our ownership interest at a 7.1% initial cash yield, driven by strong opportunities in Europe and the closing of our $800 million perpetual preferred investment in the Las Vegas CityCenter real estate assets with Blackstone. For the full year, we deployed approximately $6.3 billion or $6.2 billion pro-rata at a 7.3% initial cash yield with 30% of acquisition cash income from investment-grade clients. We also sold 425 properties for approximately $744 million, enhancing portfolio quality and redeploying capital into higher return opportunities. As part of our disciplined approach, we proactively address client-specific risks. With At Home, we used early visibility into store-level trends to begin selling select assets ahead of its Chapter 11 filing. Over 18 months preceding the filing, we sold 8 properties for nearly $80 million, significantly reducing exposure. Across the remaining 31 stores, our blended recapture rate was just over 80%, consistent with our historical experience for bankruptcy outcomes. We only experienced one rejection, which was resolved in the fourth quarter. With the company now operating with what we believe to be a stronger financial position, we believe that our early action, disciplined underwriting, and active asset management have preserved long-term value. The At Home experience also illustrates how our proprietary predictive analytics platform informs proactive decision-making. Store-level visibility gave us an early read on operating performance, but by using broader predictive analytics to assess closure risk, rents, sustainability, and real estate fungibility, we can determine which assets carried elevated long-term risks. In partnership with asset management, that work allowed us to selectively dispose of higher-risk locations at attractive valuations and materially reduce exposure ahead of the filing. And when the filing ultimately occurred, our analysis validated the durability of the remaining locations. That same discipline carries through to how we manage the broader portfolio. We recognized $18.9 million of lease termination income during the fourth quarter, reflecting our proactive approach to resolving potential credit and renewal risk. We also continue to pursue terminations where we see a clear path to higher and better uses. These steps help us preserve long-term value while managing our exposure thoughtfully across the portfolio. Internationally, our established platform remains a competitive advantage. As we have previously discussed, Europe continues to offer compelling risk-adjusted opportunities, and we regularly evaluate the viability of other markets where we can further leverage the strength of our competitive moat. Last month, we expanded into Mexico as part of our broader strategic partnership with GIC, providing the majority of build-to-suit development financing and a $200 million takeout commitment for a high-quality U.S. dollar-denominated industrial portfolio, another example of how our scale, cross-border capabilities, and balance sheet open new swim lanes of growth in a disciplined and repeatable way. As part of our international strategy, we are entering Mexico in a disciplined, partnership-led manner alongside GIC and Hines. This structure allows us to finance build-to-suit developments at attractive effective yields with forward commitments at cap rates that compare favorably to U.S. assets while maintaining our target risk-adjusted returns. Our initial focus is narrow and paced, centered on Mexico City and Guadalajara, core logistics markets with tight fundamentals, consistent rent growth, and investment-grade tenants. We are investing in mission-critical build-to-suit facilities with institutional quality and U.S. dollar-denominated leases. Over the long term, we view Mexico as a strategic beneficiary of near-shoring and expect to expand selectively as fundamentals continue to mature. Our approach also reflects current developments on the ground, including increased coordination between Mexican and U.S. authorities that may support a more stable operating environment over time. While near-term conditions remain fluid and market sentiment can be volatile, we believe this reinforces the importance of our phased partnership-led entry and long-term conviction in Mexico’s industrial fundamentals. Concurrent with our expansion into Mexico, the U.S. component of our previously announced joint venture with GIC is now executing a similar structure. Through this partnership, Realty Income and GIC will programmatically develop approximately $1.5 billion of primarily industrial build-to-suit properties. Last month, the joint venture closed its first transaction, a $58.5 million investment alongside a forward acquisition agreement for a modern industrial property in Dallas leased to a Fortune 500 service-based logistics client. This initial transaction demonstrates how the build-to-suit and financing components of this relationship function in practice, supporting mission-critical clients, earning interest income during development, and creating a clear path to high-quality ownership split between a like-minded long-term investor in GIC. A defining feature of Realty Income's evolution is pairing our operating platform with diversified partnership-oriented capital. This relationship orientation continues to shape our sourcing engine. Approximately 89% of our fourth quarter transactions originated through relationship-driven channels, underscoring the depth of our client and partner network. In addition to our GIC partnership, we furthered our relationship with Blackstone through an $800 million perpetual preferred equity interest in Las Vegas City Center, which becomes the second joint venture we have entered into with Blackstone for a high-quality Las Vegas Strip casino transaction. The structure provides attractive risk-adjusted returns with downside protection, given the strategic importance of this asset to MGM and a right of first offer on an iconic Las Vegas Strip asset, demonstrating our ability to execute large, structured relationship-driven transactions. Looking ahead to 2026, we see a steady core business supported by disciplined capital allocation, healthy occupancy, and a pipeline that reflects both the depth of our sourcing engine and the flexibility of our multiproduct platform. With the benefit of global relationships, strategic partnerships, and private capital channels, we expect to pursue high-quality opportunities across geographies and capital structures. Strategically, three priorities guide our capital deployment in 2026: first, deepen client relationships where we can act as a solution provider, particularly in mission-critical retail and industrial and increasingly through development in structured solutions, including via the GIC platform; second, broaden the investable universe by pursuing repeatable high-quality adjacencies that align with our underwriting discipline and generate resilient contractual income. As a one-stop shop net lease solution provider, our platform is well-positioned to originate and structure these opportunities; third, optimize capital efficiency by diversifying equity sources and maintaining balance sheet flexibility, which Jonathan will outline in more detail. Bringing it together, Realty Income today is a full-service real estate capital provider with global reach, multiproduct capabilities, and a more diversified set of capital channels supporting our growth engine, anchored by a high-quality portfolio that generates stable and growing cash flows. The momentum we saw exiting 2025, combined with the partnerships and platforms we have assembled, underscores the strength of our flywheel and the ability to compound long-term value. With that, I'll turn it over to Jonathan.

Thanks, Sumit, and good afternoon, everyone. 2025 was a foundational year for us from a capital diversification perspective. We proudly launched our debut open-end fund in the U.S., successfully raising over $1.5 billion in third-party equity from over 40 institutional investors spanning state, city, county and employee pension funds, sovereign wealth funds, asset managers, foundations and consultants. We established this open-end perpetual life vehicle because this format was the most strategic, valuable, and appropriate structure for our long-duration net lease business, which is known for its consistency and lack of volatility. We're humbled by the investor reception to our values, performance track record as a public company, the best-in-class human capital, and unmatched access to proprietary data and insights across a seasoned real estate portfolio of over 15,500 properties globally. As Sumit previously mentioned, we were also pleased to establish a programmatic strategic relationship with GIC, which pairs our operating platform with a long-term and disciplined capital partner. While the focus of the partnership will be on build-to-suit industrial development, we expect to partner on a variety of large-scale opportunities given our combined focus on deploying capital at scale, where we can create superior value for our respective stakeholders. I want to briefly take a moment to highlight the broader design behind these initiatives. Our partnership with GIC and the launch of our fund business are not intended to be mere single-period contributors. They are programmatic vehicles that expand our opportunity set today while creating embedded pathways for recurring compounding growth over time. Turning to highlights from the fourth quarter. We ended the year with over $4.1 billion of liquidity on a pro-rata basis with a net debt to pro forma adjusted EBITDA ratio of 5.4x, squarely within our long-term target range. Subsequent to year-end, we issued our first convertible note offering, raising gross proceeds just north of $862 million for a 3-year convertible note at 3.5%. We used $102 million of proceeds to repurchase 1.8 million shares of common stock, which reduced potential share dilution and allowed us to minimize the impact of the stock price as we priced the transaction. The remainder of the proceeds were used to repay a $500 million note maturity in January, which had a rate of 5.05%, thus representing immediate earnings accretion through the exercise. Our balance sheet is positioned to play offense on the investment front in 2026. We ended the year with cash and unsettled forward equity totaling approximately $1.1 billion. When combined with an annualized run rate of over $900 million in free cash flow, we have over $2 billion of equity or $3 billion fully levered dry powder to address an active deal pipeline. In addition, we have approximately $400 million of undrawn third-party equity capital committed to our open-end fund that adds further liquidity to deploy accretive capital at scale. Operational efficiency remains a priority. We finished the year with a cash G&A margin of just 3.2% while adding talented team members across our global organization, which ended the year at nearly 550 individuals throughout our vertically integrated platform. We are proud of our ability to invest in top talent at all levels of the organization while maintaining one of the most efficient cost margins in the industry. Turning to 2026 guidance. We are introducing AFFO per share guidance of $4.38 to $4.42, representing an acceleration in AFFO per share growth versus 2025. In addition to the $8 billion investment guidance for the year, key assumptions in our model reflect healthy underlying portfolio fundamentals and in particular, includes credit-related loss of 40 to 50 basis points of revenue, a meaningful decline versus the 70 basis points we experienced in 2025. We expect lease termination income to once again be a meaningful contributor to earnings in 2026 as we forecast $30 million to $40 million based on our current visibility. As Sumit mentioned, this income is driven by our proactive asset management efforts, and we expect this income to remain a recurring part of our business. Our expense margins continue to reflect the efficiency of our business. And for 2026, we are guiding to unreimbursed property expense margin to approximately 1.5% of revenue, and we expect cash G&A expenses to be just 20 to 23 basis points of gross asset value. Finally, we expect to generate approximately $10 million of base management fees from our open-end fund during 2026, which may fluctuate slightly depending on the pace of capital calls for investments made in the fund. Now to close out our prepared remarks, I'll pass it back to Sumit.

Thanks, Jonathan. Before we open the line for questions, let me briefly summarize. Realty Income enters 2026 with a resilient core business, a broader set of capital partners, and a deeper global pipeline than at any point in our history. Our partnership with GIC, our CityCenter investment with Blackstone, and our successful cornerstone capital raise for our debut private fund all reflect the evolution of our business and the expansion of our investment buy box. We remain disciplined in underwriting, selective in deployment, and focused on compounding long-term per share value. We're looking forward to continuing to demonstrate that our proven operating platform and unrelenting focus on generating durable income is highly valued in the marketplace. Operator, we are ready for questions.

As Realty Income has expanded into different capital raising and yield-generating capabilities, new channels, including private capital, new JV partners, build-to-suit initiatives, diverse geographies, and loans, how different do you think Realty Income will look over the next 3 to 5 years?

That's a great question, Linda. The various initiatives you've seen in our recent announcements have been part of our strategy for several years. Realty Income has evolved from being a 100% retail-focused U.S. business to incorporating new investment channels aligned with our core competencies, such as expanding into international markets and different asset types. We also started focusing on credit investments to become a comprehensive solution for our clients. Additionally, we've diversified our capital sources as we’ve entered multiple geographies, particularly on the fixed income side. Historically, our equity capital has been sourced from public markets in the U.S., which have served us well for over 31 years. However, the recent volatility in economic cycles has highlighted the challenges in fully leveraging a platform capable of generating around $10 billion in investment annually, as we've demonstrated in the past. This led us to consider how we could diversify our equity capital sources and forge partnerships that would enable us to make full use of our scalable platform. Recently, we've been actively engaging with various capital sources and forming alliances with long-term investors like GIC, while also strengthening existing relationships with partners such as Blackstone, who see us as valuable real estate collaborators. In the next 3 to 5 years, I believe these different avenues, including the open-ended fund and Core Plus Fund we've established, will mature significantly and allow us to achieve a growth profile aligned with our historical performance over the past 31 years. Realty Income has always been characterized by trust and reliability, in addition to a consistent growth rate, which was around 5% historically but closer to 2% in 2025. We are now focused on demonstrating how we can leverage our size and scale to stand out in the marketplace and enhance our unique capabilities and capital sources that will drive future growth. Trust, reliability, and growth are the driving forces behind our actions. Over the next 3 to 5 years, I believe these initiatives will help us maintain the strong position we've held for the past 31 years.

One for Jonathan. On acquisitions guidance of $8 billion in '26, what's the cap rate you expect? And what are some of the assumptions that feed into your expectations?

Linda, rather than giving a cap rate guidance, I would say that we're expecting spreads to be fairly similar on a leverage-neutral basis to where we were in 2025 and where we've been historically, so call it 150 to 160 basis points relative to that weighted average cost of capital, short-term weighted average cost of capital.

Maybe just following up on that last question but from a different perspective. Your acquisition cap rate ticked down in the fourth quarter sequentially. So can you just talk about like what the cap rate environment is looking like? Is that a reflection of what you're buying? Or is that a reflection of competition? Just trying to get a sense of if that acquisition cap rate is trending lower here.

Yes, that's a good question, Michael. I don't believe that a 10 or 20 basis point change in cap rates from quarter to quarter accurately reflects the overall market. The deals that close in a quarter depend on many factors, and providing an average cap rate for all investments doesn't capture the variety of products we are targeting. Some assets fall within that average cap rate, while others exceed it. Ultimately, it depends on what closes in a specific quarter and what gets pushed to the next quarter, which causes these small fluctuations in average cap rates. However, if we look at the last several quarters, the cap rate has generally been around the low 7% range. This trend largely mirrors the current cost of capital and the nature of competition in the market. If the cost of capital starts to improve, I believe cap rates will also reflect that change. Currently, competition on the private side has been relatively subdued due to the high cost of debt, but if that changes, we could see increased competition from that sector. These are the factors to monitor regarding the future direction of cap rates over the next year. However, I can say that over the past six quarters, the cap rate environment has remained quite stable.

Got it. And just as a follow-up, maybe you can talk a little bit about the G&A guidance. It was 21 basis points. In 2025, for 2026, you provided a range, which at the midpoint implies it to go up a little bit. So can you just walk through kind of like why G&A may move higher in a material way? And then just also maybe that reflects some investments that the company is making. So maybe where are you investing in the business today?

Yes. Thanks, Mike. First of all, I would say the G&A methodology that we're giving for guidance now is percentage of GAV. And the reason for that is that we have consolidated vehicles, we have unconsolidated vehicles when you start to utilize the revenue and the income statement, and it doesn't give the full picture. So I would say if you look at 2025 apples to apples based off of that GAV methodology, we're about 21 basis points in cash G&A. Our guidance is for 20 to 23, so not really a material move. The one thing I'll say is that we've added a lot of really good talent to the team. We ended 2024 at about 468 employees. End of 2025, we're about 544, so about 76 employees hired. It was back-end loaded during the back half of the year. And we feel like we've got a very strong competitive moat across the globe, and a lot of the headcount has been abroad in Europe. And you can see how meaningful Europe has been to our growth, and so that is something that we're very happy about. I think when you look at 2026, as well, we do have a few heads that we are adding. And when you're talking about a platform today that's generating $5.3 billion, $5.4 billion in annual base revenue with over 15,500 assets and plans for it to grow significantly, we definitely believe that we have the ability to hire the best talent to scale the business and to still have one of the most efficient G&A margins in the industry.

Just for my first one, maybe could you help me bridge this AFFO guide? It's a really healthy acquisition guide at $8 billion. Surprised with the upside. But I feel like the AFFO guide was maybe below what the Street was expecting. I'm curious, where are the sources of conservatism in your guide? Or what is the Street missing here?

Yes, John, I would say it really comes down to the credit loss guidance, credit loss guidance of 40 to 50 basis points of rental revenue, something that has a fair amount of conservatism. We're sitting here in late February, and I think, as is per usual, we want to have a little bit more visibility in terms of how things are playing out before we tighten and lower that guide. So I think if you kind of back into what that represents on a dollar amount, over half of what that represents is for unidentified credits that we don't really see much in the way of high risk of that being utilized, but I think that's probably the #1 thing that we would point out.

That's very helpful. For my second question, I'd like to revisit what you mentioned earlier about yields. How should we consider this additional $2 billion you're planning to invest, possibly in addition to the $6 billion? Are you looking to enter new markets? Also, how should we view the yields on these investments? Is it simply a more favorable acquisition environment, although with potentially tighter cap rates on these new deals? What is enabling you to take on this additional investment?

When considering investments, I focus more on the spread rather than just the yield, as that ultimately influences our growth in AFFO per share. I plan to underwrite based on our historical performance, which typically sees a spread of 150 to 155 basis points on the $8 billion. There are various factors at play regarding the timing of that $8 billion. We've announced a significant figure due to our strong pipeline, and we are optimistic about developments in the U.S., Europe, and other regions we are exploring. This gives us confidence to engage more actively in the market. Our diverse financing channels also support this confidence. Therefore, I view the $8 billion as a reflection of our trust in the investments we are pursuing. We won't be introducing any new products soon; rather, we will continue to focus on those we have already invested in, which will make up the bulk of the $8 billion.

Sorry, again on the kind of $8 billion investment volume guidance. If you could please clarify, it looks like that's at 100%. And so maybe help us think about how much is wholly owned. How much is in the private fund? Should we assume the full amount of the private fund is deployed near term and maybe mix between the development and acquisitions and whether you also expect it to be an elevated disposition year?

That's a great question, Jana. We'll provide some insight, but it's an evolving year, and we’ll see how things develop. In our fund, we have already deployed $1.1 billion. If we reach our goal of $1.7 billion by the end of March, we will have about $600 million of equity that still needs to be invested. We can also leverage this instrument a bit, which will contribute to the fund. What remains uncertain is how much additional capital can be raised. Both the cornerstone and time will reveal this. We should set that aside. The rest will primarily be related to how you should model our investment figures on the balance sheet. Does that make sense?

Yes. And any color on kind of dispositions?

The dispositions, as you know, we were right around $740 million in 2025. You should expect a similar number in 2026. And this is, again, something that we are starting to lean into much more heavily, and you've seen the run rate over the last few years. And yes. And that's the goal for 2026.

Sumit, a lot of concerns about the impact of AI on almost everything in the economy at this point. Acknowledging that everything is very uncertain, how do you view the potential for AI disruption through the lens of your current portfolio? And does it change at all how you plan to invest going forward?

Brad, that's an excellent question. We consider AI to be a remarkable tool that can enhance our business performance in the future. We were early adopters of AI tools back in 2019 and have developed proprietary machine learning tools that are integral to every aspect of our operations today. We are reorganizing our internal approach to manage the data produced and accessed by the company, focusing on how to structure it in data lakes. This will enable us to further promote AI adoption in various functional areas of our business, helping us distinguish ourselves from other companies. We view this as an opportunity, not a threat. Many of us have a strong background in technology, and we embrace the ongoing innovations. You’re absolutely right, Brad. The pace of change is rapid. For instance, lease abstraction accuracy has improved from an 80-82% success rate just four months ago to nearly 90% today. These advancements will keep coming, and the main challenge businesses will face is establishing the infrastructure necessary to leverage AI effectively for scalability. This is the direction the industry is heading. We are well-prepared to embrace this innovation, and from a maturity standpoint, we believe we are ahead of the curve. So we are ready for it.

Okay. And then, Jonathan, obviously, you just completed the convertible notes offering. Can you talk about how you view that as a part of the toolkit? And is it something that was sort of specific to the point in time that we were in? Or is it something that you would expect to be more regular going forward?

Yes, Brad, I would say, to your point, the way we viewed it was exactly another tool in the toolkit. We believe in flexibility. We believe in availing ourselves of the entire menu of capital options available to us. And so we are known to be a very active issuer of capital, and a lot of that is equity. And so when you think about the conversion premium that we were able to structure, 20%, which takes you to the high $60 range, thinking about issuing that on the ATM at spot versus effectively at a 20% premium, we were okay with that possibility within 3 years. But I think I would also highlight, we have a U.S. dollar cost of debt on a 10-year basis of 5%, and the debt that we are repaying was north of 5%. And so at 3.5%, we view that as an accretive use of proceeds relative to what we had otherwise done. So something that we'll look at from time to time, probably not to a significant degree, but when circumstances warrant, we now have established ourselves in this market.

I just want to ask you a couple of more questions on your guidance. It looks like your occupancy expectations come down a little bit for the year as well as same-store rent assumptions come down a little bit, just using the midpoint. So I was just wondering if you could talk a little bit about what assumptions you're making behind those 2 pieces of the guidance.

Regarding the occupancy number, it's based on physical occupancy that we report. When several smaller concepts have vacancies, they can affect the occupancy number by small margins. We are confident about the 98.5% occupancy rate. This largely depends on the types of expirations we anticipate, particularly in 2026, which are mostly smaller assets with lower rents. The expiration schedule for 2026 affects about 3% of our rent. Thus, the nature of the assets expiring each year influences the physical occupancy rate. In comparison, our guidance for 2025 reflected a similar range, potentially even slightly lower, yet we achieved an occupancy rate of 98.9%. We are comfortable with our current guidance and while there may be some conservatism in it, we prefer to be cautious rather than inaccurate.

And Smedes, I'll just add on the same-store side. Look, the portfolio overall has about a 1.5% CAGR just on a contractual basis. And so with guidance at 1% to 1.3%, that's really just to capture any type of credit-related loss that we may or may not have in 2026. And a lot of it is associated with just an identified credit loss that may or may not happen with a sense of conservatism. So that's the biggest contributor of that. I would also say there are 1 or 2 tenants where we did have some restructuring in the fourth quarter, and you're seeing the annualized impact of that through the 2026 guidance number.

Just 2 quick ones. On the sort of the investment guidance, is it still fair to say that Europe versus the U.S. is where you've seen the most sort of compelling incremental investment spread opportunities? Just if you could talk about where the incremental dollars are best spent across sort of geographies and even capital structure would be helpful.

Certainly, Ron. In the fourth quarter, we saw a significant shift in volume, with nearly 60% coming from the U.S. and 40% from other regions. Prior to that, Europe was the primary driver of volume. Looking at the year 2025, our acquisitions amounted to $6 billion, largely influenced by our activities in Europe compared to the U.S. However, the key takeaway is that in the fourth quarter and heading into 2026, we are beginning to gain momentum in the U.S. while Europe remains a strong area with considerable visibility. Our competitive advantages continue to generate a significant volume for us, and I expect this trend to persist in 2026. Additionally, with Mexico now included in our strategy, we will keep seeking out new opportunities. The logic behind expanding into more geographies is to enhance our total addressable market and our capacity to source transactions. This change is a natural progression in our evolving business. The encouraging news is that both Mark and Neil have conveyed to me that we are experiencing strong momentum across all our current markets, and we anticipate 2026 to be a standout year for us.

Great. And then my second one is just we've talked a lot about, over the last 12, 18 months, whether it would be sort of gaming or some of the data centers or some of the retail parks. Just trying to get a sense of a pulse of like how sort of those opportunities are evolving. Is one playing out more or better than the other? Is one falling back? Just how are those initiatives coming?

That's a great question, Ron, and I'll keep it brief. We committed to being very selective in our gaming investments, and we've indeed been selective regarding where we’ve directed our resources. The assets we've invested in are among the best in the gaming sector, and they are performing exceptionally well, with no unexpected outcomes. For instance, the Boston asset's coverage has improved, now exceeding our initial forecast by 100 basis points. Additionally, our retail park strategy is starting to yield positive results. Our re-leasing spreads have improved, and strategic discussions Neil and the team are having with clients focused on aggressive expansion for 2026 and beyond are beginning to generate the value we anticipated, with many plans advancing faster than expected. We are recognized as the leading name in the U.K. retail park sector, have a strong presence in Ireland, and are exploring the same strategy across the rest of Europe. We are also concentrating on expanding our data center investments while remaining selective, ensuring we collaborate with top developers and invest in assets that provide confidence for continued performance beyond the initial lease terms. Overall, our investments so far reinforce our strategic focus, and while we aim to accelerate our data center initiatives, we will do so without assuming unnecessary risks. All three areas you've mentioned remain crucial to our strategy, and you can expect us to continue making investments.

First off, just as you think about your cost of capital, the stock has performed very well year-to-date. And so I guess I'm curious, as you've seen your equity cost of capital improve, does that change how you're thinking about your investment outlook at all and maybe allow you to be more aggressive in acquiring real estate at slightly lower cap rates while maintaining healthy deal spreads? Just curious of your thoughts on that.

Yes. So look, we are very blessed that the market is starting to recognize the value proposition that we bring to the table. The fact that our cost of capital has improved is an added lever that we can sort of lean on. But in terms of how we think about underwriting, how we think about risk-adjusted returns, that's on an asset-by-asset basis. And the fact that we can finance those assets at lower cost, I think, just lends itself to higher spreads. It is also true that we can pursue assets that are a little bit lower in the cap rate scale and still be able to get our historical spreads, and that is something that we will look into. But I wouldn't think, Jay, that it changes the way we think about underwriting assets. We are very focused on day 1 accretion. That is what our investors are looking for, along with making sure that the overall return profile of that investment is meeting our long-term hurdle rates. And so none of that changes.

Okay. I appreciate that. And then just following up on the private capital fund, which has the $1.5 billion of commitments so far. Should we expect any meaningful bottom line earnings contribution in 2026 from the private fund? Or is the AFFO earnings contribution more pickup in 2027?

Jay, in 2026, there will be accretion. The $10-plus million in base management fees is pretty good margin. The costs that accrue to Realty Income to generate that is really the dedicated team that we have, which today is around 7 individuals and some other costs that we bear at the Realty level. So you're still seeing margins that are kind of in the 70-plus percent area on a flow-through basis to Realty. And that's because, for us, we've got a platform that has 550 employees. And so we don't have to build from scratch the same way other subscale players would have to.

Sorry. Bill, that's a first one. It's Haendel St. Juste from Mizuho. Sumit, I wanted to go back to a comment you made earlier. I mean, you're talking about another 3 to 5 years for all the changes you're making to manifest itself into real growth. So I guess I'm curious if you're suggesting that we should expect a similar growth profile from Realty Income for the next few years as you're forecasting this year given your commentary about spreads, dispositions, lease term fees? And maybe some thoughts on levers that you could pull to perhaps enhance that growth over the near term.

Yes, Haendel, when I saw the name, I thought about asking you if you had officially changed it, but I’ll skip that. Everything we do is aimed at ensuring that the three words I mentioned—trust, reliability, and growth—remain linked to Realty Income. The past couple of years have been somewhat unusual regarding growth. Therefore, we have begun to develop channels that will return us to a level of growth that makes us one of the most appealing companies to invest in within the real estate sector. That's the objective, Haendel. I believe you are starting to see the results of these channels, and we can discuss them further. Each of these has been carefully planned to see how it can contribute to our business’s earnings growth. That’s the reason behind our efforts. Regarding Linda's question about a 3- to 5-year outlook, I expect that within that time frame, not only will these channels have fully developed, but they will also begin to make significant contributions to our growth profile, helping us reach levels we've achieved before and potentially even surpassing them in certain years with above-average growth. This is consistent with our historical performance. So that is our goal.

Can you talk about how the dollar value of deals sourced for the parameters of the private fund compared to that sourced for the parameters of the public vehicle? I'm just curious, I'm like trying to get a sense of the opportunity set and what that looks like for each vehicle.

Yes. I may not fully answer your question, Spenser, so please clarify if needed. Products suited for the fund typically don’t align with the initial spread requirements of public companies. They usually involve lower cap rate transactions but exhibit strong growth that meets our fund’s long-term return goals. We established the perpetual life Core Plus Fund to capitalize on market transactions that align with our underwriting standards, except for the initial spread. This type of product is what you can expect in the fund. Moreover, considering the transactions we handle, Realty Income’s significant stake in the fund—through our 20% co-investment—combined with the management fees from the other 80%, allows us to enhance our investment. This arrangement enables us to pursue deals that might not have been viable on their own. It’s a strategic setup that expands our capacity and brings in different capital sources with varying pricing and expectations, ultimately creating a more extensive platform. I hope this addresses your question, though I’m unsure if I captured it completely.

Yes. Maybe to clarify, so per the parameters you outlined, which is obviously very helpful, how would you say that the deal volume that Realty Income looks at or looked at last year, how would you say that, that is split between what would be appropriate per those parameters for the private funds? So those low initial yield but longer-term growth opportunities, how much of the overall pie that Realty Income looked at, how much would fit the private fund versus the public vehicle?

Yes. We ended up purchasing on the public side, and we avoided many transactions that did not meet our year one spread requirement, which would have otherwise been acquired if the fund had been operational. In previous quarters, we shared that we forgone approximately $1.7 billion to $2 billion. I believe it was around $2.2 billion, but I might be mistaken. If you examine what we sourced in 2025, it was the largest sourcing year at about $120 billion. There was a significant amount in that total that could have been invested through the fund, but we had to pass on it since we did not have the vehicle operational. There are many opportunities available. Not all of that $120 billion was in the U.S.; about 55% was in the U.S. and 45% in Europe. Since our fund focuses solely on the U.S., adjustments can be made accordingly. It is certainly true that we missed many opportunities that we would have pursued had the fund been operational.

Okay. Great. And then is there any cost associated with raising capital for this fund as of yet? Just curious if you are using or intend to use a marketing team, like an outside marketing team or a consultant as you continue to raise capital.

Spenser, so we have discussed in 8-Ks and press releases past that we do use a placement agent. I don't want to share the exact percentage of the fee, but I will share that it's inside of what we would pay on the ATM and certainly inside of what we pay on a public equity overnight. So much more efficient to raise capital via this channel.

And beyond October, Spenser, this will be something that we're going to bring in-house, and so this will become part and parcel of our continuous fundraising given that it's an open-ended perpetual life fund.

Maybe just following up on that last question. You're going to be able to source the cost of equity a little bit cheaper. I guess maybe could you put a parameter around how much the incremental spread could be where you're investing?

Did we not have that in the investor presentation?

Wes, it's Jonathan. One thing that I'll share, we do have this in our investor presentation, where if you kind of do the math and if you assume that Realty Income is a 20% co-investor in the fund, utilizing our same 35% LTV ratio when we go out and finance transactions, and let's just assume, for round numbers, we're getting about 1 point from the 80% of equity we're managing on someone else's behalf, would otherwise be a fixed cap would be closer to 8.5%. And so this is all about amplifying our return on invested public shareholder capital. And that's how the math plays out, and so that's a way for us to generate more bang for the buck if you will.

Okay. Fantastic. And then you have the U.S. open-end Core Fund. Is there another opportunistic fund you can do later on?

That's a forward-looking comment, and we are not in a position to answer that right now. However, we are very happy about the U.S. open-ended Core Plus Fund that we have in place, and we feel super excited about it. Our goal right now is to make it as big as we possibly can.

Does Realty Income have a sense of GIC's annual dollar investment appetite for net lease investments, whether owned or credit structured?

It's big.

Well, I guess then my second question, really, the related question is, is Realty Income prohibited from pursuing other programmatic co-invest programs away from GIC with other sovereign wealth funds, insurance companies, you name it. I'm just trying to get a sense of the scale of that sort of TAM or opportunity for you as you think about it.

We can pursue partnerships with other sovereigns or sources of capital, but we don't need to look beyond the build-to-suit industrial development we have in place with GIC. They have a strong interest in the net lease space, as evidenced by their purchase of STORE, which aligns with their overall strategy. While I can't speak for GIC, we are very excited about the joint venture we've established. As Jonathan mentioned, this is not a one-time arrangement; the initial commitment of $1.5 billion is just the start. Our goal is to grow this co-investment model because it creates value for both sides. GIC has specific requirements due to FIRPTA, and we can help recognize earnings during the development phase. This partnership is effective, and we can utilize our own sourcing channels to maximize its potential, which makes this relationship particularly attractive.

You said a portion of credit loss assumed in guidance comes from identified properties. So can you give us some color on which tenants or industries are known today? Maybe which are risk to bring to the high end of the range for the rest of the year?

Yes. On the identified side, I won't specify clients or tenants, but from an industry perspective, there are a few restaurant chains included. More generally, this accounts for a minority of the 40 to 50 basis points. The unidentified portion is significantly larger, and we lack details on that since it is unidentified.

Okay. And then just does lower year-over-year occupancy guidance include any lease terms so far in the first quarter? And what's a good run rate for quarterly lease termination fees?

Answer to the first question is no, nothing material. From a quarterly run rate standpoint, look, this is very opportunistic, episodic. It's very difficult to say that this is going to be something recurring. But I think given just the proactiveness of our team, as I said in the prepared remarks, it is something that you expect to be, of course, over a 12-month period, something in line with this, call it, $30 million to $40 million that we discussed but obviously, subject to change as conversations are ongoing and the analysis continues to be done by several different functions within the organization.

Sumit, I appreciate all the comments on the potential to raise equity. Could you talk through your ATM strategy today given the improved cost of capital? There was no ATM issuance subsequent to quarter end, and the share price has had a nice run recently. So just wondering what it would take to issue equity to the ATM today.

Upal, this is Jonathan. I'll say this, over the last 30 days, we've averaged about $400 million a day in trading volume in our stock. If you look back a year ago, that was around $250 million. And so for us, we've got multiple ways where we can raise equity. A lot of it, we already have in place, over $700 million of unsettled equity right now. We had $400 million of cash as of the end of the year. We have over $900 million in free cash flow that we're generating on an annual basis now. We talked about the disposition activity, and that could easily be something very similar to this past year, over $700 million of equity-like proceeds. We've got $400-or-so million of uncalled capital for the fund. So when you start to take away all of that and when you look at an $8 billion investment guidance number, on a leverage-neutral basis, that will require roughly $5 billion of equity. But what I just highlighted was around $3 billion. And so you can do the math. If the delta is 2, and we're averaging $400 million a day in trading volume in the stock, we can be a very, very small percentage of a day's trading volume, barely impact the stock price at all, and raise more than enough to that $8 billion and then some.

Okay. Great. That was really helpful. And then maybe you could update us on your watch list today. And could you update us on your Red Lobster exposure given they're back in the headlines that potentially shut down some locations?

Yes. Our credit watch list is currently at 4.8%. Regarding Red Lobster, it’s not among our top 20 concerns, so we don't have much significant commentary on it. We are monitoring the situation closely as they are experimenting with a few initiatives, but it no longer represents a major part of our business. I’ve heard they’ve streamlined their menu by 20%. Lobsterfest is approaching, along with other promotions, so we will observe how it goes. While we are keeping a close eye on them, as I mentioned, they do not constitute a considerable portion of our portfolio.

This is Greg McGinniss with Scotiabank. Haven't moved. Sumit, I wanted to go back to your comments regarding the other investment avenues maturing and getting back to a more historical level of growth in 3 to 5 years, especially considering many investors are not necessarily looking for a long-term wait-and-see story, which could pressure the equity cost of capital. And what does success or maturity look like with regard to those new avenues? And should we expect to see that 3% growth in the interim or a more modest ratable improvement back to the 5% over time?

Greg, I'd like to demonstrate our capabilities. At the start of the year, we provided earnings guidance, and we've discussed various avenues that we believe will mature and contribute to a higher growth rate. However, I can't provide specific expectations for the next three or six months regarding how this growth rate will accelerate. My long-term perspective is that these channels will result in a growth rate that aligns more closely with our historical performance. I hope the timeline for this improvement is sooner rather than later, but I can't offer a more precise answer.

Yes. That's a good question, Greg. And by the way, when we talk about growth rates and earnings, we shouldn't forget that we are the monthly dividend company, and our dividend as of the end of last year, beginning of this year was still 5.7%. And so that's the dividend yield, and that continues to be something that we distribute on a monthly basis. So it's very much part and parcel of the total return story that's associated with Realty Income. With regards to what is this platform capable of, I think it's capable of a lot more. What I was pointing out to was if you looked at what we did on an organic basis in terms of investments in 2022 and 2023 or thereabouts was in that $9 billion, $9.5 billion ZIP code, and it was with a much smaller team with fewer geographies, and we still had fewer asset types that we were investing in at that point in time. So we have scaled the team. We are in more geographies today. Our cost of capital is improving. I believe that our team is capable of doing a lot more investments, just having created a much larger TAM for ourselves today vis-a-vis where we were 3 years ago. And that's where the scale benefit comes in. But what I'm saying is not mutually exclusive from what Jonathan said, which is, selectively, we will continue to look for the right people to drive certain areas of our business. And that is an investment we feel very comfortable making as we become a company that has defined all of these different channels of growth. So you should expect both us to do more and us to continue to invest very selectively in talent that can help us drive our business.

Great. How should we be thinking about the recapture rate on the 3% of ABR expiring in '26 relative to your long-term average? And should we see an acceleration over time from your re-leasing efforts across your retail park exposure?

Every year is different, and it depends on the types of assets that are expiring. Some assets have higher growth rates when it comes to exercising options compared to others. Historically, over the past four to six years, we have achieved growth rates of over 100%, around 103% to 105%. I expect the team to continue to meet or even exceed those figures. However, comparing one year to another is challenging due to the nature of the expirations taking place. I'll leave it at that.

Okay. And then you currently have 173 properties available for lease. Could you just provide a little bit more detail on what percentage is slated for disposition versus the portion that you believe can be re-leased today?

Yes. Eric, obviously, if you looked at that same number at the beginning of last year, that was closer to 220 or 230 assets. So capital recycling, making sure that we get to resolutions quicker so that the holding costs are much lower, those are all elements of a very proactive asset management team that we have in place today. Having said that, we are very comfortable holding on to a certain number of vacant assets because we are either trying to reposition it or we are trying to find the right client who can enhance the ability to recapture rents, etc. So in a company that has north of 15,200 assets, having 170 assets vacant, I think you could view that as what the natural rate of vacancy ought to look like. That's circa 1%. And I'm going to go a little bit more and say we are comfortable with this 1.5% to 2% of assets that we have that we are working on either to dispose of or to reposition. And so I think this 170 is a smaller number than if you were to compare it over the last couple of years, what you have seen in our portfolio. But I view that as a natural rate of vacancy.

So again, just looking at the portfolio today, again, thousands of assets across hundreds of companies across several regions. It just feels to me like, again, given the nature of what you guys are doing, AI somehow should be able to create much more efficiencies in the overall business, whether that's on the underwriting side, asset management side. Just kind of curious how you guys are thinking through the use of AI in the business and how, if I may use the word, AI competency or supremacy could create additional competitive advantages versus your peers.

It's in line with your question, Tayo. I intentionally kept it brief, as this is a topic that deserves a full discussion. What I can tell you is that we are a highly literate, technology-driven, data-driven organization. AI is definitely going to be an integral part of our business operations. It already plays a role in the proprietary tools we've developed, aiding us in sourcing, underwriting, asset management, and more. However, the significant advancements with AI in organizations are rooted in the data itself. It begins with having well-defined data and a clear understanding of the relationships between that data, which leads to establishing new data derived from it. Only then can we develop tools that enhance this structured data lake to yield various efficiencies. You are absolutely correct that AI will become increasingly essential within a real estate company. I am confident that we are well-positioned to harness these advancements, thanks to our early investments in this journey and our sophisticated approach to technology as a catalyst for scaling our business model. Each aspect I've mentioned could warrant a lengthy discussion, but we are progressing well and already implementing various tools, like Copilot, across the business. There are also specialized tools used in specific areas to enhance scale. We're just beginning to explore what AI can accomplish for a company like Realty Income in the next three to five years.

Thank you, Chuck, for helping facilitate this conference, and thank you, everyone, for participating. Look forward to seeing you at some of the upcoming conferences.