O Realty Income

Janeen Bedard Senior Vice President
Sumit Roy President and Chief Executive Officer
Paul Meurer Chief Financial Officer and Treasurer
Karin Ford Mitsubishi UFG Securities (NYSE:USA), Inc.
Vikram Malhotra Morgan Stanley
Todd Stender Wells Fargo Securities, LLC
Collin Mings Raymond James
John Massocca Ladenburg Thalmann & Co. Inc.
Michael Bilerman Citigroup
Call transcript
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Good day, and welcome to the Realty Income Third Quarter 2018 Operating Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Janeen Bedard. Please go ahead.

Janeen Bedard

Thank you all for joining us today for Realty Income's third quarter 2018 operating results conference call. be Meurer, President Treasurer. Chief will Officer; Chief results Paul and Financial our Sumit and Roy, Executive Discussing Officer and

this matters forward-looking will be we future results law. conference statements significantly actual any During may from forward-looking differ that the The make Company's considered in under statements certain be may federal discussed securities to call, statements.

the disclose that may differences in factors greater cause the Company's detail in XX-Q. We will Form such

portion now Q&A the two opportunity our question call Roy. limit order Sumit will give call over CEO, We observing to the in be a to during participate. turn to of everyone the and I President will the

Sumit Roy

the look engagement the let’s future. investors and to also opportunity for John business. that, years. has CEO, I would value team. into and his Income years capture I drive quality wish portfolio, I forward and closely our the our I it of very our Realty to guidance Janeen. honored build I importantly priorities, and role taken stakeholders. meet can continuing am our to Company, role to high to him am turn to forward enhance our given on what In our the and diversified and strategic many opportunities, over to with have investment I've and the work execute to the continue team and and this we With played building the like excited of former the service of in Income in future the call to Thanks, enhancing thank about look Welcome strength Realty to our to the talented Board opportunities seven my Company today. confident I most is and John pivotal am on the best. strong the analysts portfolio and had with Case, CEO today our evolve for a as

investment to strength market current our pipeline. in well as continue We see the environment as

quarter, we our by quality the S&P by rating and of our A- largely was performance high and driven track During $XXX of share which credit raised record per to increased quarter, our consistent invested during in X.X%. portfolio. million the the acquisitions third stability property AFFO

strength the Given guidance the business, share XXXX of by per to current are $X.XX, $X.XX, $X.XX. $X.XX from our range in a we increasing AFFO to $X.XX low-end to of our

rent XX.X% U.S. with industries environments. These possess operate that been been point allow quarter, just in flow. the the tenant, property industries with geography, comes retail states portfolio these and our of low retail of tenants continues certain our stores traditional revenue. cash revenue. diversified tenants tenants remains XX% the of climate to not in by our retail properties XX% stability revenue. a to XX and/or our from Our of their over to of At and in XXX Walgreens were overall effectively located contributes more retail The outside largest over have which Rico. end industry, the is of our our a to remains ecommerce different be revenue price Convenience to extent XX industrial component leased type, rental compete We rental in do variety at the is today's to portfolio, commercial majority largest our in of largest our relevant with properties. bankruptcies of at vast and non-discretionary properties characteristics these economic rental retail business. tenant particularly characteristics. XX% factors recent of service, rental believe Within Puerto from our industry have of X.X% component

rental annualized in a four-wall the quality of on median retail weighted our We investment X.Xx tenants. average is credit rent X.Xx. basis, grade-rated to have the our ratio from continue properties coverage with half for revenue while excellent generated portfolio The is over

few Our of watch with XX.X%, list increase at properties X.X% on last of years. the points our of was the number the period. based Occupancy remains rent of an versus consistent XX levels basis year-ago

We expect in mid-XX% the for occupancy XXXX. to remain

XXX% with recapturing recapturing quarter, have properties Since that of of the expiring released were released XXXX, rent approximately XXX% we listing X,XXX on properties, During we the rent. recapturing rent. released have sold XX XXX over Year-to-date, our leases properties, expiring XXX% expiring, in we properties the those released. approximately or of

with for X.X% consistent the same-store Our rent year-to-date. of and have our rate rental releases Approximately the quarter results run X%. contractual of during increases. These XXXX revenue are projected X% increased XX%

on Let Paul detail our results. to financial to me over hand additional provide it

Paul Meurer

Thanks, for the few a in for Sumit. highlights our provide financial I statement. items with the starting quarter, income will results

Our quarter G&A the X.X% for as total and revenues rental and a percentage other X% was of year-to-date.

the We have payment. recent CEO continue severance REIT excluding lowest the ratio to lease the sector, net G&A in

X% be to approximately to We continue XXXX. G&A in project

Our non-reimbursable the the total of rental debt for run This favorably expense certain of timing our other expenses. and year-to-date. revenues to X% a was rate property as and compares XXXX to due and expenses X.X% bad percentage quarter lower

operations We FFO was in $X.XX quarter. continue the expenses to be to expect Funds property the per X.X% non-reimbursable X% from for to or range. generally share

continued have balance structure, a quarter, was only of the Moody's Combined AFFO NAREIT-defined Sumit cash the our the reminder, turning funds operations capital by from upgrade Briefly are AA FFO least our the maintain for distribution conservative the to or per for definition. we've representing $X.XX ratings. we AX to we with A- or a a X.X% at reported now that follows REITs few a earlier. one year-ago, believe share which to increase. a contributed with to as As available to sheet, SMP we actual FFO Adjusted dividends mentioned upgrade

we During common program. million issued primarily quarter, our stock ATM the of through third $XXX

nine healthy over a at charge X.X our years, remained year-ago. ratio approximately Our times. remains than coverage and overall our of leverage is longer debt-to-EBITDA maturity modest times, was our The a which X.X weighted-average year as bonds is it remains fixed

capacity and due coverage debt our remainder were of laddered schedule well very the schedule remains with our our $X.XX billion initial this extension capital a pleased access billion expansion summary, billion, maturity of maturity million credit accordion excellent and ready only maturity from facility options, and the March new is provide debt overall date thereafter. $X have plus line $X of acquisition our to into X-month low leverage, $X.X liquidity and The excellent announce we Last only strong year we thereafter. expansion $X increases year to property coming feature. capacity In of coming Our XXXX plus $XX is billion next facility. our The X unsecured shape metrics very the continue to revolver in billion enhances for efforts. week, liquidity. The to increased

matches grid borrowing Our in industry. the tightest which XX.X pricing spread LIBOR, REIT decreased over the basis points to

of over relationship part support the we Realty million we with years many years. have of We lenders facility, credit several grown interest to a who a fixed recast, the fixed As welcomed new done interest X.XX%. XX Income. are long-term much and rate just as for with we've the a floating term the appreciate our very effectively the new the we X.X we to which with business banking participated years. swap, term issued loan the lenders partners $XXX whom Concurrently, loan of of in executed new also under at rate on tenor the

let Now, the turn over back Sumit. to me call

Sumit Roy

Thanks our Paul. I’ll to move now activity. investment

a cash XX.X average in term During initial a properties states, different of tenants. industries. XX% XXX the quarter leased tenants from years. of in XX located $XXX generated we revenue XX.X% the XX of total at On invested third XX basis, retail. X.XX% of acquisitions XXXX, cap lease are an and revenues from approximately of to with are million assets in rate weighted-average are These investment-grade

are We are cash the and and On most we've years. average billion stores, third XX to total at XX different the in transactions X transactions flow million. are of were convenience rate the XXXX, industrial. initial in in year-to-date, XX tenants. stores. $XX represented of transactions above cap from independent XX% the XX% Of investment-grade industries. weighted-average XX.X basis, revenue quarter. located from term generated from significant Transaction XX X% of a of are Year-to-date closed healthy. tenants These $X.XXX leased a closed acquisitions are discrete retail lease an in and Some XX with states continues XXX invested restaurants, properties revenues industries remain X.XX%, of dollar assets to

X% were sourced were $XXX XX% sourced one-off third than the billion during third transactions. opportunities. approximately of were acquisitions assets. the quarter, closed the opportunities During XX% third acquisition in $X.X opportunities. quarter, the opportunities sourced for Of Year-to-date, we XX% quarter, transaction quarter. Investment-grade portfolios billion the we approximately or represented billion third $X.X in the the potential million in and sourced $XX in Of one-off more volume

to in grade trade pricing, third properties cap high and rate rate have quarter. range, from continue to non-investment As cap range. to cap trade X% around the high X% X% low properties X% unchanged remained rates to essentially Investment-grade

define initial weighted-average basis year which points investment our an third capital. spreads, We weighted-average as cash were XXX investment quarter, historical our in relative first spreads of spreads. to averaging Our capital nominal less of cost the our yield average was healthy, above cost slightly

large of acquisitions guidance that the pursue investment Our basis. one a in only XX% see sale meet parameters. traded leaseback and billion. on of opportunities a XXXX remain our achieving lease remains to Year-to-date, transactions. sale confident our and companies pipeline our robust flow have to approximately been $X.XX has acquisition capital the remained cost corporate scale of continue steady of we investment We transactions negotiated that leaseback net publicly of We

program remained Our disposition active.

approximately of sold cash X.X%. our at Largely realized and to the of During dividend at IRR cash approximately a the rate IRR a $XXX for proceeds properties In we brings in million are for XX September, we us due X.X%. Company's of X.X% $XX for history. increased This million. to decreasing dispositions, net unlevered to timing $XX.X properties for million and net we disposition unlevered the the our XX of from cap guidance realized of million XXXX time of an $XXX net sold rate quarter, XX year-to-date cap X.X% an

period. annualized Our current the year represents X% over ago dividend a increase

since X.X%. have our growing increased annual dividend year XXXX, companies listing the every at of compound rate a average dividends the We in

only of of S&P one excited to We remain Dividend prospects the REITs pleased with be To Yield moving the current five company up, it we are wrap are in Index. about High our Aristocrats proud and forward. the state

and questions. Our I'd it portfolio, for for pipeline up open like contributing shareholders. healthy, At to real acquisitions remain growth earnings to Operator? our estate favorable risk-adjusted balance this sheet time,


will we with And Instructions] first [Operator you. go Citi. Christy McElroy Thank to

Unidentified Analyst

to just Christy. a some if currently, could end for on similar and today, acquisitions would that the the get Wondering the additional better of for [indiscernible] sense acquisitions you a seeing And on at in any is are expect you're pace opportunities you of in based provide This timing on color year. process XXXX? market contract on

Sumit Roy

So always we quarter share have very very acquisitions as about we've very, in $X.XX guidance. confident that feel year difficult to out. fourth forecast We meeting indicated with billion very you, pipeline. I can the a healthy What are our

by bit. exceed probably we on what about it XXXX will in We talk are at But be doing to a premature. planning will this point

Unidentified Analyst

the higher that pricing Okay, the far and dispositions during a we asset great. in should as what as Was of then bit rate particular in quarter the the for follow-up sales one there cap balance remaining drove just the on quick And expect year? anything quarter. this

Sumit Roy

we cap did the was rates some reduce by market. $XXX sold. the timing are our billion and driven opportunistic of being The types to being from that pulled We billion that $XXX guidance largely driven that largely assets are from sales and by

end we which million our should able by right So should feel sales like, around of and year. get be to in to the historically the X%, have achieved IRR be we $XXX

Unidentified Analyst

great. you. Thank Okay,


next we with Karin MUFG to go Securities. Ford will And

Karin Ford

new company the press Hi, last role. to good Sumit, strategy. congratulations the releases be new working in mentioned entail? change create what Company's that see there. out value looks evolution evolve to The or classes Board you'd asset be with Can seeing both on morning – shareholders? elaborate could might the a we you two that in management the way investments And for

Sumit Roy

to remains the we want strong execute Thank we you will third place that continue would was market product strategy our current in well to pursuing. is for I years five as in that entered we and that said always that Four for in your devised question, Karin. agriculture the in in for very new believe achieved What the was on looking we an here the grow. last we industrial largely are the making year-to-date And we team that avenues results to has quite place architect that as that the The ended evident Right been market. as emphasize quarter. have Napa and years the into we Having together for quite ago, then, investment current the successfully. ago, five we've we explored strategy along executing and that, years are we up also six Valley. or been have

So something that, we continue are be viewed and a and do new that appropriate to very doing as we having risk of so. we at we’ll for meeting that growth this said growth believe enough basis feel look to current there's runway our in on will strategy adjusted rates is avenues confident company. of But constantly

Karin Ford

is regarding My investments. for Thanks question that. second

could that the reduce lease year of a continue demand for with lot here deals? or might rules Do next expect you those into had corporate You've accounting sale think changing leasebacks. do you successes

Sumit Roy

not changes tenants. with discussions rules relationship our our The in lease have impacted the

anything for in fact, viable to to and leaseback about conversations. in continues if grow those traditionally spoken the this continues that grow In we've past, and the wouldn't with engage sale tenants market

have with grow. us to discussions our leaseback – market XXXX, will that relationships we're the having that the new viable our very lead the the take have and So and our impact believe pipeline market, some sale lease to on will relationships existing for no will continue for current changes a


will our Stanley. come Malhotra And Vikram next question Morgan with from

Vikram Malhotra

buy areas. of higher very the years a for capital? you that lot certain Thanks in to you stores, Sumit, exposure attractive time to ago, the chose question. drug had taking quality X Maybe last cost of a

good with plan it Just you’re you sitting maybe asset a very similar wondering relative, REIT different? What to maybe maybe have to capital now here other you cost and do of do classes.

Sumit Roy

be of capital most us is the strategy that to and interested of had – that to that types Well, were was higher the was a continued the relative afforded cost find as capital market the a And had for four capital. cost low of the once of had the has again relative of to at to the highlighted ourselves low function products products implemented look always basis, been a quite if that we've of very lowest. retail what's and fact and On we've hope cost successful equity what years, we amongst us in. with lower cost last believe industrial we the we a the happened and that over you to cost a three the on we basis what

Now of has with these the of debt than two upgrades, become even peers. lower our cost most

going comes be allows strategy change have to balance going and place believe some fact to a that that very anything. regardless very explore, We needs a of today, continue strategy place that. a So the continuing are. the of can to in in And of sheet We cost is strategy have a be. given a cost terms do think economic I that other do very that we on low that we what having and what are are the of blended necessarily always to of we the true had a of in capital. very And capital don't conditions what we cost the the avenues basis, to don't capital. into want the find in necessarily to defining we I to well think of we low create portfolio that that advantage a calculus to we've have us

Vikram Malhotra

occurred? to in departure. it better a couple seemed we've how talked question second just then get the on about I taught sense – and John's just last of How of of a think it this was weeks bit I trying terms over this sudden And change Okay. everyone's know

know – So I'm what too on. just sense you maybe nothing to you'd be would incremental maybe I how just questions earlier just of one thoughts wondering the and us this if you of can build anymore was said some give contemplated the doing on of different, being here? discussions but from more off

Sumit Roy

that that situation to change and mutually was road question is mutually for management a to think which raised that to said was These there the the around Board that is it transition I believe speed in on of ready three are team The you where Board period. you a a time ready you But on have that depth And right inevitable. John was I've oftentimes thought the interest the making answer discussions happens. transition both down just typically and incorporating route are case, take suddenness, the a really the but and that that in And the ways, believe versus immediately strength is. doing – the its the given the a it was see now be that and there Board about transition agreed decision it this month and traditional in So not John the agreed a to reins concurred part When more have and the John incoming six shareholders our CEO never Vikram, two I the on best where to the of decision. reins. company the now this mean and schools would that question one, the works upon. Board may take the and is of good delayed period and

have So I much that what's about. think transpired, pretty come should how things from address

differently, been much and advantage have I've then the team time. team of been years this by defining is, with on all very this and intact of executing of this and parcel for been for last strategy strategy. part along to large of the that what has the the I've that and had terms part team and seven do In with the team going I'm worked I've

a continue there's continuity bode sense have of and is that that to going So to well. we

for So I conduct et cetera. see to that. we’re don't dramatic any looking to if believe, how changes business, terms of going you're going to see in you're

one So as road bit conversations do this just to bit the separation. of meeting organizational a and I connectivity I flatter a its cetera. is think on more differently EPVs of business et usual the my internally, some be visible terms slightly individual in is little direct in what And a more, be mentioned my terms structure and is have might going company, of in the of with I've have reports shareholders, i.e., all degree where be, in

that's very with I would those are So terms et strategy, Company, like minor changes. But in but line in It's more as run how usual. to business of the cetera.


we’ll go to Stender next Fargo. Todd with Wells And

Todd Stender

congratulations on promotion. Hi the Sumit,

Sumit Roy

Thank you, Todd.

Todd Stender

look the can just in these lease rent these of rent describe and the are you X-Eleven When quarter coverage, you. some acquired specifics? were escalator, you the at the leasebacks sale terms, Thank

Sumit Roy

in in XX we that Sure. get X-Eleven Yes. X.X% I the sort on tune five. higher we of every doing one-off good the XX you pricing. to are we These the is are and would sale fact very directly than what they are far around that would I get as a with have say to points to leasebacks get the lease all go alluded XX-year average basis so of that that leasebacks. sale market. They terms pricing growth

Todd Stender

line we end the the so an balance you to you. Thank basis company, on but may at billion that but be but line the and look used line then a the on at a comparable to $XXX sheet, But big But just big getting on billion Okay. just balance the much. $X on maybe up guys It that of grow QX, to $X the basis, how close that that maybe was Paul higher? was balance for size get? And relative number, looking million not line, even balance so. a not absolute large, could see of your

Paul Meurer

week from sheet have term the foreshadow that a front in So everyone and/or then mind that the to relative of we balance any on debt appropriate management applied I was balance line, trying function philosophy. to change was a in addition, more are week $XXX line just standpoint us we activity peers that we thought in That flexibility remind as in on to the was funded that to view the I'll on and And liquidity opposed or a which an million Keep or so These property loan Relative how variable and the line. term giving think balance some closed sales we consider to immediately sheet. our loan. risk to fair ago, exposure. the quarter. current was that's fourth acquisition larger the rate a overall

of currently, a a It's after And week standpoint, a a available very position right a be $XXX under us million So immediate to reason a are funding we're have on taking of position need particular term needs. forms are to metrics the But for in line but it not all well. good will a from leverage of loan forms because access as we it we're large. any we now balance ago as all was we'll capital any at go not look in forward not where where our be very that repayment. funding basis, and


And we’ll with James. next Mings Collin Raymond go to

Collin Mings

congratulations and Thanks Sumit.

Sumit Roy

Thanks Collin.

Collin Mings

for to me, question just Karin's back question actually. first Just going

grow, maybe thinking international to opportunities about currently just platform continues how are you your As specifically?

Sumit Roy

correct. we'll plans. with, market that at we test with of sure one time risk new appropriate the but that we go on have executing we something and would is table growth speak I've no We plans and rates, that which it, don't strategy we it, we comfort and And our us avenues avenues conservatism But said, go immediate our growth of will like strategy this continued immediate at current that fits to up said, immediate enough of have about make international. Collin, be, But any in don't gives have overall to adjusted have runway of all time wouldn't look ready are I've international. be ignore believe any these the to the international plans to we to avenues that like be come to

Collin Mings

one-off far the differential you versus, points. – the on on then X-Eleven, you XX, XX a the rate you the basis And what think touched portfolio. Okay. as suggested, Like market being be would as between cap again on maybe pricing

are little at now in the making what right discount picture of and broader you portfolio in here, do Just you really maybe terms thinking effect? marketplace start of size a take maybe about or bit threshold see how the – to that premium deal

Paul Meurer

Look of that billion favor. north to we've to The two fact to off able last tune been our this of that we They one-off deep that that points what over XX% what to years accommodate we are rates the sale of of rates very the changing market these XX basis particular is very quarter. cap with around was X-Eleven finding open in And we're did are having with. and leasebacks do the that discussions cap environment point. large cap institutional and have accrues of adjusting to get the tenants to $X rate relationships speaks

by we into we sophisticated So feel that discounts institutional that there these like with tenants. are get entering especially transactions, portfolio


we’ll And with next Thalmann. Massocca to go Ladenburg John

John Massocca

on congratulation off, new role. first And afternoon. Good the Sumit

Sumit Roy

Thank you, John.

John Massocca

particularly be one other quarter's of obviously, activity? but that? I any X-Eleven, C-stores there with this were anything So industries tenant that outside of the know them, acquisition would dominated

Sumit Roy

dominant industries. were Those There were C-stores of restaurants. two areas the and

John Massocca

those were here, dining second And my question or QSR? casual

Sumit Roy

Casual dining.

John Massocca

quarters been you've capital? couple leaseback in strong are leave really last still Or then for cost on potential you the Okay. what for market focused of strong the And in primarily terms open you and current especially M&A the done has that given how transactions given guys? of does of sale larger strategy activity, the

Sumit Roy

sale and that had of that. control of some something that few very served organic is Company have say history M&A is Yes. don't that's that and of we are market. something Look to over discussion we done has control not the but those, M&A last well we we don't These the having the a not us leaseback on doing on that that acquisitions are count years. averse count This around transactions. we

with runway executing speak happy strategy We are very that and we current the have the for our themselves. numbers

is So answer aggressively start are either. if we're the but pursuing, to M&A averse not asking this we John, you're that no, something is then to going

John Massocca

very Thank much. helpful. you very is Color


And to next with go we'll Christy Citi. McElroy

Michael Bilerman

Bilerman with it’s Hey, Michael here Christy.

question the the So transition. CEO just is regarding

relative john XXXX accrued get bonus or did for bonus his to level? So an a comp

Sumit Roy

The and as with his it in agreements were employment negotiated Michael place severance the was was that largely agreement. as well in – line his

that XX his the we listed awards. stock employment was agreement with pretty much – line $XX and approximately So have million agreement his in the around

Michael Bilerman

I rolled sitting bonus mean, if to he effectively people many have next worked he that proxy, year a from but in year. whether know And read then into I was up to we're next million, November don't that, he basically until $XX of could January X give and of would $XX decided why do you would generally perspective, it not timing the forego in if million here – a agree line with it?

Sumit Roy

No, also had fact that highlighted million it I think of we’ve been already accrued. $X just we – the that fact the

what So for million you the $XX part been can pretty that much had of this was out. assume accrued year that was paid

you had Q&A for End accurate he share, rata it's to believe of forego his don't I pro assume to that. So that


conclude remarks. concluding call. over the will call the I portion Roy Income's for Realty turn conference now Sumit does this of And question-and-answer to

Sumit Roy

Caroline, We you, Thank and for week. Thank to everyone look joining with NAREIT thanks next at today. you. conference us forward you speaking all


today's That Thank everyone. you, will conference. conclude

now You may disconnect.