Realty Income Corp (O)

Private Fund Launch
Q: Why launch a private fund now?
A: Sumit explained that the private fund allows Realty Income to pursue high-quality assets with lower initial yields but similar long-term returns, which the public entity can't target due to its focus on near-term spreads. The fund expands their investment universe and monetizes their platform's scale, benefiting public shareholders over time. - - -

Acquisition Strategy and Q4 Guidance
Q: What's driving acquisition volumes and guidance for Q4?
A: Sumit noted they completed $740 million in acquisitions in Q3 at a 4% cap rate, 50 basis points lower than Q2's 7.9%, but their cost of capital improved by 65 basis points, making these deals more accretive. They anticipate closing $1.3 billion in Q4, have forward-funded it, and have zero reliance on public markets for financing. - -

$63 Million Noncash Charge
Q: What about the $63 million charge related to a C-store client?
A: Jonathan explained it's a noncash charge due to a client not paying rent while operating the assets. They expect to recapture a significant portion upon re-leasing, as they've historically achieved recapture rates over 80%. The assets are primarily in Texas and have generated strong interest. - -

Expanding into Europe
Q: How are European opportunities shaping up?
A: Sumit stated that 56% of year-to-date acquisitions have been in Europe, which they view as an advantage. They expect momentum to continue, with potential expansion into new countries, though Q4 will revert to more historical norms between U.S. and international investments. -

Credit and Lease Renewals
Q: Can you update on credit issues and lease renewals?
A: Sumit highlighted successful resolutions with tenants like Red Lobster, Rite Aid, and Regal, achieving recapture rates of 91%, 88%, and 85% respectively. All 13 Walgreens leases up for renewal this year were renewed, and they've seen over 100% rent recapture on 55 Walgreens renewals historically. Similar strong renewals were noted with CVS and dollar stores, emphasizing that headlines don't reflect their portfolio's performance. -

Competitive Landscape
Q: How is competition affecting your acquisitions?
A: Sumit acknowledged increased competition from private capital in the U.S., making it a crowded field, though they don't often compete with public net lease companies. In international markets, competition is less intense, which is advantageous for them. -

Data Center Investments
Q: What's the status of data center initiatives?
A: Sumit mentioned they're seeing strong demand in the data center space and are in discussions with multiple operators. They're crafting compelling value propositions and are optimistic about future opportunities to allocate capital exposed to top-tier clients on long-term leases. -

Effect of Interest Rates
Q: How are interest rate changes affecting transactions?
A: Sumit said that volatility in long-term interest rates impacts their cost of capital, affecting acquisitions. They monitor policy-driven inflation expectations but believe uncertainty will pass, allowing them to execute business as usual once rates stabilize. -

Fund Investment Focus
Q: Will the fund invest in non-triple net assets?
A: Sumit clarified that fund investments will have rental income similar to their balance sheet assets, focusing on high-flow-through properties like hyperscale, single-tenant data centers with 20-year leases. They won't pursue businesses with lower NOI margins. -

Development Pipeline
Q: Update on leasing non-retail developments?
A: Sumit said the non-retail portion of their development pipeline is small, around 15%, and they wait for lease clarity before significant spending. They're confident in leasing up these assets, partnering with top developers like Panattoni. -