Property CEO conference. I'm Nick Joseph, joined by Smedes Rose with Citi Research. Pleased to have with us Realty Income and CEO Sumit Roy. This session is for Citi clients only. Disclosures have been made available at the access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 to submit any questions. Sumit, I'll hand it over to you to introduce your team and company, provide any opening remarks, tell the audience the top reasons an investor should buy your stock today. We'll get into Q&A.
Sounds good, Nick. Thank you. To my left, I have Jonathan Pong, our CFO. To my right, I have Dan O'Connor, who works very closely with Jonathan and is helping me with my prepared remarks and answering questions. Thank you and good morning. It's great to be back with Citi, and thank you to everyone for joining us today. Thank you, Smeed, for facilitating.
Before I begin, I'll remind you that some of my comments today may be forward-looking in nature, and I refer you to our SEC filing for a discussion of the risks and factors that could cause actual results to differ. 2025 was a year in which Realty Income's platform, discipline, and global reach came together to deliver steady results while positioning the business for its next phase of growth.
We generated AFFO per share of $4.28 for the full year, supported by $6.3 billion of gross investment volume, 98.9% occupancy, and 103.9% rent recapture rate, reinforcing the durability and predictability of our cash flows. We think about the investment case today, I would frame Realty Income around three attributes that have defined the company for decades and continue to guide how we operate: trust, reliability, and disciplined growth.
First, trust. Built through stability by design, our portfolio of more than 15,500 properties is diversified by client, industry, and geography, with long-duration net leases and embedded rent escalators that provide visibility into future cash flow. Approximately 90% of our rent comes from non-discretionary, service-oriented, or low price point businesses that have historically performed well across economic cycles.
This structure has allowed us to deliver steady and reliable income growth, our dividend for more than three decades, and consistently generate 8%-12% total operational returns, which is defined as AFFO growth plus dividend yield even during the periods of market distress and volatility. Second, reliability. Driven by disciplined capital allocation and risk management.
In 2025, we deployed approximately $6.2 billion of capital on a pro rata basis at a 7.3% initial cash yield while maintaining conservative leverage and strong credit metrics. Importantly, that activity was underpinned by a high degree of selectivity. We sourced a record of more than $120 billion of opportunity globally and chose to close on only a small fraction that met our risk-adjusted return thresholds.
That discipline is central to how we protect capital, preserve balance sheet flexibility, and compound value over time. Active asset management is a key extension of that discipline. Our proprietary predictive analytics platform provides early store-level visibility into operating performance and tenant trends, allowing us to identify elevated risk well before it becomes apparent in reported results.
These insights inform proactive decisions around dispositions, re-leasing, and capital recycling and have been instrumental in supporting high occupancy, strong rent recapture, and resilient cash flows across the portfolio. Third, growth. Deliberate, flexible, and increasingly global. Europe continues to be a meaningful driver of our business, representing approximately 19% of annualized base rent today.
Our established European platform gives us access to a large, fragmented market with attractive risk-adjusted returns, longer lease terms, and differentiated financing opportunities. At the same time, the U.S. remains a core market. As we move into 2026, we are seeing improving momentum across both geographies. In parallel, we've taken important steps to expand and diversify how we fund growth. During 2025, we successfully launched our inaugural U.S. Core Plus private fund, raising more than $1.5 billion of third-party equity from a high-quality institutional investor base.
We also established and expanded strategic partnerships, including with GIC and Blackstone, that allow us to pursue larger, more complex opportunities while preserving our underwriting standards and balance sheet strength. The rationale behind these initiatives is straightforward. They enhance our capital flexibility, expand our investable universe, and allow us to deploy capital across property types and across the capital structure without compromising the core DNA of the company.
Importantly, these various platforms are designed to be complementary to our public REIT model and accretive to long-term per-share value, not a substitute for it. Looking ahead, we enter 2026 with a resilient core business, a strong balance sheet, ample liquidity, and a deep global pipeline.
Our priorities remain unchanged: allocate capital with discipline, protect the durability of our cash flows, and continuously scale the business. We believe this approach positions Realty Income to continue delivering dependable income today while building the foundation for sustained growth over the long term. With that, I'll open it up for questions.
All right, thank you. You brought up a number of different things there. I thought maybe it might just be interesting to start out sort of big picture. You noted that you finished 2025 at $6.4 billion of investment. I think the guidance for $8 billion this year that would include your fund business, which I guess would not have been included in last year's numbers. Could you talk about just for the on-balance sheet? It seems like we've seen a lot of momentum and activity for you guys as well as for others. You know, what do you think is driving some of those opportunities that you're seeing?
Let's put aside the funds for just a moment and sort of on a comparable basis. I'm assuming it's like $6 billion-$7 billion, something like that. We've got another $1 billion that will go into the, your private stuff.
Of the eight, you're right, seven is on balance sheet. one is going to be in the fund and other channels. What is driving the momentum? That's a great question. Look, two and a half years ago, we thought about our business, what we identified as a single point of failure was our one source of equity capital, which was the public markets.
What we also realized that at points in time, the public markets tend to be untethered from the actual fundamentals of the operations of the business. We continued to perform, yet we were trading at the lowest multiple that we've ever traded at in our history, and it seemed to persist that continued trading volume.
Regardless of what we were doing on the operations side, regardless of the channels we were creating, that value was not manifesting in our stock price. One of the questions that we needed to answer internally was: How do we diversify from this one single point of failure? How do we create channels that will allow us to execute this platform that is built to do $10 billion-$12 billion a year on a consistent basis?
How do we create value for, you know, our public shareholders through the answer to that question? That's how we landed on the open-ended perpetual life core fund, the flagship fund that we launched. It was the single most difficult answer. Everybody told us it is going to be very difficult to do.
Alternative asset managers were trying to do it. They were finding it difficult. Yet we said we didn't want to go down the closed-end fund route. That's not how we think about investing in real estate. Our investment is long duration. The longer we hold, the less CapEx that we need to put in, and we're just collecting rent. That's how we create value.
So we needed capital that was very akin to our public equity capital, which was perpetual in nature, permanent in nature. That's why we arrived at the most difficult answer, and we chose to go down that path. Fast-forward to today, it has been quite successful. You know, we've raised about $1.5 already. We are scheduled to raise $1.7. That'll be the end of the cornerstone round.
Along with creating this particular channel, we also wanted to form relationships with like-minded investors. GIC, we announced a partnership with them where we are gonna be pursuing build-to-suit, single-tenant, net lease industrial assets here in the U.S., and we also leveraged that relationship to sort of embark into Mexico, now our largest, U.S.'s largest trading partner, given all of the new nearshoring trends and onshoring trends that we are starting to see. What gave us additional support was, you know, the client base that wanted to go in and build industrial assets, or at least occupy industrial assets alongside us.
Leveraging, you know, GIC to go into a market where we didn't have the knowledge base, et cetera, was something that was very important to us and then being able to attract transactions like the Blackstone transaction in CityCenter, where we invested $800 million with them and created a win-win situation on a very bespoke basis.
I would argue that there are very few companies today who could do an open-ended fund, who could have a long-term relationship with GIC on a programmatic basis, and who would attract Blackstone on a bilateral basis where they pick up the phone, they call us, it's not a marketed process, and enter into these types of transactions. That's what gives us momentum. That's what gives us the confidence.
Now that we have created a diversification away from a single point of failure, which was our public equity and where it was trading, we have the confidence to be able to fully utilize a platform that's built for a lot more. That manifested in the pipeline that we were able to create, and that pipeline allowed us to come in with an $8 billion forecast.
Okay. You know, one of the knocks on Realty Income, and I think I brought this up with you last year, or, you know, just in net lease world, you know, the bigger you get, the more you have to do because it's an external, you know, growth vehicle, and you guys are kind of the epitome of that. It seems like you've kind of, I mean, you've kind of really broken through those concerns as these numbers keep going up. I mean, do you think having the private...
I mean, I know there's capital coming under the private fund and through these partnerships, but do you think just for regular kind of, you know, straight down the fairway acquisition volume, like you're getting more people coming to you or there's more opportunities being developed, just like sort of a virtuous circle, I guess, a little bit?
We are already starting to see that. I mean, I mentioned Blackstone because everybody is familiar with Blackstone.
Yeah.
They're the largest owner of real estate. If you go to the U.K., oftentimes we are the first call before any transaction is taken to the market. Not any, but some of these larger transactions are taken to market because we can do things fast. We can do it, you know, in a very efficient way, and without making it public, which some of our counterparties want. Look, for us, volume has never been the challenge. I've, I think I've said this before in this conference that we are not, you know, opportunity constrained. We have always been capital constrained in terms of what we could do.
Even last year, you know, if you looked at the sourcing numbers, it was a high watermark for us, $120+ billion of sourcing, yet we ended up doing six. That's 5%. That doesn't mean that there was nothing else that we wanted to do. It's because we couldn't do it. We didn't have the right cost of capital to do it. you know, we've shared those numbers in the past as well, $2 billion-$3 billion that we had to pass on, not because it didn't meet the overall return profile, but it didn't meet my, you know, initial day one spread that our public investors invest in, into us for.
Creating these channels now will allow us to do more, and I will argue, Smedes, that having these channels actually helps us to create a higher return on every public equity that we are investing into our business. We have a chart in our investor deck that actually highlights that.
That if we take an investment, you know, call it a 7% cap investment, and we are 20% owners for which I need public equity, and 80% is coming from private sources, and I get fees associated with managing this asset on that 80%, I have effectively gone spread plus fees on every dollar of public investment that I'm making. It is a way to accelerate our growth. It is a way to enhance our return on equity being invested and play a game that is no longer just tied to spreads. It is spread plus fees.
Okay. Forgive me if I'm getting this wrong, but I think kind of the midpoint of your guidance for this year is around 3% AFFO growth, on the $8 billion. Would you expect that to accelerate to 4% or 5% or more as you move forward? Like, kind of what's the long-term growth story, I guess, for Realty at this point?
Yeah. If you look at historically, our long-term growth has been right around 5%, and everything we are doing is to get back there. I already talked to you a little bit about the math.
Mm-hmm.
It's not gonna happen overnight, but, you know, going from 2% last year to 3% this year, that's a 50% jump. If we keep that same trend rate, I think we're going to get back to our historical.
Should we assume 4% for next year?
That would be 33%, not 50. Anyway.
I wanted to ask you also a little bit, 'cause I've been in, you know, obviously we've had a number of different, you know, net lease meetings, and one person was kinda like, you know, "No one should be including lease termination fees in their AFFO numbers." I'm not saying I agree with that.
I'm just curious as to how you're thinking about, 'cause it has been a focal point really all of last year, and it's also this year. They've accelerated. You've talked about a more active approach to your portfolio. Maybe, either you or Jonathan, I know this has been, you know, an area for you, talk about lease termination fees, how you're thinking about it. You know, what's kind of the impetus behind being more proactive around your portfolio and getting some clients out, I guess?
Look, I think, I respect, by the way, everyone's opinion on this, but we have to run the business the way we think it best.
Mm-hmm.
For us, the biggest team that we have is our asset management and property management teams. We have tools that we have invested in for the last seven years that are allowing us to identify risks in assets, well in advance of lease expiration. You know, the reasons could be as simple as the retail corridor has shifted, and what used to be a great retail location, you know, in seven years from now when the lease is going to be expiring, the chances of renewal has now diminished. That foresight, that knowledge, is what is allowing us to be far more active on the capital recycling side, which is the reason why we sold $744 million worth of. We did dispositions last year, and we are marking it to a similar number in 2026.
With all of this intelligence that we are, you know, gathering and our ability to create a risk profile real-time because of tools that we have created that rely on machine learning and deep learning to help assess, you know, the comprehensive risk of a location, we are compelled to do certain things, i.e., reach out to our clients, talk to them about certain locations that doesn't seem to be very profitable for them today. The likelihood of it changing and becoming profitable is only going to diminish.
It's a win-win situation for us to go and engage in that conversation and try to find a higher and better use for that particular location, you know, today, when we get it back with the lease termination than it would have been, you know, seven years from now when the lease terminates and it's a vacant asset.
This is a way to go to them and just be like, "You know, we don't think you're gonna renew for the various reasons, so why don't you go ahead and just pay us a little breakup fee now and we'll exit out of this?
It could be that. Yeah.
Okay.
It could be that, and that's a win-win for them because it's not a profitable store, but yet they are, have obligations that's going to last another seven years.
Yeah.
It allows them to, you know, pay us a termination fee and get, you know, no longer have that obligation. We are either able to already have parallel conversations with somebody who could backfill that position with that business being more appropriate for that location. We call it double dip, you know?
It's a win situation for, you know, our existing client. It's the right outcome for a new client who wants to be in that location, and we are able to accelerate, you know, the outcomes that otherwise we'd all have been waiting for if it was a passive strategy. We can do that because we have the right tools to be able to do that, and we want to be more proactive. We want to, at the end of the day, create the best economic outcomes for each one of these locations.
You mentioned machine learning, we talked about AI the last couple of calls. I do wanna talk about that and indeed we're required to talk about that. I wanted to ask you first just about your Las Vegas investment at CityCenter. I think it's a preferred $800 million structured. I know there's kind of a minimum return that you would get. Kind of at the end of the day, is that a property that you would foresee just wanting to own outright? I mean.
Yeah
... fit with your thoughts around gaming? You've talked about expanding there.
Yes. I would love to own it. You know, that's the only reason why we are entering into a transaction that has a path to a ROFO. We do actually have a ROFO on that asset.
Okay.
We can't afford it on, you know, the cap rate basis that these things would trade at today. You know, for us to create a win-win situation, we entered into this pref structure, when they were going through a refinancing. Blackstone was going through a refinancing. Those are precisely the type of assets that are continuing to do very well in Vegas. The very high, you know, whatever the right word is, the high-end-
Mm-hmm
... spectrum.
Benefiting from kind of the K economy that we've all talked about.
Exactly
... forever.
Exactly. MGM and Wynn both have talked about that. I mean, if you look at what the Bellagio and CityCenter is producing in terms of EBITDA, they're still comping very positive. You look at the middle and the lower end of the spectrum, they're struggling, you know? Our only exposure today to the Strip is the Bellagio, where we own a 22% interest. With this investment, you know, we have a path to ownership if things align, you know, and if Blackstone ultimately wants to sell, you know, two very iconic assets in CityCenter.
There's been, and I realize the higher-end properties have done better relative to the lower-end counterparts. Do you think the concerns, you know, there's been broad-based concerns around Vegas and visitation down and, you know, just you know, lots of issues that have been in the media. I mean, do you think this is impacting the pricing of the higher-end casinos or are they just kinda hanging in there with their very low cap rates slash very high multiples of EBITDA?
Well, for us, you know, there's equity behind us, so we have, you know, we have room. They don't have to trade at those levels. Those are the levels that are being, you know, marketed around when you do appraisals, et cetera, on those assets. Look, I think the biggest issue is when you look at some of these other concepts.
By the way, I'm long Vegas, with all of the sporting that is coming down their way. They're soon gonna have a Major League Baseball team. It's about, okay, you have this pocket of capital, discretionary capital, that's going to be spent in Vegas. Who's got the best mousetrap to attract that capital?
I'm going to argue that it is these higher-end ones, and until the middle and the lower-end guys don't figure out that you can't have, you know, a Starbucks selling $8, you know, cups of coffee when your room is for $40, that is causing a lot of heartache. Until that is not resolved, they're not going to be able to attract any of this discretionary capital. In terms of your momentum in Vegas, et cetera, I'm very comfortable with the investments that we have.
Okay. Just to finish out on that and then we're gonna switch topics. On the regional kinda casino basis, you obviously have the Encore in Boston. Any other, cities or, you know, properties are attractive to you on that point on the more regional side?
Yeah, New York, but, you know.
New York.
There was only one asset in New York that was very attractive of the three that have been given out, but I don't think they need equity.
Which one do you like?
Um-
The Hard Rock or-
That's the only one that I can think of that's, you know, doesn't require equity capital, and it's the best, in my opinion, in terms of location, in terms of the scope, in terms of access. I think it'll be a phenomenal site, and Stevie Cohen and his group and Hard Rock, I think they're gonna be formidable.
If you could be involved in that, you'd be interested? I mean, obviously, your cost of capital is different from theirs.
We would be, but we can't. It's the banks are tripping over themselves to actually finance the business. I don't think they need any additional capital. Talking more broadly about, you know, gaming. Look, we said we're gonna go into gaming on a very selective basis. I think we've proven that to be true. That doesn't mean that we are not going to do stuff outside of Vegas.
We did it in Boston. That asset has continued to perform very well. It is about choosing the right partners and, you know, Hard Rock is definitely one of the better operators, and we'd love to partner with them. You know, Wynn and MGM on the assets that we are exposed to, that's what we are looking for. If it doesn't fit that ilk, it's not gonna be of interest to us.
You've obviously used technology for many years. You have a large portfolio, lots of tenants, lots of underwriting and, you know, obviously, that's a big undertaking. What is the opportunity of AI deployment to make that even more efficient than where you are today, both in terms of asset management, but then also on the acquisition process side?
Nick, we are already using our tools through the entire workflow, from when we source a transaction to actually helping us underwrite the transaction, apply a comprehensive risk on each location that we are looking at. Then once it gets enfolded into our portfolio, the monitoring of those assets with the tool is an ongoing real-time, you know, exercise, and it helps identify disposition targets which then get acted upon by asset management.
We have tools that do use elements of AI throughout the lifecycle. We've also bought tools off the shelf to create scale and address, you know, minimize the risk associated with, you know, looking at invoices that are coming in, you know, through the AP process.
We have automated that entire process from looking at an in-invoice, transcribing that invoice electronically into a format that then goes through a workflow process. That's where humans come in to make sure that, you know, there aren't any that they are comfortable with the representation. It gets approved, and then on the back end, there is Kyriba that basically goes through the payment of those invoices, et cetera.
Those are discrete solutions. What we are working on today is a quantum leap solution, which is to take all of our data and basically create a data lakehouse where regardless of where the data sits, some of it sits in Yardi, some of it sits in spreadsheets, some of it sits in other systems, et cetera, and bring it all into this data lakehouse, create, you know, create metadata from it.
First and foremost, let's create a normalized set where if you're calling something a location and calling it a building somewhere else, we have the same understanding of what it is. One attribute per, you know, what that data looks like, and then create the interrelationships.
Once we finish that work, I think that's when we are going to start to create agentic AI and multi-agent AI to help drive, you know, more scale benefits in our business. Today, we are about 60%-70% of the data is very well organized, but still 30%-40% of our data is in disparate sources that need to be brought in, and then the interrelationships between all of these data needs to be established.
Without doing that, I don't believe any company should be, you know, utilizing AIs to solve very discrete, small problems, because all of that will need to be redone when you really are trying to become an organization that is AI-centric. We are still, you know, a little ways away. We will create these, you know, discrete solutions, but that's not the long-term benefits of AI. I believe the path that I've just described to you that we are on is really what's going to be the quantum leap in terms of scale benefits that AI can bring.
Do you think that'll I mean, you already are very efficient from a G&A as a percentage of GAV or as a percentage of revenue. Is this more on the margin, or could this meaningfully change those metrics?
We will have to hire fewer people to do more, that's ultimately the goal we wanna get to. You know, we saw what Jack Dorsey came out and said, it's a completely different business. You know, coding is getting disrupted. You can start to see that in the private capital side that was so exposed to that business. Our business is, at the end of the day, is still people-centric.
We don't have very clean data out there. CoStar is considered to be the, you know, the source of all truth. Guess where they get their information? They call us and they say, "What did you lease this asset at?" When we say, "We are not sharing that information with you," they come up with a number.
You know, we have a long ways to go, and at the end of the day, it is a tool, just like Microsoft Office was a tool, just like the internet became a tool to enhance scalability. That's what, you know, AI is going to do for us. It'll help us underwrite better, it'll help us abstract leases better, it'll help us source information better. At the end of the day, you know, humans will be making the ultimate decision and will own that decision.
All right, yeah. You sort of mentioned it, but you think in addition to just, like, corporate efficiencies are gonna help you underwrite future leases?
Oh, for sure.
... better and understand, I guess, where the puck is moving, you know, in terms of underlying real estate value, I guess.
I think so. You know-
Yeah
... creation of an IC memo is still a cumbersome task, and all of that could be automated with the right agents, with the data being brought in in a fashion that agents can use to create, you know, IC spreadsheets and IC packages, which goes beyond spreadsheets. Yes, it's ultimately managing scale.
I wanted to ask you, just as your, as your scope gets bigger and bigger and the investment dollars that we're talking about, regardless of on-balance sheet or through funds, you know, what % of your transactions, I guess, come through existing relationships? How do you continue to forge new relationships? What are you, what are you kind of, I guess, what boxes need to be checked? I would imagine you're turned down more than you accept, but kinda what makes it through the hole?
We sourced $120 billion, and we did 6, so I'd say that's accurate. Look, I think, you know, the more established one gets in a market, the easier it becomes to create new channels of sourcing transactions. The more success that we are able to display with our partners, the more opportunities we're getting with them. Blackstone's a perfect example. You know, when we did our first deal with them on the Bellagio, that begot the second deal, which was the CityCenter. Now that we have successfully completed that, we hope that there'll be more channels to doing a lot more with Blackstone. It's a similar story with GIC.
We got to know GIC because they owned our stock, and we started talking about the net lease model, and they became big believers in the net lease business. They went and bought their own, you know, they took take-private transaction. Now they want to lean into it with one of the largest, if not the largest, player in the space to continue to build out certain other elements of net lease investing that they don't have in-house right now.
I think those are the things that differentiate us. You know, that's why people should think about us as a company to own, is because we are uniquely doing things that I don't believe there's anybody else on this floor today in the net lease sector that has the ability to do.
Are there any other large sovereign wealth funds that own your shares?
They actually ended up, you know, GIC ended up investing in our as an LP in our open-ended fund just to show support. They don't do that anymore. You know, they said, "We have a mandate that we don't invest in open-ended funds as a limited partner. We like to have JV structures where we have a say in the deal. Because of our other things that we are pursuing, we want to show support.
Okay.
That's a partnership.
I mean, would you be surprised if in a year from now you're working kind of with another sovereign wealth fund, sort of a similar type thing?
Look, It is very much a fact that all of the capital sources on the private side are looking to identify few unique, you know, managers that they want to work with who are executing very specific, you know, investment thesis. On the net lease, I think we are the team, you know, that people would like to partner with, and that's my belief. Yes, if there are others that have unique strategies that they want us to work with, we'll be open to that.
We're gonna round out with two quick questions.
2 rapid-fire questions. Same store NOI growth will include credit loss for the net lease sector overall next year in 2027.
Net of credit loss, I would say 1%.
More, fewer, or the same number of public net lease companies a year from now?
There are fewer today. I would say the same.
Same.
Thank you very much.
Thank you.
Thanks for your time, guys.