Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Realty Income Corp (O, Financial) increased its 2024 investment volume guidance to approximately $3.5 billion, indicating strong investment activity and a robust pipeline.
- The company delivered AFFO per share of $1.05, representing a 2.9% growth compared to last year.
- Realty Income Corp (O) maintained a high occupancy rate of 98.7%, showcasing the resilience and stability of its diversified portfolio.
- The company has a strong balance sheet with A3A-minus credit ratings and deep access to capital globally, providing significant competitive advantages.
- Realty Income Corp (O) is making progress towards establishing a private capital fund, which is expected to provide access to a deep pool of institutional capital and enhance financial flexibility.
Negative Points
- The company experienced a 10 basis points decrease in occupancy from the prior quarter.
- Realty Income Corp (O) took a $63 million non-cash charge related to a convenience store client, impacting financial results.
- There is increased competition in the US transaction market, particularly from private capital.
- The company faces volatility in the cost of capital, which could impact future investment decisions.
- Realty Income Corp (O) is dealing with credit issues from certain tenants, although it has historically recaptured a significant portion of impacted rent.
Q & A Highlights
Q: Can you discuss the acquisition numbers for Q3 and the guidance for Q4, particularly regarding cap rate compression and potential transactions like the 7-Eleven deal?
A: Sumit Roy, President and CEO, explained that the $740 million in acquisitions during Q3 at a 4% cap rate reflects a 50 basis point compression from Q2. This was offset by a 65 basis point improvement in cost of capital, making the transactions more accretive. The Q4 guidance of approximately $1.3 billion in acquisitions is fully funded, with no reliance on public markets, despite recent market volatility.
Q: How will the private capital fund differ from the core business, and will it have a lower cost of equity?
A: Sumit Roy noted that the private capital fund will focus on long-term IRR rather than first-year spread, allowing Realty Income to pursue transactions with potentially higher total returns but lower initial yields. This fund will complement the core business by expanding investment opportunities without conflicting interests.
Q: What is the potential impact of the $63 million charge related to a convenience store client, and how does it affect AFFO?
A: Jonathan Pong, CFO, clarified that the $63 million charge is non-cash and related to accounting for future cash flows in leases. The impact on AFFO is minimal, as the lost rent for 2024 is already accounted for in guidance. Realty Income is confident in recapturing rent once control over the assets is regained.
Q: Can you provide an update on the opportunities in Europe and whether acquisition activity there will continue to outpace the US?
A: Sumit Roy stated that 56% of year-to-date acquisitions have been in Europe, where they see strong opportunities. While the momentum in Europe continues, Q4 is expected to revert to more historical norms with increased US activity.
Q: How will the private capital fund impact Realty Income's ability to achieve mid-single-digit AFFO growth without large equity raises?
A: Sumit Roy explained that the fund will provide an alternative source of equity capital, reducing reliance on public markets and allowing Realty Income to continue its growth trajectory. The fund will initially be seeded with a portfolio similar to Realty Income's, with future investments being new transactions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
