REALTY INCOME Q1 FY26 earnings call O

Realty Income has deliberately built a private capital ecosystem to diversify equity sources and expand investment opportunities. This includes a $1.7 billion cornerstone capital raise for its Perpetual Life U.S. Core+ fund, a strategic partnership with GIC for build-to-suit industrial in the U.S. and Mexico, and a $1 billion equity raise from Apollo for a programmatic venture targeting the insurance and annuity market. These initiatives aim to leverage the platform's scale and underwriting capabilities across various investment mandates.

The company deployed $2.8 billion in Q1 FY26, with investment activity balanced between North America and Europe. They sourced approximately $31 billion in opportunities, maintaining high selectivity by closing on only 9% of reviewed deals. Approximately 94% of these opportunities were relationship-driven, highlighting the strength of their origination engine. The strategy focuses on larger, more structured investments where scale and underwriting provide a competitive advantage, particularly in the U.S. market.

Realty Income deployed $1 billion into credit investments globally, including two mezzanine transactions: a $375 million loan backed by logistics assets and a $190 million loan for a data center campus development. These credit investments are strategically made with the intent of eventual real estate ownership, allowing the company to secure higher yields during the development phase and build relationships with key partners. The duration of these credit investments is intentionally shorter to facilitate future ownership decisions.

The company ended the quarter with approximately $3.9 billion of liquidity on a pro rata basis. Net debt to annualized pro forma adjusted EBITDA was 5.2x, within the targeted leverage range, and would be 4.9x inclusive of outstanding forward equity. Subsequent to quarter-end, Realty Income issued $800 million of 4.75% senior unsecured notes due 2033, swapping $500 million into euros for a blended yield of 4.44%. A new $694 million 10-year unsecured term loan with Goldman Sachs, tied to San Diego Community Power, was also established at a fixed annual interest rate of 4.91%.

Proactive asset and property management generated outsized lease termination income of $40.2 million in Q1 FY26. This strategy is focused on maximizing total return by repositioning assets, especially those inherited from recent M&A deals, with alternative tenants or recycling capital. While the Q1 figure was front-loaded, management does not expect this level of termination income to recur indefinitely, viewing it as an episodic outcome of current portfolio optimization efforts.

Europe continues to be a key competitive advantage, offering more fragmented and less crowded markets than the U.S. This allows for sourcing portfolio-oriented, tailored transactions with attractive duration and credit. Euro-denominated debt is priced approximately 100 basis points inside comparable U.S. dollar debt, providing a natural currency hedge and low-cost financing flexibility. The U.K. market, despite bond market volatility^🌐, offers healthy pipeline opportunities with higher cap rates.