Realty Income Q4 Earnings Call Highlights

Key Points

• Realty Income reported fourth-quarter AFFO per share of $1.08 and full-year $4.28, and issued 2026 AFFO guidance of $4.38–$4.42 while guiding $8 billion of investments for 2026 and citing portfolio metrics of 98.9% occupancy and 103.9% rent recapture.
• The company is diversifying capital sources after a “foundational” 2025, launching an open‑end fund that raised over $1.5 billion from 40+ institutional investors, ending the year with >$4.1 billion pro rata liquidity, and issuing a three‑year convertible that raised ~$862 million (partly used to repurchase shares and retire higher‑cost debt).
• Management is pursuing growth through acquisitions and partnerships (≈$6.3 billion deployed in 2025 at ~7.3% yield), a Mexico expansion and programmatic $1.5 billion GIC industrial JV, while actively managing credit risk—selling 425 properties (~$744 million), recognizing $18.9 million of Q4 lease termination income, and reducing At Home exposure.

Realty Income NYSE: O executives told investors the company’s “platform, discipline, and global reach” drove what CEO Sumit Roy described as steady 2025 results and positioned the net-lease REIT for an expanded set of growth channels in 2026 and beyond. The discussion, which covered fourth-quarter and full-year performance, emphasized a mix of acquisitions, capital recycling, new partnerships, and a push to diversify equity funding sources through private capital.

Fourth-quarter and full-year results

Roy said the company delivered AFFO per share of $1.08 in the fourth quarter and $4.28 for full-year 2025. Portfolio metrics cited on the call included 98.9% occupancy and 103.9% rent recapture, which management pointed to as evidence of stable and diversified cash flows.

On investment activity, the company reported fourth-quarter investments of approximately $2.4 billion (or $2.3 billion pro rata) at a 7.1% initial cash yield. Full-year 2025 deployment totaled about $6.3 billion (or $6.2 billion pro rata) at a 7.3% initial cash yield, with management noting that 30% of acquisition cash income came from investment-grade clients.

Realty Income also sold 425 properties for approximately $744 million in 2025, which management framed as portfolio enhancement and a source of capital for higher-return opportunities.

Credit and asset management: At Home and lease terminations

Management highlighted its handling of tenant-specific risk, focusing on At Home’s Chapter 11 filing. Roy said Realty Income began selling select At Home assets ahead of the bankruptcy after seeing store-level trends. Over the 18 months preceding the filing, the company sold eight properties for nearly $80 million, reducing exposure.

Across the remaining 31 At Home stores, Roy said the blended recapture rate was just over 80%, which he described as consistent with the company’s historical experience for bankruptcy outcomes. The company experienced one rejection that was resolved in the fourth quarter. Roy added that the tenant is now operating with what Realty Income believes is a stronger financial position.

Management also pointed to the use of proprietary predictive analytics to evaluate closure risk, rent sustainability, and “real estate fungibility,” which it said supported decisions to dispose of higher-risk locations and validate the remaining sites’ durability.

In addition, Roy said Realty Income recognized $18.9 million of lease termination income during the fourth quarter, describing it as part of a proactive approach to resolving potential credit and renewal risk and to reposition certain properties for “higher and better uses.”

International expansion and partnerships: Europe momentum and Mexico entry

Roy reiterated that Europe continues to offer “compelling risk-adjusted opportunities,” and the company also announced an expansion into Mexico through a strategic partnership with GIC. He said Realty Income is providing the majority of build-to-suit development financing and a $200 million takeout commitment for a U.S. dollar-denominated industrial portfolio. The company’s initial geographic focus in Mexico is “narrow and phased,” centered on Mexico City and Guadalajara, with mission-critical build-to-suit facilities, institutional-quality assets, and U.S. dollar-denominated leases with investment-grade tenants.

Roy said the company views Mexico as a long-term beneficiary of nearshoring, while acknowledging near-term conditions are “fluid” and sentiment can be volatile, which management said reinforces its phased, partnership-led approach.

Concurrent with the Mexico expansion, management said the U.S. component of the previously announced GIC joint venture is executing a similar structure. Realty Income and GIC plan to programmatically develop approximately $1.5 billion of primarily industrial build-to-suit properties. Roy noted that the joint venture closed its first transaction in the prior month: a $58.5 million investment alongside a forward acquisition agreement for a modern industrial property in Dallas leased to a Fortune 500 service-based logistics client.

Capital strategy: private fund launch, liquidity, and convertibles

CFO Jonathan Pong characterized 2025 as a “foundational year” for capital diversification, highlighting the launch of Realty Income’s debut open-end fund in the U.S. Pong said the vehicle raised over $1.5 billion of third-party equity from more than 40 institutional investors. He said the company chose an open-end perpetual-life structure as a strategic fit for a long-duration net lease business.

On balance sheet and financing activity, management reported ending the year with over $4.1 billion of pro rata liquidity and a net debt to pro forma adjusted EBITDA ratio of 5.4x, which Pong said sits within the company’s long-term target range.

After year-end, the company issued its first convertible note offering, raising gross proceeds of just over $862 million for a three-year convertible note at 3.5%. Pong said $102 million of proceeds were used to repurchase 1.8 million shares to reduce potential dilution, and the remainder repaid a $500 million note maturity in January with a 5.05% rate, which management described as immediately accretive.

Pong also outlined “dry powder” to support 2026 investment plans, citing approximately $1.1 billion of cash and unsettled forward equity at year-end and an annualized run rate of over $900 million in free cash flow. Combined, he said that equates to over $2 billion of equity (or $3 billion fully levered) to address the deal pipeline, plus roughly $400 million of undrawn third-party equity committed to the open-end fund.

2026 outlook: AFFO guidance, investment plans, and key assumptions

Management introduced 2026 AFFO per share guidance of $4.38 to $4.42, which Pong said represents an acceleration in AFFO per share growth versus 2025. The company also issued $8 billion of investment guidance for 2026.

Key 2026 model assumptions cited on the call included:

• Credit-related loss of 40–50 basis points of revenue, which management said is a meaningful decline from roughly 70 basis points in 2025.
• Lease termination income expected to contribute $30–$40 million in 2026, which management described as driven by proactive asset management and expected to remain a recurring element of the business.
• Unreimbursed property expense margin around 1.5% of revenue.
• Cash G&A expenses guided to 20–23 basis points of gross asset value.
• Base management fees from the open-end fund of approximately $10 million in 2026, subject to the pace of capital calls.

In Q&A, executives discussed how they think about acquisition pricing and deal economics. Roy said quarter-to-quarter cap rate movements can be driven by the mix of closings and the diversity of products, while describing the broader environment as having been “in this low 7% zip code” for several quarters. Pong said the company expects 2026 leverage-neutral spreads to be similar to 2025 and historical levels, describing them as roughly 150–160 basis points relative to short-term weighted average cost of capital.

Management also addressed dispositions, with Roy saying the company expects 2026 dispositions to be similar to 2025’s approximately $740 million. On the credit watchlist, management said it stood at 4.8% during the call.

Executives repeatedly framed the strategy as building a more resilient growth engine by combining the operating platform with diversified equity sources, including private capital vehicles and programmatic partnerships. Roy said the company’s objective is to bring “growth” back alongside what he called Realty Income’s brands of “trust and reliability,” while noting that newer avenues such as the open-end fund and partnerships are expected to mature over a multi-year horizon.

About Realty Income NYSE: O

Realty Income Corporation NYSE: O is a real estate investment trust (REIT) that acquires, owns and manages commercial properties subject primarily to long-term net lease agreements. The company's business model focuses on generating predictable, contractual rental income by leasing properties to tenants under agreements that typically place responsibility for taxes, insurance and maintenance on the tenant. Realty Income is publicly traded on the New York Stock Exchange and markets itself as a reliable income-oriented REIT.

Realty Income's portfolio is concentrated in single-tenant, retail and service-oriented properties such as drugstores, convenience stores, dollar and discount retailers, restaurants, and other essential-service businesses.

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