Realty Income Aktie

Good morning. Welcome to Bank of America's 2026 Global Real Estate Conference. I'm Jana Galan, BofA's net lease REIT analyst. We're pleased to have with us Realty Income's CFO and Treasurer, Jonathan Pong; SVP of Corporate Finance, Ryan Shannon; and Investor Relations, Alex Waters.

Jonathan will start with a few opening remarks, and then we'll jump into Q&A and welcome the group to ask their questions as well.

Thanks, Jana. Thanks for having us. So for those of you that may not be as familiar with Realty Income, we are about $90 billion enterprise value. We're an S&P 500 REIT. And importantly, and we take great pride in this, we are part of the S&P 500 Dividend Aristocrats Index for having increased our dividend for now 31 consecutive years.

We were founded in 1969, public since 1994. We view ourselves as the largest net lease company in the world. We own predominantly retail properties. So close to 80% of our annual base rent comes from retail, and this is essential retail properties. Our top tenant, for instance, includes Dollar General and #2 is close behind that at 7-Eleven. We own 15,600 properties in all 50 U.S. states.

We're also in 9 countries outside the U.S., predominantly in Western Europe. Some of the recent news for Realty Income, we announced just Monday morning a new joint venture with KKR. This follows on the heels of a joint venture that we announced in March with Apollo.

And really, the impetus of these joint ventures that we're doing, and it's part of a broader private capital strategy that we have established over the last 2 years is to continue to diversify our sources of equity away from the public markets.

We'll continue to utilize the public markets, but this is a very capital-intensive business, given how much we raise to finance new acquisitions to grow earnings per share or AFFO per share.

So these joint ventures really allow us to tap into institutional pools of capital that are really looking to provide their beneficiaries the same type of income that we have provided our investors since 1969. And so I'm sure we'll go into that in more detail, but that's really where we've been spending a lot of our time over the last 2 days at various investor meetings. With that, I'll conclude the prepared remarks, and we can go right into some of the questions here.

And Jana, before we start, I just want to make sure we're covered from a forward-looking statement position. But as a reminder, we may make statements that may be considered forward-looking statements under federal securities law.

The company's actual future results may differ significantly from matters discussed in any forward-looking statements. We will disclose in greater detail the factors that may cause such differences in the company's filings with the SEC.

Thank you, Alex. So big picture, Realty Income has evolved significantly over the last decade. How would you describe Realty Income today and what makes the company unique amongst your net lease peer set?

I would summarize by saying we've got a lot of levers to grow. So when you think about our business 10 years ago, we were not global. I think we weren't even in all 50 U.S. states. I know about 12 years ago, we were only about $15 billion enterprise value.

So to be at $90 billion today, to be in 10 different countries globally and to now have multiple forms of capital to help finance our business beyond just the public equity markets, it really differentiates ourselves amongst our net lease peers. From our standpoint, we are much more diversified.

We have the benefits of scale. We have a 95% EBITDA margin. And so this is a very efficient business. And it's one that gives us opportunities to invest across different property types, different transaction sizes that tend to be much larger and larger deals for us leads to wholesale discounts when we're competing against smaller peers who tend to invest in just smaller deals because they don't have the ability to diversify as much as we do. We have more liquidity. We're the only net lease REIT that has 3 A ratings really across the board, 1 of only 4 REITs that have solid A rating. The other 3 are Prologis, Simon Properties, and Public Storage.

So there's a certain operational reputation that we also have that we've been using to really expand our business rather than just focusing on public capital. I think a lot of commercial real estate today that's held in private hands appreciate the track record, the performance and really the specialty that we have in sourcing, underwriting and managing a net lease real estate, and we've done that very well, I think, for 57 years now.

So as you think about the company today, I guess, in 10 years from now, do you feel like some of these paths of growth is still early? Or is it more you feel like some of it you feel you're middle stage and a lot more experience or...

So not quite the first inning. We've been at this now for a better part of 18 months or so, but you're starting to see the fruits of these efforts. And truth be told, we started working on this strategy and creating this vision, I would say, 5 years ago.

And so it's taken us a little bit of time to get rolling here. But I think a lot of what we've announced, whether it's early this year with the GIC joint venture, which is a development joint venture, our U.S. Core+ fund, where we closed on a $1.7 billion cornerstone equity raise in March.

The Apollo joint venture, which we announced in March and now the KKR, which is a euro joint venture, we're now showing that we can expand that across borders. And so for us, we think that net lease is going to be an increasingly relevant a property type or rather a property type is really a subsector that can be any type of property.

It's just a lease structure. But the demand for income, given the aging baby boomer that has all that wealth that's looking to generate perpetual income until they die effectively as morbid as that sounds, is a mega trend that I think we're uniquely positioned to take advantage of. So that can lend itself to more private capital vehicles. And ultimately, what does this do for the Realty Income shareholder? It allows us to generate capital-light fee revenue and allows us to minimize the amount of public equity that we need to raise.

And that's a clear differentiator as we continue to grow globally and as we continue to invest in different property types that do require external capital. We want to diversify and not be beholden to just that one source of public equity capital that our peers have to rely on solely.

Can I ask a question, as you are a super lean structure, how do you actually think about this income generator?

Are you thinking yield plus growth? And how do you underwrite your yield? Is it a spread above whatever cost of capital you're assessing? I'm not asking you, how do you create your yield?

Great question, like how you put it. At the end of the day, we are thinking about long-term cost of capital, and we are underwriting long-term IRRs on an unlevered basis. Now as a public company, we do have to think about the day 1 or year 1 earnings accretion.

And so for us, we think about cost of capital in 2 different ways. We make investment decisions at the end of the day based off of that long-term IRR, which burdens every dollar of equity the same way, whether it's coming from free cash flow or whether it's coming from external capital. We think about our debt cost as our indicative cost of 10-year debt to match duration of asset liability.

And we think about that cost of debt as a blended approach across all the currencies that we invest in, euro, sterling and dollars. That's really the long-term cost of capital. And every deal that we underwrite over the initial lease term has to meet or exceed what is effectively a long-term unlevered weighted average cost of capital that's in the 8% area.

When we think about the short-term weighted average cost of capital, it's a very straightforward concept. For every dollar that we invest, the source of those funds, how much does that dilute our earnings. And so we have $1 billion, give or take, of free cash flow on an annual basis. Yes, we understand there's an opportunity cost to that.

But as a cost that dilutes earnings over the next 12 months, there's no cost. That's just internally generated cash. But we also have to raise external equity from the public markets. Let's put the private capital aside. that external cost of equity is really a function of our stock price. And so it's basically our AFFO yield.

Obviously, as stock prices come down, that cost goes up and vice versa. And then the cost of debt is really the same. It's the cost of that 10-year cost of unsecured debt, which for us is another differentiator given that we have the highest credit ratings within our peer group.

And we do demand a meaningful spread on that short-term weighted average cost of capital because we obviously want to be accretive on a per share basis as we are deploying that capital. But when we're thinking about just the net lease investment in general, day 1 yield is relevant for the public market and really for both the public and private investors. We're looking for long-term contractual growth in our leases that allow us to blend out to a very attractive long-term IRR. And it's really that growth piece. That growth piece is what private capital allows us to do more of because we are now able to invest in assets that maybe don't have that very high yield day 1, but it has a modest yield, decent yield, but more importantly, it gives us 2% or 3% rent growth throughout a 15-year lease term or in some cases, even 20 years.

So you're blending out now we're a 15- to 20-year hold with very good credit quality and with aggregate cash flows that really every commercial real estate investor is looking to achieve, and we're doing with a fraction of the volatility that you see in other property types.

The company has evolved, is your competition at this point really for the third-party capital? So let's just say, the Prologis, the PSAs, the Blackstones or your triple net peers?

I think it's really both. And these conferences that we have, there's obviously quite a bit of capital formation on the public side amongst other net lease peers and competitors, and that's led to a fairly competitive market that has put a lid on cap rates here in the U.S. When you think about investments abroad, especially in Europe, we do feel as though there's significantly less competition.

It's very complicated. It's very resource-intensive to build an international business, and we've been doing it for the last 7 years. There's less public competitors that are operating in that market, and there's less private capital formation investing in net lease.

So we feel like that's a very attractive region for us to continue investing. On the private capital side, we're not the incumbent. We're the new kid on the block. And so truth be told, we have to prove ourselves in this market with joint ventures, with key partners.

We very much believe and showing that we can do what we've been capable of and what we've shown throughout our company's history, but we need to prove it in the context of these new joint ventures, and we fully intend to do that. For the Core+ fund, which is a perpetual open-end vehicle, performance in the early days of the first-time fund manager is extremely important because we are competing against folks that have been doing this private capital fund model for a lot longer than we have.

So we are very grateful and appreciative that we were able to raise $1.7 billion as a first-time fund manager in an environment where open-end perpetual capital in commercial real estate is not exactly a very significant volume of the market today.

But I think when people heard our track record, how we run the business, how we have a very unique mousetrap in this one single niche, we are very grateful for the support that we got.

And now we just got to show that performance really over the first 3 years. That's really the key time frame to show what kind of returns you can provide for investors on the private side.

And maybe turning into external growth. It's been a tremendous year, and yet you've raised guidance once again for 2026. Curious where you're seeing the most opportunities today across asset classes and geographies.

Definitely Europe. I think this is a competitive advantage that we have because when you think about the competitive moat, especially as we're competing against European institutional capital, we do have access to the U.S. capital markets, which is extremely deep, extremely efficient and gives us cost and access that many competitors in Europe don't have.

We have a $5.5 billion revolver. That gives us immediate liquidity. We can do deals of significant size. We have a program available to us in the U.S. called an ATM, which is basically giving us immediate liquidity to equity proceeds, and we are a very liquid stock that trades between $300 million and $400 million a day in the stock exchange here.

And so we can leverage that to raise quite a bit of equity if we wanted to. We also have a significant platform of 580-odd individuals today globally. We have a London team that is now pushing 70 individuals. And so it's a real company with every function represented. So we think all these competitive advantages that we've been able to benefit from in the U.S. are completely transportable across borders, and that's where we see, as a result, significant opportunities for us to deploy capital.

I also think in a high rate environment, the ability to invest across the capital stack, especially in debt investments that are strategic in nature is where we're seeing a lot of good opportunities. And to be clear, we're investing in debt securities that are associated with tenants or partners where we would want to own the real estate. We're not a merchant lender, we're not a bank.

We're looking to strategically place capital to build a relationship to invest in a more senior part of the capital stack or tenants and industries that we know very well and that we're very constructive on.

And importantly, in many cases, we utilize that as a way to potentially convert that investment into common equity ownership into the real estate after a period of time. And so if you can be more senior in the capital stack, if you can generate yields that are in the high single digits and to do it in a strategic manner, that's something where we see a lot of opportunity in a high rate environment with the 10-year now north of 5%...

And as you look at investment yields today, kind of where are they with what you saw in the first half of the year? And what's your outlook for investment spreads going forward given this higher rate environment?

Sure. So I think investment cap rates, and I'll just share it as of 6/30 have been pretty stable. It remains to be seen with where we are today with the backup in yields on the long end of the curve, how quickly cap rates and investment yields can adjust.

What you're thinking about it? Because it looks to some of investors that it's kind of a credit agency central [indiscernible] 2.0 not -- if I'm not doing it, someone else on the other side of the street will, what I mean. while you guys are the real market maker because you do invest tons of money and that's really money. And it looks like there is a gap between book values and you're ready to pay on this famous question around what spread do you need? And are you going to contract that spread or are you going to lower the price?

So it really depends on the opportunity. Not all deals are created equal and not all cap rates and yields carry the same return per unit of risk dynamic.

All things equal, with a 5% 10-year yield, and with the cost of capital that is higher today than it was 3 months ago, I think everyone investing in net lease is not going to be as active or won't have the ability to be as active unless they get more creative. And for us, one of the themes is that we've got multiple levers to pull.

We don't have to just rely on the retail investment grade net lease market in the U.S., for instance. And so we are seeing opportunities across the capital stack, across geographies and importantly, the source of those funds. We're not just raising ATM equity here in the U.S. We also have access to private forms of equity. We have $1 billion of annual free cash flow. As of the end of the second quarter, I believe we had $1.2 billion of unsettled forward equity that provided immediate liquidity at a known cost to us.

We got ahead of a lot of our -- the debt needs by doing a convertible debt offering that raised $1 billion at 3.75% recently.

So we've got a lot of ways to generate very meaningful spreads. But to be clear, if the cap rate environment continues to be pressured in certain areas, we have never felt like we should be buying for the sake of buying and posting numbers.

We're focused on per share accretion, but we can do that in a multitude of ways, and we're going to continue to have that mentality. It's all based off of, yes, long-term IRRs. But as a public company, we also are focused on year 1 earnings accretion.

How do you balance these investment opportunities, debt, equity, the funds, the JVs with real estate investors wanting simplicity. The biggest pushback we've gotten on our third-party capital notes is simplicity. How are you guys thinking about that today? And is it just really trying to deliver a clear message like I'll just say it, I think you're doing today. I don't know what the answer is, but how are you guys thinking about it?

At the end of the day, we want the outcomes and the results that we generate to be very simple for our investors. Let us deal with the complexity behind the scenes. But at the end of the day, what has Realty Income been known for?

Total returns in the high single, low double digits. So equity-like returns with a fraction of the volatility. Nothing has changed. If anything, that central North Star remains as relevant and as important and as top of mind for us as ever.

The complexity is -- are things that we are mitigating behind the scenes. And part of that is when you think about private capital, there's a perception that there's conflicts of interest. For us, we've designed our private capital strategies and the private capital products that we have to cater to the different needs in the marketplace, different return profiles, different currencies, different property types, different products so that intentionally, there is very little overlap between these strategies.

The Realty Income is also a meaningful co-investor in each of these strategies. So we have skin in the game. But what that means for the public investor is that if we're getting some type of economic advantage by bringing in third parties that we're getting management fees from, and we're still investing in these products, we're just getting more return per dollar that we are investing of public equity capital.

And there are these conflicts because we've created a matrix that effectively says, all right, for anything that is long duration, very granular, i.e., retail net leases in the U.S., that's what Apollo is getting. That's what they're looking for. The $2 billion JV that we announced had 500 individual retail properties, so $4 million a copy. That's incredible granularity and diversification and it's a fairly low cost of long-term equity as well at 6.875%. Things that maybe have a significant growth profile contractually that may have a slightly lower initial yield, industrial product, for instance, stabilized industrial product.

We've been buying a lot of that into the U.S. Core+ fund because these investors, they're not as concerned about year 1 yield because they don't have a mandate to invest in stocks that are driven off of AFFO per share accretion. It's more of a long-term IRR play.

And that's an expansion of the sandbox that the balance sheet wasn't really investing in anyway. And so -- and then these are all strategies in the U.S. that can then be extended abroad as we announced with KKR. And then the GIC joint venture is really focused on build-to-suit development, primarily for industrial properties.

So I think with that, what we want to show to the marketplace is that, yes, it's more work on our end, but we're designing it so that you're not going to see any difference in the lumpiness of earnings. If there is lumpiness, there's going to be upside lumpiness, which we think is a good thing.

And maybe turning to Realty Income recently announced a $6 billion data center joint venture with Cloud Capital. What's attracted you to the data center space? And can you walk us through the time line of this particular JV and how investors should think about the longer-term opportunities in data centers?

So we had our first data center investment back in 2023. It was a joint venture with Digital Realty, obviously, very well-known, very respected partner. And so this JV that we've announced is not our first foray into the data center space. In fact, we've been researching and looking into this property type well before we even announced the digital JV.

And so this is a $6 billion JV with Cloud Capital, very well respected, tremendous developer principles that have been involved in the data centers for decades. When we step into a new vertical, and I'll use the same analogy for gaming, a new vertical where it's unique in terms of the drivers, the operational aspects of it, we tend to partner with what we believe are best-in-class operators and partners.

We did that with the Wynn when we purchased the Wynn Encore in Boston. Our other exposure in gaming includes a joint venture investment with Blackstone on Bellagio and obviously, MGM is a tremendous operator. And so we have that same mentality as we get into some of these more unique asset classes.

It's 45% equity interest that we have in the joint venture. There's another institutional investor and then there's skin in the game that Cloud Capital retains. These assets are in Northern Virginia, they're leased or pre-leased to hyperscalers.

And we feel as though if we are going to be entering this new space that there are some longer-term views that people have about residual value and whatnot. We want to do it in a very straightforward, high-quality manner. And I think that's what we've done so far with our 2 joint ventures.

Now when we think about the broader opportunity set, it's very interesting. And as you all know, there's a lot of volume. There's a lot of opportunity, but we're going to be very methodical about how we approach the market. And I think people wondered, okay, you did this first JV in 2023. Why haven't you done anything else until now? Because we want to feel like we're getting compensated economics-wise for the highest quality product that we can get because as you think about a 15-year, 20-year hold, you want to be very cognizant about residual value.

And even if you get a very good initial yield and very good growth, you can have a residual value that you don't have great confidence in. And so when you do see us think about growing potentially our exposure to data centers, but that's the lens that we're going to have.

That's the criteria that we're going to follow. And there's a lot of opportunity that we see. But I want to be clear on that because just because we're doing new things does not mean that we're taking on more risk.

Can you just elaborate on how you economically read this data center business? Because the big question a lot from the industry and real estate industry right now is a big part of what you're buying is tech.

Outside of the IT, meaning generator and so on, which is where the amortization is what -- depreciation are is roughly 25 years, while the real estate is traditionally 100 years. So that in theory, has no impact on your cash flow, but do have an impact on your free cash flow at some point because every 25 years, you need to replace entirely something which is between 30% and 40% of the value of what you bought.

So how do you look at the effective triple net return on those investments where it looks like there is a significantly higher level of CapEx in data centers than anywhere else? That's the first question.

Second question is those assets you created a JV with are stabilized assets and where the growth is coming from because I'm not sure everyone does understand the type of contracts, which are not exactly rental contracts you get with hyperscalers, which can be on 15 years and maybe just CPI related plus/minus, I don't know exactly. Can you just give...

Yes. So on the second part, the recent JV is stabilized asset and 2 development build-to-suit.

Okay.

And the kind of growth.

You get the value.

Correct. Correct. And very much acceptable initial yield, good growth. It depends on your view of CPI, but we tend to get fixed escalators that are fairly healthy. As we think about long-term underwriting, this is why the value of land is so important.

If you can own land in Northern Virginia, what we call the equivalent beachfront real estate for data centers and you have all the interconnect, all the power infrastructure, all the users, all the activity that's happening in this piece of real estate in this region, you can feel as though whether it's 15 years from now, 20 years from now, even if you want to be very draconian and conservative on what you value the building at, you know the land is going to carry its weight, it's going to carry its value. You can take comfort in that.

We know assets -- not all assets going to go full value is necessarily going to be exactly what you paid. More often than not, real estate appreciates, but in cases where we feel there may be a question, we're going to double down on what we view as irreplaceable land.

And for us, we think most of the obsolescence risk, obviously, is in the equipment that goes in the data center, but not the actual -- the shell, not the actual building itself, and that's really where our exposure is.

So you can kind of ring-fence conservative underwriting, especially if you're getting the kind of rent growth and going back to how important that is embedded in the lease and it's compounding for 15 years or 20 years.

But it also means you've got to start on an acceptable basis year 1. Otherwise, you're just compounding off a very low level, it doesn't really get you where you need to be. So that's why we look at a lot. We source a lot. We'll underwrite a lot, but everything that we do, not everything falls into that nice little sweet spot of checking all these boxes and then some.

Maybe if we can just touch on tenant credit trends. You maintained kind of 40 basis point credit loss assumption for the year. Maybe just talk a little bit about your watch list and given such a breadth of your portfolio, any industry groups where you're feeling a little bit better or a little bit worse?

I'm going to share the mic a little bit and let my colleagues, Alex and Ryan maybe take that one.

Yes. Thanks, Jana. I would say for our credit watch list, I mean, it stepped down a little bit quarter-on-quarter. still in the 5.8%, 5.9% range of ABR. The main components of that are some casual dining, home furnishing, car wash, right? But the watch list itself is very vast, 130, 150 clients on it with a median ABR exposure of around 2 bps, right? And so it's a very well-diversified list across the board.

You're right, we -- for our credit loss for the year, our expectation is still around 40 bps. That is stair step down throughout the year from around 50 bps heading into 2026. As of right now, around 3/4 of that is identified with the remainder being unidentified and conservative in some nature heading into the back half of the year here.

Thank you. And we're almost out of time. So I have 3 rapid-fire questions for Jonathan. If long-term rates stay higher for longer, which has the biggest impact on your sector's earnings, higher refinancing costs, lower transaction activity or less new supply?

Lower transaction activity.

Over the next 3 years, will third-party capital, I think I know the answer, become a more important source of growth for public REITs than balance sheet capital? Yes or no.

Tough one, but clearly, yes.

For your sector, will 2027 same-store NOI growth be higher, the same or lower than 2026?

Higher.

Thank you. Thank you, Realty Income team.

Good day, and welcome to the Realty Income Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded.

I would now like to turn the conference over to Alex Waters, Vice President, Investor Relations. Please go ahead.

Thank you for joining Realty Income's Second Quarter 2026 Results Conference Call. Joining us on the conference call today are Sumit Roy, President and Chief Executive Officer; Jonathan Pong, Chief Financial Officer and Treasurer; Neil Abraham, Chief Strategy Officer and President, Realty Income International; and Mark Hagan, Chief Investment Officer.

During this conference call, we will make certain statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in any forward-looking statements. We will disclose in greater detail the factors that may cause such differences in our Form 10-Q filed with the SEC.

We will observe a 1 question and 1 follow-up limit during the Q&A portion of the call to ensure that everyone has an opportunity to participate.

And with that, I would now like to turn the call over to our CEO, Sumit Roy.

Thank you, Alex, and welcome, everyone. Realty Income delivered another strong quarter in Q2, reflecting the benefits of our diversified investment strategy and our position as a trusted capital partner to many of the world's leading companies. Our investment activity highlighted the breadth of our opportunity set, demonstrating our ability to invest across the capital stack, geographies and property types to support accretive growth. Against that backdrop, AFFO per share grew 3.8% to $1.09 during the quarter. Year-to-date, AFFO per share was $2.22, representing 5.2% growth and a meaningful acceleration from the same period in 2025. This momentum supports a $0.02 increase in our full year AFFO per share guidance midpoint to a new range of $4.44 to $4.45, representing growth of approximately 4% at the midpoint.

We're also increasing 2026 investment volume guidance from $9.5 billion to $10 billion as our pipeline remains robust. I'll cover key investment highlights during the quarter before detailing market dynamics in each of Realty Income's strategic areas.

Global investments totaled approximately $2.6 billion or $2.1 billion at our pro rata share at an initial weighted average cash yield of 7.3%. Second quarter activity was weighted more heavily towards the United States with approximately $1.7 billion in pro rata investments at a weighted average cash yield of 7.4% including roughly $800 million in industrial assets, representing approximately 75% of U.S. real estate investments. Also embedded within this U.S. activity was continued deployment through our U.S. Core Plus Fund, which acquired approximately $673 million of assets on a global basis with industrial representing more than half of that volume and retail accounting for the balance. In Europe, we closed an approximately $400 million at a weighted average yield of 7%.

Finally, on June 30, we announced a $6 billion programmatic hyperscale data center joint venture with Cloud Capital in which Realty Income expects to invest up to $1.4 billion over time for its 45% equity interest.

Turning to additional investment details. Let's start with Industrial, which represented approximately 65% of our global real estate investments. We continue to find attractive risk-adjusted opportunities supported by improving fundamentals and contractual rent escalators that generally range from 2% to 3.5% annually. Just under half of industrial acquisitions NOI this quarter came from investment-grade clients with investments concentrated in high-quality primary and infill markets. Notably, U.S. industrial fundamentals strengthened during the quarter as net absorption accelerated sharply, vacancy declined and development activity began to improve alongside market conditions.

That positive industrial momentum also carried through to our U.S. Core Plus Fund, which continues to demonstrate the value of bearing our scale and sourcing with long-term private capital. During the quarter, we fully deployed the fund's remaining cornerstone commitments, increased total gross asset value to approximately $3 billion. Assets acquired into the fund in Q2 generated a 6% weighted average cash yield.

While these investments carry lower initial yields, they consist of high-quality assets in attractive markets leads to strong credit customers and supported by contractual rent escalators well above average, a dynamic reflected in the fund's 2.9% year-to-date same-store revenue growth. Importantly, the management fee stream from the fund enables us to pursue these lower initial yield investments with day 1 accretion to Realty Income's shareholders, thus expanding our overall buy box.

In Europe, while several international clients were more cautious earlier in the year amid geopolitical uncertainty, activity has improved and a number of those clients are actively pursuing transactions today. Europe continues to offer attractive risk-adjusted investment spreads, supported by lower borrowing costs, our established presence in the region and a landscape that remains less competitive than in the U.S. We remain constructive on Europe and continue to view it as an important contributor to our growth over time.

Turning to data centers. Our joint venture with Cloud Capital establishes another large-scale programmatic investment vehicle. The venture includes 3 Northern Virginia data center assets representing under 400 megawatts of capacity. We closed on the first stabilized asset last week and expect to acquire our share of 2 development assets upon stabilization.

Our partnership with Cloud Capital originated from a prior credit investment and has evolved into a long-term relationship focused on developing and owning hyperscale data centers across leading U.S. and European markets. Since announcing the venture, data center dialogue has continued to increase, expanding our access to opportunities across the sector. We believe the industry is still in the early stages of a multiyear digital infrastructure build-out driven by AI adoption, cloud computing and broader digitization trends. As a result, demand for data center capacity continues to exceed available supply in many of the industry's most attractive markets.

We remain focused on top-tier supply-constrained markets and partnering with experienced operators that value our long-term programmatic financing capabilities. Across our investment activity, our scale and sourcing platform continue to be significant advantages that are difficult to replicate through individual asset acquisitions. As an example, earlier this year, the fund acquired a combined 19 property portfolio leads to a top-performing quick-service restaurant operator for more than $100 million. Our subsequent third-party valuation completed in connection with our Core Plus Fund verified a prevailing market cap rate for the portfolio, that is more than 30 basis points below our acquisition basis, providing tangible evidence of the immediate value creation that can be achieved through portfolio transactions.

While acquisitions and capital deployment are important drivers of long-term growth, we are seeing increasing opportunities to create value through active portfolio management and capital recycling. During the quarter, we completed $161 million of dispositions, reallocating capital towards areas of the portfolio where we see the strongest combination of organic growth, pricing power and value creation.

Importantly, this approach is not limited to noncore or vacant assets, but extends across the portfolio whenever we believe capital can be redeployed more strategically. This disciplined approach enhances portfolio quality, improves capital efficiency and supports sustainable earnings growth.

Looking ahead, we continue to see attractive opportunities to recycle capital into assets that are better aligned with our long-term strategic priorities. We also continue to improve portfolio quality during the quarter with investment grade client exposure increasing to 34% of annualized rent from 32% in the first quarter. Portfolio fundamentals remained strong with occupancy of 98.8% and 482 re-leased units generating a blended rent recapture rate of 102.7% with renewals at 104.6%.

This included a large batch renewal with a single client covering nearly 150 assets, demonstrating the scale and efficiency of our platform. Industrial comprised approximately 1/3 of leasing activity during the quarter and generated a rent recapture rate of 105.8%, while international recapture rates reached 112.9%, reflecting the continued success of our U.K. value-add retail park strategy.

Our international retail park strategy continues to benefit from limited new supply strong retailer demand and record low vacancy rates, helping drive attractive leasing spreads and incremental value creation. Importantly, the growth and diversification of our investment capabilities have been matched by similar progress on the capital side of the business. Our expanding capital platform is reducing our reliance on public equity while enhancing our ability to fund growth efficiently.

With that, I'll turn the call over to Jonathan.

Thanks, Sumit, and good afternoon, everyone. The second quarter demonstrated our commitment to diversifying our sources of capital on a global scale while maintaining a healthy balance sheet. We continue to operate from a position of significant liquidity, conservative leverage and broad access to multiple capital channels. We ended the quarter with approximately $3.5 billion of available liquidity on a pro rata basis, net debt to annualized pro forma adjusted EBITDA at the end of the second quarter stood at 5.4x or 5.2x inclusive of unsettled ATM boards, which is well within our target range.

Subsequent to quarter end, we further enhanced our liquidity profile through an expansion of both our global revolving credit facilities and commercial paper programs, an unsecured bond offering in Europe and continued forward equity issuance under the ATM.

Our updated credit facility now provides for borrowings of up to $5.5 billion, an increase of $1.5 billion from the prior facility with a 5 basis point reduction to our borrowing rate. Similarly, we expanded our global commercial paper program to $5.5 billion, an increase of $2.5 billion.

Secondly, we completed a EUR 600 million denominated bond offering at a yield of 3.7%. And finally, we raised an additional $90 million of forward equity, bringing our current ATM unsettled balance to approximately $1.3 billion. Pro forma for these transactions available liquidity increased to more than $5.7 billion.

With our enterprise value approaching $90 billion and a robust pipeline of external growth opportunities, the access to additional capital enhances our ability to immediately finance our investment pipeline while remain patient and opportunistic in accessing longer-term and permanent capital. As a reminder, outstanding borrowings on our credit facilities and commercial paper programs represent our only exposure to variable rate debt, and we intend to maintain variable rate exposure at 10% or less of our total outstanding debt.

Our commitment to maintaining a strong balance sheet supported by access to multiple sources of capital, was recently recognized in Fitch's initiation of coverage for Realty Income with a solid A long-term issuer default rating. This rating places us among just 4 U.S. REITs with a solid A or equivalent rating from 1 of the 3 major rating agencies, and we are grateful that our size, diversification and track record of performance have elevated us to this rating.

We remain active on the capital raising front. Inclusive of the aforementioned Eurobond offering, we've issued $3 billion of new debt year-to-date at a blended effective coupon of 3.9% compared to $1.4 billion of debt that has matured year-to-date at a blended coupon of 4%. We continue to diversify our sources of debt capital across different currencies and investor capital pools with the focus on avoiding saturation or reliance on any one market while lowering our all-in cost of borrowing and managing an appropriate maturity ladder going forward.

On a year-to-date basis, we have issued 4 discrete debt instruments, including a convertible bond, a U.S. dollar unsecured bonds swapped to euros, a municipal prepaid term loan swap to euros and a euro unsecured bond. Each of these debt instruments was selected with an intentional bias towards tapping into unique investor bases while minimizing our global and blended cost of debt.

On the equity side, our private capital has reduced our reliance on the public equity markets to fund our growth. As a result, we have meaningfully lowered our public equity consumption as a percentage of investment volume, comprising only 18% of investment volume year-to-date compared to an average of 47% over the past 3 years. Year-to-date, we have settled only $825 million of Ford equity to close on $4.7 billion of pro rata investment activity, all while maintaining leverage within our 5.5x target level. This reflects the benefit of our recent capital initiatives, which have diversified our sources of equity capital.

Turning to our 2026 outlook. As Sumit mentioned, we are increasing our full year AFFO per share guidance range to $4.44 to $4.45 million. We're also increasing our full year acquisitions guidance of $10 billion, up from $9.5 billion previously, given the strength of our investment pipeline and the confidence in our ability to source and execute attractive opportunities. At our share, we expect to invest approximately $9 billion during 2026.

We are also holding our 2026 credit loss outlook flat at around 40 basis points of rental revenue, reflecting stable operating performance across our client base. Notably, we are not raising our lease termination income guidance. We recorded approximately $1 million in the second quarter and continue to expect $45 million to $50 million for the full year. As a result, the increase in AFFO guidance reflects the underlying strength of the business in terms of investment volumes, yields, modest credit losses, the successful execution of several capital markets transactions and our expectations for continued momentum throughout the balance of 2026.

With that, I'll turn the call back over to Sumit.

Thank you, Jonathan. In summary, the second quarter represented disciplined execution across the platform highlighted by continued performance of a high-quality portfolio, disciplined capital allocation at attractive yields and the curation of unique capital vehicles that provide realty income with durable financing engine to accelerate AFFO per share growth in the years ahead. With that, I would now like to open it up for questions. Rocco? .

[Operator Instructions] And today's first question comes from Michael Goldsmith at UBS.

The acquisition cap rates during the quarter were 6.4%, which is a bit lower than what you saw last quarter. Is that a reflection of mix competition or something else? Does that have to play into also the industrial assets with the elevated lease escalators? And just how should we think about the accretion on cap rates of 6.4%?

Yes, that's a great question. It's -- the idea here is to always try to blend to a number that is getting us back to our historical spreads, Michael. And the blended cap rate or the investment yield is 7.4%. And when you think about the portion north of $600 million was in the fund, that was where the lower yield in cap rates went. And that was by design because that's why the fund was created. Stuff that we couldn't accretively buy on balance sheet was going to be allocated to the fund where the long-term return hurdles were going to be met, but that initial accretion was not. And so what's remaining is -- has a profile that gets us to our historical spreads of circa 150 basis points. That's how you should think about our investments.

And then just as a follow-up, can you provide an update on where we are in terms of generating fee income is the amount in the quarter? Is that kind of the right run rate? Or do you expect that to accelerate from here? And then also how much is included in the underlying guidance?

Michael. So if you look at the supplement, I believe at Page 22, we do show management fee income to Realty Income is about $3.2 million for the quarter. The majority of that, obviously, is for the U.S. Core Plus Fund. We have raised $1.7 billion during our cornerstone round. And as of early July, we had drawn down all of the capital that is now fee generating. .

There is also a separate component of that, that is attributed to the insurance JV that we announced back in March. And so in totality, that's where you get the 3.2%.

In terms of guidance, we've talked about this before, but you expect around $10 million or so for the fund in terms of management fees and then perhaps there will be perhaps $2 million to $3 million attributable to the insurance JV.

And our next question today comes from Brad Heffern at RBC Capital Markets.

Obviously, rates have been bouncing around a lot, but generally going up, but we've also been hearing some of your peers talk about some slight cap rate compression. I guess, first, are you seeing that as well? And then do you think higher rates will eventually flow through? Or are competitive dynamics preventing that from happening?

That's a great question, Brad. It's a very strange environment really because this inverse correlation that exists between how net lease generally trade versus the tenure largely holds true. But what has happened over the last 2 months is that, that inverse correlation hasn't held true. And so it really is a question of what is going to happen to the tenure, what is the forward outlook, not so much where it's trading at today, that's going to dictate what's going to happen to cap rates.

We've oftentimes talked about cap rates being a trailing variable when it comes to interest rate -- the 10-year treasury. And if the view is that the tenure is going to be in this 4.6% to potentially 5% ZIP code, then what we have historically seen is cap rates do follow. But you mentioned it in your question the way you framed it. There is a lot more competition here in the U.S. There are a lot more new entrants on the private side, along with a few on the public side.

And so there is that competitive dynamics that's going to keep cap rates lower. But ultimately, in a highly elevated cost of capital environment, cap rates will need to adjust.

Okay. Got it. And then you talked a bit about the positive European outlook in the prepared comments. I wanted to specifically zoom in on the U.K. Cost of debt seems pretty unattractive over there, especially compared to euro debt. So are you seeing upward pressure on cap rates in the U.K. to reflect that? Or is it just a less appealing market right now? .

Neil?

Thanks, Sumit. Brad, in response to that question, I think we have countervailing effects. One, of course, is the sort of macro malaise change in the PM and the move-in rates. Against that, what you have is institutional capital coming in, and you can see this more broadly across Europe as well. And it started really with malls or shopping centers as they're called over there, and there's quite an aggressive bid for those kinds of assets. So in the U.K., almost perversely, we're actually seeing institutional capital coming in, in good size and driving down cap rates. And then while we haven't bought retail parks or multi-tenant retail across the continent, there is also now 1 or 2 larger private equity players driving consolidation.

I think the industrial logic is that they sort of missed that play in the U.K., but there's still an opportunity across Europe. And the low level of base rates makes it actually quite accretive on a levered basis. And so I don't think we're seeing upward pressure on cap rates in the U.K. or, frankly, much of Europe with the exception of Germany. And I think if anything, the pressure on cap rates downward on retail parks in the U.K. will continue.

And our next question today comes from Rob Stevenson at Huntington.

Sumit, how should we be thinking about how much of the $5 billion or so of second half investments in the guidance is likely to be put on Realty Income's balance sheet and finance by the REIT versus going into various JVs, funds, partnerships and anything new that you would create over the remainder of the year?

Yes. So that [indiscernible] so we've said we are going to do about $10 billion. That's the guidance. And what we have shared with the market is that $9 billion of that $10 billion is going to be on balance sheet. And if you see what we've invested year-to-date on the fund, we have largely used up the equity, the cornerstone equity actually. We completely used up all of the equity that we've raised. And so the only assets that are going to go on the fund will be the leverage capacity that the fund has that is still available to it. And that's going to be obviously -- it's the same ratio, 1/3, 2/3. So we've got about $1.7 billion that we've raised in equity. We've got about 1/3 of that amount in leverage capacity to deploy. But the rest of it will be on balance sheet.

Okay. That's helpful. And then with these various funds, JVs, partnerships, et cetera, that you now have in place, do you have all of the sources of capital that you guys think that you need to execute the business plan over the next couple of years? Or should we expect to see more of these types of partnerships and JVs being announced over the next 6 to 12 months, given what your pipeline looks like?

So Rob, I think in terms of the product that we are going to pursue from an investment perspective, that's largely defined we've been talking about our desire to go into data centers. We have now formed joint ventures. Is it possible that there could continue to be other JVs that we form with developers who have a very healthy pipeline that fits our box, the answer is yes. And especially on the heels of the conversation -- on the heels of the announcement that we've made, there are some very interesting conversations that are taking place. And that is much more in line with what we've already said.

The other asset types are ones that we are just continuing to invest in. And obviously, the fact that we've created these multiple channels of geography and asset types, we are going where the best risk-adjusted returns are.

On the financing side is where we are sort of still new in the game and the rationale behind why we did what we did was to try to sort of leverage the platform that we have with a lot lower cost of capital, lot lower cost of equity capital let me be more precise, that we could then generate earnings contribution through the fee stream. And I would say that we've -- that's the journey that we are on. And it's -- I've heard Jonathan mention it as an ecosystem that we are trying to create, where we are maximizing the utilization of a platform with trying to attract the lowest cost of equity capital that wants to leverage and wants to pay fees and basically be exposed to net lease investing.

So I won't go so far as to say what we've shared with you is the end all and be all of all equity capital sources. I would characterize it as it's the beginning, and there will be other channels. But what we are going to be acutely focused on is to make sure that the overlap on these various different sources of equity capital -- private sources of equity capital is very minimum. We want to make sure that we're using our platform, very judiciously to serve these various different sources of capital, make each one of them very successful, so that this fee stream that we are able to generate continues to be one that is a very high level of permanence and one that we can count on and our shareholders can benefit from in years to come.

And our next question today comes from Smedes Rose at Citi.

I just -- just to follow up on kind of your acquisitions outlook. It looks like for your portion, the back half of the year is estimated around $4.3 billion. So that suggests it decelerates a little bit from what you saw in the first half. Could you maybe just speak to kind of what you're seeing there? Is it slowdown by design? Are you being conservative [indiscernible] competition heating up? And just interested any kind of color around that outlook?

Mark?

Yes, thanks for the question. I think that with the guidance at $10 billion and the first half total investments of $5.3 million, I don't think there's a lot of deceleration in there. But...

Well, I'm just looking at euro portion, you said for euro portion of it would be $9 billion for the year.

Yes. That's the overall global investment amount. But look, it's not driven by anything in terms of what we're seeing in the market conditions in terms of deceleration. In fact, it's really the opposite. We increased our overall volume guidance because of the strength and robustness of the pipeline. And so as we're sitting here today, we really -- we feel great about the pipeline and about at least another strong second half of the year.

Yes. Okay. And then you yes, go ahead...

[indiscernible] forecasting out and trying to back into what is the delta between what we have forecasted versus what we haven't. What I can tell you from a pipeline perspective, from the health of the pipeline, from what we are seeing we feel great.

Great. Okay. And just on that, you obviously leaned into industrial in the quarter. Just wondering, is that a primary focus going forward from here? Or are you happy with the kind of exposure that you have in that asset class at this point?

Industrial has always been a focus of ours. We obviously can't go into the 3 cap deals that we just saw recently announced. But in industrial -- single-tenant industrial, more specifically across various geographies has always been something that we've leaned into. And the way we are playing that is through the development channel, is partnering with the best-in-class developers and being able to generate yields with more of a built-to-suit characteristic rather than a spec characteristic where we are able to meet the hurdles that we need to meet in order to generate the spread investing that you and our shareholders are used to seeing.

So what you're seeing today is -- and I'm sure you've heard it from other industrial companies is this -- what we expect to be a new trend where absorption rates are trending very positive. Vacancies are all at all-time lows. And what's driving this demand is much more widespread than e-commerce, which was the driver of industrial demand 4, 5 years ago. It's much more broad based. It's industrial. It's manufacturing. It's data center equipment that needs to be stored in warehouses, et cetera, that is also driving some of the demand.

And so we feel very good about the pipeline that we've created and we are being able to do it at cap rates and investment yields that makes sense to us through a combination of investing on the credit side as well as on the equity side.

And our next question today comes from Haendel St. Juste with Mizuho.

So maybe starting with you, I guess I was intrigued by some of the comments you were making about capitalizing on the market to do some portfolio recycling, improving the quality of your on-balance sheet assets. So I'm curious how much of the portfolio ballpark might be subject to being upgraded recycled. It sounds like you're doing a bit more [indiscernible] here. Is that something we should expect near term and maybe some color, perspective on the difference in cap rates or bumps and what you're buying versus selling?

That's a great question, Haendel. I think in the prepared remarks, you picked up on our desire to continue to recycle capital. Obviously, we have talked about there are certain metrics that we are very focused on internal growth being one of them, duration of the lease term being another, being exposed to credit that we have a long-term view on and we feel comfortable with is another metric that we are going to be very focused on. And this capital recycling that we would like to continue to lean into is largely on a pro forma basis, going to help -- make each one of these variables that I just mentioned accretive. And so that's the desire.

And it could be obviously leaning into the data center side, leaning into the industrial side and repositioning our overall portfolio to make sure that our net lease metrics that we focus on, KPIs that we are very focused on continues to move in the right direction through this capital recycling.

That's great color. Jonathan, a question for you. Maybe if you'll allow me 2 part of just -- I want to get some clarification on what's in the other adjustments per share. Looks like we excluded that, the AFFO per share guidance would be down. Maybe I'm misinterpreting it, so maybe some color on that. And then just some color or thoughts on the duration of the loan book. It seems like there's a decent amount of high-yielding paper maturing in the next couple of years. I'm curious if you guys are expecting to be able to originate more or how you plan on managing that dilution?

So the other category is really nothing new. It's primarily FX-related. The gains or losses that are noncash in nature. You also have other CECL-related type of impacts as well. But that's nothing that would raise to the level of a cash adjustment that would impact AFFO and shouldn't impact AFFO, given that it's noncash and it's not recurring.

I would say on the loan tenor, assuming you're talking about the investments that we make look, we've talked about this before. But when you think about the right-hand side of our balance sheet, when you think about legacy balance sheet with a fair amount of debt that's rolling every single year, this provides a nice hedge, if you will, a natural hedge, where if rates go down, yes, theoretically, there's reinvestment risk, but also the other side of our ledger is also much more attractive in refinancing at much lower rates than vice versa. So we manage it. We look at it just as closely as we look at the liability side of the balance sheet, and that's how we risk mitigate and forecast what our exposure is, should there be various scenarios play out in the rate environment.

Our next question today comes from Omotayo Okusanya with Deutsche Bank.

Just along Haendel's line of questioning in terms of capital recycling. Could we see that also manifests itself out kind of new JVs or doing more with your current JV partners? Or how do we kind of think -- or is it time more just kind of outright asset sales?

Yes. The idea being recycling. So yes, we are continuously looking at our portfolio, Omotayo, and we are trying to figure out where are the assets that are mispriced in the market where we don't have a long-term hold, strategic outlook on certain portions of our portfolio. And we'd much rather sell those assets, raise that capital and redeploy it in either asset types or geographies or risk-adjusted opportunities where we feel we have a much higher conviction on holding long term. That's what we are talking about.

It's not supposed to represent additional JVs, et cetera. That is not the idea behind the capital recycling that you should sort of think about when we are talking about capital recycling.

And our next question today comes from Alec Feygin with Baird. .

On the data center hyperscale deals, can you speak if after these 3 assets, are you diversifying your tenant base or the end tenant base for your data center portfolio?

Mark?

Sure. Thanks for the question. Yes, we are. Obviously, we announced the transaction 3 years ago with 2 data centers in Northern Virginia that had a specific tenant in it. The transaction that we just announced last month that 3 data centers has varied tenants in it that are different than the original 2. So we currently have the 5 assets with different tenants in them. And going forward, as we continue to build out our data center portfolio, that is one thing that we're going to keep our mind on as part of our strategy in terms of -- obviously, we want to focus on the investment-grade rated hyperscalers and enterprise users, and those work well for us, but we are going to be very mindful of making sure that we balance our concentration to any particular assets.

Nice. And kind of on the tenant question, broadly, should we expect any new top 20 tenants entering the portfolio this year?

Well, Alec, when that happens, it will be announced, and I think it will be viewed very positively. Obviously, these data center clients tend to be very large. And when those close, could it potentially reshuffle our top 20. The answer is yes. But it will be viewed very positively in my opinion.

Our next question today comes from Ronald Kamdem with Morgan Stanley.

Just staying on the data center portfolio team. Maybe can you talk a little bit more about sort of the economics, whether it's sort of stabilized yields or price per megawatt, just your views on that going forward. And also on the competition, right, because I think there's a lot of big private equity players out there. There's other public capital. Just what that environment is like to get these deals from?

Sure. Thanks, Ron. Let me hit the second part of the question first, if that's okay. Yes, there are a lot of people in the sector right now, both on the development side and people wanting to invest capital into this sector. So there is a lot of competition for both developing these assets and owning them. I think that one of the important things, though, is that there are a lot that are still in the development phase, if we're talking about the large hyperscale data centers. And there's probably a lack of a natural home for the ultimate long-term ownership of those assets. Some of the developers may want to keep ownership of them for the long term, but others do not. .

And so that does create a -- despite the competition out there and the players in the sector going after some of these assets for somebody like us whose model focuses on holding long-leased assets that are -- have clients with strong IG credit ratings in them with good annual bumps. There's a natural sweet spot for us to be long-term holders of that. And so I think that makes us perhaps a little bit different than some of the other people who are playing in the space right now.

In terms of your question on cap rates, I think there's still a bit of just overall discovery going on in the market. There are -- a lot of these large assets are still rolling from the development phase into the potentially changing hands for the stabilized phase. And I think there's been some transactions that have been in the market recently that have been announced where there's some cap rate data out there on them. And I think that's a good indication of kind of where cap rates are right now for these types of assets.

Great. And then my second one, if I may. I think just going back, I think the comments were 40 basis points in terms of [indiscernible] bad debt for this year. Just can you remind us the watch list sort of any changes over the last 3 months, any sort of larger tenants? Or does it remain pretty -- pretty granular?

Ron, the watch list remains in the high 5% area. And so it's a very granular watches. I think there's 137 individual tenants that comprise that with a median of about 2 basis points. So at the very top, it's usual suspects, I would say it's home furnishings, it's casual dining, and then drops off pretty significantly thereafter. So when you're thinking about any changes to credit quality in the portfolio, very stable, some things have come out, some things have gone on -- gone in. But broadly speaking, from a guidance perspective or from a forecast perspective, the 40 basis points does still feel fairly conservative. And I remind folks that are historical credit loss across our entire history has been in the low 20 basis points area. So we are trending back towards that area, but still create a little bit of buffering cushion there, guidance-wise.

And our next question today comes from Jim Kammert at Evercore.

Again, if I go back to the data centers, there's no doubt there's an abundant opportunity out there for Realty Income. I'm just curious if I play devil's advocate, if your underwriting needs to a 0 residual value given your bumps and you're going in representative cap rates, what would the 0 residual value IRRs look like today?

Jim, we're not going to go into the details, but that is definitely one of the scenarios that one should look at. There's been a lot of debate about residual values, the fungibility of these assets, which is why the box that we've created takes into account where these data centers are located, what is the throughput required? Do we see Northern Virginia suddenly in 20 years' time when the leases come due, no longer be the epicenter of data center world? Or do we see data center demand completely dry up? And so based on that, you run various different scenarios, and that is one of the reasons why we sort of lean into these very long duration leases, 15 to 20 years and preferably 20.

And we are trying to partner with developers who have the ability, such as Cloud to get these types of long-duration contracts with very minimal responsibilities on the landlord side. And so what we feel is, when we run these various different scenarios, we are very comfortable with the downside. We are very comfortable assuming the outcome if the world were to completely fall apart, and it is, in fact, going to be sold for land at the end. That is certainly a scenario we run. But the way we try to mitigate it is by looking at all of these other factors.

What is the -- what kind of an asset is it? What's the duration of the lease? What's the growth you're getting in it? What's your going in yield? Those are the things that you sort of protect -- will allow you protection when you're running these downside at Herculean scenarios. So that's how I would leave it.

That's fair. And then quickly, what were your tolerance in terms of absolute exposure to data centers as a percent of ABR or your gross investment?

Yes. We are not -- Jim, we are not targeting a percentage of our portfolio needs to be data centers. What we are seeing is a once-in-a-generation demand for a particular asset type that has clients that we are very attracted to in locations that we find very interesting. And we are having multiple conversations. How many of those conversations actually translate over to the transactions, time will tell. But this is a fascinating environment for us, and we are very excited about the deals that we do get over the finish line, the deals that we pursue and are able to sort of enter into. We're going to talk about it and we'll be able to defend those every day. But we are as focused on some of the obsolescence risk and the residual risk that people talk about. And there are obviously mitigants that we have built into the process to make sure that we only engage in transactions that have a return profile that meets our overall long-term return expectations.

And our next question comes from Jason Wayne of Barclays.

Just to step away from the data centers. So on the rest of the investment pipeline, you said you were still interested in Europe. Just wondering if you could give kind of a mix of what's in the pipeline today?

Sure. Neil will take that.

Sure. So look, I would say the mix today is largely reflective of the kinds of things we've done in the past and continue to like. So we're looking at deals in grocery, in DIY, on the industrial logistics space. And generally, many of these are with marquee names in their country or globally. Some of the industrial deals, as Sumit alluded to, are development driven, the majority of what we're looking at today, I would say, is in markets where there is also a theme that we're looking to play, whether it's onshoring or advanced manufacturing. And I think the pipeline looks quite good across Europe as we look at the back half of the year.

Got it. And then you mentioned that public equity funding was down to 18% of your investment volume this year. Is there any kind of long-term target there since the private capital is obviously more onetime in nature?

Look, Jason, I think it's going to depend on circumstances. And we're not saying we're never going to touch the public equity markets. It's been very good to us over the years, and it's a very deep market. But we don't want to be beholden to just 1 source. So whether it's 18%, whether it's 50%, a lot of it's going to be dependent on what other partnerships and how we grow our existing partnerships and sources of private capital. And then obviously, the bigger question is the volume of opportunities that we see is very robust.

So it's hard to put a number there. What we do want to make clear is that all of these sources of private capital are meant to, as Sumit mentioned, not overlap with one another, but also increase the buy box for us. And so there are deals that are very high quality. And I think you see that with the Core Plus Fund in terms of what we're putting into the fund that we haven't been buying on balance sheet because of the lower initial yield.

So I think from that standpoint, the reason we went into this a matter of a few years ago was really to solve that one underlying question as to whether or not we could expand our sources of equity beyond the public markets maintain a level of scarcity value in our securities and not have as much exposure to a very volatile source of funding.

Yes. And Jason, just to be very clear, you mentioned that it's onetime in nature. It's the exact opposite of what we've created. I mean the open-ended fund by definition, will be a vehicle that will continue to raise capital out into the future. That's the reason why we constructed it as an open-ended vehicle rather than a closed-end fund.

The JV that we have with GIC is meant to be a programmatic JV. Once we've utilized the initial capital commitment, the hope is that they will continue to deploy more and more capital with us. It's a similar situation with Apollo. So it is -- we are shying away from partnerships, et cetera, which is onetime in nature or close ended in nature, primarily because we want this fee stream to be permanent and growing into the future. So I just wanted to make that 1 correction, Jason.

And our next question today comes from Jana Galan with Bank of America.

Congrats on the quarter. Jonathan, I just wanted to follow up on the guidance increase to better understand the driver of the $0.02 increase at the midpoint. I guess there's no change about debt, no change to fees. Is it just primarily the higher investment volumes?

A lot of what drives AFFO in a very finite span of time is timing. And then obviously, what we haven't discussed this capital markets because, for obvious reasons, we don't give capital markets guidance. And so I think between those 2 dynamics, especially that are sitting here in August right now and a lot of the capital markets execution risk has been taken off the table. And given the fact that we have much better visibility today on the deal pipeline and importantly, the timing of when those deals will close. That gave us a lot more comfort to take this guidance range up.

So I think it's really a combination of just derisking certain question marks that you inherently have at the beginning of the year and then obviously a very attractive pipeline of deals with more certain closing dates.

And our next question today comes from Anthony Paolone at JPMorgan.

I have a question about just the allocation of capital and your investments across these various buckets. I was wondering what wholly owned acquisition yield needs to look like for it to be interesting. And the reason I ask is, when I look at what you're doing, it seems like 8 to 9 on some of the loan investments in the 7s on the development and the fee enhancements from your various private capital sources will get you into the 7s as well. So when you get to a wholly owned deal, what does that have to look like to kind of be interesting and competitive?

Yes. The answer is it's different by geography, Anthony. That's the reality. And that is something that we are tracking on a weekly basis. We have hurdle rates that need to be met because we need to permanently finance it. And what we try to generate is 150 basis points of spread. That's what we've historically achieved. And given dynamics that might be unique to certain geographies, the cap rates need to get to those levels is going to defer. Obviously, the cost of capital also comes into play, especially in places like Europe where they just tend to be a lot lower given the cost of debt. But the corollary is also true.

In places like the U.K., I think there was a previous question that was asked. The cost of debt is slightly higher. And therefore, the expectation is that deals need to have a higher yield to satisfy that 150 basis points of spread. So there isn't one cap rate, and it is definitely something that we track very, very closely and the team tracks very closely.

Okay. And I just have one just item I'm curious about. Your fee earning AUM, I think, went up $1.3 billion from 1Q to 2Q. But when I look at like what your investment activity was, it was $0.5 billion difference between everything you did versus your share. Am I confusing concept? Or I would have thought that AUM would go up kind of with that difference?

Anthony, I think you should think about the Apollo JV, right? That was a contribution of assets off of our balance sheet, and we are getting fees off of the portion that we are managing on behalf of our partner there.

Our next question today comes from Greg McGinniss at Scotiabank.

Not to belabor the point here, but taking us back to data centers for a moment. Are you open to data center investment in Europe curious how returns there compared to the U.S.? And then are you avoiding investing in the development phase? Or is that just the nature of the agreement with Cloud that you would wait until stabilization?

Sure. Thanks, Greg. Thanks for the question. We are not going into specifics of the Cloud transaction, I think your first part of your question, which was whether we'd be interested in investing in Europe or outside the U.S. The answer is yes to that. We're certainly in a lot of different countries now in Europe. There are some very good data center markets there as well, the flat Bs plus some other emerging very attractive markets. So that is absolutely something that we would be open to I think. And as part of the cloud JV that we announced, as you saw that, that could present us with opportunities, not only in the U.S. but also in Europe.

Your question about, I think, cap rates and yields and this ties back into Sumit's earlier answer, it really is dependent on a country -- country-by-country basis. I mean cap rates can be different, asking cap rates can be different, but our cost of capital also varies by region, by country. And so hard to give you a definitive answer on that other than like everything else, depending on where -- what country those data center assets might be in, we're going to underwrite them and seek to get the same historical spreads and returns that we would normally get.

And then in terms of investing in the development phase versus post stabilization?

Yes. Sorry, I forgot about that part of the question. There are ways that we can -- for example, we -- and I think we've mentioned this, what led to our Cloud JV and the 3 seat assets was actually by lending during the development phase of projects. And so that is something that we can do. We can play in different parts of these phases of these assets, not just with -- with other potential transactions as well.

Okay. And then on the loan investments, initial yields were up to 9.2% this quarter. Was there anything in particular that was driving up that yield? And Assuming a similar kind of rate environment going forward, are your expectations -- what are -- I guess, what are your expectations on turning those investments into real estate versus recycling that capital back into more loans?

It could have multiple reasons as to why we do the credit investments, Greg. Part of it is precisely what Mark was mentioning that it is a way for us to then have access to the real estate, which is acting as the collateral in the development phase. And we are able to, depending on where we invest, able to get outsized returns depending on the risk that is associated with that investment. But the idea has always been that we will use credit investments to either have a channel to owning that real estate because that's one way to play it or to build relationships with operators that have a pipeline of assets that we are interested in.

And more often than not, the investments that we are making is secured by real estate, real estate that we would love to own. And so that's the thinking and thesis behind the yields. If it's obviously a stabilized asset, the yields tend to be lower. If it's during the development phase, the yields are going to be higher. So that's definitely going to be a function of the risk inherent in those investments that will dictate what the yield is.

Our next question today comes from Eric Borden at BMO Capital Markets.

Just going back to the guidance raise on the $0.02 at the midpoint. When you mentioned capital markets execution risk being taken off the table, is that primarily related to debt issuance or equity funding and cross-currency financing? Or is it just the overall funding visibility for the pipeline greater increase?

The combination of all of that, Eric, I would say. Obviously, debt financing, we've taken a lot of that risk off the table. The European markets and the shape of the FX curve has been very beneficial to us. And importantly, a lot of what we've done on the acquisitions and investment side is euro-denominated. So we've had a net investment hedge capacity that can match fund the financing in the same currency as where we're getting rent and where we're deploying our capital.

On the equity side, you can see we've got $1.3 billion of unsettled forward equity. And that's at a reasonable price. But certainly, that's the risk where you have initial guidance that you come out with in February, where you don't want to take for granted that you're going to be able to have that type of equity cost. And then I'd also say just looking forward, part of it is also thinking about yields. And if we have more visibility to the pipeline in terms of volume, you can assume that we would have pretty good visibility in terms of yields, which translates directly into investment spreads. And so I would say it's really a combination of all the factors that you mentioned there.

Great. And then just on the same-store revenue growth of 1.2% in the quarter, the strength from the industrial and gaming sectors, but there was an offset of a 5.1% decline from the other bucket. Just hopefully, if you could provide some more color on what's driving the underperformance in that category, whether it's specific asset type or tenant cohort?

Yes. So when you look at the footnote in terms of other, you do see that we've added hotel to that category. And so the quantum itself is not meaningful, but I would say it is an asset that we assumed from a prior merger. And we feel like we're coming to a good resolution on this. But there was a little bit of nonpayment of rent that we absorbed in the second quarter.

Our next question today comes from Upal Rana with KeyBanc Capital Markets.

Sumit, on your updated investment guidance of $10 billion, is that a reasonable annual deployment run rate we should be expecting for the company can achieve going forward? I'm not looking for any future guidance numbers, but just there were some larger investments this year. So just curious if that's a level that we should expect going forward?

Well, Upal, in '22, we did $9 billion; in '23 or '21, one of those years, we did $9.5 billion. So this is the third year that we are going to -- we are forecasting to do north of $9 billion. And all we've done is expanded our investable channels and we've expanded our geographies. So look, we are very comfortable guiding to 2026 at $10 billion. And obviously, we've been very open about the areas that we would like to invest in. We've talked about once in a generational opportunity on the data center side. Those are the things that I would ask you to consider.

In terms of sourcing, we are sourcing -- year-to-date, we sourced north of $62 billion. And this is very much in line with the all-time high that we had in 2025. And every year, as we've expanded these investable channels and geographies, our sourcing numbers have gone up. So I mean one could even make the argument if we had a better cost of capital, things would be even simpler. But I'm not going to go into whether $10 billion is the right run rate or not. I can speak to this year being something that we are very, very confident about and very much believe in meeting.

Okay. Great. That was helpful. And then just a quick one on the new client rent recapture rate. I know it only represents about 10% of the total releasing, but it was materially below the portfolio average. So just wanted to get your comments on what was driving that?

The 102.7% was materially lower than our guidance. I don't believe we gave guidance on recapture rates and -- so my team is showing me some numbers -- you're talking about with new clients. I understand. So there were very few assets that went through a new client. And Upal, what I would ask you to focus on is what is the blended rate that we are able to achieve.

For the right client, we are absolutely willing to give rent haircuts and enter into a longer-term contract with more growth. Those are things that we will continue to play. And what we have said is we are a very mature, highly effective asset management business, and those are going to be areas that you will see fluctuate quarter-over-quarter. But what we focus on is when you take that into consideration, along with releasing of the same clients, what are we blending out to? Is that a positive number. And I would say that this -- almost 103%, that has largely been the case quarter in, quarter out since we've been tracking this number over the last 8, 9 years now.

So that's something we talked about 10 years ago when asset management wasn't as big part of our business. But today, what is it, Janeen, close to $400 million of leases that are rolling on an annual basis, and it will be closer to [ 500 ] in the years to come. So it is very much big part of our business, and it will continue to be a driver of growth, and it's a team that I'm very proud of, and they continue to post amazing results for us.

Our next question today comes from Jay Kornreich at Cantor Fitzgerald.

Just one question for me on the private capital fund. You mentioned deploying the initial $1.7 billion of equity from the private Core Plus Fund. So wondering just where do you go from here? Were there any limits or barriers that led to the initial raise being that $1.7 billion? And then how should we think about the private capital fund growing in size from here?

Jay. So I think one way to think about it is for a cornerstone raise, that's when the big initiative is to build the AUM. And once you get that capital in the door and then you've proven that you can deploy it accretively, there's a performance track record that we are trying to build here. And you generally need a 3-year track record until you can come back to the market and really open up the floodgates for more capital.

I'll remind everyone that Sumit mentioned earlier, open-end perpetual fund, which in the environment we've been in is not exactly the most active market from a fundraising standpoint, we were able to mark that trend. But now the focus is on performance. And so I think where we go from here is there's a lot of focus internally making sure that we're making all the right decisions, should there be capital recycling. Obviously, the deployment of the capital has been a big focus on the right deals with the right underwriting and the right structuring. And so we're constantly going to be open for business in terms of trying to raise capital. But the expectation was always you get the cornerstone capital in the door you deploy, you manage it, you show results and then 3 years in, because that's when your next round starts to really take off.

And our next question today comes from Spenser Glimcher with Green Street Advisors.

As royalty income continues to find accretive ways to grow, I'm just curious how big you envision the credit platform could be as a percent of overall investment volume in any 1 given year. And then can you remind us, do you have a dedicated team looking for these credit opportunities?

I'll answer your second question first, Spenser. Yes, we do. We have dedicated folks here in the U.S. as well as in Europe, looking for transactions on the credit side of the equation.

In terms of how big we would like for this to be. We don't -- again, just like there was a question on asset type composition and what we want data centers to be or industrial to be. We view credit as a way to ultimately get to owning assets fee, simple. That is how we are using credit to enhance relationships with developers, to cultivate relationships with developers and gain access to the real estate that we have a long-term view on. And so, today, it's a very small portion of our balance sheet. It's circa $3 billion is our credit investments. And we feel like it has allowed us access to channels that wouldn't have been available to us had we not gone down this path.

And while we are investing higher up on the balance sheet with better collateral while generating yields that are quite compelling. And so if that leads to then owning real estate, I think it's a channel that we want to continue to lean into. But obviously, this is not something that's going to dominate our balance sheet. We are not a lending -- we are not a bank, but it is a way to sort of cultivate relationships that allows us to execute our core business, which is owning net lease assets, long-term net lease assets.

Okay. Great. And then maybe just circling back to the capital recycling. I know you provided a lot of great color around the direction there. But it looks like you've sold more occupied assets this quarter as a percent of your total disposition. So just speaking to your more proactive asset management. I'm just curious, is there any 1 credit or industry that drove elevated asset management in 2Q? Or was this just a slightly busier quarter?

Yes. It's -- look, I hope that this trend continues. What you're going to see, Spenser, is that it could be a credit-driven decision. It could be a mispricing decision. that we see that the private markets are valuing assets at a much lower cap rate than what we would have on our balance sheet. We are not tied to any 1 asset. If there is a massive mispricing that we're going to see, we're going to try to lean into that.

We know where we want to put capital to work. And if this could become a source of capital that allows us to sort of reposition our portfolio in a way that is incredibly accretive, we want to lean into that. And so you shouldn't just look at occupied sale as a way to reduce credit. That could certainly be a reason to do that, but it is not the only reason why we would be selling assets -- occupied assets into the market.

Thank you. That does conclude our question-and-answer session. I'd like to turn the conference back over to Sumit Roy for any closing remarks.

Thank you so much, everyone, for joining this call, and we look forward to seeing you in upcoming conferences. Rocco, thank you for hosting us.

Yes, sir. Thank you very much, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.

Thank you all for coming. Before we begin here, I just wanted to read our forward-looking statement. So as a reminder, we may make statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in any forward-looking statements. We will disclose in greater detail the factors that may cause such differences in the company's filings with the SEC. And lastly, information provided here and does not constitute an offer to sell securities. So with that, Jana.

Thank you, Alex. Good morning, everyone. My name is Jana Galan, and I'm the Net Lease REIT analyst at Bank of America. I'm honored to host the Realty Income presentation and thrilled to introduce Realty Income's President and CEO, Sumit Roy. He's also your 2026 Nareit Executive Chair. And Sumit has served as O's CEO since 2018 and been President since 2015. Prior to that, he served as Realty Income's Chief Operating Officer from 2014 to 2018. So 2026 has definitely been a very busy year for Realty Income in terms of new partnerships, announcements and solid first quarter results. I'd love to ask Sumit if you could provide some high-level commentary on the year thus far.

Sure. So the first quarter was very good. We had a 6.5% increase in our earnings. We updated our earnings guidance, increased it by 60 basis points at the midpoint. And we had recapture rates in the -- north of 103% and we invested about $2.8 billion across both the U.S. and the international markets, 50-50. So the -- from an operations perspective, earnings perspective, things are looking great. What I would also say is there were certain other announcements more strategic in nature that we made during the first quarter, which was something that we've been sort of talking to the market about and that was centered around creating these alternative sources of equity capital that we wanted to lean into.

And I'm very happy to report that the cornerstone round for our open-ended perpetual life Core Plus fund, closed. We raised $1.7 billion. And it wouldn't surprise you if you've been following us, that almost all of that will be deployed by the end of this month, beginning of July. And so that was one of our key accomplishments and a key strategic objective that we had to create an alternative to relying on just a single source of equity, which has been the public markets for -- since we went public in 1994. Along with that, we also announced a couple of other very strategic partnerships. One was with Apollo where we raised -- it's a $2 billion JV. It's 49%, 51%. They invested $1 billion in our business of equity.

And this is a play on the aging population. They are -- their business, the Athene business is an insurance company. That raises a lot of annuities. And they wanted to find investments that would match up with the liabilities that they have, and they believe that the net lease model and more specifically us, were partners that they wanted to pursue that strategy with. And so we closed on that as well, and it's going to be programmatic. We will continue to grow that particular channel going forward. And third, but certainly not the least, was a partnership that we announced with GIC. This is a $1.5 billion build-to-suit partnership on the industrial side. And with them, we did our first investment in Mexico and added Mexico to our countries of choice in the international market. So I'll stop there.

Thank you. Definitely a very busy start to the year. Maybe starting very big picture, Realty Income has historically branded itself as The Monthly Dividend Company. And as a result, you've garnered a very strong retail investor following. I was hoping you could maybe expand upon this big push into private capital and joint ventures and how your team decided on this path.

Yes. The strategic rationale for doing what we did was what we noticed happening over the last 3 to 4 years. The fundamentals of the business were very strong, but it wasn't necessarily being reflected in the stock price. And so -- having this single point of failure to help finance 2/3 of our investments was something that we wanted to strategically address. And creating these alternative channels of equity capital would allow us to effectively monetize the platform that we've built that is geared towards doing $10 billion to $15 billion of investments a year. And this is a win-win. This less reliance on the public markets and partnering with sources of capital that want the investment channels that we have in place today would allow for us to continue to create earnings growth for our public investors through fee businesses and/or through the strategy that we have with Apollo, where they basically sort of curtail their upside to a particular number and anything above that -- above and beyond that accrues to the public shareholders.

So if you think through every one of these strategies, it was largely to address this single point of failure that we noticed. And it's not just a story for us. It was REITs at large. And finally, this year, despite what's happened to the interest rate going from 4% to 4.5%. REITs are starting to rally. I mean, they've year-to-date performed at 14%. And there's finally a recognition that this is not just an interest rate play. These are businesses that have operations that continue to perform. And so we are a little bit ahead of the curve, but I don't think we'll be the only ones. And I just believe that that's going to make our entire industry much more healthier creating these alternative channels.

Thank you. And your business focuses a lot on external growth. Can you maybe comment on how your buy box has expanded because of this access to other forms of equity capital.

Sure. So we came out of the year at right around $8 billion. And today, we increased that guidance to $9.5 billion for the year. Look, we are an investment shop. That is the model of the net lease business. The preponderance of the growth comes from external investments. And so creating a mousetrap that effectively scales the ability to source more transactions and to put that to work and in an accretive fashion, is really what net lease investing is all about and relationships. They matter. And 94% of the $2.8 billion that we invested in were relationship-driven. And that's where the size and scale comes to the fore. But in order for us to maximize the growth profile, we've created these other channels.

And I sort of mentioned how the Apollo relationship works because they're basically saying that anything -- any investment we make, we are going to -- we're going to need a 6.875% return -- levered return. Anything above that goes to us. So clearly, we make investments. These are lower-growth, lower-yielding investments. It meets the Apollo's requirement, but we create alpha beyond the 6.875%, which accrues to our public shareholders, for which they're not having to finance that growth. It's a similar story on the open-ended perpetual life fund. There are certain transactions that we were having to pass on, not because they didn't meet our long-term investment horizon or investment returns. It was just that the day one spread was not sufficient to be accretive enough for what our public shareholders need.

But if you think about the capital that we've attracted, the LPs, they are not necessarily focused on day one spread. What they want is a total return profile that more than meets their objectives of a 9% to 11% levered return net. And so we were able to pursue transactions that had a lower yield going in at a much higher growth rate. So again, different from the Apollo box meets the LPs requirement and we get a fee stream to manage this -- the fund for them and the investments and everything else. And that fee is not something that the public market needs to finance. So that too accrues to the growth in our earnings on a permanent basis through this channel.

The one with GIC is an interesting one. It's an investment that we make initially structured as a debt where we are able to recognize our earnings on that piece of debt with the idea to own upon completion and stabilization, which wasn't the case, we wouldn't be able to do that without GIC being the equity. And so I think if you sort of look at each one of these alternatives that we've created, it's with the singular goal of going back to our 5% growth rate that we have traditionally been able to achieve at Realty Income.

And going back to the investment guidance you set for the year of $9.5 billion, you mentioned in the first quarter, you sourced and evaluated $31 billion of opportunities. Can you maybe talk to us a little bit about the pipeline? Where do you see the most attractive investment yields today?

Yes. It's by geography. We can't make a general statement that right now, if you look at industrial, for instance, cap rates are quite steep for us. But with the right capital, if you look at certain markets in Southern Europe, they still pencil. You look at markets in Poland, they still pencil. But if you look at the markets in Germany, that's not an area where we can pursue industrial assets. Obviously, a big portion of spread investing is what is the cost of capital. So when we are investing in Europe, the fact that we can issue 10-year paper in the high 3s is a massive advantage for us. And that is a testament to the A-/A3 credit rating that we have.

What I would say is the momentum today is equivalent across both U.S. and the international markets. That was not the case last year. For the first 3 quarters, 2/3 of everything we did was in Europe. And again, it goes back to the points I made about Europe that it's highly fragmented, less institutionalized, and less competition, to be very honest. And it's in the earlier stages of the sale-leaseback product. And for us to be able to go there and consolidate that industry and today be the largest net lease, even though we are private -- I mean, private in Europe. If we were to list, we would be the largest net lease business in Europe and actually the fourth largest REIT for that matter. So the momentum is there across the board. I think we are the first call especially in Europe. And I see the product being well spread across data centers, industrial because we have access to this low cost of capital now and retail.

And maybe just kind of your different competition in the market for data centers, industrial and retail.

Yes. So here in the U.S., we have a lot of net lease businesses and the public markets. There has also been a drive on the private side to incubate net lease strategies. Apollo rather than trying to do it on their own, they chose to work with us as a platform. But if you look at across the board, Carlyle has set something up. Brookfield has been in and out of the net lease business for a while. Ares has a net lease strategy as well. And it's a testament to the product. I think the secrets are out that, look, this is a -- it's a perfect type of investment where you get yield and growth. And so oftentimes, I've described our business as we have debt like cash flows and equity like growth. It's a very difficult combination to strike a balance on. But I think that's what this business is.

So competition is from a number of competitors. It's a lot more steep here in the U.S. than it is in Europe. But having said that, if you look at the product that we pursue, Jana, that's where our size and scale comes into play. A lot of them are much large transactions, which would create concentration issues for some of our public competitors. And given where the interest rates are, debt is not something that a lot of the private buyers can lean on to help facilitate a net lease strategy. So we sit at the cross-section of doing very structured transactions. We are happy investing higher up on the balance sheet with the hope of it's a loan-to-own strategy that we are sort of incubating. And so we compete -- and that's the reason why we had about 50% of our investments here in the U.S. and 50% in Europe. And a lot of the data center investments today are all here in the U.S. So -- and that is going to continue to be a bigger and bigger part of our strategy going forward.

And as you said, net lease comes down to spread investing. How much of the investment -- the $9.5 billion you've targeted has been prefunded. And how are you thinking about the options for financing the remainder?

Yes. Great question. So we have about $3.9 billion of liquidity today. Our balance sheet leverage rate is very, very low. We obviously have talked a lot about these alternative channels that we've created for equity, which allows us to play across the cap rates spectrum, which we were not able to do with just public equity and so that too is something that we have leaned into. But we've done the same thing on the fixed income side as well. We did a prepaid muni trade where we were able to get 5 to 10 basis points, I would say, of better all-in cost than what unsecured bonds would have given us in the U.S. market. So we are trying to be super creative. We're using our A-/A3 balance sheet in the process. We're doing a little bit of good, helping a local San Diego power company, raise capital and have an outlet such as ours -- a counterparty such as ours to fund their forward electricity purchases.

So I feel very good about access to capital, where our liquidity situation is and the 2/3, 1/3 mantra that we have of equity and debt will continue to be how we finance the rest of our business. And the only other piece that some of you who've known us for a very long time may not be as acutely aware as we are using capital recycling in a much bigger way than we have traditionally used. So anywhere between $600 million to $800 million will come through capital recycling. We are $900 million to $950 million of free cash flow, and the rest of it is 2/3 equity and 1/3 debt. But even there, the management fee is something that will continue to accrue to us for which we do not need to raise capital.

Maybe turning to the in-place portfolio, how are you thinking about and assessing tenant health and credit quality in the current macro environment?

Yes. So again, it goes back to how did we construct the portfolio. Look, we are acutely aware that we are The Monthly Dividend Company. We need to have a cash flow stream that is highly, highly dependable and highly diversified. I think if you look at our portfolio today, we have 15,600 discrete assets across the globe. If you look at the concentration of clients/tenants, there is no client more than 4% of rent today. So there's a tremendous amount of diversification. If you look at the subsectors that we are involved in, it's north of 90 subsectors.

And if you look at the asset types, today, we are at 78% retail, we're at 15% to 16% industrial. We are at right around 2% gaming and a growing data center business. So even across asset types, we are very diversified. And that was why despite the volatility in the macroeconomic environment, and I'm not going to sort of sweep that under the carpet. There is a lot of stress in the economy. And if inflation continues to be as sticky, as some economists are predicting that is going to translate to the consumer's ability to continue to spend, but if you've sort of created a portfolio that is largely based on necessity-based retail, it's much easier to absorb that. That will be the last element that gets cut.

And if you look at the largest industry concentration that we have, it is grocery stores. It is convenience stores. These are necessity-based retail that people will need first and foremost. That's what gave us the confidence to ultimately reduce our bad debt expense forecast for this year. So despite what is happening in the macroeconomic environment, largely led by geopolitical risk and inflation, et cetera, we feel very good about how we are positioned to navigate this year and beyond.

Thank you. And I have to ask an AI question. I know we've been talking for many years about Realty Income's predictive analytics. But if you could share some insight into how your team uses data, AI, predictive analytics.

Sure, Jana. So this is a great question because, again, it goes back to our size and scale. The fact that we are churning through $400 million to $500 million of rent every year, you gain so much insight. And so through clean data, we've had our machine learning tools learn what the ability is to forecast the continuity, the rent continuation at a particular location. We define risk as our ability to continue to capture the existing rent on a prolonged basis. If that gets disrupted, that's the risk, whether it's driven by location risk, whether it's driven by the business, whether it's the fungibility of that particular asset, all of those elements these tools that we've invested in that we call predictive analytics, since 2019 is basically geared towards answering.

We use this tool across every element of our business process of our workflow, starting from underwriting deals that we source. And to asset management to making disposition decisions to also determining what is the highest and best use for a given location. And this is part and parcel of how decisions are made on the front end, where we are making a decision to buy an asset and all the way to the end of the cycle where we're making a decision to sell an asset. And so we are very proud of the tools that we've invested. And obviously, we have a DNA that moves very heavily into technology. And -- but there is a much bigger strategy at play that we are working on very diligently.

And the first step in that strategy is to make sure that every piece of data that our company uses in every decision that they make, it's a single point, a single source of truth. So we are trying to create the data lake where all structured and unstructured. And that second piece is not very easy. Data is going to reside in this one data lake. We will be done with that exercise on the structured side by the end of this year, and the unstructured data will be done by the end of first quarter next year. At that point, the ability to scale our business even more is going to increase exponentially. We can run agentic models for every element of our business at that point. On clean data, data that we have made sure that curated and make sure that any new information is going through the filter that we have devised that keeps it clean is going to be a critical, critical advantage to how we run our business.

Today, we are the most scaled business. We are at 95% EBITDA margin. I'm not going to tell you what it's going to look like 2 years from now, but it's going to be a lot better.

And Realty Income is targeting annual mid-single-digit AFFO growth and compounded with the dividend, kind of 8% to 10% total return. What are the levers to get there?

Yes. So look, even today, at the midpoint of the guidance that we've come out with, we are right at 3.4% earnings growth. Our dividend yield is 5.5%. So you're already at 9%. But the idea is to grow that 3.5% to 5%. And I think despite the fact that we have some headwinds with regards to refinancing, we have 2% debt that's maturing next year. So '27, '28, there will be some of that headwinds. The strategies that I've talked about along with our ability to continue to source and lean on our relationship-driven sourcing channels is how we're going to get to that 5%. And we are convinced of that.

And with a 5% growth rate and a 5% dividend yield, which can flex, that 5% can be 7% earnings growth, et cetera. And we have done that in not so distant past. We will get back to that 8% to 11% on a consistent basis of growth that people associate with Realty Income.

I have one more from me before I'll open it up to the room for questions. But curious how the Board thinks about the dividend and how do they balance returning capital to shareholders versus the investment opportunities that you see?

So that's a DNA question again, Jana. Look, we were founded in 1969, our founders were developers at heart. And the story is important. And so I'll get to answering your question. They were approached by Glen Bell. I don't know how many of you know the story. He's the founder of Taco Bell. And he couldn't get bank financing to build a taco stand where he could sell tacos. And so he approached, our founders were in Southern California, just like Glen Bell. He approached our founders, and they said, okay, we're going to build it, but we don't want to be responsible for this. And they themselves, our founders didn't have enough capital to do this. So they borrowed from friends and family, and they built the first Taco Bell stand.

And they said, we're going to charge you 11%, but you're on the hook for everything else, and that was how the concept of a net lease came about for us. And Bill, our founder, along with Joan said, we borrowed from our friends and families well, not borrowed, they're equity holders of this asset. We collect rent on a monthly basis, we're going to distribute it out on a monthly basis. And that's how the monthly dividend company got stood up. And they said, they have expenses on a monthly basis. They've invested in us, we should return their share of the rent on a monthly basis. So the monthly dividend company is absolutely part and parcel of who we are. It institutes a tremendous amount of discipline.

And I've heard this from several sources that, oh, institutional investors don't really care about that. But we are very much focused on this total return concept. And I would argue with our shareholders that, look, we are returning capital on a monthly basis to you, which is circa 5% of your investment. And we are then also growing our business at this year in the midpoint, 3.5%.

So I think it's a fantastic model, which with the aging population, et cetera, will only resonate more. People are looking for steady income that grows over time, that has incredible amount of diversification and scale. So our Board, I can tell you categorically, is very much a believer in the monthly dividend concept. And we will continue to lean into it and with the population set continuing to be getting to the point where income streams become much more important, I think our model will continue to resonate.

Any questions in the audience? Yes.

[indiscernible] for larger acquisitions, whether it's smaller public companies that pay [indiscernible] private portfolios versus [indiscernible]

Yes, great question. So the question for those that may not have heard was where do we see the opportunities? Is it companies that are trading at a discount or large transactions in the private side. Look, we see everything. For us, I'll answer the question that perhaps people have in their mind. Doing M&A in the public markets, it's a big lift. It's a very high hurdle rate. We've done it multiple times. We did 2 very large M&A deals in the last 5 years. We did the first M&A deal in 2013 then we did 2022 VEREIT and then we did Spirit in 2024. So doing M&A deals is not an issue for us. But there is a lot of volatility that's associated with doing a public to public.

And right now, we are so confident in our sourcing channels on the private side that we don't have a need or feel like there's a need to go down the path on the public side. Plus any time you're buying another company, you're effectively borrowing their underwriting. And what we find is oftentimes 20 to 30, sometimes even more percentage of what you're getting with a public company is not really core to your long-term strategy. And so that becomes very disruptive in the process of cleaning up that portfolio. Whereas when you're going after a private situation and bigger is better for us because that's where we differentiate. I do believe that there are more opportunities for us in the private side. There is less noise, and we buy exactly what we want rather than in a public company situation. So I'm not saying we will never do M&A again. I'm just saying it's a very, very high hurdle, and we have plenty of opportunities on the private side that is keeping us busy.

Unfortunately, we're out of time, but thank you so much, Sumit. This was a great intro to Realty Income.

Thank you.

Good day, and welcome to the Realty Income Q1 2026 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. I'd now like to turn the conference over to [ Alex Waters ], Vice President, Investor Relations. Please go ahead.

Thank you for joining Realty Income's First Quarter 2026 Results Conference Call. Joining us on the conference call today are Sumit Roy, President and Chief Executive Officer; Jonathan Pong, Chief Financial Officer and Treasurer; Neil Abraham, Chief Strategy Officer and President, Realty Income International; and Mark Hagan, Chief Investment Officer.

During this conference call, we will make certain statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in any forward-looking statements. We will disclose in greater detail the factors that may cause such differences in the company's Form 10-Q filed today with the SEC.

We will observe a one question and one follow-up limit during the Q&A portion of the call to ensure that everyone has an opportunity to participate. And with that, I would now like to turn the call over to our CEO, Sumit Roy.

Thank you, Alex, and welcome, everyone. We entered 2026 with strong momentum, and our first quarter results demonstrate progress across the priorities that matter most for Realty Income. Disciplined capital deployment, durable portfolio performance and continued expansion of our private capital platform.

In the first quarter, we delivered AFFO per share of $1.13, up 6.6% year-over-year, and invested approximately $2.8 billion or $2.6 billion on a pro rata basis at a 7.1% initial weighted average cash yield. Our investment activity remained balanced between North America and Europe, and we also deployed approximately $1 billion into credit and structured investments.

That strong start to 2026 supports our decision to raise the midpoint of full year AFFO per share guidance by $0.025 or approximately 60 basis points at the midpoint. Jonathan will walk through the quarter and our updated guidance in more detail.

Looking ahead, our 2026 outlook reflects an anticipated acceleration from 2025 as we leverage our scale data-driven and robust platform to strive towards consistent double-digit total operational returns for our shareholders.

I'd like to briefly step back and place our recent announcements into the broader strategic context for Realty Income. Over the past several months, we've been deliberate in building a private capital ecosystem to diversify our sources of permanent equity, expand our investment opportunity set and support long-term value creation, all while remaining anchored in the same underwriting discipline, credit standards and focus on durable growing cash flow that have defined Realty Income since our inception.

This is demonstrated through three critical achievements. First, we completed our $1.7 billion cornerstone capital raise for our Perpetual Life U.S. [ Core+ fund ]. Second, we formed a strategic partnership with GIC focused primarily on construction financing and takeout commitments for build-to-suit industrial in the U.S. and Mexico. Lastly, we raised $1 billion in equity from Apollo, as part of a programmatic venture that strives to ultimately deliver Realty Income's dependable income to the massive insurance and annuity market.

Taken together, these initiatives represent what we view as a meaningful evolution of the Realty Income platform rooted in years of intentional planning to strengthen how we fund growth and deploy capital across cycles.

Several years ago, we identified a potential concentration risk in relying primarily on public equity markets, where pricing at times can become disconnected from underlying operating performance and this discrepancy persists for prolonged periods.

That realization led us to a fundamental question, how do we diversify capital sources to better leverage a platform designed to deploy billions of dollars annually while seeking to create long-term value for public shareholders. These partnerships represent the early stages of our private capital journey and we expect to continue adding accretive sources of permanent capital over time.

Today, we view private capital not as a single strategy, but is an ecosystem of distinct, nonoverlapping verticals tailored to different geographies, property types and investment mandates. This approach has expanded our investor base, strengthened our return profile through asset-light fee income and meaningfully broadened our investable universe. Importantly, it allows us to deploy capital across property types and across the real estate capital structure while preserving the core DNA of Realty Income. Each vehicle is designed to be complementary to our public REIT model and accretive to long-term per share value.

Alongside that backdrop, our global platform evolution drove transaction activity during the third quarter with approximately $2.8 billion of investment volume we delivered one of our higher levels of quarterly deployment in recent years, supported by consistent execution across geographies, property types and investment structures. We sourced approximately $31 billion of investment opportunities during the first quarter, reflecting the depth of our global relationships and the scale of our platform. That sourcing allowed us to remain highly selective closing on roughly 9% of what we reviewed while maintaining discipline on yield structure and credit.

Approximately 94% of opportunities were relationship-driven reinforcing the durability of our origination engine. Our European platform continues to be a key competitive advantage. Markets remain more fragmented and less crowded than in the U.S., allowing us to source portfolio-oriented tailored transactions with attractive duration and credit and to flex capital toward highly compelling opportunities. In the U.S. Transaction markets remain active and competitive, particularly for small one-off assets.

We continue to see meaningful value creation in larger and more structured investments where our relationships scale and underwriting capabilities provide a competitive advantage. We deployed $1 billion into credit investments globally, including two mezzanine transactions, the first was a $375 million loan alongside a sovereign capital investment firm, backed by a portfolio of high-quality logistics assets leads to a strong investment-grade e-commerce client, with a right of first offer on the underlying real estate.

The second was a $190 million loan, supporting the development of a data center campus in Virginia, pre-leased to an investment-grade hyperscale tenant. Our ability to invest across owned real estate loans, preferred equity and structured investments gives us flexibility to remain disciplined and selective, particularly in periods of macro volatility.

Our global platform, long-duration leases and conservative balance sheet position us to stay active while maintaining underwriting rigor. Our platform advantage continued to deliver strong operating results and we ended the quarter with robust occupancy and reported recapture.

Through proactive asset and property management, our teams remained focused on driving AFFO per share growth from the core portfolio. We combined deep familiarity with our assets and clients, proprietary predictive analytics and disciplined credit underwriting to maximize risk-adjusted economics on releasing and renewal outcomes. That approach generated outsized lease termination income of $40.2 million during the first quarter. And based on current visibility, we've increased our full year termination income outlook range to $45 million to $50 million.

Overall, we believe Realty Income today is more differentiated and better positioned for long-term growth than at any point in our history. With that, I'll turn the call over to Jonathan.

Thanks, Sumit, and good afternoon, everyone. We had an active first quarter with several new capital partnerships that expand our financial flexibility and deepen our access to long-term oriented private capital. Combined with our established access to public markets, these initiatives broaden our investment buy box and support sustained global development.

We ended the quarter with approximately $3.9 billion of liquidity on a pro rata basis. Subsequent to quarter end, we raised an additional $174 million of forward equity, bringing our current ATM unsettled balance to approximately $1.4 billion.

Net debt to annualized pro forma adjusted EBITDA was 5.2x within our targeted leverage range and inclusive of our outstanding forward equity our leverage would sit at 4.9x.

Subsequent to quarter end, we issued $800 million of 4.75% senior unsecured notes due 2033, swapping [ $500 million ] into euro for a blended yield of 4.44%.

In addition to diversifying our sources of equity, we are also taking steps to broaden our access to unique sources of debt capital. In the first quarter, we established a new form of debt financing through a 10-year unsecured term loan with an affiliate of Goldman Sachs.

The capital raise provided Realty Income and the opportunity to partner with the local community via San Diego Community Power supporting its long-term energy procurement objectives for San Diego residents. To facilitate this arrangement, San Diego Community Power utilizes a well-established municipal prepay structure, that enables a public agency to issue municipal bonds and use the proceeds to prepay for future electricity deliveries while effectively lending a portion of the proceeds in this case, $694 million to Realty Income.

In return, we agreed to pay a fixed annual interest rate of 4.91% through the Goldman Sachs storm loan. We subsequently swapped $500 million of the note to euros via a cross-currency swap, resulting in a 4.34%, all-in blended cost of debt.

The strategic benefit to Realty Income is the creation of a deep pool of new debt capital at attractive pricing that can complement our access to the public and secured debt market.

Our European operations continue to provide incremental low-cost financing flexibility. Euro-denominated debt is priced approximately 100 basis points inside comparable [ tenor ] U.S. dollar debt and serves as both a natural currency hedge and a tool to offset higher cost U.S. refinancings while remaining leverage neutral.

Given our strong start to the year, we are increasing full year investment volume guidance to $9.5 billion at 100% ownership and raising the AFFO per share guidance range to between [ $4.41 and $4.44 ].

As Sumit noted, we are also increasing the expected lease termination income guidance range to between $45 million and $50 million as we become increasingly proactive with our asset management platform.

And lastly, we are lowering our credit loss outlook to approximately 40 basis points of rental revenue, reflecting improved visibility and performance across the portfolio.

As Sumit highlight, we now have three distinct and intentionally structured private capital vehicles through our partnerships with Apollo, GIC and the Perpetual Life U.S. [ core+ fund ]. Each vehicle serves differentiated investment mandates and is designed to provide realty income with three new alternative sources of long-term oriented equity.

Our most recent strategic partnership with Apollo seeks to provide a repeatable source of low-cost property level equity while allowing us to retain operational control. We view this structure as a compelling complement to traditional public equity and we expect it will carry comparatively less volatility of pricing and availability. A diversified net lease portfolio at scale is a natural complement to Apollo's perpetual capital AUM and which comprises a significant majority of their total AUM.

Our initial transaction with Apollo resulted in a $1 billion equity investment in a highly granular, well-diversified long-duration retail portfolio of approximately 500 single-tenant properties contributed off our balance sheet.

The joint venture includes a call option exercisable between years 7 and 15 that caps the cost of this equity at 6.875%, during Apollo's ownership period. This structure provides meaningful long-term optionality as contractual rent growth compounds over time, increasing spread versus our long-term cost of equity and enabling incremental investment volume at lower return [ hurdles ]. We are pleased to partner with one of the world's leading asset managers and intend to scale this relationship beyond this initial product.

The partnership is well aligned with providing long-term equity capital and realty income delivering sourcing, underwriting and asset management capabilities through our global net lease platform. The Apollo partnership represents our second programmatic private capital joint venture following the January announcement of our build-to-suit development JV with GIC.

Finally, during the first quarter, we completed the cornerstone fundraising round for our U.S. Core+ open-ended fund, raising $1.7 billion of institutional capital, primarily from state City and employee pension plans. The vehicle is designed to allow us to invest alongside high-quality institutional partners in assets with lower initial yields but strong long-term growth characteristics, while generating high-margin capital-light fee income. Just as important as it is intended to broaden our buy box that enhances day 1 accretion by more efficiently matching capital opportunity. With that, I'll turn it back to Sumit.

Thank you, Jonathan. Our private capital initiatives represent a natural extension of Realty Income's long-standing business models. They're expected to enhance our ability to deploy capital through cycles improve our cost of capital efficiency and strengthen our long-term value proposition for shareholders. We are encouraged by the progress to date and look forward to building on this momentum. Operator, we are ready for Q&A.

[Operator Instructions] And our first question today comes from Jana Galan at Bank of America.

Evening. This is Dan for Jana. Could you provide more detail on the $40 million lease termination income recognized this quarter? For example, was it driven by a small number of tenants or broad-based activity and where they released or sold?

So this was obviously part of the forecast that we had shared with the market. If you recall, we had come out with a forecast of $40 million to $45 million. We were expecting this to be front loaded. We have increased that based on the momentum we've seen to $45 million to $50 million.

So this was not concentrated in any one single name. It was across the board. And again, the rationale for doing this remains the same. It is 100% focused on trying to create and maximize our total return profile on our investments. And if we feel like we have the ability to recoup the remaining rent and be able to lease these assets to alternative tenants who are better suited for those locations, that is one of the main drivers of doing this.

The second being rather than waiting for an asset to become vacant in 3 to 4 years from now, being able to recycle the capital today and create a value proposition for our clients who are not long term occupiers of that asset is, again, a win-win situation.

So it is really us leaning into our analytics and being much more proactive about harnessing these types of opportunities. in our portfolio that's driving this. And despite the fact that it was all pretty much front loaded, the actual increase in lease termination is only $5 million.

And just as a follow-up, could you walk through the rationale behind the $40 million add back to AFFO related to credit loss?

The add-back AFFO for credit loss is really a noncash dynamic. So we have loans that we invest in. These are noncash allowances for loan loss very standard with how we've treated similar situations in the past.

So incidentally, they happen to be the same number, but it's -- one is CECL noncash-driven add back, the other one is an actual cash payout to us, which is certainly part of AFFO.

Our next question today comes from Brad Heffern at RBC Capital Markets.

You obviously have the various private capital vehicles now. Clearly, you want to grow those. So I'm wondering where you see the split of private capital investing versus the traditional investing going in the coming years?

Brad, this is a continuation of a theme that we've been touching on for the last, call it, 18 months now, where we used to share pretty much every quarter, some of the transactions that we were passing on just because it wouldn't fit what our public shareholders demand, which is day 1 accretion or spread investing along with meeting a long-term hurdle rate.

Part of why we are doing what we are doing is to be able to continue to take advantage of transactions that we think that actually meet the long-term return profile. These are very good investments, and there's a pocket of private capital that is very interested in trying to take advantage of that.

So that was really the genesis behind why we started to look at these opportunities. And if you think about the three buckets of capital that we have, and you try to sort of dive in and analyze what is the potential overlap, if you will, on strategies. There's very little, if any, to be very honest.

One is a potentially lower initial yield, but with higher growth, which lends itself to our open-ended fund, the insurance capital is much more steady eddy, low-growth investments that don't necessarily meet the long-term hurdles but are very good, predictable cash flow streams that works very well for insurance capital. And then the third is a build-to-suit that we have at GIC, that is we go in with the intention to provide debt capital and then have the path to ownership downstream if we so choose to exercise.

So I think these are three distinct strategies, which if you think about in the traditional sense of the word and how we were able to or not able to recognize earnings in these three different buckets and in some cases, not even do these transactions. It is now allowing us to execute those three strategies, and it's largely based off of third-party capital.

And the way it translates to a positive for our public shareholders is through predictable permanent fee income stream, allowing us to recognize development investments that we make and interest income during development, which we were not able to do in the past and be able to satisfy a need by insurance capital that doesn't really work long term on our balance sheet but allows us to create a fee income stream by leveraging our platform.

So that's how the strategy that we have now started to implement and will continue to grow, it's going to benefit our shareholders is essentially monetizing the platform that we've built.

Okay. And then it sounded like you did a data center development loan during the quarter. You obviously did the deal with digital a few years back. has been a ton of consistent investment in data centers. I'm wondering what does the playing field look like for today in that space? And does it look more like necessary loans? Or is there a chance that maybe the deal like you did with digital wouldn't potentially come back from a pricing standpoint to being attractive?

Yes. So the rationale here is, again, anytime we are making credit investments, it's with a desire to own the real estate or at least a path to ownership. And so what we have said about our data center sleeve is we are highly selective around who our operator is going to be and I'm very happy to say that we are partnering with one of the best private operators out there.

We are also very highly selective in terms of the location of these assets. Once again, it is in Virginia. What I've described in the past as the epicenter of the data center business, to again address the residual risk that is associated with these assets. And then the underlying asset itself, the lease itself needs to be able to fit into our investment thesis of being a single-tenant asset, long duration lease well above growth rates that we've been able to realize on the retail side of the business, and it fits all those boxes. And so my hope is -- this is the second investment we've made with this particular developer and it is with the intent to have a path to actual ownership of these assets.

And in the meantime, we are lending our balance sheet. We are getting very decent yield on these investments, which will then allow us to be able to ultimately own the real estate.

Our next question today comes from Michael Goldsmith at UBS.

Sumit, in your prepared remarks, you talked about just all these private credit vehicles and -- but you also mentioned that you're kind of in the early stages of this. So just kind of curious, are you thinking, hey, we've got -- we've done these three things, and now we've got another three more to do in the next 24 months? Or should we be thinking about this as more longer term? I'm just trying to get a sense of how much more activity you expect in this avenue going forward?

That's a good question, Michael. So let me step back and share with you that any time we are exploring attracting third-party capital. It was the singular intent to grow our earnings per share for our public shareholders. If it doesn't translate to that, there is no reason for us to be attracting third-party capital. So let's start there.

And if you filter any decision that we make and how it translates to growth and if there isn't a clear tie-in then we are not going to be pursuing that capital source. So that's the governing factor on anything we do.

The reason why I've said is what are we going to do in the future remains unclear. But our intent is we have effectively solved for what we need here in the U.S. and our build-to-suit with GIC also includes Mexico. But we are -- we do happen to be in other geographies as well. We are being approached by other sources of capital. And if we can create a distinct strategy that does not interfere with our ability to continue to buy on balance sheet and it's truly accretive to what we are doing on balance sheet, those types of decisions and those types of channels are ones that we are going to continue to look at, continue to consider and potentially add to the ecosystem that we have created.

Just like we've done on our investment side where we've diversified asset types, we've diversified across geographies, we are trying to do the same on the capital side.

Jonathan has done an amazing job diversifying on the fixed income side. We continue to do that today with this muni prepay structure that he talked about. But we had a single point of failure when it came to our equity capital, and that's what we are trying to diversify today. And hopefully, this is the path to being able to get to our double-digit total return profile that we are all singularly focused on.

Got it. And just as a follow-up, it seems like you're doing an increasing amount of these credit investments. So how should we think about the duration of some of these investments? And it's seems like a shorter [ mall ] than maybe we've seen in the past. Can you just talk a little bit about what does that mean for the portfolio going forward?

Sure. And again, great question, Michael. Now a portion of the investment that we made was on this build-to-suit in Mexico. It's a perfect example of how we are effectively lending during the construction phase with the intent to own the asset once it's fully stabilized, that is part of our credit investment.

The other bigger credit investment was on this data center project. Again, the intent there is to lend capital to a partner that we have decided is the right partner going forward on our data center strategy. And what we are hoping and we believe will happen is on the back end, we are going to be the owners of these data center assets. And what it is effectively allowing us to do is get a much higher yield on the front end on the development side, which can then make up for perhaps a nominal yield when we are actually buying the assets on balance sheet.

And so again, this is a strategy. Yes, we start off with the credit side of the business. but it is leading to what we believe is the real estate, which was the intent behind why we instituted this credit investment strategy to begin with.

So there's a similar story behind every credit investment that we do. And we are acutely aware that these tend to be shorter duration, which by the way, is by design, we want it to be shorter duration, so that we can then have the decision on whether or not when it comes to an end, do we own the real estate or not or at least develop relationships with clients or with developers who can then feed us a lot more product downstream, but we are starting the relationship building on the development side.

So that is really the thesis behind why we are making credit investments.

Our next question today comes from Smedes Rose at Citi.

Thank you. I just wanted to follow up on that on the credit investments or the sort of loan portfolio because we definitely see it with some of the other names that we cover and it seems like, frankly, a good way to kind of build relationships and end up with real estate ownership. Is there kind of a, I guess, sort of a limit and upper limit on how much you'd be willing to sort of build in this book? It looks like it's let a little over $1 billion right now? Or like where do you think that could be in the next 2 or 3 years as some of these early loans start to roll off and you're replacing them presumably?

It's a good question, Smedes. Look, obviously, it's not going to suddenly start to dominate what we do. Our capital is very dear to us. And it is very important that we allocate it appropriately. And look, we turned down a lot more credit investments than we actually engage in. And so despite the plethora of opportunities available to us on the credit side, we are highly selective.

And what size could it become? It's going to be a function of the overall size of our platform. Today, we are $90 billion plus/minus. We have a small book of loans. But again, it's by design. These loans are short duration and the hope is that the same capital will then be used towards the permanent buying of the real estate.

And so if we can't create that clear path, it's not something that we're going to be leaning into unlike a credit, a true credit company that all they do is invest in loans. In terms of percentages, I really don't have a number meet. This is going to be opportunistic driven. It's going to be driven by the strategy that I've laid out.

And then I just wanted to ask you, too, maybe just a little bit just bigger picture. I mean you obviously took the investment volume outlook for the year up quite a bit. Also a theme we see across many of the reports this quarter. Could you just sort of talk to kind of generally what you're seeing? I mean I assume part of this is you have this access to these other pools of capital that's bringing opportunity, but just sort of bigger picture for the market in terms of how competition is trending or just U.S. versus Europe is sort of bigger picture?

Yes. Look, we are -- obviously, we feel very confident of what our pipeline looks like. It is largely a function of the pipeline and our ability to forecast out what that's going to translate into for the entire year. That's what's helped us raise our number from $8 billion to $9.5 billion.

And what I would say is we did about -- it was an even split between the U.S. and Europe. And this was something we started talking about in last quarter where we had started to see a bit more of a momentum here in the U.S. than we had seen for the prior 3 quarters in 2025, where Europe was dominating what we were getting over the finish line.

And so I think that trend, we are continuing to see a lot of opportunities in Europe, and that will continue to drive a lot of the volume, but we are starting to see similar impact here in the U.S., which is a good thing, which is why it gives us the confidence to increase the investment to $9.5 billion.

And the other piece is what you touched on, Smedes. I mean, the fact remains that having these different sources of capital will allow us to do transactions that we wouldn't have done in the past.

And again, why are we doing all of this? It is to help grow our earnings per share. And so that's what we're seeing.

From a competition perspective, public markets here in the U.S., I think that hasn't changed much. There is certainly a lot more competition on the private side here in the U.S. I think our product is well understood now, and it's very attractive to private sources of capital to sort of pursue. So we do see that competition, but elevated interest rate environment will continue to be a benefit for us, because debt capital remains elevated. And so in order for these private sources of capital to meet their return hurdles, it's going to be a little bit more of a challenge.

Europe continues to be a very interesting area for us. I mean, I've mentioned this in the past, and I'll mention it again. I think Neil and the team have done a great job of becoming the go-to net lease name, especially in the U.K. and soon it's translating into Mainland Europe as well, where we get a lot of off-market transactions where transactions are negotiated on an off-market basis and closed. And the fact that we have delivered for so many of our clients there, the repeat business continues to be a big driver of the volume that we've gotten over the finish line, I believe for this quarter, it was circa 94% was effectively relationship-driven businesses. So I think that's what the landscape looks like from a competition perspective.

Our next question today comes from Wes Golladay at Baird.

Just a question on the U.K. Are you doing much over there right now on the investing side or in the pipeline. I'm just curious how the bond market volatility is impacting the bid-ask spread and maybe there's some opportunistic opportunities in the pipeline there?

So I'll start it off, and then, Neil, if I miss something, please jump in.

Yes, it is absolutely true that the bond market in the U.K. is quite elevated. But it is also true that we are getting higher cap rates because of the cost of capital environment in the U.K. And more importantly, we are pursuing transactions, and we are providing solutions because of the retail footprint that we have that continues to be very attractive to potential clients, and it creates opportunities for us to invest with them either via the sale leaseback route or through repositioning of assets where we are attracting these clients remains an area that is very helpful.

But outside of that, Neil, if there's anything else you'd like to add in terms of the market in terms of what you're seeing, that would be great.

Thanks, Sumit. So I would say we continue to see a very healthy pipeline in the U.K. the higher rate environment has meant that yields are either moving out or will soon move out. And then beyond that, the historical pattern that we saw funds having to sell just because of redemptions or end-of-life continues and makes it a very good time for us to consolidate the market there.

And our next question today comes from Jim Kammert at Evercore.

Given the intensified sort of asset management function vis-a-vis the capture the lease term fees, is it reasonable assumption that the annual lease term fee revenue can trend in the 85 to 95 basis point type level of ABR, which I think the '26 guidance equates to?

I wouldn't look into what we are doing, what we did in 2025 and what we are planning on doing in 2026 as the new watermark for lease terminations. I think what we are trying to do, Jim, is make sure that if we are starting to see opportunities with certain clients, with certain assets that we are taking care of those right now.

And this is an intent to sort of -- look, we did two very large-scale M&A deals in the last 4 years. And we obviously inherited a lot of assets that were not ideal for the long-term hold strategy that we have, generally speaking, on anything that we do organically. And so this is a mechanism that we are using to sort of reposition those assets with the right clients or accelerate the rent collection and disposal of these assets so that we can get to a profile of a portfolio that will become -- that will fall into that long-term hold strategy.

So I don't see $45 million to $50 million, which is our current forecast, continuing indefinitely for our strategy going forward. This is much more episodic and much more around what we in our portfolio today. And I gave you the rationale as to why we see that. It's largely through these M&A transactions.

The M&A context and cleanup makes a lot of sense. I get it now.

Our next question today comes from Haendel St. Juste at Mizuho.

This is Mike on with Haendel at Mizuho. My question is, what is the time line to full deployment of the $1.7 billion U.S. core+ fund raise? And how much management fee income could that generate on an annualized basis?

Thanks, Mike. Look, we are very close. I think in our opening remarks, we mentioned that we've raised the $1.7 billion, which we had forecasted to the market. We are very close to full deployment. Our belief is that the next time we are having this earnings call, all of that equity capital will be fully deployed. And then, of course, given that it is largely an unlevered structure today, we will still have dry powder to continue to invest beyond the $1.7 billion and get to a ZIP code of $3.5 billion to $4 billion of assets under management. I think we also share -- Jonathan, do you want to take the management fee comment?

Yes. In terms of the annualized management fees once fully drawn, it will be a little bit over $10 million on an annualized basis. And these are all base management fees, does it include any kind of promote accruals or anything.

And our next question today comes from Anthony Paolone, JPMorgan.

Sumit, I think you talked a lot about just the debt and the why and so forth around all the deal activity. But just on -- for this year, the $9.5 billion, any sense as to like how much of that is likely going to be dead and then the rest, like how we should think about your share? Just to try to roll all that up.

I really don't have a number for you in terms of going to constitute debt of that $9.5 billion, Tony, I'm sorry. Like I said, it is very opportunistic. It is very episodic. Some of what initially starts off as a debt investment will then convert over to an equity investment because ultimately, the name of the game here is to own the real estate. So if this is the way how we can ultimately own the real estate and in the meantime, get enhanced returns, I think that is why we are doing what we are doing.

But I'm sorry, Tony. I don't have a number of that $9.5 billion that I can share with you with a high level of confidence that it will constitute the debt piece of our investment strategy.

Okay. Fair enough. And then just my follow-up is on the Apollo transaction. How should we think about that as being whether -- like if there's new money coming in from that is it likely that you'll just sell stakes in existing assets? Or will that be used to go out and buy new assets. I'm just trying to think whether that falls into the full year, $9.5 billion if you continue to go down the path of using that capital? And also, just what do you think the capacity is there to -- that they have to offer you?

Yes. you should expect any new capital that we raised through the Apollo channel will be on new investments.

Now it is possible that just because of expediency, we end up warehousing the assets on our balance sheet, but it will be assets that we are buying with the intent of putting into the -- into this Apollo strategy.

So look, the proof of concept was very important for everyone involved, including Apollo and including us. And now that we have the mousetrap fully functional, fully endorsed by the rating agencies and the SEC, we're going to really lean into expanding that channel. But it should be on new investments that we make.

And our next question today comes from Ronald Kamdem with Morgan Stanley.

Just my quick one. Just looking at the real estate acquisition cap rate, it looked like it came down another 20 basis points this quarter, similar to last quarter. Maybe can you just talk a little bit about the competition? And just your thoughts on just the cap rate compression that you've seen in any forward thoughts.

Yes. Sure, Ron. Good question. No. This is precisely what we expected. When you're starting to buy assets into the fund, we have shared with the market that the fund is going to be buying assets at a lower yield. And when you blend all of that in, the fact that our average cap rate is going to be a little lower is a function of that strategy.

So ultimately, it's all about growth. And if we look at the fact that we have effectively increased the midpoint of our guidance by $0.025. That is what's driving a lot of what we are doing, but the [ 6%, 7% ] is -- was fully expected, and it's a function of our -- us being able to deploy more and more of the fund capital into the assets that are lower yielding.

Great. My quick follow-up would just be on -- if you could just give us an update on the watch list again. And going back to sort of the termination cost in the quarter, like how much of that are we through? Like is that a number that's going to recur over time? Or does that create a tough comp for next year?

No, it's -- I think somebody prior to you asked this question, Ron. And I don't think you should expect us to come out with the same number year in, year out. I'm not going to say that next year, we won't have a similar number. But I'm just saying that this is being done with the intent of making sure that the remaining portfolio that we have is truly a long-term hold strategy for us.

And we are trying to create a win-win situation for our clients who are not long term tied to that particular location. And at the same time, for us, when we believe we can actually collect on the remaining rent and then be able to entice another client to step in on these particular locations.

But yes, if next year, mathematically speaking, if our termination income is going to be less, it is a headwind. But we are not doing this with the intention of this is going to become an ongoing strategy, and it will have a similar quantum. It is largely being driven by asset management decisions that our asset management team is very focused on executing upon.

Our next question today comes from Eric Borden at BMO Capital Markets.

Same-store rental revenue for theaters declined about 10% year-over-year. Just curious what drove the underperformance this quarter? And how are you guys thinking about the outlook and potential credit risk within the theater segment going forward?

Yes, great question, Eric. Look, I think there were a lot of adjustments that we made to both the -- when [ Regal ] came out of their chapter 11 situation and so that obviously is part of what is flowing through on a same-store basis.

Also, I think the first quarter of last year, we moved some of the cash accounting to accrual accounting. And so from a comp perspective, we recognized and accelerated the recognition in the first quarter of last year. And so when you compare that to what we have this year, it was again a headwind.

Some renewals that have gone through, we have shifted more to a percentage rent type of arrangement with some of these operators. And so the base rent is lower, vis-a-vis the base rent, and that's all we actually compare. And so again, from a same-store basis, that too would have been a bit of a headwind.

And then some restructurings at home emerged. And though the outcome for us was very good. There was a slight adjustment down on some on those rents, and that's what's flowing through the business.

If you're talking about what do we think about the [ theater ] business going forward? There was a big conference a couple of weeks ago. So far so good. First quarter was great. Second quarter is turning out to be pretty good. And the numbers that I've heard banded about is $9.5 billion in sales which is, of course, still not anywhere close to 2019 levels of $11 billion, but moving in the right direction. And so we hope to see some of this flow through on the percentage rent, but that gets calculated at the end of the this could be.

I appreciate it. And then more of a bigger picture question. I assume in your prepared remarks, you noted that you sourced $31 billion of opportunities, but only closed 9% selectively where are you seeing the largest disconnect today between your underwriting and seller expectations?

Yes. Look, I do see some of it is just unreasonable expectations. The pricing seems to be off. Everything else would work, but there's a disconnect between what the seller wants versus what we are willing to pay.

And some of the source is on the higher-yielding stuff that we just are not comfortable given the risk-adjusted return profile that we are seeing especially in an environment where interest rates are highly volatile and the cost of debt could be something that we are acutely aware of could be a headwind for some of these operators.

And so it's a combination of multiple factors. Look, we've always been very selective. If you look at the history of what we've sourced and what we've closed, it is right in that 5% to 10% ZIP code. And so 9% this quarter is in line with what we've done.

But the point for sharing these sourcing numbers is to say, look, it's all trending in one direction and we are starting to source more and more. And it is absolutely a byproduct of the team that we have developed, the geographies that we've added, the asset types that we have decided to pursue all of these swim lanes are translating into much higher volume. And it's allowing us to pick and choose the investments that makes sense for us. And so what we pass on, there could be so many different reasons, including the couple that I've just shared with you.

And our next question today comes from Greg McGinniss at Scotiabank.

Is there any color you could provide in terms of the potential annual capital contributions from GIC or Apollo, they're looking to place -- newly placed into these programmatic ventures?

Yes. So Greg, the GIC partnership is $1.5 billion. That's their initial contribution to the partnership, the JV that we've created. Apollo, obviously, was $1 billion or $2 billion of assets under management.

We don't have a number that we have shared with the Street in terms of how much more could this be? I mean, it's going to be, again, opportunity driven. And this will be us in constant contact with our partners to make sure that when we are seeing something that they would be interested in participating, and it meets their return profiles, et cetera. The return profile, obviously, it will meet because are the only ones you're going to be sharing with them.

But we don't have, Greg, a number in mind in terms of how much bigger each one of these partnerships would be. But let me just tell you this that we wouldn't have engaged in either one of these partnerships if we didn't believe that this was programmatic in nature and could become a huge source of our alternative equity capital going forward.

Okay. And then from your data center comments, should we interpret that to mean that there's more of these investment opportunities in the pipeline with the same partner? And then any color on the magnitude or yield on those would be appreciated.

Yes, you should assume that we are in ongoing discussions with our partners to obviously continue to grow this relationship. But once again, there are no definitive commitments on either side. So -- but the goal is when you're engaging with someone, the intent will always be to deploy more capital. And like I said, they are, in our opinion, one of the best-in-class private developers of data centers.

And our next question today comes from Ryan Caviola at Green Street Advisors. Please go ahead.

Europe investments this quarter had a weighted average lease term close to 6 years. Is that driven by potentially return to retail parks that have those shorter terms or just a result of the general mix or maybe a different property type? Any color you could share there would be appreciated.

I'll take this, Ryan. Thank you. So look, I think as we look at retail parks, we are consciously prioritizing investments where we believe there is rollout potential I think if you look at the recent re-leasing that we've talked about and other peers in the U.K. have talked about, there's now an acceleration in rent and a shrinkage in giveaways like TIs or CapEx. And so we're actively looking for retail parks. We continue to have a high yield bogey on those. But increasingly, if we can find short tenancy, we are taking that.

Got it. That's helpful. And then just on cap rate trends, we touched on it briefly earlier in the call, completely stripping out the private fund cap rates that obviously drive down that weighted yield. Could you just give color on public acquisition cap rate commentary in terms of compression or stability, maybe a Europe versus U.S. split? Anything would be helpful.

Yes. So Ryan, I mean, obviously, if you -- we've been asked this question every quarter for the last, I don't know how many years. But every time I've made a comment around, we're starting to see the direction of drift of cap rates one way or the other, I've turned out to be wrong. I mean it's pretty much stayed in this ZIP code, if you will, for now 2 years and continuing. And if you look at what's happened to the tenure, it stayed in this band of [ 3.8 to 4.4, 4.5 ] for that same duration. And so it is so difficult, if you're asking for a forecast, Ryan, of where I see cap rates going, I might answer that question with a question, which is what is the direction of drift of the tenure.

I mean every day, we get this incredible volatility in terms of what people think will happen to the short-term rate and how it translates to the longer-term rate, et cetera, et cetera. So at this point, I'll tell you what I -- what we are seeing in the market is effectively what we've seen these last couple of years. It's the same ZIP code for assets that we are buying 100% on balance sheet. But obviously, our ability to do more and go after lower yielding, higher quality, more growth assets has now widened and so we are able to do a lot more.

And our next question today comes from Jay Kornreich at Cantor Fitzgerald.

Just wanted to ask about geographies. You entered Mexico recently. And just wondering as you explore new investment locations beyond where you currently have a presence, are there any new frontiers that, I guess, screen more favorably that you'd like to expand into in the future?

Yes. So Jay, if we talk about Mexico just for a second since you brought it up, and it is the last geography that we entered into. Look, it was largely a client-driven opportunity for us. We went in there with our partners who've had decades of experience developing in that market. We tried to minimize the risk in terms of currency fluctuations by making sure that our leases were dollar-denominated, with clients that we understood and we knew very well. And it was largely a macro thematic play seeing the near-shoring and the onshoring of what we see as basically tailwinds in the logistics sector, in the industrial sector.

So this was our way of playing that particular theme with partners we felt very comfortable with. And so if these types of thematic opportunities present themselves, Jay, we are happy to continue to expand geographies, et cetera. The good news is we've done it now in so many different geographies. We have the playbook down. We understand the risk. We know how to get our arms around the inherent risk of investing in new geographies.

There was a piece that my colleague needed it in the financial times where he talks about how people underestimate the operational intensity of making these investments. We've got that covered. We are, I would say, at this point, got the blueprint and we recognize the risks and we are happy to sort of absorb those for the right opportunities.

Okay. I appreciate that. And then just going back to the 94% of investments that you mentioned were relationship-driven, which seems like a very high number. Was that more so tied to the private partnerships that you've recently done? Or were there other dynamics that led to leveraging current relationships, I guess, more so than seeking new ones this quarter?

A lot of them are existing clients that we have operating our assets. Some of it was developers that we have done repeat business with. Some of it was clients that we are co-investing with and looking at opportunities together. It's all of those elements that go into that 94%.

And I think as we cultivate new relationships, as we cultivate new opportunities, you will see that number right around that 85% to 90%, 95%. It's been very steady. It's just that the quantum that, that percentage represents is continuing to grow as we become more familiar with -- as our name becomes more familiar in the sale-leaseback arena with developers, with clients and with capital sources.

And our next question today comes from Jason Wayne at Barclays.

Just at the properties that vacated earlier to date, in your asset management strategy. Can you talk to your expectations on mix for sell versus release? And what kind of re-leasing capture -- what kind of recapture rates you're seeing on those?

Yes, sure. So Jason, any time an asset is coming up for -- if there's a lease expiration in the near term. And I would say in the next 2 to 2.5 years. Our asset management team is very focused on trying to figure out what is going to be the ultimate outcome. And then it can effectively take multiple routes. That is one of the strategies that they are executing.

Another one would be if through our predictive analytics channel, if we are looking at location risk, and we see that particular assets are no longer going to be viable. Even if the expiration is 5, 7 years out, we would put those on the disposition bucket and we would try to dispose of those assets.

And so there's a variety of reasons. There could be a credit event that we see coming down the pike that could help drive disposition decisions. We then look at, okay, even if this particular client is going to be willing to stay, what is the re-leasing rates that we believe we can get. And if our asset management team thinks that there is enough alternative clients that could be stepping in and giving us more, that's again a decision that they rely on.

Of course, all underpinned by the [ previous ] analytics and what it's suggesting would happen in that particular location.

So there's a variety of analysis that the asset management team goes through. And what they're focused on is what is going to yield the highest return -- economic return based on these various different decisions that one can take. And then they try to implement that highest return probability.

And in some cases, taking a rent [ haircut ] is the long-term decisions. Having said that, if you look at what we've been able to achieve in totality every quarter, it's been like even last quarter, we just reported it. It's north of 103%.

So our renewal rates and re-leasing rates in combination is yielding us north of 100%, 203% quarter in, quarter out. But like I've said before, sometimes, the right decision is to take 99% recapture rate rather than trying to sell that asset vacant or try to attract a client knowing fully well that the recapture rate is going to be lower. So it's a very fluid strategy, Jason, but one that we believe that we have the best asset management team on the street. They have years and years of experience. And when you control so many assets for a given client, the benefit of having a conversation not on a single asset, but on multiple assets for that client, is something that translates into these higher recapture rates that our asset management team does brilliantly on. So that's really how we think about renewals and releases and sales.

Yes, that makes sense. And I guess just on the full year disposition volume. You gave $750 million last quarter on track. Is that still the expectation for this year? .

Yes. It certainly is.

And our next question today comes from Upal Rana with KeyBanc Capital Markets.

Just one for me. I assume that you've spoken on several industries already, but I had a question on the gaming category. How are you viewing the industry today? And what's your appetite to invest more into that category? Through any of your investment vehicles as the category did tick a little higher to 3.2% in the quarter.

Sure, Upal. Good question. I would put gaming in a similar thought process that I described our digital investments. And what I would say is the operator is going to be very important to us. The location of these assets is going to be very important to us the sustainability of EBITDA and the ability of these operators to extract that EBITDA is what we are very focused on.

Which is why if you look at the investments we've made, largely three investments. Right, Mark? It's CityCenter, Bellagio, and we own 100% of the win in Boston. And so that will continue to dictate our gaming strategy and obviously, having a very close relationship with both MGM and [ Wynn ], one could argue, two of the best operators in the space should yield more transactions for us. But again, we're going to remain very, very selective, Upal.

And that does conclude our question-and-answer session for today. I'd like to hand the conference back over to Sumit Roy for any closing remarks.

Thank you very much for joining us today, and we look forward to seeing you at NAREIT in a few weeks.

Thank you, sir. That does conclude today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

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.

The session is for Citi clients only, and 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 GPC 26 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, and then 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 Ochinero ], 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. And thank you, Smedes, 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. As we think about the investment case today, I would frame Realty income around 3 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 nondiscretionary 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 3 decades and consistently generate 8% to 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 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. And 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. So 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. What are you seeing -- what do you think is driving some of those opportunities that you're seeing? Kind of putting -- 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 to $7 billion, something like that, and we've got another $1 billion that will go into the -- your private stuff?

Right. So off the $8 billion, you're right, $7 billion is on balance sheet. $1 billion is going to be in the fund and other channels. What is driving the momentum? That's a great question.

Look, 2.5 years ago, we thought about our business and what we identified as a single point of failure was our one source of equity capital, which was the public markets. And what we also realize that at points in time, the public markets tend to be untethered from the actual fundamentals of the operations of the business. We continue 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.

And 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. And so 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 to $12 billion a year on a consistent basis. And how do we create value for our public shareholders through the answer to that question. And 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. And 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.

And so we needed capital that was very akin to our public equity capital, which was perpetual in nature, permanent in nature. And 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. We've raised about $1.5 billion already. We are scheduled to raise $1.7 billion, and that will 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 going to 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 nearshoring trends and onshoring trends that we are starting to see.

And what gave us additional support was the client base that wanted to go in and build industrial assets or at least occupy industrial assets alongside us. And so leveraging 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 and 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. And 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. One of the knocks on Realty, and I think I brought this up with you last year, just in that lease world, the bigger you get, the more you have to do because it's an external growth vehicle. And you guys are kind of the epitome of that. And 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 into the private fund and through these partnerships. But do you think just for regular kind of straight down the fairway acquisition volume, like you're getting more people coming to you or there's more opportunities being developed 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. They're the largest owner of real estate. But 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 that are taken to market because we can do things fast. We can do it in a very efficient way and without making it public, which some of our counterparties want. And so look, for us, volume has never been the challenge. I think I've said this before in this conference that we are not opportunity constrained. We have always been capital constrained in terms of what we could do. Even last year, if you looked at the sourcing numbers, it was a high watermark for us, $120-plus billion of sourcing.

Yet we ended up doing $6 billion, 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. And we've shared those numbers in the past as well, $2 billion to $3 billion that we had to pass on, not because it didn't meet the overall return profile, but it didn't meet my initial day 1 spread that our public investors invest into us for.

So 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, 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. So 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. So would you expect that to accelerate to 4% or 5% or more percent as you move forward? Like kind of what's the long-term growth story, I guess, for Realty at this point?

Yes. So if you look at historically, our long-term growth has been right around 5%. And everything we're doing is to get back there. And I already talked to you a little bit about the math. It's not going to happen overnight. But 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 historic levels.

Should we assume 4% for next year?

That'll be 33% not 50%, but anyway.

I wanted to ask you also a little bit because I've been in -- obviously, we've had a number of different net lease meetings and one person was kind of like, no one should be including lease termination fees and their AFFO numbers. I'm not saying I agree with that. I'm just curious as to how you're thinking about because 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. So maybe either you or Jonathan, I know this has been an area for you. Talk about lease termination fees, how you're thinking about it. 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. For us, we -- 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 7 years that are allowing us to identify risks in assets well in advance of lease expiration.

The reasons could be as simple as the retail corridor has shifted and what used to be a great retail location in 7 years from now when the lease is going to be expiring, the chances of renewal has now diminished. So 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. So with all of this intelligence that we're 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 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.

And the likelihood of it changing and becoming profitable is only going to diminish. So 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 today, when we get it back with the lease termination, then it would have been 7 years from now when the lease terminates and it's a vacant asset.

This is a way to go to them and be like, we don't think you're going to renew for the various reasons. So why don't you go ahead and just pay us a little break up fee now...

It could be that. Yes, it could be that. And that's a win-win for them because it's not a profitable store, but yet they have obligations that's going to last another 7 years. So it allows them to pay us a termination fee and get -- no longer have that obligation. We are either able to already have parallel conversations to somebody who could backfill that position with that business being more appropriate for that location. That's -- we call it double dip. It's a win situation for our existing clients.

So it's the right outcome for a new client who wants to be in that location, and we are able to accelerate the outcomes that otherwise we'd all have been waiting for if it was a passive strategy. But 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 in the last couple of calls before. Do you want to talk about that and indeed, we're required to talk about that. But I wanted to ask you first just about your Las Vegas investment at CityCenter. I think it's preferred $800 million structured. I know there's kind of a minimum return that you would get.

But kind of at the end of the day, is that a property that you would foresee just wanting to own outright. I mean, does that fit with your thoughts around gaming? You've talked about expanding there?

Yes. I would love to own it. 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, but we can't afford it on the cap rate basis that these things will trade at today. So for us to create a win-with situation, we entered into this press 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 whatever the right word is, the high end.

So benefiting from kind of the key economy that we've talked about...

Exactly. And 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. But then you look at the middle and the lower end of the spectrum, they're struggling. But we are -- our only exposure today to the strip is the Bellagio, where we own a 22% interest. And so with this investment, we have a path to ownership, if things align and if Blackstone ultimately wants to sell, 2 very iconic assets in CityCenter.

There's been -- and I realize the higher end properties have done better relative to the lower end counterparts. But do you think the concern -- there's been broad-based concerns around Vegas and visitation down and just 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 kind of hanging in there with the very low cap rate/very high multiples of EBITDA.

Well, for us, there's equity behind us. So we have room. They don't have to trade at those levels. But those are the levels that are being 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 going to 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.

And 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 Starbucks selling $8 cups of coffee when your room is for $40, that is where that is causing a lot of heart ache. And until that -- it's not resolved, they're not going to be able to attract any of this discretionary capital. But in terms of momentum in Vegas, et cetera, I'm very comfortable with the investments that we have.

Okay. And just to finish out on that and then we're going to switch topics. But so on the regional kind of casino basis, you obviously have the Encore Boston. Any other cities or properties are attractive to you on that point on the sort of the more regional side?

Yes, New York, but...

New York.

There was only 1 asset in New York that was very attractive of the 3 that have been given out, but I don't think they need equity.

Which one do you like?

The Hard Rock or which -- that's the only one that I can think of -- that 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 will be a phenomenal site and Stevie Cohen and his group and Hard Rock, I think they're going to be formidable.

So 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. The banks are tripping over themselves to actually finance the business. I don't think they need any additional capital. So -- but talking more broadly about gaming. Look, we said we're going to 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, very well. So it is about choosing the right partners and Hard Rock is definitely one of the better operators, and we'd love to partner with them. Win an MGM on the assets that we are exposed to. That's what we are looking for. And if it doesn't fit that ilk, it's not going to be of interest to us.

Okay. You've obviously used technology for many years. You have a large portfolio, lots of tenants, lots of underwriting and obviously, that's a big undertaking. So 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?

So 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 folded into our portfolio, the monitoring of those assets with the tool is an ongoing real-time exercise.

And it helps identify disposition targets, which then get acted upon by asset management. So we have tools that do use elements of AI throughout the life cycle. We've also bought tools off-the-shelf to create scale and address -- minimize the risk associated with looking at invoices that are coming in through the AP process, and we have automated that entire process from looking at an 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 there aren't any that they are comfortable with the representation, then it gets approved.

And then on the back end, there is Karibu 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 lake house where regardless of where the data sits, some of it sits in Yardi, some of it sits in Spreadsheets, some of it, it's in other systems, et cetera, and bring it all into this data lake house, create Metadata from it.

So 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. So one attribute per 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-agentic AI to help drive more scale benefits in our business.

Today, we are about 60% to 70% of the data is very well organized, but still 30% to 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 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. And so we are still a little ways away. We will create these 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 will mean -- 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. And that's ultimately the goal we want to get to. We saw what Jack Dorsey came out and said, it's a completely different business. Coding is getting disrupted. You can start to see that in the private capital side that was so exposed to that business.

Our businesses 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 source of all truth. Guess where they get their information. They call us and they say, what did you lease this asset at. And when we say we don't -- we were not sharing that information with you, they come up with a number.

So 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 AI is going to do for us. It will help us underwrite better. It will help us abstract leases better. It will help us source information better. But at the end of the day, humans will be making the ultimate decision, and we'll own that decision.

All right. Yes. So you've sort of mentioned it, but you think in addition to just like corporate efficiencies you're going to help you underwrite future leases better and understand, I guess, where the puck is moving in terms of underlying real estate value, I guess?

I think so. 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 IC Spreadsheets, and IC packages, which goes beyond Spreadsheets. So yes, it's ultimately managing scale.

I wanted to ask you, just as your scope gets bigger and bigger and the investment dollars that we're talking about, regardless of on-balance sheet or through funds. What percent of your transactions, I guess, come through existing relationships? And how do you continue to forge new relationships? What are you kind of -- I guess, what boxes need to be checked? I would imagine you've turned down more than you accept, but kind of what makes it through the...

We sourced $120 billion, and we did $6 billion. So I'd say that's accurate. Look, I think the more established one gets in the 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 and Blackstone is a perfect example. When we did our first deal with them on the Bellagio that -- we got the second deal, which was the CityCenter.

And now that we have successfully completed that, we hope that there'll be more channels to doing a lot more with the 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 -- they took STORE private. And 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.

So I think those are the things that differentiate us. 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 -- GIC ended up investing in our -- as an LP in our open-ended fund just to show support. By the way, they don't do that anymore. 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. But because of our other things that we are pursuing, we want to show support. 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 a few unique managers that they want to work with, who are executing very specific investment thesis. On the net lease, I think we are the team that people would like to partner with. And that's my belief. And so yes, if there are others that have unique strategies that they want us to work with, we'll be open to that.

We're going to round out with 2 quick questions.

Our 2 rapid-fire questions. Same-store NOI growth will include credit loss for the net lease sector overall next year in '27?

Net of credit loss, I would say 1%.

And then more fewer the same number of public net lease companies a year from now?

There are few of today. I would say the same.

Thank you very much.

Thank you for your time.

Good day, and welcome to the Realty Income Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Ms. Lauren Flaming, Manager, Capital Markets and Investor Relations. Please go ahead, ma'am.

Thank you for joining Realty Income's Fourth Quarter and Full Year 2025 Operating Results Conference Call. Discussing our results are Sumit Roy, President and Chief Executive Officer; Jonathan Pong, Chief Financial Officer and Treasurer; Neil Abraham, President, Realty Income International; and Mark Hagan, Chief Investment Officer.

During this conference call, we will make statements that may be considered forward-looking statements under federal securities laws. The company's actual future results may differ significantly from the matters discussed in any forward-looking statements. We will disclose in greater detail, the factors that may cause such differences in the company's filing on Form 10-K.

During the Q&A portion of the call, we will be observing a 2-question limit. If you would like to ask additional questions, you may reenter the queue.

I will now turn the call over to our CEO, Sumit Roy.

Thank you, Lauren. Welcome, everyone. 2025 was a year in which our platform, discipline and global reach came together to deliver steady results and position Realty Income for its next chapter of growth. We delivered AFFO per share of $1.08 for the fourth quarter and $4.28 for the full year, supported by 98.9% occupancy and 103.9% rent recapture, reinforcing the stability and diversity of our cash flows.

In the fourth quarter, we invested approximately $2.4 billion or $2.3 billion pro rata for our ownership interest at a 7.1% initial cash yield, driven by strong opportunities in Europe and the closing of our $800 million perpetual preferred investment in the Las Vegas City Center real estate assets with Blackstone. For the full year, we deployed approximately $6.3 billion or $6.2 billion pro rata at a 7.3% initial cash yield with 30% of acquisition cash income from investment-grade clients. We also sold 425 properties for approximately $744 million, enhancing portfolio quality and redeploying capital into higher return opportunities.

As part of our disciplined approach, we proactively address client-specific risks. With At Home, we used early visibility into store level trends to begin selling select assets ahead of its Chapter 11 filing. Over 18 months preceding the filing, we sold 8 properties for nearly $80 million, significantly reducing exposure. Across the remaining 31 stores, our blended recapture rate was just over 80%, consistent with our historical experience for bankruptcy outcomes. We only experienced 1 rejection, which was resolved in the fourth quarter.

With the company now operating with what we believe to be a stronger financial position, we believe that our early action, disciplined underwriting and active asset management have preserved long-term value. The At Home experience also illustrates how our proprietary predictive analytics platform informs proactive decision-making. Store-level visibility gave us an early read on operating performance. But by using broader predictive analytics to assess closure risk, rents, sustainability and real estate fungibility, we can determine which assets carried elevated long-term risks. In partnership with asset management, that work allowed us to selectively dispose of higher-risk locations at attractive valuations and materially reduce exposure ahead of the filing. And when the filing ultimately occurred, our analysis validated the durability of the remaining locations.

That same discipline carries through to how we manage the broader portfolio. We recognized $18.9 million of lease termination income during the fourth quarter, reflecting our proactive approach to resolving potential credit and renewal risk. We also continue to pursue terminations where we see a clear path to higher and better uses. These steps help us preserve long-term value while managing our exposure thoughtfully across the portfolio.

Internationally, our established platform remains a competitive advantage. As we have previously discussed, Europe continues to offer compelling risk-adjusted opportunities, and we regularly evaluate the viability of other markets where we can further leverage the strength of our competitive moat. Last month, we expanded into Mexico as part of our broader strategic partnership with GIC, providing the majority of build-to-suit development financing and a $200 million takeout commitment for a high-quality U.S. dollar-denominated industrial portfolio, another example of how our scale cross-border capabilities and balance sheet open new swim lanes of growth in a disciplined and repeatable way.

As part of our international strategy, we are entering Mexico in a disciplined, partnership-led manner alongside GIC and Hines. This structure allows us to finance build-to-suit developments at attractive effective yield with forward commitments at cap rates that compare favorably to U.S. assets while maintaining our target risk-adjusted returns. Our initial focus is narrow and paced, centered on Mexico City and Guadalajara, core logistics markets with tight fundamentals, consistent rent growth and investment-grade tenants. We are investing in mission-critical build-to-suit facilities with institutional quality and U.S. dollar-denominated leases.

Over the long term, we view Mexico as a strategic beneficiary of near shoring and expect to expand selectively as fundamentals continue to mature. Our approach also reflects current developments on the ground, including increased coordination between Mexican and U.S. authorities, that may support a more stable operating environment over time. While near-term conditions remain fluid and market sentiment can be volatile, we believe this reinforces the importance of our phased partnership-led entry and long-term conviction in Mexico's industrial fundamentals.

Concurrent with our expansion into Mexico, the U.S. component of our previously announced joint venture with GIC is now executing a similar structure. Through this partnership, Realty Income and GIC will programmatically develop approximately $1.5 billion of primarily industrial build-to-suit properties. Last month, the joint venture closed its first transaction, 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. This initial transaction demonstrates how the build-to-suit and financing components of this relationship function and practice, supporting mission-critical clients, earning interest income during development and creating a clear path to high-quality ownership split between a like-minded, long-term investor in GIC.

A defining feature of Realty Income's evolution is pairing our operating platform with diversified partnership-oriented capital. This relationship orientation continues to shape our sourcing engine. Approximately 89% of our fourth quarter transactions originated through relationship-driven channels, underscoring the depth of our client and partner network.

In addition to our GIC partnership, we furthered our relationship with Blackstone through an $800 million perpetual preferred equity interest in Las Vegas City Center, which becomes the second joint venture we have entered into with Blackstone for a high-quality Las Vegas Strip casino transaction. The structure provides attractive risk-adjusted returns with downside protection, given the strategic importance of this asset to MGM, and a right of first offer on an iconic Las Vegas Strip asset, demonstrating our ability to execute large structured relationship-driven transactions.

Looking ahead to 2026, we see a steady core business supported by disciplined capital allocation, healthy occupancy and a pipeline that reflects both the depth of our sourcing engine and the flexibility of our multiproduct platform. With the benefit of global relationships, strategic partnerships and private capital channels, we expect to pursue high-quality opportunities across geographies and capital structures.

Strategically, 3 priorities guide our capital deployment in 2026. First, deepen client relationships where we can act as a solution provider, particularly in mission-critical retail and industrial and increasingly through development in structured solutions, including via the GIC platform. Second, broaden the investable universe by pursuing repeatable high-quality adjacencies that align with our underwriting discipline and generate resilient contractual income. As a one-stop shop net lease solution provider, our platform is well positioned to originate and structure these opportunities. Third, optimize capital efficiency by diversifying equity sources and maintaining balance sheet flexibility, which Jonathan will outline in more detail.

Bringing it together, Realty Income today is a full-service real estate capital provider with global reach, multiproduct capabilities and a more diversified set of capital channels supporting our growth engine, anchored by a high-quality portfolio that generates stable and growing cash flows. The momentum we saw exiting 2025, combined with the partnerships and platforms we have assembled, underscores the strength of our flywheel and ability to compound long-term value.

With that, I'll turn it over to Jonathan.

Thanks, Sumit, and good afternoon, everyone. 2025 was a foundational year for us from a capital diversification perspective. We proudly launched our debut open-end fund in the U.S., successfully raising over $1.5 billion in third-party equity from over 40 institutional investors spanning state, city, county and employee pension funds, sovereign wealth funds, asset managers, foundations and consultants. We established this open-end perpetual life vehicle because this format was the most strategic, valuable and appropriate structure for our long-duration net lease business, which is known for its consistency and lack of volatility. We're humbled by the investor reception to our values, performance track record as a public company, the best-in-class human capital and unmatched access to proprietary data and insights across a seasoned real estate portfolio of over 15,500 properties globally.

As Sumit previously mentioned, we were also pleased to establish a programmatic strategic relationship with GIC, which pairs our operating platform with a long-term and disciplined capital partner. While the focus of the partnership will be on build-to-suit industrial development, we expect to partner on a variety of large-scale opportunities given our combined focus on deploying capital at scale, where we can create superior value for our respective stakeholders.

I want to briefly take a moment to highlight the broader design behind these initiatives. Our partnership with GIC and the launch of our fund business are not intended to be mere single-period contributors. They are programmatic vehicles that expand our opportunity set today while creating embedded pathways for recurring compounding growth over time.

Turning to highlights from the fourth quarter. We ended the year with over $4.1 billion of liquidity on a pro rata basis with the net debt to pro forma adjusted EBITDA ratio of 5.4x, squarely within our long-term target range. Subsequent to year-end, we issued our first convertible note offering, raising gross proceeds just north of $862 million for a 3-year convertible note at 3.5%. We used $102 million of proceeds to repurchase 1.8 million shares of common stock, which reduced potential share dilution and allowed us to minimize the impact of the stock price as we price the transaction. The remainder of the proceeds were used to repay a $500 million note maturity in January, which had a rate of 5.05%, thus representing immediate earnings accretion through the exercise.

Our balance sheet is positioned to play offense on the investment front in 2026. We ended the year with cash [ and underload ] equity totaling approximately $1.1 billion. When combined with an annualized run rate of over $900 million in free cash flow, we have over $2 billion of equity or $3 billion fully levered dry powder to address an active deal pipeline. In addition, we have approximately $400 million of undrawn third-party equity capital committed to our open fund that adds further liquidity to deploy accretive capital at scale.

Operational efficiency remains a priority. We finished the year with a cash G&A margin of just 3.2% while adding talented team members across our global organization, which ended the year at nearly 550 individuals throughout our vertically integrated platform. We are proud of our ability to invest in top talent at all levels of the organization while maintaining one of the most efficient cost margins in the industry.

Turning to 2026 guidance. We are introducing AFFO per share guidance of $4.38 to $4.42, representing an acceleration in AFFO per share growth versus 2025. In addition to the $8 billion investment guidance for the year, key assumptions in our model reflect healthy underlying portfolio fundamentals, and in particular, includes credit-related loss of 40 to 50 basis points of revenue, a meaningful decline versus the 70 basis points we experienced in 2025. We expect lease termination income to once again be a meaningful contributor to earnings in 2026 as we forecast $30 million to $40 million based on our current visibility. As Sumit mentioned, this income is driven by our proactive asset management efforts, and we expect this income to remain a recurring part of our business.

Our expense margins continue to reflect the efficiency of our business. And for 2026, we are guiding to unreimbursed property expense margin to approximately 1.5% of revenue, and we expect cash G&A expenses to be just 20 to 23 basis points of gross asset value. Finally, we expect to generate approximately $10 million of base management fees from our open-end fund during 2026, which may fluctuate slightly depending on the pace of capital calls for investments made in the fund.

Now to close out our prepared remarks, I'll pass it back to Sumit.

Thanks, Jonathan. Before we open the line for questions, let me briefly summarize. Realty Income enters 2026 with a resilient core business, a broader set of capital partners and a deeper global pipeline that at any point in our history. Our partnership with GIC, our CityCenter investment with Blackstone and our successful cornerstone capital raise for our debut private fund all reflect the evolution of our business and the expansion of our investment buy box. We remained disciplined in underwriting, selective in deployment and focus on compounding long-term per share value. We're looking forward to continuing to demonstrate that our proven operating platform and unrelenting focus on generating durable income is highly valued in the marketplace.

Operator, we are ready for questions.

[Operator Instructions] And the first question will come from Linda Tsai with Jefferies.

As Realty Income has expanded into different capital raising and yield-generating capabilities, new channels, including private capital, new JV partners, build-to-suit initiatives, diverse geographies and loans, how different do you think Realty Income will look over the next 3 to 5 years?

That's a great question, Linda. Obviously, all of these various different things that you're seeing now in some of the recent announcements that we've made, et cetera, has been part of our strategy going back several years. If you think about how Realty Income has evolved, we used to be 100% retail-only U.S.-centric business. That over time has created first, new channels of investments that were adjacent to what our core competency was. Thus, we included the international business. We included other asset types, and then started to focus on making credit investments with our existing client base with the

[Audio Gap]

on how we finance our business.

And obviously, on the fixed income side, as we grew into multiple geographies, we were able to diversify our fixed income sources of capital. But on the equity side of the business, it was always our public markets here in the U.S. which has held us very well in our 31-year history as a public company. But what these last couple of years has shown is the volatility that could exist at points in time in economic cycles. That sort of impedes our ability to completely utilize a platform that is capable of doing circa $10 billion of investment per year, which we've shown in years past.

And so that was the question that we posed to ourselves internally about how do we start to diversify our sources of equity capital, how do we create partnerships that can allow us to fully utilize the platform that was built for scale and size. And what you're seeing more recently and what you will continue to see is us leaning into these various different sources of capital, forming partnerships with like-minded long-term investors like GIC, working very closely with existing partners and enhancing those relationships, like with Blackstone, who view us as real estate partners that could potentially be a solution for them at points in time.

And 3 to 5 years from now, all of these different avenues, including the open-ended fund, the Core Plus Fund that we've put into place, I believe, will be much more mature and will allow us to generate this growth profile that is much more commensurate with what our average growth profile has been over the last 30, 31 years. That is what I see manifesting over the next 3 to 5 years from now.

Look, we've always been viewed as a company with the following 2 brands. It's trust and reliability. And growth for the longest time has been also part and parcel of Realty Income, this 5% growth rate that we have historically achieved. But in 2025, it was closer to 2%. And so the question that we are trying to answer, and I believe we have -- the market is now starting to see how we can use our size and scale to effectively differentiate ourselves and be a company that has a very unique investable mousetrap, as well as sources of capital that will allow us to achieve that third element of growth.

And so trust, reliability and growth, those are the reasons why we are doing everything that we are doing. And I believe in the next 3 to 5 years, all of these avenues will have matured and will allow us to be the company that we have been historically for the last 31 years.

One for Jonathan. On acquisitions guidance of $8 billion in '26, what's the cap rate you expect? And what are some of the assumptions that feed into your expectations?

Linda, rather than giving a cap rate guidance, I would say that we're expecting spreads to be fairly similar on a leverage-neutral basis to where we were in 2025 and where we've been historically, so call it 150 to 160 basis points relative to that weighted average cost of capital, short-term weighted average cost of capital.

The next question will come from Michael Goldsmith with UBS.

Maybe just following up on that last question, but from a different perspective. Your acquisition cap rate ticked down in the fourth quarter sequentially. So can you just talk about like, what the cap rate environment is looking like? Is that a reflection of what you're buying? Or is that a reflection of competition? Just trying to get a sense of if that acquisition cap rate is trending lower here.

Yes. Good question, Michael. Look, I don't think quarter-over-quarter, a 10, 20 basis point movement in cap rates really is indicative of the overall market. What ends up closing in a quarter is a function of so many different things. And when you're sharing an average cap rate on all investments made, it sort of doesn't highlight the diversity of products that we are pursuing. Obviously, there are assets that we are buying that is inside of that average cap rate, and then there are some that are above that cap rate. And it's really a function more of what ends up closing in a given quarter, what gets moved to the next quarter that drives these 10 to 20 basis points of movement on average cap rates.

But I can step back and share with you our perspective that, look, if you think about the last few quarters, I would say, 3, 4, 5 quarters, the cap rate has been in this low 7% ZIP code. And it is largely reflective of what you're seeing in the cost of capital environment and what you're seeing on the competitive side of the equation. And look, if the cost of capital continues to improve, I believe that cap rates are going to reflect that. And the competition today on the private side has largely been fairly muted, again, because of the higher cost of debt that is there in the market.

But if that were to change, which -- I'm not saying it will, but if that were to change, then you would have more competition coming from the private side of the equation as well. So those are the variables that I would be looking out for to see the direction of cap rates over the next 12 months. But I'll tell you that over the last 6 quarters, the cap rate environment has been fairly stable.

Got it. And just as a follow-up, maybe you can talk a little bit about the G&A guidance? It was 21 basis points. In 2025 or 2026, you provided a range which at the midpoint implies it to go up a little bit. So can you just walk through kind of like why G&A may move higher in a material way? And then just also maybe that reflects some investments that the company is making. So maybe where are you investing in the business today?

Yes. Thanks, Mike. First of all, I would say the G&A methodology that we're giving for guidance now is percentage of GAV. And the reason for that is because we have consolidated vehicles, we have unconsolidated vehicles when you start to utilize the revenue and the income statement, and it doesn't give the full picture. So I would say if you look at 2025 apples-to-apples based off of that GAV methodology, we're about 21 basis points in cash G&A. Our guidance is for 20 to 23. So not really a material move.

The one thing I'll say is that we've added a lot of really good talent to the team. We ended 2024 at about 468 employees. End of 2025, we're about 544. It's about 76 employees hired. It was back-end loaded to the back half of the year. And we feel like we've got a very strong competitive moat across the globe, and a lot of the headcount has been abroad in Europe. And you can see how meaningful Europe has been to our growth. And so that is something that we're very happy about.

I think when you look at 2026 as well, we do have a few heads that we are adding. And when you're talking about a platform today that's generating $5.3 billion, $5.4 billion in annual base revenue with over 15,500 assets and [ planned score ] to grow significantly. We definitely believe that we have the ability to hire the best talent to scale the business and to still have one of the most efficient G&A margins in the industry.

Your next question will come from John Kilichowski with Wells Fargo.

Just for my first one, maybe could you help me bridge this AFFO guide? It's a really healthy acquisition guide to $8 billion, surprised with the upside. But I feel like the AFFO guide was maybe below what the Street was expecting. I'm curious, where are the sources of conservatism in your guide? Or what is the Street missing here?

Yes, John, I would say it really comes down to the credit loss guidance, credit loss guidance of 40 to 50 basis points of rental revenue, something that has a fair amount of conservatism. We're sitting here in late February. And I think, as is per usual, we want to have a little bit more visibility in terms of how things are playing out before we tighten and lower that guide. So I think if you kind of back into what that represents on a dollar amount, over half of what that represents is for unidentified credits that we don't really see much in the way of high risk of that being utilized, but I think that's probably the #1 thing that we would point out.

Okay. That's very helpful. And then for my second one, just to kind of go back on what you were talking to earlier on yields. How do we think about this incremental $2 billion that you're doing maybe above the [ 6 ], let's call it? Is that you moving into new verticals? Or -- and then how should we think about the yields on those? Like is that just -- it's a better acquisition environment, but maybe tighter cap rates on those incremental deals? Like what allows you to kind of lever up there?

The way I would think about investments is not necessarily in terms of yield, but in terms of spread because ultimately, that's what drives our AFFO per share growth. And I would just underwrite to what we have traditionally achieved, which is that 150, 155 basis points of spread on that $8 billion.

There are so many things that go into that mix, John. What is the timing of that $8 billion. Obviously, the reason why we've come out with a fairly large number is because we have a very good pipeline. We feel very good about what is happening here in the U.S. and what's happening in Europe and now what we are seeing in some of the other geographies that we've gone into. It gives us a lot of confidence that finally, we are at a point where we can lean into the market. And we have all these different channels of financing our business that gives us this confidence.

So that's how I would think about this $8 billion is it's a testament to our level of confidence in the products that we invest in. There are no new products that we are going to be sharing with the market in the near future. It's -- these are products that we've already invested in, and we will continue to sort of lean into it, and that's what's going to constitute the majority of the $8 billion.

The next question will come from Jana Galan with Bank of America.

Sorry, again on the kind of $8 billion investment volume guidance. If you could please clarify, it looks like that's at 100%. And so maybe help us think about how much is wholly owned, how much is in the private fund? Should we assume the full amount of the private fund is deployed near term? And maybe mix between the development and acquisitions and whether you also expect it to be an elevated disposition year?

That's a great question, Jana. We'll give you some level of insight, but obviously, it's an evolving year, and we'll see how things play out. In our fund, we have already deployed $1.1 billion. And so assuming that we hit our $1.7 billion, which we are on track to do by the end of March, we have about $600 million of dry powder of equity that needs to be put to work. And obviously, we can lever this instrument up a bit, and that will be what goes towards the fund.

What is unknown is how much more capital can be raised. Both the cornerstone and time will tell. So that we set that aside, the rest of it is all going to be balance sheet is how you should think about modeling our investment numbers. Does that make sense?

Yes. And any color on kind of dispositions?

The dispositions, as you know, we were right around $740 million in 2025. You should expect a similar number in 2026. And this is, again, something that we are starting to lean into much more heavily, and you've seen the run rate over the last few years. And yes, and that's the goal for 2026.

The next question will come from Brad Heffern with RBC Capital Markets.

Sumit, a lot of concerns about the impact of AI on almost everything in the economy at this point. Acknowledging that everything is very uncertain, how do you view the potential for AI disruption through the lens of your current portfolio? And does it change at all, how you plan to invest going forward?

Brad, that's a great question. We think of AI as an amazing tool to help us do our business even better going forward. We were one of the first adopters of AI, AI-type tools going back to 2019. And we've created proprietary machine learning tools that actually is part and parcel of every element of our business that we do today.

We are restructuring internally how we think about how all of the data that is produced by the company, that is accessed by the company, how all of that is going to get organized, et cetera, in data lakes, which will then allow us to further accelerate adoption of AI in various different vertical functional areas of our business to continue to separate ourselves from the rest of the business from the rest of the companies that we run into this. It's not something that is scary to us. A lot of us within the company -- we are very comfortable with technology. Some of our previous lives were within the technology sphere. And so we welcome the innovation that is occurring.

And you're 100% right, Brad. Things are moving very quickly. Stuff like lease abstraction that had an 80%, 82% success rate literally 4 months ago is closer to 90% today. But those evolutions are going to continue. And the biggest challenge that companies are going to face is how do you create the infrastructure that will then allow you to embrace AI to create the scale benefits. But that's where the world is moving. We are very well positioned to adopt this innovation. And I believe that from a maturity perspective, we are well ahead of the curve. So bring it on.

Okay. And then, Jonathan, obviously, you just completed the convertible notes offering. Can you talk about how you view that as a part of the toolkit? And is it something that was sort of specific to the point in time that we were in? Or is it something that you would expect to be more regular going forward?

Yes, Brad, I would say, to your point, the way we viewed it was exactly another tool in the toolkit. We believe in flexibility, we believe in availing ourselves of the entire menu of capital options available to us. And so we are known to be a very active issuer of capital, and a lot of that is equity. And so when you think about the conversion premium that we were able to structure, 20%, which takes you to the high $60 range. Thinking about issuing that on the ATM at spot versus effectively at a 20% premium, we were okay with that possibility within 3 years.

But I think I would also highlight, we have a U.S. dollar cost of debt on a 10-year basis of 5%, and the debt that we are repaying was north of 5%. And so at 3.5%, we view that as an accretive use of proceeds relative to what we had otherwise have done. So something that we'll look at from time to time, probably not to a significant degree. But when circumstances warrant, we now have established ourselves in this market.

Your next question will come from Smedes Rose with Citi.

I just want to ask you a couple of more questions on your guidance. It looks like your occupancy expectations come down a little bit for the year, as well as same-store rent assumptions come down a little bit, just using the midpoint. So I was just wondering if you could talk a little bit about what assumptions you're making behind those 2 pieces of the guidance?

Yes. With regards to the occupancy number, it's a physical occupancy number that we share, Smedes. And when you have a bunch of smaller concepts that basically have vacancies, they could move the occupancy number by these basis point movements that we have shared.

Look, we feel pretty confident about the 98.5%. We -- and it is largely going to be a function of the type of expirations that we see, the size of these assets that are going to be expiring in 2026, which tend to be a lot more smaller assets with fewer rents. I believe the expiration schedule for 2026 is about 3% of our rent.

So it's really a function of what kind of assets are expiring in a given year that dictates what the physical occupancy is going to look like in any given year. And I believe if you look at what our 2025 guidance was, it was in a similar range, perhaps even slightly lower, and we ended up at 98.9%. So this is our guidance. We feel very comfortable with it. And maybe there is a level of conservatism, but we'd rather be conservative than wrong.

And Smedes, I'll just add on the same-store side. The portfolio overall has about a 1.5% CAGR just on a contractual basis. And so with guidance at 1% to 1.3%, that's really just to capture any type of credit-related loss that we may or may not have in 2026. And a lot of it is associated with just an identified credit loss that may or may not happen with a sense of conservatism. So that's the biggest [ contributor ] of that. I would also say there are 1 or 2 tenants where we did have some restructuring in the fourth quarter, and you're seeing the annualized impact of that through the 2026 guidance number.

The next question will come from Ronald Kamdem with Morgan Stanley.

Just two quick ones. On the sort of the investment guidance, is it still fair to say that Europe versus the U.S. is where you've seen the most sort of compelling incremental investment spread opportunities? Just -- if you could talk about where the incremental dollars are best spent across sort of geographies and even capital structure would be helpful.

Sure, Ron. If you look at what happened in the fourth quarter, it sort of reversed in terms of where the volume came from. 60% -- almost 60% of it was U.S.-centric, 40% was the rest of the world. And -- but prior to that, Europe was driving so much of the volume. And if you look at the year, 2025, $6 billion of acquisitions, it was dominated by what we did in Europe versus the U.S.

But the point I want you to take away is in the fourth quarter and now going into 2026, we are starting to see momentum in the U.S. as well. Europe continues to be where there's a lot of visibility. And our core differentiators in terms of what we bring to the table vis-a-vis our competitors continues to lead to disproportionate amount of volume for us. And I believe that in 2026, we will continue to see that.

And now that we've added here, Mexico as well to the mix, I believe you're going to continue to see us looking for opportunities, et cetera. And by sheer math, I mean, the more geographies we're going to start adding, the reason and the rationale behind adding all of these geographies is because we feel like there's a -- it's helping us increase our TAM and our ability to source transactions.

This shift is a natural occurrence of our ever-evolving business. So that's the other piece I'm going to leave you with. But the good news that I see and both Mark and Neil are sharing with me is that the momentum is strong in all of the geographies that we are playing in today, and we expect 2026 to be a banner year for us.

Great. And then my second one is just -- we've talked a lot about over the last 12, 18 months, whether it be sort of gaming or some of the data centers or some of the retail parks. Just trying to get a sense of [ a pause ] of like how sort of those opportunities are evolving. Is 1 playing out more or better than the other? Is 1 falling back? Just how are those initiatives coming?

Yes. That's a very good question, Ron, and I'm going to try to be very succinct. Look, we said we were going to be super selective on the gaming side. I believe you can see that we've been super selective in terms of where we've invested in gaming. It's -- and the underlying asset that we have exposure to are the -- one could argue, some of the best assets in the gaming industry.

So that's a check mark. They're all performing very well. No surprises. And in fact, I would go so far as to say that the Boston asset, when we started, had a particular coverage, which was very healthy. But if you look at the coverage today, it is 100 basis points north of where we originally underwrote the asset. So again, that's been very good.

The retail park strategy is really starting to bear fruit. If you look at what our re-leasing spreads have been, we bought some vacancy. Some of the strategic conversations that Neil and team are having with clients who have aggressive expansion agendas for 2026 and beyond, that is starting to manifest in value creation that we had underwritten to, but I believe that most of the plans that are being executed are well ahead of where we had originally underwritten. So that's a double check mark. And we are the most established name on the retail park in the U.K. And we are well established in Ireland, and we are now starting to see if that same strategy can play out in the rest of Europe. So that's a strategy that has double clicked as well.

Data center continues to be an area that we are very focused in trying to grow. But again, we've said that we are going to be very selective. We're going to make sure that we are partnering with the best-in-class developers and that the ultimate exposure that we have to assets have the fundamentals that gives us the confidence that they are going to continue to perform beyond that initial lease term.

And so if you look at where we've invested, what we've announced to date, I think you will -- you can safely say that, that's a double check mark as well. And look, we want to accelerate the data center investment piece, but we are not going to do it at the expense of taking on additional risk. So all 3 of those areas that you mentioned, Ron, continue to be very core to our strategy, and you will and you should continue to expect us to make investments.

The next question will come from Jay Kornreich with Cantor Fitzgerald.

First off, just as you think about your cost of capital, the stock has performed very well year-to-date. And so I guess I'm curious, as you've seen your equity cost of capital improve, does that change how you're thinking about your investment outlook at all and maybe allow you to be more aggressive in acquiring real estate at slightly lower cap rates while maintaining healthy deal spreads? Just curious on your thoughts on that.

Yes. So look, we are very blessed that the market is starting to recognize the value proposition that we bring to the table. The fact that our cost of capital has improved is an added lever that we can sort of lean on. But in terms of how we think about underwriting, how we think about risk-adjusted returns, that's on an asset-by-asset basis. And the fact that we can finance those assets at lower cost I think just lends itself to higher spreads.

It is also true that we can pursue assets that are a little bit lower in the cap rate scale and still be able to get our historical spreads, and that is something that we will look into. But I wouldn't think, Jay, that it changes the way we think about underwriting assets. We are very focused on day 1 accretion. That is what our investors are looking for, along with making sure that the overall return profile of that investment is meeting our long-term hurdle rates. And so none of that changes.

Okay. I appreciate that. And then just following up on the private capital fund, which has the $1.5 billion of commitments so far. Should we expect any meaningful bottom line earnings contribution in 2026 from the private fund where the AFFO earnings contribution more pickup in 2027?

Jay, in 2026, there will be accretion, the $10-plus million in base management fees. Pretty good margin. The costs that accrue to Realty Income to generate that is really the dedicated team that we have, which today is around 7 individuals, and some other costs that we bear at the Realty level. So you're still seeing margins that are kind of in the 70-plus percent area on a flow-through basis to Realty. And that's because for us, we've got a platform that has 550 employees. And so we don't have to build from scratch the same way other subscale players would have to.

Your next question will come from Bill (sic) [ Haendel ] St. Juste with Mizuho.

Sorry, Bill, that's the first one. It's Haendel St. Juste from Mizuho. Sumit, I wanted to go back to a comment you made earlier. I mean, you're talking about another 3 to 5 years while the changes you're making to manifest itself into real growth. So I guess I'm curious if you're suggesting that we should expect a similar growth profile from Realty Income for the next few years as you're forecasting this year given your commentary about spreads, dispositions, lease term fees? And maybe some thoughts on levers that you could pull to perhaps enhance that growth over the near term?

Yes. Haendel, when I saw the name, I was going to ask you if you had officially changed your name, but I think I'll leave it at that. Look, everything that we do is to make sure that those 3 words that I set out loud, trust, reliability and growth, continue to be associated with Realty Income.

The last couple of years has been a bit of an aberration on that third element. And so we started to cultivate channels to basically go back to a company that can grow at a level that continues to make us one of the most attractive companies to invest in on the real estate spectrum. So that's the goal handle. And I believe that what you're starting to see now are those channels that have gotten over the finish line, and we can talk about it much more. And each one of those has been deliberately thought through to see how can it contribute to the earnings growth for the business.

So that's why we're doing what we're doing. And I think Linda's question was around a 3- to 5-year horizon. That's my expectation, is that we -- within that time frame, not only will these channels have matured, but they're going to start to add meaningful contribution to our growth profile and get us to levels that we've achieved in the past and hopefully even supersede it in certain years where we have outsized growth. It's just like we have done historically. And so that's the goal.

And the next question will come from Spenser Glimcher with Green Street Advisors.

Can you talk about how the dollar value of deals sourced for the parameters of the private fund compared to that source for the parameters of the public vehicle? I'm just curious, I'm like trying to get a sense of the opportunity set and what that looks like for each vehicle.

Yes. I don't know Spenser, if I am going to answer your question accurately. If I don't, please just help me understand what precisely you're looking for. Look, I think what lends itself to the fund is products that don't necessarily meet the public company's day 1 spread requirements. So they tend to be lower cap rate transactions, but with very healthy growth that more than meets the long-term return profile that our fund business is looking for.

But one of the reasons why we sort of wanted to create this perpetual life Core Plus Fund was to take advantage of transactions that we were seeing in the market that basically checked every element of our underwriting standard outside of that day 1 spread. And so that's the kind of product that you should expect to see going into the fund.

Having said that, if you think about the pure math of transactions that we do, being able to enhance -- because Realty Income will continue to be a significant owner of the fund -- our 20% investment, co-investment in any of these vehicles, in any of these investments with the benefit of the management fees that we get on the 80%, that allows us to actually enhance our 20% investment. And so deals that we may not have been able to meet on a stand-alone basis, with the management fee on our 20%, it allows us to meet those spreads.

So this is a flywheel. It's a -- however you want to think about it, a setup that we've created that would allow us to do so much more. Having these different pockets of capital available to us priced differently with different expectations and obviously, scale a platform that is built to do so much more. So hopefully, that answers your question, but not sure if I got your question 100% right?

Yes. Maybe to clarify, so per the parameters you outlined, which is obviously very helpful, how would you say that the deal volume that Realty Income looks at or looked at last year, how would you say that, that's split between what would be appropriate per those parameters for the private funds? So those low initial yield, but longer-term growth opportunities, how much of the overall pie that Realty Income looked at, how much would fit the private fund versus a public vehicle?

Yes. So obviously, what we ended up buying on the public side would sit on the public side. We forego a lot of transactions that did not meet our year 1 spread requirement, which would have otherwise being purchased had the fund being up and running. And I think in quarters past, we've shared that number with you. I think in the third quarter, I shared a number that was circa $1.7 billion or $2 billion. I don't quite remember the number. But that was what we forgo, what we did not pursue because we didn't have the fund up and running and we didn't have that capital available. I think it was $2.2 billion, if I remember correctly. Or $2 billion.

And so if you look at what we sourced in 2025 -- it was, by the way, the single largest year of sourcing. It was circa $120 billion. There was quite a bit in that mix. That could have lent itself to the fund investing, which we had to pass on because we didn't have this vehicle up and running. So there's plenty to do. And obviously, not all of that $120 billion was U.S. I think 55% of that volume was in the U.S. and 45% was Europe. So our fund is only U.S.-centric. So we can -- you can make the adjustments appropriately. But it is absolutely true that there was a lot of stuff that we forgo on that we would have pursued had we had the fund up and running, yes.

Okay. Great. And then is there any cost associated with raising capital for this fund as of yet? Just curious if you are using or intend to use a marketing team, like an outside marketing team or a consultant as you continue to raise capital?

Spenser, so we have discussed in 8-Ks and press releases, passed that we do use a placement agent. I don't want to share the exact percentage of the fee, but I will share that it's inside of what we would pay on the ATM and certainly inside of what we pay on public equity overnight. So much more efficient to raise capital via this channel.

And beyond October, Spenser, this will be something that we're going to bring in-house. And so this will become part and parcel of our continuous fundraising given that it's an open and perpetual life fund.

Your next question will come from Wes Golladay with Baird.

Maybe just following up on that last question. You're going to be able to source the cost of equity a little bit cheaper. I guess maybe, could you put a parameter around how much the incremental spread could be, where you're investing?

Did we not have that in the investor presentation?

Wes, it's Jonathan. One thing that I'll share, we do have this in our investor presentation, where if you kind of do the math and if you assume that Realty Income is a 20% co-investor in the fund, utilizing our same 35% LTV ratio when we go out and finance transactions, and let's just assume for round numbers, we're getting about 1 point from the 80% of equity we're managing on someone else's behalf, what otherwise be a fixed cap would be closer to 8.5%. And so this is all about amplifying our return on invested public shareholder capital. And that's how the math plays out. And so that's a way for us to generate more bang for the buck, if you will.

Okay. Fantastic. And then you have the U.S. open-end core fund. Is there another opportunistic fund you can do later on?

It's -- that's a forward-looking comment, Wes. We are not in a position to answer that right now. But we are very happy about the U.S. open-ended Core Plus Fund that we have in place. We feel super excited about that. Our goal right now is to make that as big as we possibly can.

Your next question will come from [ Jim Amer ] with Evercore.

Does Realty Income have a sense of GIC's annual dollar investment appetite for net lease investments, whether owned or credit structured?

It's big.

Well, I guess -- and then my second question, really, the related question is, is Realty Income prohibited from pursuing other programmatic co-invest programs away from GIC with other sovereign wealth funds, insurance companies, you name it? I'm just trying to get a sense of the scale of that sort of TAM or opportunity for you as you think about it.

We are not prohibited from pursuing partnerships with other sovereigns or other sources of capital. But there is no need for us to look for other sources within the build-to-suit industrial development that we have in place with GIC. Like I said, they are -- they're very positively inclined towards the net lease space. If you recall, Jim, they ended up buying [ store ]. And this is a continuation of their overall strategy. And I don't want to speak on behalf of GIC. That's a question that's best answered by them. But we are very excited about this programmatic JV that we've put in place.

And I believe Jonathan already mentioned this, but it's worth repeating. This is not a one-and-done deal. The $1.5 billion is the initial commitment, it's programmatic in nature. And the hope is that we can grow that co-investment thesis because there's value creation for both parties. They have certain requirements given [ PPTA ], and we have the ability to help recognize earnings during the development phase. This works. And we are able to both lean into our own sourcing channels to make this as big as possible. I think that's what is so appealing about this particular relationship.

Your next question will come from Jason Wayne with Barclays.

You said a portion of credit loss assumed in guidance comes from identified properties. So can you give us some color on which tenants or industries are known today? Maybe which are risk to bring to the high end of the range for the rest of the year?

Yes. So on the identified side, I'm not going to name clients or tenants, but I think on the -- from an industry perspective, there's a couple of restaurants, restaurant chains that will be part of that. More broadly speaking, again, that's the minority of the 40 to 50 basis points. And so the unidentified piece is considerably larger. And of course, we don't have any type of color by definition, given that it is unidentified.

Okay. And then just does lower year-over-year occupancy guidance include any lease terms so far in the first quarter? And what's a good run rate for quarterly lease termination fees?

Answer to the first question is no, nothing material. From a quarterly run rate standpoint, look, this is very opportunistic, episodic. It's very difficult to say that this is going to be something recurring. But I think given just the proactiveness of our team, as I said in the prepared remarks, it is something that you expect to be, of course, a 12-month period, something in line with this, call it, $30 million to $40 million that we discussed. But obviously, subject to change as conversations are ongoing and the analysis continues to be done by several different functions within the organization.

The next question will come from Upal Rana with KeyBanc.

Sumit, I appreciate all the comments on the potential to raise equity. Could you talk through your ATM strategy today given the improved cost of capital? There was no ATM issuance subsequent to quarter end, and the share price has had a nice run recently. So just wondering what it would take to issue equity to the ATM today?

Upal, this is Jonathan. I'll say this over the last 30 days, we've averaged about $400 million a day in trading volume in our stock. If you look back a year ago, that was around $250 million. And so for us, we've got multiple ways where we can raise equity. A lot of it, we already have in place, over $700 million of unsettled equity right now. We had $400 million of cash as of the end of the year. We have over $900 million in free cash flow that we're generating on an annual basis now.

We talked about the disposition activity, and that could easily be something very similar to this past year, over $700 million of equity-like proceeds. We've got [ $400 million or so ] of uncalled capital for the fund. So when you start to take away all of that and when you look at an $8 billion investment guidance number on a leverage-neutral basis, that will require roughly $5 billion of equity. But what I just highlighted was around $3 billion. And so you can do the math. If the delta is 2 and we're averaging $400 million a day in trading volume in the stock, we can be a very, very small percentage of the days trading volume, barely impact the stock price at all and raise more than enough to that $8 billion and then some.

Okay. Great. That was really helpful. And then maybe you could update us on your launch list today? And could you update us on your Red Lobster exposure given the back of the headlines that potentially shut down some locations?

Yes. So Upal, our watch list is right around -- 4-point credit watch list, it's 4.8%. With regards to Red Lobster, it's certainly not in our top 20. And so it's not significant enough for us to really have much of a comment around them. We are watching them closely. They are trying a few different things, but it's not a significant piece of our business anymore.

And so all I can say is they are trying a few different things. I believe they've rationalized their menu. They've reduced that by 20%. Lobster Fest is coming up, along with a few other promotions. So we'll see. And I think we are following this company closely. But like I said, it's not a significant portion of our registry.

Your next question will come from Greg McGinniss with Deutsche Bank.

This is Greg McGinniss with Scotiabank, haven't moved. So I wanted to go back to your comments regarding the other investment avenues maturing and getting back to a more historical level of growth in 3 to 5 years, especially considering many investors are not necessarily looking for a long-term wait-and-see story, which could pressure the equity cost of capital. And what does success or maturity look like with regard to those new avenues? And should we expect to see that 3% growth in the interim or a more modest ratable improvement back to the 5% over time?

Greg, what I'd like to do is just show what we are capable of doing. We've come out with an earnings guidance at the beginning of the year. And we have all these avenues that we've talked about and allowed these avenues to mature and let's see how that manifests in a higher growth rate. For me to give you a blow-by-blow in terms of what my expectation is over the next 3 months, 6 months in terms of how this growth rate is going to accelerate, I don't think it's something that -- I'd be viewed as a prognosticator if I can do that. But my long-term view is that all of these channels will manifest in a growth rate that is much more commensurate with what we've achieved historically. How long does it take? I hope sooner than later. But I can't give you an answer more precise than that.

Okay. That's fair. And then just a follow-up. You mentioned that the platform is capable of around $10 billion investments a year, close to what it's achieved before. Is that enough to achieve these growth goals, especially as the company has gotten larger? Or are you anticipating investing in G&A and growing how much the platform is capable of?

Yes. That's a good question, Greg. And by the way, when we talk about growth rates and earnings, we shouldn't forget that we are the monthly dividend company, and our dividend as of the end of last year, beginning of this year was still 5.7%. And so that's the dividend yield, and that continues to be something that we distribute on a monthly basis. So it's very much part and parcel of the total return story that's associated with Realty Income.

With regards to what is this platform capable of, I think it's capable of a lot more. What I was pointing out to was if you looked at what we did on an organic basis in terms of investments in 2022 and 2023 or thereabouts was in that $9 billion, $9.5 billion ZIP code, and it was with a much smaller team with fewer geographies, and we still had fewer asset types that we were investing in at that point in time.

So we have scaled the team. We are in more geographies today. Our cost of capital is improving. I believe that our team is capable of doing a lot more investments, just having created a much larger TAM for ourselves today vis-a-vis where we were 3 years ago. And that's where the scale benefit comes in.

But what I'm saying is not mutually exclusive from what Jonathan said, which is selectively, we will continue to look for the right people to drive certain areas of our business. And that is an investment we feel very comfortable making as we become a company that has defined all of these different channels of growth. So you should expect both us to do more and us to continue to invest very selectively in talent that can help us drive our business.

The next question will come from Eric Borden with BMO Capital Markets.

Great. How should we be thinking about the recapture rate on the 3% of ABR expiring in '26 relative to your long-term average? And should we see an acceleration over time from your re-leasing efforts across your retail park exposure?

Eric, I -- again, every year is different. It's a function of what type of assets are expiring. Some assets lend themselves to higher growth rates in their option -- exercising of the options versus others. But look, if you look at historically, what we've achieved over the last 4, 5, 6 years, it has been north of 100%, closer to 103%, 104%, 105%. And my expectation is that the team will continue to meet, if not exceed those numbers. But it is very difficult to compare 1 year over another, just given the makeup of the expirations that are taking place. So I'll just leave it at that.

Okay. And then you currently have 173 properties available for lease. Could you just provide a little bit more detail on what percentage is slated for disposition versus the portion that you believe can be re-leased today?

Yes. Eric, obviously, if you looked at that same number at the beginning of last year, that was closer to 220 or 230 assets. So capital recycling, making sure that we get to resolutions quicker so that the holding costs are much lower, those are all elements of a very proactive asset management team that we have in place today.

Having said that, we are very comfortable holding on to a certain number of vacant assets because we are either trying to reposition it or we are trying to find the right client who can enhance the ability to recapture rents, et cetera. So in a company that has north of 15,200 assets, having 170 assets vacant, I think you could view that as what the natural rate of vacancy ought to look like. That's circa 1%. And I'm going to go a little bit more and say we are comfortable with this 1.5% to 2% of assets that we have that we are working on either to dispose of or to reposition.

And so I think this 170 is a smaller number than if you were to compare it over the last couple of years, what you've seen in our portfolio. But I view that as a natural rate of vacancy.

The next question will come from Tayo Okusanya with Deutsche Bank.

So again, just looking at the portfolio today, again, thousands of assets across hundreds of companies across several regions. It just feels to me like, again, given the nature of what you guys are doing, AI somehow should be able to create much more efficiencies in the overall business, whether that's on the underwriting side, asset management side. Just kind of curious, how you guys are thinking to the use of AI in the business? And how, if I may use the word, AI competency or supremacy could create additional competitive advantages versus your peers?

That's -- it's in line with the question that was asked, Tayo. And I intentionally try to keep it brief because this is an entire discussion in its own right. What I will share with you is we are a very highly literate, technology-driven, data-driven organization.

And so AI absolutely is going to be part and parcel of every element of our business. It already is on proprietary tools that we've created. It helps us on the sourcing front. It helps us on the underwriting front. It helps us on making asset management decisions, et cetera. And that's just one piece of it.

But when you think about an organization and you think about the direction of drift, where is AI really going to sort of make monumental positive scale benefits for organizations, it doesn't start on the front end with the tools. It starts with the data. And it starts with creating an organization that has data that is very clearly defined. The interrelationship between those data is very well established, then data that gets created by this input data is also very well established. Then you can start to come up with tools that you can overlay on top of this very structured data lake to create those various different scale benefits.

But Tayo, you're 100% right. I mean, AI is and will become an even more integral part of every function within a real estate company. There is no doubt in my mind. And we, I believe, in my heart, are best positioned to take advantage of that, given when we started on this journey and the level of sophistication from a technology standpoint and how this company and the management team thinks about technology as an enabler and creator of scale within our business model.

So I'm just touching on things. Each one of these areas that I've talked about, we can spend 2 hours just having a detailed discussion. But we are well on our way, and there are certain tools that's very much part and parcel across the entire business that we already have, such as CoPilot, et cetera. And then there are other very specific tools that are being used by vertical elements of our business to help drive scale. But that is still just scratching the surface of what AI will do 3 to 5 years from now for a company like Realty Income.

This concludes our question-and-answer session. I would like to turn the conference back over to Sumit Roy for any closing remarks. Please go ahead.

Thank you, Chuck, for helping facilitate this conference, and thank you, everyone, for participating. Look forward to seeing you at some of the upcoming conferences.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Realty Income Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note today's event is being recorded. I would now like to turn the conference over to Andrea Behr, Director, Corporate Communications. Please go ahead.

Thank you for joining us today for Realty Income's 2025 Third Quarter Operating Results Conference Call. Discussing our results will be Sumit Roy, President and Chief Executive Officer; Jonathan Pong, Chief Financial Officer and Treasurer; Neil Abraham, President, Realty Income International; and Mark Hagan, Chief Investment Officer.

During this conference call, we will make statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in any forward-looking statements. We will disclose in greater detail the factors that may cause such differences in the company's filing on Form 10-Q.

[Operator Instructions] I will now turn the call over to our CEO, Sumit Roy.

Thank you, Andrea. Welcome, everyone. Realty Income's platform, which is 56 years in the making, is a historically proven income generator with the ability to perform through a variety of economic conditions. The data-driven nature of our model, accompanied by decades of institutional experience and our top-tier talent, positions us to capitalize on an ever-increasing investor appetite for consistent long-duration income given aging global demographics. Additionally, our scale and diversification, spanning over 15,500 properties across 92 industries and more than 1,600 clients provide strategic proprietary data insights that position us advantageously comparative to subscale platforms.

Recently, we have seen an acceleration in capital formation for net lease vehicles in the marketplace, and we believe our platform is especially positioned to benefit from capital floors yearning for long-duration income. As we establish ourselves in the private capital arena, our long track record of producing equity-like total returns with bond-like stability is resonating with investors. We recently launched a perpetual life fund and expect that initiative will provide additional capital to support our growth objectives and enhance our liquidity position.

Turning to our operating results for the third quarter. Our investment activity continues to reflect the multiple levers of growth we have at our disposal. Our addressable market is sizable, enabling us to look at opportunities substantially free from geographical property or industry constraints. This allows us to pursue the most optimal risk-adjusted returns for our shareholders and to pivot with ease when we identify capital allocation opportunities that others might be unable to execute on.

Globally, we invested $1.4 billion at a 7.7% weighted average initial cash yield, equating to a spread of approximately 220 basis points over our short-term weighted average cost of capital. This brings our total year-to-date investment volume to north of $3.9 billion, surpassing the investment volume we completed in all of 2024, excluding the Spirit merger. This quarter, we sourced $31 billion in volume, resulting in a selectivity ratio of 4.4%. This brings our total year-to-date sourcing volume to $97 billion, eclipsing our prior high watermark for annual source volume of $95 billion reached in 2022. This is a testament to the size of our addressable market and our visibility to global net lease transaction opportunities given the breadth and depth of our platform.

Turning back to our investment volumes for the quarter. We again leaned into Europe, which accounted for approximately $1 billion or 72% of our investment volume at an 8% weighted average initial cash yield. The European investment opportunity continues to screen more favorably on a risk-adjusted basis relative to the U.S., which has become increasingly competitive from smaller platforms competing for similarly sized transactions.

In contrast, the European investment opportunity remains compelling, driven by a fragmented competitive landscape a larger total addressable market than the United States, and a current cost of debt for euro-denominated 10-year notes that is approximately 100 basis points inside of U.S. dollar costs.

Since entering the U.K. market in 2019, our disciplined underwriting and balance sheet strengths have enabled significant expansion across the continent, with Europe now representing almost $16 billion in gross asset value and approximately 18% of our total annualized base rent.

Transitioning to the U.S, we invested $380 million at a 7% weighted average initial cash yield. While transaction volumes have moderated domestically, this reflects selectivity, not a lack of opportunity, as we continue to prioritize long-term risk-adjusted returns over pace of deployment of capital.

Moving to our operations. The third quarter reflects the structural advantages of our business model, including portfolio diversification, which mitigates exposure to idiosyncratic credit risk and supports advanced data analytic capabilities. To that point, our proprietary predictive analytics AI tool developed over the past 6 years informs decision across sourcing, underwriting, lease negotiations and capital recycling. We believe this allows us to be proactive operators and reinforce the reliability of our long-term cash flows.

As of quarter end, our portfolio comprised over 15,500 properties spanning 92 industries and more than 1,600 clients. The naturally defensive nature of our essential retail-oriented portfolio, including grocery and convenience stores, combined with our scale and diversification, position us to perform through a variety of economic environments. We ended the quarter with 98.7% portfolio occupancy, approximately 10 basis points ahead of the prior quarter.

During the quarter, our rent recapture rate across 284 leases was 103.5%, representing $71 million in new cash rents, with 87% of leasing activity generated from renewals by existing clients. And we remained active in our approach to optimize the portfolio. In the quarter, we sold 140 properties for total net proceeds of $215 million.

During the quarter, we sold 18 convenience store properties for approximately $55 million at a blended 5.5% cap rate and a weighted average remaining lease term of 11.3 years. This pricing is approximately 75 basis points lower than where we are acquiring portfolios of superior assets. This transaction reflects strategic portfolio optimization, first, by leveraging our scale to acquire assets at a portfolio discount and then by monetizing more mature properties individually at tighter cap rates. The sale allowed us to redeploy capital into superior opportunities and demonstrates our ability to unlock value through selective dispositions.

Finally, we recognized $27.3 million or approximately $0.03 per share of lease termination income during the quarter. We realized such income in situations where our asset management team, in conjunction with input from predictive analytics, determines that lease termination presents the best probability weighted risk-adjusted net present value outcome. While we do not guide to this line item, we have added historical lease termination disclosure at the bottom of our consolidated income statement in our supplemental. The purpose of the disclosure is to add improved transparency on the separate and inherently different revenue streams of base rent and termination income. Overall, the stability of our results continue to demonstrate how the benefits of our platform enable us to stay agile, manage risks effectively and drive long-term portfolio performance.

Now moving to our outlook for 2025. Given the continued momentum in our acquisitions pipeline and our progress year-to-date, we are increasing our 2025 investment volume guidance from $5 billion to approximately $5.5 billion. In addition, we are increasing the low end of our AFFO per share guidance, now anticipated to be in the range of $4.25 to $4.27.

As discussed previously, our guidance contemplates approximately 75 basis points of potential credit loss, most of which results from certain tenants acquired through public completed M&A transactions. Our credit watch list remains manageable and granular, staying flat to the prior quarter at 4.6% of our annualized base rent and with median client exposure of just 2 basis points.

With that, I will turn it over to Jonathan.

Thank you, Sumit. Realty Income has a proven track record of providing equity-like returns with bond-like stability. The inherent consistency of our earnings has allowed us to produce predictable leverage metrics as well. We finished the third quarter with net debt to annualized pro forma EBITDA of 5.4x, a fixed charge coverage ratio of 4.6x and $3.5 billion of liquidity. Additionally, only 6.5% of our debt at the end of the quarter was variable rate, all coming from our revolver and commercial paper program.

Subsequent to quarter end, we closed on an $800 million dual-tranche unsecured debt offering, with a blended tenor of 5.3 years and weighted average yield to maturity of 4.4%. Most of the proceeds were used to repay $550 million of unsecured notes that carried a coupon of 4.6%, and we are pleased to execute on this offering amid historically tight spreads in our secondary curve. As always, we thank our loyal fixed income investors for their continued support of our platform and their long-standing appreciation for the relative safety of our business and its consistent production of predictable cash flows. As of today, we also have approximately $1 billion of unsettled forward equity which we believe is sufficient to fund all of our external equity capital needs to fund our investment volume guidance for 2025.

I would now like to hand back to Sumit for closing remarks.

Thank you, Jonathan. We believe that the structural advantages we've cultivated, including scale, diversification, discipline and data analytics, will continue to create value through a range of economic backdrops. Looking ahead, our focus remains on operational consistency and disciplined investment principles that have guided us throughout our 56-year operating history.

Our long-term objective remains unchanged, deliver resilient and growing income through a diversified net lease platform. With meaningful scale and strategic flexibility, we believe we are well positioned to remain selective in today's environment and deliver lasting value for shareholders over time.

I would now like to open the call for questions.

[Operator Instructions] Today's first question comes from Brad Heffern with RBC Capital Markets.

Sumit, you talked about Europe continuing to be the preferred market, and at least part of that was attributed to higher competition in the U.S. Is that something that you're starting to see as more structural? Or do you think the relative attractiveness and preference between those 2 markets will continue to swing back and forth?

Well, it is a fact that there are more competitors here in the U.S. than in Europe. As you know, Brad, if you just look at the private side of the equation and the recent capital formation that's focused on net lease investing by Blackstone, BlackRock, Starwood, there's a whole series of new entrants into the market. So it is patently true that there is more competition here in the U.S.

For us, it's a combination of what is available, which, by the way, we continue to source -- of that $31 billion that we talked about, the majority was sourced here in the U.S. It's not a lack of product. But the more competition that you have chasing the same products, we have to then sort of overlay where do we have the best value adjusted, risk-adjusted return profile. And that continues to push us in the direction of Europe, which is why you saw us do 72% of our investment volume there.

If you look at the situation going forward, I would say that, that should continue. The majority of what we are seeing will continue to be in Europe, but we are starting to see some level of momentum here in the U.S. as well.

Okay. Got it. And then you obviously held the initial closing for the Core Plus Fund. Can you talk about what you've acquired in the fund so far and how that differs from the acquisitions you've completed outside the fund?

Yes. So Brad, unfortunately, there's very little I can share with you outside of what has already been disclosed. As you can see from our supplemental, we have increased the disclosure on what is going into the fund versus what's staying on balance sheet. Given the fact that we are currently in the marketing stage of our open-ended fund, we are very limited in what we can share with regards to the fund. But what we've tried to complement is give you more disclosure, and hopefully, you'll find this additional disclosure in the supplemental helpful in terms of your modeling, et cetera.

Our next question today comes from Michael Goldsmith at UBS.

This is Kathryn on for Michael. My first question, so similar to the second quarter, the majority of your dispositions were vacant assets, and I'm just wondering if you can provide some color on the re-leasing process. So specifically, who are the buyers? What was the downtime for some of these assets? And how does that compare to the remaining assets that you're looking to sell? And then maybe just sort of the spread of the different categories of assets that you've been selling down.

Yes. So Kathryn, this is very much part and parcel of a continuation of what we started doing in 2024. We talked about a similar quantum of disposition that we are going to achieve this year, and the makeup of that should be along the lines of what we had in 2024. Clearly, if you look at year-to-date, there was more vacant asset sales, but we did say that the back half of the year was going to be a bit more of occupied asset sales. And so that mix will continue.

For us, it really comes down to us taking a look at a particular asset and deciding whether the lineup that we have of alternative clients who could step into that asset -- what is the return profile we could generate based on what they're willing to pay in terms of rent versus what are the proceeds we are able to get when we are selling these assets vacant. And in terms of -- and we are indifferent as to which path we follow. Our only criteria is where do we maximize the economic returns on that particular asset. And that really is what's determining when do we sell a vacant -- asset vacant versus trying to find a new client to retenant that particular asset.

And so the fact that we sold 100-plus vacant assets was part and parcel of our strategy, saying that we were better off selling those assets and then reinvesting the proceeds in the current environment than we were holding the assets, incurring the holding cost and then tenanting it to a new client. So that was really the rationale.

The makeup of that is across the board from casual dining, quick service restaurants, home improvement. It's across the board in terms of what we have sold, drugstores. And it really is a function of assets that are coming up for renewal, what is the expected outcome and whether we are better off selling the assets vacant. And so that is part and parcel of our strategy and will continue to drive how we think about disposing assets and recycling the capital.

Got it. That's really helpful. And then my second question is you mentioned the predictive analytics platform, and I'm just wondering if you can comment a bit about how you expect that to help reduce G&A in the longer term and just how you sort of expect to maybe be able to use that to imply a few labor efficiencies and other components that could help bring down G&A in the longer term.

Yes, Kathryn, that's a great question. So let me talk about the AI strategy in twofolds. I'll specifically answer your question on predictive analytics. This is a tool that effectively uses machine learning to continue to refine the outcome of this -- of its ability to predict renewals, et cetera. And this particular tool continues to learn every quarter, right? We are going through lease expirations every quarter. The model predicts a particular outcome. We check that outcome against what actually happens. And more often than not, the model is correct, north of 90% of the time in a lot of cases.

And then where it isn't, it tends to learn from that particular error by modifying its -- the internal workings and the algorithms of the particular model. So that's how the model actually continues to become better and better at predicting at a much higher level of certainty what the outcomes are going to be. And this model is utilized when we are underwriting transactions on the front end, when we are making decisions on the asset management side as to whether we should hold an asset or dispose of an asset. It is also very much used when our asset managers are negotiating with our clients, where we have a high level of confidence going into a negotiation that this is a particular location that is actually doing very well. And that level of confidence obviously translates into the results that we talk about, the re-leasing spreads, et cetera.

So that's one piece of it. And that particular model is more utilized as a tool to help complement the years of experience that our team has to make better decisions. The scale benefits will come from other AI implementations that we are doing, where we are using tools like PredictAP, for instance, is a perfect example where we had individuals doing -- basically getting invoices, tracking the invoices, inputting the invoices into Yardi, et cetera. All of that initial front-end stuff is now being done by an AI tool called PredictAP.

And so that's where you were starting to get the scale benefits and personnel are shifting from doing clerical work to doing more quality assurance and doing approvals to make sure that the coding has been done correctly and the verification of that coding is being sort of validated by personnel. And that's where you're going to start to see -- and examples like that, which we are running through across the organization with various different tools under consideration, that's where you're going to start to see scale benefits of implementing AI tools.

And we are at various different stages of maturity, depending on which particular department we look at and the kind of AI implementation that we are going to be doing. But this is a -- it's a journey that we are on, and the benefits of which will be realized by the company in years to come. But this is something that we are very focused on and something that we are very excited about embracing.

And our next question today comes from Smedes Rose at Citi.

I wanted to ask you a little bit about the loans you made in Europe in the quarter. It looks like you found some very healthy opportunities on the yield side. Can you share maybe who those were with and if you would expect to see significant opportunity in that kind of arena over the next quarters or so?

So Smedes, as we've said, when we started going down the credit investment path of one of the verticals that we wanted to sort of lean into, there was a strategic rationale behind it. We were -- what we had shared with you was we were already long the clients. We were doing 15-year, 20-year sale leasebacks with these clients. And we were long the credit. We were very comfortable the credit.

And so our ability to be viewed as a one-stop shop, a true capital provider across the balance sheet for some of these clients was something that we wanted to lean into, and that was the makeup of the entirety of the loans that we did in the third quarter, so with existing clients that we are very comfortable with, and we are higher up on the capital stack. We have a lot of collateral that underlies these loans, and we are able to generate a higher yield.

And the added benefit of doing credit investments in an environment where you have elevated rate environment is the fact that we do have about 6%, 7% of our own balance sheet that is exposed to floating rate debt, and so -- which acts as a headwind for our financing. And so to be able to take advantage by investing in credit investments with elevated yield, again, a function of the rate environment that we find ourselves, helps mitigate some of this -- some of these headwinds.

So for a variety of reasons, this is an avenue that we will continue to lean into, but we are going to be selective. The idea here is ultimately to create closer relationships with our clients, and the hope is that it leads to more sale-leaseback opportunities with this client, which, by the way, was the case in the third quarter in 1 of these loan investments that we made, where we ended up doing an off-market $100 million sale leaseback as well.

Okay. That's helpful. And then, Jonathan, I just got to ask you on the guidance. So you talked about these higher lease termination fees that, I guess, we wouldn't have been expecting at that level. Is that -- what's driving down, I guess, or the implied decline in your same-store rentals through the balance of the year? Or are those totally separate issues?

Smedes, I would say the same-store calculation is separate from the lease terminations. The lease terminations are onetime in nature. I would say if you're trying to back into kind of a like-for-like excluding lease terminations, AFFO run rate, I think there are some offsets, obviously, that come into play for the back half of the year predominantly on the G&A side, which we view as just an investment in the future of this company and expanding the competitive mote that we benefit from. And that takes dollars. That takes head count. That takes technology, process improvement, et cetera, et cetera. So I would say the reason why you're not seeing that flow through in Q4 on the AFFO run rate is really investments in that realm.

Our next question today comes from Jana Galan with Bank of America.

Sorry, just one more follow-up on the lease term income in the quarter. Can you discuss whether this was 1 or 2 larger tenants? Or is this a mix of tenants?

It was predominantly one tenant, and it's something that is really a function of our asset management team's proactiveness and getting ahead potential move-outs and potential credit issues. And so this is something that you're going to see as part of our regular way business, maybe not to the extent that we saw in Q3 but certainly more active than we have historically. In 2024, we recognized about $16 million in lease termination fees already year-to-date. We're at around 30. And so on a go-forward basis, maybe we'll be closer to that 20-ish area. But with more churn, with more proactive asset management activities, I think you're going to see this be more of a regular way occurrence going forward but perhaps not as drastic as what we saw from one client in particular in Q3.

And congrats on a very active sourcing quarter on the investment side. I saw the allocation of new clients, leases as a percent of the leasing then tick up to 13%. I was hoping you could maybe discuss kind of what industries or segments those new relationships fall into.

Jana, we certainly did have a few new clients join our portfolio, certainly some in Europe. There were some logistics deals that we did that introduced some new clients into our portfolio. They tended to be, by definition, some of the larger investments we've made. But I wouldn't read too much into the fact that this particular quarter we had a larger number of newer clients than in previous quarters. This is more a function of as we are becoming more entrenched in Europe, we are starting to see new clients that we are cultivating relationships with. And they may be new to us, but they've been around for many, many years in these markets.

And so we -- that was the whole purpose of going into a market like Europe, where it's green fields ahead for us. And so that really is the makeup of what we ended up doing in the third quarter. But I wouldn't read anything more than, okay, new relationships means better repeat business possibilities going forward.

And our next question comes from Anthony Paolone with JPMorgan.

Not to beat a dead horse on this lease term income, but just trying to understand like how much revenue, like annualized revenue do you kind of give up taking the lease term right now. Can you maybe help us with that?

Yes. Anthony, as you can realize, again, we're doing the math, and we are saying these are clients who will certainly pay, and despite what Jonathan said, in some cases, there might be credit issues that we are forecasting down the road that we want to take advantage of. But that was not necessarily the case in this particular client's situation. But if we are able to get the vast majority of the rent upfront and continue to cultivate a stronger relationship and solve an issue for our particular client because these are locations that are not doing as well as most of their other locations are, it's a win-win.

So that was the case. When we structured this lease termination, we are coming out, in our opinion, ahead of what would have happened had we collected the rent for the remainder of the term. And then we would -- we were sure that they were going to not renew the lease and then looking at the landscape of, okay, who are the alternatives that could come in and comparing that to, okay, getting it vacant today, collecting the lease termination and selling it and recycling that capital is a far better outcome for us and better for our clients than just staying passive and collecting rent.

We could have easily done that and we would have been just fine. But the economic outcome wouldn't have been as favorable, in our opinion, as it turned out to be taking the lease termination, solving an optimization problem for our client and reinvesting that capital.

Okay. Got it. And then just my follow-up. Sumit, you mentioned about, I guess, private equity and other private capital being more competitive in the U.S. market. Can you maybe just give us a little bit more color around maybe what kinds of assets you see them going after or what the impact on cap rates maybe has been? Or is there a certain segment of the market that, that just kind of keeps you out of?

I wouldn't say it's any segments that it's keeping us out of. What I am sharing with you, Anthony, is -- you know of these capital formations. These companies exist. Some of them have gone so far as to tell you exactly the strategy that they're going to be following. Some are fairly small. So by definition, they're going to go after the one-off market, and it's going to be across the spectrum on the lease -- on the net lease side.

So from investment grade, lower cap rate deals with growth, that tends to be industrial. You're not going to have a whole lot of retail investment-grade, low cap deals that have a lot of growth built into them to higher yielding retail assets with growth. And that's what they've defined as their area of expertise. Some are basically focusing on build-to-suit industrial assets, which they feel like they can strike longer-term deals with a lot of growth in them. And in this environment, those are -- that's their very well-defined, clear strategy. Others are playing retail across the spectrum of credit, so it's -- you'll find them more in the one-off market than you would in these very large-scale sale leasebacks that we are tending to pursue here in the U.S.

Having said that, we absolutely look at the one-off market and where it makes sense and where we have a relationship and where people are showing us transactions that are not marketed or not heavily marketed. We act on those. But it is patently true that you have more investors in net lease today than you did a year ago. And this is not a function of more public companies. It's a function of what's happening on the private side.

And our next question comes from Ronald Kamdem of Morgan Stanley.

This is [ Jenny ] on for Ron. Two quick questions. First one is same-store revenue growth of 1.3% year-to-date, but the guidance suggests 1% in 2025. So does it suggest a deceleration of same-store revenue in Q4? Like how should we think about it?

[ Jenny ], I wouldn't necessarily say it's a massive deceleration. The guidance number continues to be approximately 1%, but there is obviously a fair amount of conservatism when you still got 3 months ago because any type of bad debt expense does roll into that. And so even though we're not seeing anything material show up, that's why we kind of hedge a little bit from that perspective.

Q3 also benefited from the theater industry. We did recognize some percentage rents that took that theater same-store number into the 5% area. And so that's something that will obviously moderate back down or at least from a modeling standpoint, that's how we're modeling it for the fourth quarter.

Perfect. That makes sense. Second question is I noticed the IG client represent like 31.5% as of 9/30 versus 33.9% in June. Like maybe comment a little bit on like what's driving the change? Like which tenant kind of moved out? Or, yes, just what's driving the change would be great.

It wasn't moving out. It was simply Dollar Tree selling Family Dollar. And Dollar Tree remains an investment-grade company, but Family Dollar is now a private company, and that no longer has the investment-grade rating associated with it. So I believe Family Dollar represents circa 2% of our tenant registry. And so that's the delta between the new number that you're seeing in our supplemental versus what you're comparing it to in the second quarter.

And our next question comes from Jay Kornreich from Cantor Fitzgerald.

Just a question on -- I saw that the investment yields for Europe jumped to 8%, so just curious if there's any key investments that you could call out or different types of assets maybe that you're investing into that commanded higher yields. And is this something that is sustainable to get these upper 7% or 8% yields going forward?

Yes. So Jay, obviously, what's blended into that number, that 8% number is circa $380 million of investments that we did on the credit side, which had a profile closer to 9%. And so you blend that in with what we did on pure investments on the real estate side, which is circa 7.3%, that's the blend that gets you to that close to 8%. But it was largely being driven by these higher-yielding credit investments.

Okay. Appreciate that. And then for the re-leasing rent recapture rate, which has been 103.5% throughout 2025. Now as you look at the lease expiration schedule going forward and bumps up a bit starting in 2027, are these levels of recapture rates something that you think you can continue to get in those forward years and provide a boost to revenue?

Jay, I can't comment on anything in 2027, in the future years. But what I will tell you is the way we are thinking about being a lot more proactive on our asset management side, if you look at what we've achieved in the last 3, 4, 5 years, it has been well north of 100%. And the average since we've been tracking re-leasing spreads has been slightly above 100%. It's been 101%.

And so more recently, that number has gone up largely because we become a lot more active on the asset management side of trying to get ahead of situations that could result in degradation on this recapture rate. So the expectation and hope is that we will continue to be north of 100%. And this active -- proactive, I would say, implementation by the asset management team, we hope, will continue to generate favorable results.

And our next question today comes from Haendel St. Juste with Mizuho.

This is Ravi Vaidya on for Haendel. I wanted to ask a bit more about the AFFO guide for 2025. It looks like there were a couple of onetimers with the lease term fees, and you also raised the investment volume. I guess, why take down the high end of the AFFO guide at this point? Are there any offsets, maybe tenant credit or anything else that you might have considered as part of that?

Ravi, I think as we sit here today in November, we want it to be more precise. And I think the track record that we've had recently is we'll start relatively wide, and then we'll narrow as we get greater and greater visibility into some of the puts and takes. And so that's really what it is right now. The higher end of guide, I think at this junction, we feel is probably a less likely one if you're looking at just deal volume because, at this stage, a lot of that deal volume we're just projecting to be December or towards the later end of Q4, so very little impact.

I'd also say from a seasonality standpoint, there are some expenses that come through a little higher in Q4, and that's certainly in our projection. And I think leasing commissions is certainly one of them that might be a little higher in Q4 than it was for the first 9 months of the year and then obviously, as I mentioned earlier, a little bit higher run rate on cash G&A. But that's really yet to flag.

Got it. That's helpful. Just one more here. How do you think about your balance sheet here and the ability to generate maybe better AFFO growth into 2026? Are there any -- because right now, we have stronger investment volume, better cost of capital. Are there any other headwinds that we should be aware of or think about as we think into '26 growth?

Yes. So I think the big refi that we have coming up is about a $1.1 billion multicurrency term loan in January. That is just shy of 5% right now. We have pretty good visibility in being able to refi that at a lower rate, and so that should be one tailwind that if you ask maybe 6 to 9 months ago, I wouldn't have expected it to be a tailwind. And so that's certainly a positive on the European side of the house. We make a big deal about how we're leaning into the continent. And a lot of that is really fundamentals that we see good risk-adjusted returns, but also a lot of it is euro-denominated debt offers us the lowest cost of debt in the capital stack.

And so you can issue 10-year European debt at 3.9%. That can obviously be quite a bit of a tailwind and support your investment spreads. But we are not going to over-lever and issue more debt than we have assets that can offset that liability. And so that's going to be really driven by how much we can source and how much we can source in European currency so that we can issue that 10-year very attractively priced European debt.

I think in terms of leverage ratios overall, we're at 5.4x right now. And if you look at really what we've done over the last however many years, going back at least 3, 4 years now, we've been extremely disciplined about staying within that, call it, mid-5% area. The A3- credit rating is incredibly important to us, and I think the regularity and really the very, very thin volatility that you see in that metric is testament to our commitment. And so you're not going to see us utilize more leverage in order to generate faster AFFO per share growth.

And our next question today comes from Spenser Glimcher with Green Street Advisors.

And just in regards to your comments on competition here in the U.S., your advantage of scale really comes into play with the larger sale leasebacks and the portfolio deals you mentioned. Are you just not seeing as many of these large deals where that advantage of scale can be leveraged?

Well, we did see one, and we talked about it in the fourth quarter of last year, where it was north of $700 million in sale leaseback, and all of the advantages that you just laid out, Spenser, sort of played out for us. But yes, seeing $1 billion transaction sale leasebacks here in the U.S., we haven't seen as many. And that doesn't mean that those discussions are not taking place. There are some pretty interesting transactions that are going on. But it's not something that happens every quarter. And those are specifically the types of transactions where we will be able to lean into our advantages. We are seeing a lot more transactions in size in Europe, and that's why we are able to do what we are able to do.

Yes, that makes sense. Maybe with that thought and with the greater competition you're seeing here in the U.S., would it be fair to say that your growth in the U.S. or maybe even Europe is going to be dictated a little bit more by the composition of deals more so than in the past?

The composition of deals, yes, I think that is precisely the way to think about it. That doesn't mean that we won't see a quarter where we are back to doing the majority of the transactions here in the U.S. But it will be a function and the types of transactions that are available that we believe creates the best risk-adjusted returns on a relative basis. Those are the ones that we are going to pursue.

And I think that is one of the advantages of the Realty Income platform, is the fact that we have so many different swim lanes to evaluate, and we are seeing opportunities across all of those different swim lanes. And so it just so happens that a lot of what we have done year-to-date, more than 2/3 of the transactions, has been in Europe, which is where we have seen the best risk-adjusted returns.

But again, I think if you unpack the sourcing numbers, the majority of the sourcing is still here in the U.S. U.S. continues to be a very active market, is when you then start to look at the individual transactions and you do the analysis and you say up on a relative basis, there are better transactions in Europe, then that's where we're going to invest.

And our next question today comes from John Kilichowski with Wells Fargo.

Jonathan, maybe if we could just go back to the question earlier on the guide. You talked about the high end of the AFFO guide. Just thinking about maybe where the midpoint was and where you all came in at. There was the $0.03 of the termination fee that we've talked about. So what was the offsetting [ 2 ] to get you to plus 1 versus the quarter? I know G&A is a little bit higher. Nonreimbursables are a little bit higher. Is there anything else that we're -- that I should be thinking about?

Yes. It's those 2 areas. Plus, the leasing commissions, as I mentioned earlier, tends to be a little higher in Q4. Just from a forecast standpoint, that is an AFFO deduct. And so that's one thing to maybe be on the lookout for Q4.

I'd also say there's always going to be very short-term headwinds when you are doing the right thing for the long term. Sometimes that's vacant dispositions. It was a record quarter for vacant dispositions for us in this past quarter. And so rather than just taking any type of re-leasing spread just to keep someone in there, I think, moving on disposing and recycling that capital is really something that maybe, on a very short-term basis, could result in small dilution. But that's really it. It's nothing that I would flag as a significant item one way or another. It's a little bit of everything here.

Okay. Very helpful. And Sumit, apologies if I missed this in the opening remarks. I know sometimes you will say this. But could you give us where your watch list stands today and then maybe how bad debt has performed relative to expectations?

Sure. So it is the same as the second quarter, 4.6%. So it was 4.6% at the end of the second quarter. It's the same. And the other comment I had made in the prepared remarks was that if you look at the main of who makes up this particular watch list, the exposure is 2 basis points. So it's very granular in terms of the makeup of this watch list, and so any one client is going to have a very minimal impact in terms of the overall impact.

In terms of year-to-date bad debt expense, it remains the 75 basis points that we came out with, and we are continuing to track to that. And we feel like we are -- our latest earnings guidance reflects that 75 basis points. So there's no change there.

Our next question today comes from Linda Tsai with Jefferies.

On capital allocation, would it have been more accretive to utilize free cash flow for your loan book and then not buy the other $1 billion of properties using equity?

Explain that a bit more, Linda. I'm sorry.

Just meaning if you use your free cash flow for lending purposes and then just refrain from buying as much by raising equity.

Yes. So we obviously have circa $200 million of free cash flow that we're generating every quarter, and that is part of the mix of proceeds available for investments. And when we have a menu of investment choices, we are looking at which particular investment is most favorable. And obviously, if we are raising public capital either via the ATM on the equity side or debt side, we are trying to see, are we better off not raising that capital, using our free cash flow to buy back our stock, which, by the way, we have the ability to do, versus investing it in opportunities accretively, those are decisions that we are making constantly.

And so Linda, obviously, we chose to make $360 million worth of credit investments. We have the ability to do a lot more. But again, we are looking at what is the risk of making those investments for the returns that we are getting and getting comfortable with it within the construct of what we've said, we're going to make credit investments in, which is with clients that we believe we want to be viewed as their long-term real estate partners and with whom we can have the opportunity to do more sale-leaseback opportunities.

So I'm not 100% clear if I've answered your question, Linda, but never are we going out and trying to invest capital in a dilutive fashion. I mean that is precisely why even -- and I think I shared this in the second quarter, and I'll share it with you now. There was about $2 billion of investments in the third quarter that we could have made had we the right cost of capital. And it was because we couldn't generate that initial spread, accretive spread, we chose not to pursue it. So we are being super selective in terms of what we are doing.

And part of the reason why we've gone down this private capital to figure out an alternative form of capital to help us continue to invest was to be able to do things like the $3.6 billion that we had year-to-date in the first 2 quarters and another $2 billion that we would have loved to have invested in the third quarter.

My second question is on lease term fees. Was that -- thanks for the disclosure. Did you include that in your earnings guidance?

Yes. So it's -- everything is included, Linda. So our latest earnings guidance is reflective of all of the lease terminations, the bad debt expense and any other expectations that we have inclusive of the increased acquisition guidance that we've come out with this quarter.

Our next question comes from Upal Rana with KeyBanc Capital Markets.

I just want to get a clarification on the investment guidance increase. Does that include the fund investments? Just trying to get an understanding of how we should break down the investment guidance between the core portfolio and the private fund.

Yes. So definitely, we've given you that guidance and that disclosure in the supplemental. I know it's a new form supplemental. We, by the way, love to get feedback on it given that we have now entered into a new area of our business. So you will be able to see precisely what portion of total investments is going on balance sheet, what portion is going towards the fund, what is our pro forma. All of that will be, I hope, very clear if you just go through the supplemental, and I recognize that you guys haven't had too much time to digest that.

So please go through it. The idea here is to make your lives much simpler in terms of modeling. But everything that you just asked, Upal, you should be able to figure out from the disclosure, which we hope is very clear. And we've tried to mimic others to come up with this disclosure. But if there's feedback, please do come back to us.

Okay. Great. And then appreciate all the color on the guidance so far. But could you talk about the other adjustments in your guidance? It increased by $0.04, but it didn't really help the -- increase the full year AFFO guidance. So just trying to get a better understanding of what other adjustments are and what drove the guidance change there.

Upal, are you talking about the AFFO guidance? And so I think we've talked about the AFFO guidance, the puts and takes, where the midpoint of our guide is unchanged. And really, the bridge to think about with that is, yes, we picked up about $0.03 from lease termination fees, but there were some offsets to that, predominantly leasing commissions, G&A and unreimbursed property expenses that I think are offsetting some of those gains.

And our next question today comes from Wes Golladay with Baird.

Just a quick one on debt capacity when you look to the Europe and U.K. How much more can you borrow out there assuming no more investments as of today?

Wes, we're pretty much right where we need to be from a euro standpoint. And so that's going to be driven by incremental volume. There's no unused capacity at this junction. We do have some European commercial paper that's outstanding, and so any type of issuance in longer-term debt financing will really be to term that out. But in terms of net new debt capacity, we're really going to follow the lead of the volume side of things from here.

On the U.K. side, we're at about 75% LTC right now. And so we do have some capacity there on the GBP side. With that, we're going to continue to wait for a better opportunity all in at cost or a bit elevated there compared to the 2 other currencies we're exposed to.

And our next question today comes from Eric Borden of BMO Capital Markets.

I just wanted to talk quickly about the disposition program. I know over the last couple of years, you've really ramped that up as you look to recycle maybe vacant or less desired assets and reinvest into better opportunities. But just curious, as we look forward, is this going to be a bigger part of the picture? Will it remain the same quantum? Or should we expect that to tail off in the subsequent years?

So obviously, I don't want to give guidance, but what I can tell you, it's not tailing off. This is very much part and parcel of our business going forward. Part of what I do want to share with you is there was some debate around our portfolio discount. And what we wanted to make sure that we were able to share with the market with facts, not our impressions was to recycle some of our assets. And I think I gave you that disclosure in my prepared remarks, to continue to emphasize that when we are able to recycle capital, part of it is to realize this inherent portfolio discount that we see when we are doing large-scale transactions. And so that is much more strategic.

But then there are other things that we are going to be doing that is continuing to expand just given that our denominator has expanded over the years that -- where we are being a lot more proactive in terms of recycling assets be it on the occupied side or be it on the vacant side, where rather than holding it for a year, 1.5 years, to try to find that one client that we anticipate we'll find but at rents that don't make sense for us versus recycling the capital today, taking into account the holding costs associated with these assets.

So this is purely an economically driven analysis that we are going through. And with our ever-increasing portfolio size, you can expect recycling to be very much part and parcel of our strategy going forward.

Great. And then my second question is just on the data center opportunity front. I understand that there's a tremendous demand in the United States but curious if you're seeing similar or increasing demand in Europe, where you may be able to achieve better pricing or be able to close quickly or acquire these assets just given it's a more fragmented landscape.

So yes, Eric, we are very much focused in Europe as well. Data centers continue to be very much part and parcel of our investment strategy going forward. Some of the biggest developers here in the U.S. are also some of the biggest developers in Europe. And so when we are cultivating these relationships, making certain investments to further align ourselves with these very large-scale developers, it's not just on products here in the U.S. but on potential products in Europe as well.

So I think we are -- we're very happy with where we are today and the relationships that we've formed, and we hope that it will translate into future transactions. And yes, some of it will be in Europe, and a lot of it will be here in the U.S.

That concludes our question-and-answer session. I'd like to turn the conference back over to Sumit Roy for any closing remarks.

All right. Rocco, thank you again for your help, and thank you, everyone, for joining us. We look forward to seeing you in some of these upcoming conferences. Take care.

Thank you. That does conclude today's presentation. You may now disconnect your lines, and have a wonderful evening.

Good afternoon, and welcome to Bank of America's 2025 Global Real Estate Conference. I'm Jana Galan, and I cover the net lease REITs at BofA. Very honored to be kind of closing out the roundtable discussions this early evening with Realty Income. We have from Realty Income, President and CEO, Sumit Roy; and Chief Financial Officer and Treasurer, Jonathan Pong.

Thank you guys so much for the time. We'll start out -- I'll turn it over to Sumit for a couple of opening remarks, and then happy to have anyone jump in with questions or I can start with a few I've prepared.

Thank you, Jana. I don't have my glasses, so this is going to be interesting. Good afternoon, and thank you for the time today.

Before we begin, I want to remind everyone that some of the comments made today may include forward-looking statements based on our current expectations and assumptions. Actual results may differ materially, and we do not undertake any obligation to update these statements. We may also reference certain non-GAAP financial measures, which are intended to provide additional insight into our performance, but should be considered alongside the most direct comparable GAAP measures. For more information, please refer to our recent SEC filings or visit our website.

Now that we've got that out of the way. Our results for the first half of 2025 illustrate our focus on thoughtful, disciplined growth and the power of our global platforms' size and scale. Realty Income's differentiated investment value proposition is a simple one. We have historically generated positive total operational returns in a variety of interest rate environments through a diversified net lease platform.

This historical consistency is underpinned by our operational expertise, strong balance sheet, and diversified portfolio of properties leased to leading clients globally, highlighting the durability of our underlying cash flow. During our time as a public company, the only year of negative AFFO per share growth was 2009, which was a low single-digit decline. Despite a changing environment since our public listing in 1994, Realty Income has delivered a 13.5% compound annual total return and achieved a 4.2% compound annual dividend growth rate.

At Realty Income, we believe the durable income we strive to deliver originates from the power of our data-driven platform. We have intentionally designed this platform to perform through a variety of economic conditions, anchored by diversification and scale, predictive data analytics, a conservative balance sheet philosophy and a disciplined investment strategy honed over decades.

We continue to see momentum in our acquisitions pipeline and stability in our operating performance, underpinned by the naturally defensive nature of our diverse global real estate portfolio. We're able to fund the growth in our business in a variety of ways, including through internally generated free cash flow, dispositions and equity issuance. These funding opportunities are supported by relatively low leverage and our A3/A- credit ratings by Moody's and S&P, respectively.

Overall, we believe the operational consistency and structural advantages we've cultivated will continue to create value through a variety of economic backdrops as we drive momentum in our business. We believe the benefits granted to us through our size, scale and access to capital place us in an advantageous position to serve as real estate partner to the world's leading companies, supporting our mission of delivering dependable growing monthly dividends and lasting long-term value for shareholders over time.

We appreciate your interest and support and would be happy to field any questions.

Great. Maybe speaking to that very diversified net lease platform that you've built -- and I was shocked at the volume of deals that the company had underwrote year-to-date. Maybe if you could kind of talk a little bit to that, the criteria and the disciplined approach you take because it's across retail, industrial, it's across countries. So if you can kind of help us with your framework.

Yes. So there are a couple of things driving this continued sourcing numbers that are very compelling. As you mentioned, Jana, we've sourced over $60 billion in the first half of the year, which is equal to what we sourced all of last year. And there are a couple of drivers. One is our continued expansion geographically. As you might recall, we included Portugal in our second quarter investments, which is obviously driving yet another market to source transactions in. And second, an inclusion of an asset type such as data centers, which continues to have a lot of momentum given where we are in the AI journey.

And so given the footprint that we, Realty Income, has created for itself, the volume numbers are staggering. Our ability to close on the transactions is always going to be predicated on the dual mandate that we have that our public shareholders expect, which is that initial year 1 accretion and the overall total return profile.

And what we have also started to share with the market is transactions that meet pretty much all of our underwriting criteria, but don't quite meet that initial spread. And that has taken us into considering alternative forms of equity capital in the form of the private capital that we are pursuing.

So very excited with the sandbox that we've defined for ourselves. And the definition of that sandbox is what's driving the sourcing volumes, which is not much of a surprise to us.

And maybe talking about kind of what did pass the hurdle, what closed, kind of the composition because it is new countries and I think a little bit more European focused than prior years.

So again, 76% of what we did in the second quarter was in Europe. We find Europe to be a lot more compelling today from a risk-adjusted return perspective. Part of it is driven by the sheer number of competitors that are forming, new competitors that are forming here in the U.S. that are pursuing similar transactions to what we would have pursued, but are driving cap rates into areas that to us don't make sense.

And so the end result of these different swim lanes that we've created for ourselves is that we are finding better opportunities in Europe where there is less competition and we believe where relationship does go a long way. And now that we've been there since 2019, I think it's starting to bear fruit in the shape of us being able to do the volumes that we have been posting quarter in, quarter out. And we expect this momentum to continue, as I said, during the second quarter.

Maybe if you can kind of talk to cap rates in the U.S., cap rates in Europe, but also kind of the borrowing costs.

Yes. So let's talk about what we did realize during the second quarter. The cap rates in the U.S. was right around a 7% initial cash yield. The cap rates in Europe was closer to 7.3% initial cash yield. The added benefit that we have in Mainland Europe is the financing cost, which is circa 3.9%, Jonathan, 10-year unsecured versus a 5.1% 10-year unsecured here in the U.S. So 120 basis points differential.

And that's where we are saying that even if you look at it in an absolute basis from a yield perspective, the opportunities in Europe seem to be signaling a better buy than what we are seeing here in the U.S. Could that change? Yes. But at least in the near term, as I had mentioned during the second quarter earnings, I think this composition that you're seeing that has played out year-to-date for us should continue.

Maybe for Jonathan, just thinking about how you handle kind of FX and maybe this year, the weaker dollar helps, but kind of how you manage those types of financing risks.

Sure. So there's 2 risks on the FX side that we hedge against. And number one is the balance sheet risk. Sumit mentioned it. The more investments we make in Europe, especially on the continent, given the lower borrowing costs there, the greater capacity we have to issue very low-cost debt. And we think about the leverage and our cost of capital on a consolidated basis.

On the income statement side, we have a formal hedging policy that requires us to forecast what our exposure is to foreign currency. We're obviously a U.S. dollar-denominated reporting currency. And we never really want a given quarter to be about missing or beating earnings for that matter based off of FX. We want to talk about the core business. So we're always mindful. Yes, we have natural interest expense in these foreign currencies that offset the rental income, but there's always going to be a residual.

And so from time to time, we'll go out and we'll hedge that risk by buying derivatives and whatnot. And I think, by and large, there's going to be points in times where you get to participate in the upside, times where you get to participate in the downside, but we never really want that to be a significant number.

And so I think for us, having that force discipline through a formal policy is something that allows us to really focus on the core drivers of the business. So it really hasn't been I would say, a significant driver of earnings upside this year. But on the downside, we feel like we can sleep well at night because we're not going to experience that volatility in that direction.

And then maybe just going back to kind of the acquisition pipeline and you've raised guidance on kind of your expectations for acquisitions for the year. I guess, kind of what do you think is driving that in '25 versus last year? And then the potential of will sale leasebacks be as attractive if we do see kind of a change in the Fed funds rates?

I think sale leaseback being attractive, that ship sailed a while ago. I think the biggest pushback to sale leaseback was around losing control of the real estate. And as and when operators start to get more and more comfortable that selling the real estate does not equate to losing control of the real estate, sale leaseback as a product has started to mature. It is certainly a lot more mature here today when you have companies like 7-Eleven, A-rated companies that do sale leasebacks in large scale, but it has started to become more mainstream even in Europe.

And I'll point to the Decathlon deal that we did, which was circa EUR 800 million sale leaseback, multi-jurisdictional, et cetera. And that's where our advantage really comes to the fore because we have the ability to do a multi-jurisdictional European sale leaseback, and Decathlon saw that. And as you see more and more of these types of transactions, there are other companies that are starting to engage in conversations around we should be thinking about monetizing our real estate.

So I don't think regardless of what the interest rate environment is, yes, it will get reflected in the pricing, but the product will only go in one direction. And I do think that some of the stories that have played out where companies are taken private, the real estate is monetized and that effectively pays for the privatization or not 100%, but a vast majority, I think companies are starting to recognize that, that running a much more efficient balance sheet is a precursor to running a much more efficient operating business.

So that is part and parcel of why we increased our guidance was we started to recognize that there was a lot more that was going to potentially happen this year. As you know, we generally come in conservative and any pipeline that we have is largely a 3- to 6-month pipeline. And so as that starts to formalize and take shape, we are able to increase our guidance. But part of it was also the volatility that we were experiencing on the cost of capital side on what was happening with our equity. And this uncertainty and this overreliance on one source of equity capital are the reasons why we are doing some of the things that we are doing.

We came out with a conservative investment number, which we have increased by 20%, 25%. And now with interest rate directions becoming a little bit clearer, it's starting to translate into a much better cost of capital backdrop as well. So I think seeing some of that gives us the confidence that we'll be able to do more. And some of these transactions that we sort of passed on, we might have the ability to do those. So I think that's where we are.

So there's a $43 billion bucket that you looked at in the second quarter and a $66 billion bucket.

Year-to-date.

You passed on quite a bit of it. Are you saying that some of it is kind of like another bucket that you're looking at to transact at a later date? Capital business?

No, no, no. Let me clarify. The numbers you quoted were accurate. Of that, we ended up doing about slightly north of $2 billion year-to-date. And what we passed on was about $3.6 billion that met our underwriting criteria but did not meet our year 1 spread requirement because that too is an expectation that my public shareholders have of our investing thesis. That can be met by the public -- the private capital that we are raising, which is not as singularly focused on day 1 spread, but total return, which these $3.6 billion that we passed on would have met or could be met by our public equity if it had the right cost of capital.

And if you look at where we've traded traditionally, we've been right around 17 to 18x is the average multiple of our equity. Today, we trade at 14x. And a lot of this happened primarily because of this high negative correlation that we have with the 10-year unsecured note. And so -- sorry, the 10-year rate. And so if the expectation is that the 10-year rate is going to start to come down, the expectation is that we will start to revert back to our average multiple, which could then allow us to do more without having to source more.

Can you give a sense for how much of the $66 billion that you passed on did transact in 2025?

No, I'm sure most of it did. We don't track it.

The $3.6 billion slightly did transact.

Yes, it did.

And so where -- what is the status of the private capital to take advantage of all this fabulous sourcing?

Well, we hope we'll be the conduit through which they'll take advantage of all of this sourcing because we believe we've been around for many years, and we have a history of results that is for everyone to see. We post this on a quarter in, quarter out basis. It is also true that there are a lot of private sources of capital that are wanting to get into this business, including Blackstone, BlackRock, Starwood, Ares, Apollo. And they recognize, given their sources of capital, they recognize how impactful net lease investing could be.

And what we are trying to do is to share our platform that has a history of doing net lease investing, producing the results that we have, some of which I referenced in my prepared remarks and saying, allow us to be the conduit through which you get exposure to this kind of investing.

Where we are in the process? We'll have a lot more to share with you, but there's not much more I can say outside of what I've shared in the second quarter earnings, which is we are going after arguably one of the most difficult types of capital, which is an open-ended perpetual capital source, and it takes time. And we are learning that, that the due diligence process is very deliberate and getting things over the finish line is just time -- it takes time, which is why we said our first closing was going to be at the end of this year, and that's when we are going to actually share with you the total quantum of capital that we have raised and what's the composition of this capital that we've raised and what the contribution to earnings will be in 2026.

[indiscernible]

Sure. So it's a U.S.-centric fund. So only investments here in the U.S. They won't -- it's not -- does not have the remit for the European investments. And it will be across every element of the net lease strategy that we currently have playing out in the public domain. Retail, distribution centers, no asset type is off the list, including even development. but there are certain limiters in terms of what portion of the overall portfolio asset base can each one of these areas be a part of.

[indiscernible]

It is similar, yes. So you're absolutely right. You remember our investment policy that no client can be more than 5%. And if it is, then we need to get a Board approval to go beyond that 5%. No industry can be north of 15% as we define industries. Yes, there are exceptions we can make, but we need Board approval. So there will be similar dimeters for the fund business as well.

I'd be curious kind of in your discussions in fundraising and meeting different groups, whether any -- hear the story, hear the pitch and think why not just -- the stock is at a discount, I should buy the stock rather than buy into this private vehicle? Or is it just very distinct different pools of capital that they can't kind of commingle?

It is the latter. A lot of them, they don't have the ability to invest in public securities. Even we run into this situation where there are particular asset managers who have the ability to play on both sides, but there's a line between the 2. And so I think it's largely driven by their sources of capital and their charters. The folks that we are targeting on the private side, largely state pension funds, there are some sovereigns, but largely state pension funds and insurance capital that is interested in this particular product. And the good news is it's massive. It's absolutely massive.

And we'll get an update year-end?

You will certainly get another update at the end of the third quarter, just to give you a feel for where we are in the process. And the expectation is when we are giving you our 2026 guidance in February, which is year-end, we will go into the details of what we've been able to accomplish.

Maybe just touching on some of the kind of larger, chunkier assets like the data centers or gaming assets. Just kind of curious what you're seeing on those and the potential and ability to grow in those segments.

So data centers remains a very important focus of ours. We believe that there is tremendous amount of demand. There is also an interesting level of supply. But some of the things that we continue to focus on is what is the box that we are going to define for Realty Income to play in. Location is a very important element. The kind of leases that we are going to be comfortable being exposed to is a very important, i.e., it can't be a gross lease. It can't be a modified gross. We want it to be as close to being a triple net lease as possible.

We want the client exposure to have a certain profile. And we are going to be very focused on the primary, primary markets. Northern Virginia is where we've made our first investment, and we will continue to focus on locations like that or that next tier, which are still primary like, I would say, Chicago, Atlanta, Dallas, I'll throw Phoenix in there and the West Coast, L.A., San Francisco, et cetera. Those are the markets that we would be interested in.

What gets done out of these locations is also equally important to us. There is no doubt that technology will continue to evolve. And I want to make sure that the assets that we ultimately own that the landlord is not responsible for any of the elements that has a very short shelf life and things like servers, racks, routers, switches, connectivity, transformers, micro transformers, et cetera, those are the things that has to be the responsibility of the client. And those things cycle through and have shelf lives of anywhere between 3 to 7 years, and that's where the majority of the capital is spent.

And so making sure that we are not on the hook for any of that and some of these other elements that I talked about is how we try to mitigate the back-end risk of some of these developments. But we are very excited about this area of the business, and we are very excited about what it could be for Realty Income in terms of just another avenue of growth for the business.

Maybe switching over to kind of the predictive analytics platform you guys have built up and some of the work there. I'm sure it gets better every quarter. Just if you can kind of share some of your learnings. And then I always love to ask because you do cover so much of the economy, kind of just general trends you're seeing in health of different industry groups.

No, that's a great question. Thank you for that, Jana. Look, we started investing in what we're calling the predictive analytics tool in 2019. And basically, what these are when you sort of sift it down are algorithms that we've created that can predict the ability to recapture expiring rents. And the way you machine -- these algorithms learn, machine learn, is through data that you then feed into it, and it continues to calibrate the independent variables in a way that allows it to be much more predictive, successful prediction of what the outcome is going to be.

And that is where I think we differentiate ourselves vis-a-vis anybody else in this area. Obviously, we've been in this business for 56 years. 31 of which has been as a public entity. And today, if you look at the run rate of how much rent is going through a renewal process, it's circa $250 million plus/minus, soon to be closer to $400 million. And so when you have that many number of individual leases from which these individual algorithms. And when I say individual algorithms, these algorithms are created by industry, like what works within the grocery context is going to be very different for what's going to work for a good pharmacy location.

And so having these algorithms catered and calibrated for individual industries and having them learn from new data is what is so exciting about our business. This particular tool that we started investing in, in 2019 has become part and parcel of everything we do. When we have sourced a transaction, we run it through predictive analytics to come up with a composite score. And the score takes into account 3 things: location risk, the business risk and the fungibility risk, and it comes up with a composite score. And we rank file these assets and then we make a decision.

We don't 100% rely on the tool, but it is absolutely part and parcel of the decision-making. And it is absolutely being used by our asset managers and our property managers come renewal time. And this is where the team starts to get a lot more confidence when their initial intuition is, oh, we'll take that 5% haircut that they're asking for, come renewal time, where the tool is telling you, let them walk, they will not walk. It's not telling you that. They're basically saying it's a good location.

And the ability to test out the predictions of these tools and then realize that when we go back and say, that's all right, you can leave the asset. We won't take a 5% haircut. And the next thing you know, they're signing up to a 10% increase. That's when they start to take a higher level of confidence in these tools that we've developed.

So look, we are very excited about it. We are currently undertaking a path to defining what the AI strategy is going to be for Realty Income. And this is obviously an adjunct tool that we have developed in-house. It's proprietary. But every element of our business, look, we are already the most scaled business. But we are going to become and we're going to adopt AI.

And I can't even answer for you how we're going to adopt it because that's a journey we are on where it's going to continue to add to the scale benefits that we have already developed. But it is something that we are very excited about, and we are going to lean into this strategy and learn a lot from it and then figure out what else we could be doing with our tool. And that's super exciting for us.

People would need to hire to do that versus Jonathan?

Yes, I wish. I have a masters in computer science, and I can tell you I can't do it. So you -- yes. Well, they're not getting them. Look, when we first started in 2019, I didn't have a clue of who these people were going to be. So we hired Mackenzie. And Mackenzie had a team that actually helped us develop the tool initially. And then we have them say, what is the structure of the team that we want in-house that's going to continue to build on what has been developed.

They actually hired the folks with the data science backgrounds, the PhDs in data science, the statisticians, the folks that could help develop these algorithms. And obviously, also coders who are very familiar with the language that is used to develop it. They actually helped test the capabilities of these folks using their own testing tools.

And we have a team that we are incredibly proud of. Today, it's 7 person strong. And they are the ones who have been continuing to build on this and perfect the predictability of these types of models. And yes, it's out there, but we were certainly not capable of even knowing where to look. So we got outside help to help us create this team and now the team does most of the hiring and growing.

And then maybe just touching on dispositions. This year is a little bit elevated. It's probably a little bit of kind of cleanup from Spirit, but also potentially using this tool and that business risk portion of the equation. Just kind of curious there, should we expect dispositions to kind of come down next year or kind of remain at this elevated level as you recycle?

Yes. So we haven't given guidance on next year, Jana. So I'll stay away from sharing any of that. What we have said is this year is going to be very similar to next year. But what I will add, and this is something that we have talked about is we believe that we get a discount when we buy large portfolios. And so asset recycling is going to become part and parcel of what we do. We will absolutely share with you in February next year what the disposition numbers are going to look like for that year. But you should expect a more active asset management as a byproduct of not just this 2, but just of how we run our business.

And then maybe just on kind of like overall tenant health. It's been a very strange economy this year. I'm surprised how great casual dining is holding in. I guess just any kind of themes and industries that maybe you're watching a little closer now or that you're even more excited about?

Yes. Obviously, we track our own client base. And what we are starting to notice is that there's this downshift in the consumer base towards more discounted retail, et cetera. And these are not average household incomes. These are incomes in the bigger household incomes who are now downshifting to shopping in discount stores, et cetera. But this is where I think Realty Income is very well positioned, Jana. I mean if you think about how we've created the composition of the assets that we've created, and it has a very defensive slant to it. It's discount stores, it's nondiscretionary retail, it's service-oriented retail.

And at times like this, we can sense the pressure that the consumer base is feeling. So look, you're starting to see a little bit of that reflected in the unemployment numbers as well. You're starting to hear noise from the Fed that interest rates are going to get cut or I don't know if they've come out and they've said that, but that's the expectation of the market. And we can see that in how some of our retailers are performing.

The good news for us, I mean, you asked a very specific question, and I'll just reiterate what I said during our second quarter earnings call was our watch list, our credit watch list is at 4.6%. But what is very interesting about that credit watch list is we have more than 100 clients who represent that. So on average, each client is circa 4 basis points. So we have diversified that risk as well across a multitude of clients, which I think, again, bodes well for regardless of what happens in the economy, we should be okay. So yes, well positioned, but I think hard times may come.

And I'd just like to close it with 3 rapid-fire questions. We're asking all the REITs at the conference. When the Fed starts to cut, do you expect borrowing rates for long-term debt to decline, stay flat or rise?

Great question. It's at [ 5.25 ] today. I would say it would decline a little bit.

And you touched on a lot of the AI initiatives. But last year, the majority of companies stated they're ramping up spending on AI. How would you characterize your plans over this next year, higher, flat or lower?

Higher.

And do you believe same-store NOI for your sector will be higher, lower or the same next year?

Same.

Thank you so much. So this concludes day 1. If you'll please join us on the 29th floor for a reception and looking forward to seeing you guys again tomorrow.

Thank you, Jana. Thank you, everyone.