Realty Income Q2 2025 Earnings Report

Realty Income EPS Results

• Actual EPS: $1.05
• Consensus EPS: $1.06
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: $1.07

Realty Income Revenue Results

• Actual Revenue: $1.34 billion
• Expected Revenue: $1.33 billion
• Beat/Miss: Beat by +$10.96 million
• YoY Revenue Growth: +5.30%

Realty Income Announcement Details

• Quarter: Q2 2025
• Date: 8/6/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, August 6, 2025
• Conference Call Time: 5:00PM ET

Realty Income (NYSE:O), The Monthly Dividend Company, is an S&P 500 company and member of the S&P 500 Dividend Aristocrats index. We invest in people and places to deliver dependable monthly dividends that increase over time. The company is structured as a real estate investment trust ("REIT"), and its monthly dividends are supported by the cash flow from over 15,450 real estate properties (including properties acquired in the Spirit merger in January 2024) primarily owned under long-term net lease agreements with commercial clients. To date, the company has declared 644 consecutive monthly dividends on its shares of common stock throughout its 55-year operating history and increased the dividend 123 times since Realty Income's public listing in 1994 (NYSE: O).

Realty Income Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Realty Income deployed $1.2 billion in Q2 at a 7.2 % weighted average initial cash yield and maintained a highly selective 3 % acquisition hit rate despite sourcing a record $43 billion in deal opportunities.
• Positive Sentiment: The company raised its 2025 investment volume guidance to approximately $5 billion and increased the low end of its AFFO per share guidance to $4.24–$4.28.
• Positive Sentiment: Europe accounted for 76 % of Q2 investments at a 7.3 % yield, with the portfolio expanding into its eighth European country (Poland) and Europe now representing 17 % of annualized base rent.
• Positive Sentiment: Operationally, the portfolio achieved 98.6 % occupancy (above its historical median) and a 103.4 % rent recapture rate, while selling 73 properties for $117 million to optimize the portfolio.
• Negative Sentiment: Credit pressures remain under watch as 4.6 % of annualized base rent is on the watch list and the company forecasts 75 basis points of potential rent loss in 2025, slightly above historical experience.

Presentation

[Operator]

Good day, and welcome to the Realty Income Second Quarter of twenty twenty five Earnings Conference Call. All participants will be in a listen only mode for the duration of the call. Please also note that this event is being recorded today. I would now like to turn the conference over to Kelsey Mueller, Vice President, Investor Relations. Please go ahead.

[Kelsey Mueller, VP & Head - IR at Realty Income]

Thank you for joining us today for Realty Income's twenty twenty five second quarter operating results conference call. Discussing our results will be Sumit Roy, President and Chief Executive Officer and Jonathan Pong, Chief Financial Officer and Treasurer. 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.

[Kelsey Mueller, VP & Head - IR at Realty Income]

During the Q and A portion of the call, we will be observing a two 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.

[Sumit Roy, President, CEO & Director at Realty Income]

Thank you, Kelsey. Welcome everyone. At Realty Income, the durable income we have historically delivered 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 believe Realty Income's exceptional ability to deliver stable and growing income across the full economic cycle together with our impressive size, scale and track record positions us to capitalize on two key global megatrends.

[Sumit Roy, President, CEO & Director at Realty Income]

First, the growing demand for durable income oriented investment solutions driven by an aging global population and increased emphasis on income stability from both public and private investors and second, the rising interest from corporations to pursue asset light strategies through large portfolio acquisitions or sale leaseback transactions. Realty Income's differentiated expertise enables us to lean into these trends as we pursue adjacent growth verticals, including private capital and credit investments, while continuing to anchor our strategy in our core real estate net lease vertical underpinned by our access to public equity. This approach allows us to capitalize on a broad range of emerging opportunities, delivering consistent income for our investors while further enhancing our menu of capital options for our clients. Turning to the details of our second quarter, our investment decisions reflected the strategic flexibility of our platform. We believe our business model enables us to look at opportunities substantially free from geographical or industrial constraints, allowing us to pursue the most optimal risk adjusted returns.

[Sumit Roy, President, CEO & Director at Realty Income]

Globally, we invested 1,200,000,000.0 at a 7.2% weighted average initial cash yield, equating to a spread of 181 basis points over our short term weighted average cost of capital. For acquisitions specifically, these investments have a weighted average lease term of approximately fifteen point two years. This quarter, we sourced $43,000,000,000 in volumes, resulting in a selectivity ratio of less than 3%. The $43,000,000,000 sourced matches our source volume from all of twenty twenty four and is the highest quarterly volume in the history of Realty Income. 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.

[Sumit Roy, President, CEO & Director at Realty Income]

Year to date, we have now sourced approximately $66,000,000,000 of investment opportunities, which puts us on track to eclipse our prior high watermark for annual sourced volume of $95,000,000,000 reached in 2022. 57% of the year to date volume has been sourced domestically with the rest in Europe. Turning back to our investment volumes for the quarter, we again leaned into Europe, which accounted for $889,000,000 or 76% of our investment volume at a 7.3% weighted average initial cash yield. Europe remains a compelling growth market driven by a fragmented competitive landscape, a larger total addressable market than what is available in The United States and a cost of debt capital that is currently more favorable with euro borrowing costs approximately of 120 basis points inside of U. S. Dollar debt costs for ten year notes as of today. Since entering The UK market in 2019, our disciplined underwriting and balance sheet strengths have enabled significant expansion across the continent with Europe now representing 17% of our annualized base rent.

[Sumit Roy, President, CEO & Director at Realty Income]

This quarter, we expanded into our eighth European country, including a sale leaseback transaction involving Eko Okna in Poland, a leading manufacturer in the region. Transitioning to The U. S, we invested $282,000,000 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. Across the portfolio, we are increasingly acting as a full service capital provider to our clients, offering a variety of real estate capital solutions in addition to sale leasebacks, including credit solutions.

[Sumit Roy, President, CEO & Director at Realty Income]

With a fifty six year operating history, we have long standing relationships with high quality operators worldwide, which creates opportunities to leverage these partnerships to offer tailored access to capital. Moving to our operations, the second quarter reflects the structural advantages of our business model, including portfolio diversification, built in resilience across our top industries and advanced data analytics capabilities. To that point, our proprietary predictive analytics tool developed over the past seven years inform decisions across sourcing, underwriting, lease negotiations and asset management. We believe this level of embedded intelligence allows us to be proactive operators and reinforce the reliability of our long term cash flows. As of quarter end, our portfolio comprised over 15,600 properties spanning 91 industries and more than 1,600 clients.

[Sumit Roy, President, CEO & Director at Realty Income]

The naturally defensive nature of our leading sectors 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 98.6% portfolio occupancy, approximately 10 basis points ahead of the prior quarter and above the historical median of 98.2% from 2010 to 2024. During the quarter, our rent recapture rate across three forty six leases was 103.4%, representing $97,000,000 of annual cash from prior cash rents, with 93% 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 73 properties for total net proceeds of $117,000,000 of which $100,000,000 was related to vacant properties.

[Sumit Roy, President, CEO & Director at Realty Income]

Overall, the stability of our results continues to demonstrate how the benefits of our platform enable us to stay agile, manage risk effectively and drive long term portfolio performance. 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 to approximately $5,000,000,000 In addition, we are raising the low end of our AFFO per share guidance now anticipated to be in the range of 4.25 sorry, 4.24 to $4.28 Within this forecast, we continue to see consistent tenant performance across our global portfolio. Our 2025 outlook contemplates approximately 75 basis points of potential rent loss, which is slightly higher than our historical experience, but consistent with our expectations going into the year. Much of this credit loss is the result of certain tenants acquired through public M and A transactions we have consummated in recent years.

[Sumit Roy, President, CEO & Director at Realty Income]

As of quarter end, our credit watch list stands at 4.6% of our annualized base rent below the prior quarter and with median client exposure of just three basis points. Despite these small challenges, we are grateful for the strong results produced from our asset management team on recent bankruptcy resolutions. As shared last quarter, we are pleased with the 94% recapture rate on our 132 Zips properties. And following At Home's Chapter 11 bankruptcy filing in mid June of this year, we anticipate constructive resolutions. With that, I will turn it over to Jonathan.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

Thank you, Sumit. Our capital markets activity remained active in the second quarter, and we view our liquidity and balance sheet as well positioned to address our active investment pipeline. During the quarter, we raised $632,000,000 of equity through our ATM at a weighted average stock price of $56.39 per share. And as of today, we have another $654,000,000 of unsettled forward equity, which provides us with solid runway to fund our investment activities for the remainder of the year.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

Given our updated investment volume guidance of $5,000,000,000 our implied second half investment volume of 2,500,000,000.0 approximately $500,000,000 of incremental external equity to remain leverage neutral after giving effect to the $654,000,000 of equity already raised but not settled and an estimated $450,000,000 of free cash flow for the second half of the year. In addition, our disposition pipeline is expected to accelerate as well, which would be expected to contribute meaningful equity like proceeds to our sources of funding, further reducing our external equity need for the balance of the year. From a leverage standpoint, we finished the second quarter with net debt to annualized pro form a adjusted EBITDA of 5.5 times in line with our leverage target that we have methodically maintained. Including our current outstanding forward equity, we had 5,400,000,000 of liquidity at quarter end, which includes $800,000,000 of cash and $4,000,000,000 of availability under our $5,400,000,000 credit facility. Looking forward, the debt capital markets remain open and constructive across all three currencies, particularly in the Eurozone.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

We consider our robust investment activity in Europe as a competitive advantage, creating additional net investment hedge capacity in euros, which avails us of more debt capacity in this low cost of capital currency. Additionally, the forward FX rate from euros provides a favorable cost of carry that amplifies the organic growth of any net cash flow repatriated from our euro denominated assets. Diversifying our sources of capital is a core strategic initiative as we scale our platform globally with the establishment of our evergreen U. S. Core Plus fund serving as a key milestone.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

We are energized by the opportunity to monetize the value of our platform by managing real estate on behalf of third parties. By using an open end fund structure to invest in net lease real estate, we believe we will have the opportunity to enhance acquisition investment spreads, bolstering returns for our public shareholders while providing attractive and stable long term returns to our private capital partners, each by applying Realty Income's platform and experience to the structure. Given the highly scalable nature of our platform and the vast addressable market for net lease real estate, we see this initiative as a powerful driver of long term value creation for Realty Income. After launching our formal marketing process in February, we have been pleased with the breadth and depth of interest from prominent institutional investors. We believe these investors clearly appreciate the strength of our platform, the resilience of our asset class and the value created by our long operating history.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

Feedback has validated our fundamental view that scale matters, and we look forward to sharing more soon. I would now like to hand it back to Sumit to complete our prepared remarks.

[Sumit Roy, President, CEO & Director at Realty Income]

Thank you, Jonathan. We're confident 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 fifty six 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.

[Sumit Roy, President, CEO & Director at Realty Income]

I would now like to open the call for questions. Operator?

[Operator]

We will now begin the question and answer session. And our first question here will come from Brad Heffern with RBC Capital Markets. Please go ahead.

[Brad Heffern, Director at RBC Capital Markets]

Hi, everyone. Thanks for taking my questions. Sumit, you mentioned that you expanded into Poland in the second quarter. Can you walk through the opportunity you see in that market and maybe how it's similar or different to other areas in Europe?

[Sumit Roy, President, CEO & Director at Realty Income]

Sure. Thank you for the question, Brad. Poland is a country that we have been talking about for about a year, year and a half. We are very excited by doing our first two transactions in Poland and getting it over the finish line in the second quarter. As you probably know Brad, Poland is the second fastest growing GDP in Europe today.

[Sumit Roy, President, CEO & Director at Realty Income]

It is the eighth largest in terms of population and sixth largest in terms of GDP growth in the European Union. And so that backdrop was the initial screen which sort of attracted us to the geography to that particular country. And given some of the property laws etcetera that exists in that country as well as our ability to efficiently structure the transaction. And the type of transactions that we've been following for a very long time made us made it a very compelling geography to expand into. The two transactions that we got over the finish line one was with EcoOchna and the other one was a grocery store operator, a Dutch grocery store operator.

[Sumit Roy, President, CEO & Director at Realty Income]

These were basically distribution centers and industrial assets that we invested in. And we are very excited about not only these two initial transactions that we executed, but the pipeline of transactions that we are starting to build in this country. So super excited about continuing to redefine the SandBox for ourselves. Obviously, continues to contribute to yet another source of volume that we source and some of which is starting to get reflected in the $43,000,000,000 of sourcing volume that we shared for the second quarter.

[Brad Heffern, Director at RBC Capital Markets]

Okay. Thank you for that. And then on the acquisition, the only underlying guidance items that changed was acquisitions. I'm assuming those deals are accretive. And so I'm just wondering why the low end moved up, but then the high end didn't change?

[Sumit Roy, President, CEO & Director at Realty Income]

It's a function of continued conservatism on our part is one. There continues to be a fair amount of uncertainty in terms of policies that are being instituted here in The U. S. As well as in Europe. And so for us, we wanted to be as accurate as possible and we felt like it was important for us to move the bottom end by $02 but yet leave the top end where it is.

[Sumit Roy, President, CEO & Director at Realty Income]

The increase in acquisition volume by $1,000,000,000 as you can tell it's going to be back end loaded second half loaded. And so the impact that one would experience from and you correctly said these are all accretive transactions, we wouldn't be doing dilutive transactions, the impact of which won't be experienced in 2025, but certainly will be we'll see the benefits of which in 2026.

[Operator]

And our next question will come from Smedes Rose with Citi. Please go ahead.

[Smedes Rose, Director at Citigroup]

Hi, thanks. Good afternoon. I wanted to ask you a little more on the acquisitions as well. And really just if there were I mean, sounds like there's just a tremendous increase in the source volume that you mentioned at $43,000,000,000 but with a less than 3%, it's like getting into an IU League school. I just kind of wondering was the quality of what you saw not that good?

[Smedes Rose, Director at Citigroup]

Did you become more sort of picky, I guess, terms of what you chose to invest in? Or just sort of wondering because your investment activity went down sequentially, but the sourcing it sounds like kind of really ballooned?

[Sumit Roy, President, CEO & Director at Realty Income]

That's a great question. And yes, we pride ourselves in being super selective. Yes, akin to the Ivy Leagues. But the main reason Smedes was look at the end of the day, there was close to $3,700,000,000 of transactions that basically checked all of the boxes save for the initial yield. And that is the reason why we stepped away from pursuing those transactions.

[Sumit Roy, President, CEO & Director at Realty Income]

And so yes, 3% does seem very low, but had we done that $3,700,000,000 it would be closer to what we've traditionally done, which is closer to 7% to 8% of the overall volume that we've looked at. And part of the reason why we are doing this private capital and looking at these other forms of capital that want to take advantage of the platform that we've built and we want to monetize the platform that we've built is to be able to do these transactions that we stepped away. So yes, selectivity continues to be a governing factor and our disciplined approach to making sure that anything that we do day one is accretive to the bottom line is part of the reason why we got €1,200,000,000 over the finish line rather than something much higher.

[Smedes Rose, Director at Citigroup]

Thanks. And then I just wanted to follow-up. You obviously remained very concentrated in Europe during the quarter as you did in the first quarter. Last quarter you talked about finding a number of retail park opportunities. Was that a significant part of your investing activity this quarter?

[Smedes Rose, Director at Citigroup]

Or was there a particular asset class that you were able to execute on this quarter?

[Sumit Roy, President, CEO & Director at Realty Income]

Yes. Great question. Actually in The UK, was not the case that we did a whole lot of retail parks. A lot of it was in Ireland that we are continuing to grow our retail park portfolio. They continue to be a major source of uplift both in the near term as well as long term.

[Sumit Roy, President, CEO & Director at Realty Income]

If you've been following the whole retail park resurrection, if you will, in The UK as well as in Ireland, etcetera, including Scotland I would say, it's quite phenomenal. A lot of positive factors are contributing tailwinds to this particular sector. Increasing rent, concession rents are going away. Vacancy in Scotland today is actually inside of for the first time in a very long time of the rest of England. We are buying vacancies and the uplift we are being able to capture on releasing those vacancies is part of what's contributing to value creation.

[Sumit Roy, President, CEO & Director at Realty Income]

So for a variety of reasons, we are super excited about this journey we were on of assimilating this portfolio of retail parks. But that window is now starting to sort of close a little bit. And we are the largest owners of retail parks in The UK today. And we are in the midst of putting together a presentation that we'll post on our website that will go into a lot of details around this. But this that's been a very favorable investment thesis that we executed on over the last three years.

[Sumit Roy, President, CEO & Director at Realty Income]

Most of what we executed in Europe, going back to precisely the question you asked, was on the industrial side, almost half of it was industrial if you look at what we did. Some of it was we made a loan against an industrial asset as well in one of the primary markets in The UK as well as another loan that we made. And so that was the composition of what we did in Europe. And we are continuing to see from a risk adjusted basis better opportunities in Europe and part of it could be less competition, part of it could be we are playing in these multiple jurisdictions, part of it could be we are an established name in these jurisdictions and therefore we are getting those first calls that's helping us drive this volume. And you should and I know you didn't ask this question, but you should expect similar composition of total acquisitions between Europe versus U.

[Sumit Roy, President, CEO & Director at Realty Income]

S. In the near term, especially in the third quarter.

[Operator]

And our next question will come from Ron Camden with Morgan Stanley. Please go ahead.

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Hey, just two quick ones. Just starting back on just tenant health, you guys have sort of done, I think more work than most in terms of evaluating the impact of tariffs. Now that we're a couple of months into it, just can you remind me how you're sort of thinking about it? What's better than expected? What's worse than expected?

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

And what's baked into the guide for bad debt? Thanks.

[Sumit Roy, President, CEO & Director at Realty Income]

I would say, the 4.6% watch list that we've shared with the market has basically taken into account all of the various outcomes that could come out of these tariffs that are being discussed in the market today. Look, we've always felt like some of the more susceptible industries I. E. Furnishing, apparel, electronics, those are the industries that are going to be most impacted by tariffs. And thankfully, we have very little to zero exposure to these types of industries in our U. S. Portfolio. And so we feel like the numbers that we've shared Ron at this point, the 4.6% and more importantly, the diversification within that 4.6.

[Sumit Roy, President, CEO & Director at Realty Income]

We have 114 clients that we are tracking that represent this 4.6%. The average is basically four basis points per client. That captures the potential outcomes. And so this diversification obviously gives us a lot more confidence. And some of the names that we've already discussed, names like At Home, which we believe is at least one of the contributing factors to why they are struggling was their overreliance, 70% of their product came from were imported products and a lot of it was from China.

[Sumit Roy, President, CEO & Director at Realty Income]

That was one of the contributing factors to their performance along with obviously the leverage levels that they were running the business at etcetera. But that's already played out. And so we feel like we have bookended what the possible outcomes could be client by client, industry by industry. The only variable is where will some of these tariffs land. But at this point, we feel like we've got it pretty well bookended in terms of what we shared with the market.

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

Great. My second question is just going back to the acquisitions. Obviously, we talked about the selectivity. We've also talked about, I think, 6% in Europe, which may be the biggest skew I certainly recall. Maybe I guess can you contextualize just the is that just a reflection of the better funding, better opportunity?

[Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley]

And how do you compare and contrast sort of the Europe versus The U. S. Market today? Thanks.

[Sumit Roy, President, CEO & Director at Realty Income]

Yes. Again risk adjusted, That's ultimately how we look at things. But one of the key advantages we have is access to European funds. And I'm sure Ron you're aware that we raised about €1,250,000,000 and the total all in cost was 3.69 percent. And though we talked about in my prepared remarks of that being 130 basis points inside, 3.69% is closer to 1.6% inside of what we would be able to do in the ten year unsecured bond.

[Sumit Roy, President, CEO & Director at Realty Income]

So that certainly is a contributing factor. But what is the product that we are buying? If you're being able to buy long term leases, twenty year leases industrial product with businesses that are either the best operator within their sector or a leading operator within their sector, we feel like from a risk adjusted return perspective, it's the right place to be. And there are a lot of factors that go into it, but it's not just the capital, it's not just the product, but the combination of the two makes it very, very impressive. I spoke about Echo Okna as one of the larger transactions we did in Poland.

[Sumit Roy, President, CEO & Director at Realty Income]

The rent coverage is six times. And so when you see metrics like that and you're able to get it at initial yields like the way we were able to, I mean it's very difficult to compete here in The U. S. Where even in secondary markets industrial assets are trading in the mid-6s. And that's I'm being generous here.

[Sumit Roy, President, CEO & Director at Realty Income]

They tend to go even more aggressive than that. So all of those factors contribute to us leaning a little bit more into Europe. And again, I don't want the statement to be taken the wrong way. There's a bit more stability there. There's a bit more stronger outlook to what's going to happen to interest rates, etcetera.

[Sumit Roy, President, CEO & Director at Realty Income]

And so I think transactions are a little bit more plentiful there than what we are seeing here in The U. S. It's just a lack of stability as well. So I think all of those factors go into why we are doing more in Europe. And again, it accrues to our benefit that we have all these avenues created and we can lean into wherever we find the best opportunities. But thank you for that question.

[Operator]

And our next question will come from John Kieliczewski with Wells Fargo. Please go ahead.

[John Kilichowski, VP - Equity Research at Wells Fargo]

Thank you. Good afternoon. Maybe just the first one for me is on sort of the competitive landscape here. I think our broker contacts have highlighted that there's a lot of there are a lot of portfolio deals expected to come to market in the second half of this year. And we've also seen a fair share of private buyers get involved with fundamental Elmtree.

[John Kilichowski, VP - Equity Research at Wells Fargo]

I'm curious how you're seeing this sort of supply demand dynamic here and what do you think the impact will be on yields for you and if there's the potential for a large portfolio that could take you maybe well above your guide?

[Sumit Roy, President, CEO & Director at Realty Income]

John, obviously, the last statement you made in your question, is very true. Yes, if we end up doing a very large transaction, which has not been contemplated in our guidance, then yes, we will certainly go above $5,000,000,000 But let's talk a little bit about how you set up your question, which by the way is absolutely 100% accurate. There is a tremendous amount of demand for this product that we've been executing on for the last fifty six years in the private market. You're absolutely right that companies like BlackRock that did the Emtree deal, Star wood did the fundamental deal. JPMorgan and there are a couple of others, think Morgan Stanley, they're creating their own net lease funds.

[Sumit Roy, President, CEO & Director at Realty Income]

Blackstone has obviously aggressively gone down the path of creating their own net lease fund. This is a testament to this product. And the way we are seeing it is the inbounds that we are getting from different pockets of capital, wanting to utilize our platform to execute this strategy. For me, this is a win win. I believe we are perfectly situated to be that platform that these pockets of capital can utilize to execute this very safe, very durable, very dependable business model.

[Sumit Roy, President, CEO & Director at Realty Income]

We oftentimes talk about we have a bond like cash flow, but equity like growth. I mean, which other product gives you that? So I'm not surprised that you have more and more of these private platforms that are creating these net lease, either they are creating it themselves organically or they're trying to do it through a partnership. So this is a good thing for our industry. More capital coming in, more stable capital coming into our business, I would add.

[Sumit Roy, President, CEO & Director at Realty Income]

And I believe that we are best suited or very well suited to be to take advantage of that. Will it create more competition? Will it push cap rates down? Sure. But will they have the same level and maturity of underwriting that we have?

[Sumit Roy, President, CEO & Director at Realty Income]

I don't believe so. We've been competing with private capital sources at least in the last ten years, from the more established players. And the fact that the interest rate environment remains up in the air, leverage is a big part of a lot of these strategies and that continues to be something that we will benefit from most given our A minus A3 credit rating. And so once we have these other channels that we are working on up and running, then we will also be able to address the volatility we see on our public equity side with some private sources of equity. And so I say bring it on.

[Sumit Roy, President, CEO & Director at Realty Income]

It's going to sort of create more opportunities for a platform like ours to do large scale deals. And that's one of the megatrends I talked about in my prepared remarks. More and more product is coming into the market. More and more companies are engaging and saying, but we want the right partner. And it is not just, okay, we understand net lease, it's who's the right landlord that we trust who will hold these assets for long term.

[Sumit Roy, President, CEO & Director at Realty Income]

And there again, we stand out. So sorry, John, I know you didn't you asked a very specific question, but I wanted to provide this context to frame my megatrend comments that I made during my prepared remarks.

[John Kilichowski, VP - Equity Research at Wells Fargo]

No, that was very helpful. I appreciate the thoughtful response. And the second one for me, I just want to make sure I heard you correctly in the opening remarks. It sounds like you reiterated the 75 bp credit loss guide. I was just hoping maybe you could talk about what you've experienced year to date?

[John Kilichowski, VP - Equity Research at Wells Fargo]

And then what else is included in that number? Or if it's just sort of an open ended source of conservatism?

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

John, it's Jonathan. So on a year to date basis, we've recognized about $17,000,000 in reserves. That is a number that represents about 65 basis points of rental revenue for the first half. We are indeed reiterating the 75 basis point number for the full year. And as you think about the second half, we do have some identified credits that we've kind of set aside and have an expectation on our base model forecast for in terms of reserves we may or may not take.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

We feel like that's perhaps a little conservative. We also have a little bit of cushion on top of that. But the one thing I'll emphasize, that's a fully baked number. That includes accounts receivable that we might charge off. That includes a rent associated with vacancy, it includes carrying costs associated with vacancy.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

And so this is a fully baked number and you'll hopefully see us outperform that. But to be clear, we are reiterating that for the back half.

[Operator]

And our next question will come from Brian Cabiola with Green Street. Please go ahead.

[Ryan Caviola, Associate at Green Street Advisors, LLC]

Good afternoon and thanks for taking my question. Just wanted to ask a question on what you're seeing on net lease industrial assets in Europe versus kind of what you mentioned in The United States, how that surge of private capital interests had kind of affected pricing dynamics here. How is it different in Europe? I know that was the focus of the investments this quarter and do you think that trend will continue? Thank you.

[Sumit Roy, President, CEO & Director at Realty Income]

That's a good question, Ryan. I just think lack of competition. We don't have the same number of potential buyers of assets with this wall of capital wanting to be invested in this particular sector pushing for transactions in Europe. I think that's a big part of it. So we can be a lot more rational about assets.

[Sumit Roy, President, CEO & Director at Realty Income]

The second piece I would say is relationships. Relationships means a lot more in our opinion in Europe than it does here. And so when you have the right relationships with developers, you have the right relationships with the operators and they get to know you, it doesn't always come down to who's willing to pay the most, certainty of close, desire to hold assets for long term, ability to do more repeat business. All of those factors I think also contribute to a much more what I would call a rational market for industrial transactions in Europe. Having said that, cap rates are not the same across every jurisdiction.

[Sumit Roy, President, CEO & Director at Realty Income]

If you go to Germany, things are still pretty tight. And so we look for the right opportunities in places where we have the right yield so that day one we can point to accretion. And we've already talked about the ability to finance these transactions with much lower cost of capital. So I think that's where the rational pricing comes into play, Ryan, in Europe versus here in The U. S. Where there's just a lot more competition.

[Ryan Caviola, Associate at Green Street Advisors, LLC]

Appreciate that. And then, I know you telegraphed the entry to Poland a few quarters back and were able to execute on that this quarter. Does that round out the countries of interest on that side of the globe for now? Or are there still a few new countries you're looking at? Or is that kind of a fluid situation?

[Sumit Roy, President, CEO & Director at Realty Income]

I would say there are a few other Western countries in Europe that we are looking at opportunities, but we haven't been able to get over the finish line. Some in the Lux States, some in The Nordics. But again, those are fair game. If we do a transaction, please don't be surprised. We'll obviously talk a lot about the details around those transactions.

[Sumit Roy, President, CEO & Director at Realty Income]

But otherwise, we are largely sort of identified the European strategy. But you used the word global. And so I don't want to discount our ability to continue to expand. Of course, we are going to do it as we did our European expansion. We've always looked at our neighbors with Canada and Mexico as potential countries to expand into.

[Sumit Roy, President, CEO & Director at Realty Income]

And a lot of this uncertainty around trade dynamics might create opportunities for us. So those countries too would be fair game. But look, the hurdle rate to go into a brand new country for us is very, very high. And I hope we've proven to the market and to you Ryan that if we do decide to expand, it will be with a lot of forethought and with a thesis that we will share with you. And that will be the precursor to us going into these countries.

[Operator]

And our next question will come from Greg McGinnis with Scotiabank. Please go ahead.

[Elmer Chang, Equity Research Associate at Scotiabank]

Hi, thanks for the questions. This is Elmer Chang on with Greg. First question is on the investment pipeline. Again, much of the 43,000,000 of deal volume you sourced during the quarter maybe represent larger portfolio deals that you have higher confidence in closing, say maybe early next year instead of this year? And then how would you describe your ability to curate portfolios and also maintain pricing power in today's environment on those deals?

[Sumit Roy, President, CEO & Director at Realty Income]

Yes. It was $43,000,000,000 actually. But yes, it's tough to tell. Certainly, there'll be a portion of that $43,000,000,000 that's not reflected in the $1,200,000,000 that we closed this subsequent quarters. So your question is a good one.

[Sumit Roy, President, CEO & Director at Realty Income]

But I think the comment I made around approximately $3,700,000,000 of transactions that we walked away from because it didn't meet that initial spread remains intact. And our expectation is that given this expansion into new geographies and our advent into data centers, some of these volume numbers are going to continue to track much higher just because we are now playing across a wider geographical footprint and additional asset types. So you should continue to see that, Elmer. And yes, a portion of this we will certainly close in the subsequent quarters, but I can't go into any more detail than that.

[Elmer Chang, Equity Research Associate at Scotiabank]

Okay. Yes. Thanks for that correction, Erso. And second question is on lease expirations. You have about 6% of ABR expiring this year and next year.

[Elmer Chang, Equity Research Associate at Scotiabank]

What percentage of that bucket represents non core assets that you've identified for capital recycling opportunities? And how accretive would you expect those sales those potential sales to be as you look to source more investment opportunities?

[Sumit Roy, President, CEO & Director at Realty Income]

That's a good question. Look, anytime we have a lease rollover, we basically go through the economic analysis of if the existing client does not exercise their renewal rights, then we have a couple of routes to pursue. One is, can we find an alternative tenant and can we find them quickly enough to justify that particular route. A second route could be, can we reposition this asset for a highest and best use, which we are happy to do and we are currently doing within our development pipeline. And then as a third outcome, is to sell it vacant because we have realized the full economic value and holding on to this asset creates costs holding costs that is not justifiable.

[Sumit Roy, President, CEO & Director at Realty Income]

And so we try to sell it vacant just to be very efficient. So once we've gone through that, and this is where our data analytic tools are very useful along with the experience of our asset management team, we execute on one of those three strategies immediately. But the point I want to make is we are not waiting till a particular lease is within the last three months or six months of expiration. If I were to speak with our asset management team, they're working on assets that may be rolling over not only in 2026, but some even in 2027. If it's with the same client and they have a wider swath of assets.

[Sumit Roy, President, CEO & Director at Realty Income]

And oftentimes what you might see today in the expirations in 2026, 2027, I think in 2026, it's close to 4.5% in that zip 4% in that zip code. By the end of this year, you'll see that 4% has already come down considerably because we've already resolved those 2026 assets within the last six months of 2025. And that's the cadence to a lot of these expirations. Are they unique expirations next year? I don't believe so.

[Sumit Roy, President, CEO & Director at Realty Income]

This is pretty much folks that we've had plenty of experience with. Could they possibly be one or two assets that we've inherited through our M and A transactions that we don't have a beyond that one asset, we don't have multiple assets leased to them? Yes, that's always possible. And every year we run into that. But I don't believe that that's going to be a disproportionate share of what is expiring next year or for the remainder of this year for that matter.

[Operator]

And our next question will come from Haendel St. Juste with Mizuho. Please go ahead.

[Haendel St. Juste, MD & Senior REIT Analyst at Mizuho Financial Group]

Hey guys, good afternoon. A couple of quick ones from me here. First, guess, maybe John, can you talk about, I guess, how you're thinking or looking feeling about the overall balance sheet, your growth liquidity here in the current environment and also how you're thinking about the various funding sources, free cash flow, equity, the revolver dispositions under near term opportunities?

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

Yes, Bill. Yes, I feel very good about it. Obviously, we had a very successful Eurobond offering in June. It was about EUR1.1 billion. It was over 5x subscribed.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

We were very excited about just the lineup and the sponsorship that we got. And that gives us a level of confidence on a go forward basis. We do have some debt maturities that are coming up. We do have about $850,000,000 for the balance of the year. We have a $5,400,000,000 line.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

And as of quarter end, net of cash was only about $700,000,000 drawn. So plenty of capacity there for us to be incredibly patient. The European pipeline as we've talked about today continues to grow, which I love hearing because that just means we're getting closer to issuing more euro denominated debt. And we had $800,000,000 of cash at quarter end. And so you start adding up all of these tailwinds, not to mention the $654,000,000 of unsettled forward equity.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

And there's very little equity that we have to go out there and raise externally to hit our acquisitions guidance. The $450,000,000 of free cash flow is on top of that. And we haven't talked about dispositions volume. And our asset management team continues to be extremely active on that front. So yes, $850,000,000 of maturities coming out for the rest of the year sounds like a big number, but we have a multitude of sources take care of that.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

And we're very programmatic about keeping our leverage at quarter end in that 5.5 times level and the level of predictability we get from this cash flow that allows us to do that.

[Haendel St. Juste, MD & Senior REIT Analyst at Mizuho Financial Group]

That's helpful. Great color. Thank you. And then maybe one more. We saw some additional disclosure about the different return thresholds in the private fund platform.

[Haendel St. Juste, MD & Senior REIT Analyst at Mizuho Financial Group]

It sounds like you guys are slowly, steadily moving the ball forward here. So I guess I'm where we are overall in the process? When should we expect to launch? And I'm really curious how much of the 3.7% that you passed on during the second quarter for the on balance sheet that would have met the thresholds for the fund? Thanks.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

So Haendel, bear with us for a little bit because this is a process. There's only so much we can share at this junction. There's a level of extreme due diligence that happens from the investor side. But I think you've been able to pick up from our commentary that we've made substantial progress and even better than we would have hoped to start the year. The type of return thresholds, we've talked about this before.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

What's right for private capital is something that has a great IRR profile over the long term, ten years plus, but may not necessarily have that year one yield. And of that 3 plus billion that we talked about, that was primary reason why we had to pass on it. And so the expansion of the buy box by virtue of having tools like this that aren't thinking about this notion of year one investment spread, they're thinking about true underwriting real estate over the long term and thinking about it from an IRR standpoint. We're not sacrificing IRR, there's just a different trajectory towards it. And that's really how we're thinking about what will go to private capital.

[Operator]

And our next question will come from Wes Golladay with Baird. Please go ahead.

[Wes Golladay, Senior Research Analyst at Baird]

Hello, everyone. I just want to kind of build off that last question and answer. When you look at the opportunity and the constraints of the third party capital, it doesn't seem like sourcing deal volume will be an issue. And so I guess where would the constraints be? Would it be on the be a constraint? Or would it be could you get a higher close rate? How should we think about that?

[Sumit Roy, President, CEO & Director at Realty Income]

Wes, a portion of your question got lost, but I think you were talking about where would the constraints be? And you qualified that question by saying that it's not going to be sourcing volume. So if we heard you right, that is 100% true. We're You not opportunity constrained. That's the beauty of this platform.

[Sumit Roy, President, CEO & Director at Realty Income]

What will be one of the constraining factors for this channel is the amount of capital that we are able to raise to be able to execute the strategy. So, so far so good, more to come on that, but we are very excited about where we stand in the process today.

[Wes Golladay, Senior Research Analyst at Baird]

Thanks for the time.

[Sumit Roy, President, CEO & Director at Realty Income]

Sure.

[Operator]

And our next question will come from Michael Goldsmith with UBS. Please go ahead.

[Michael Goldsmith, US REITs Analyst at UBS Group]

Good afternoon. Thanks a lot for taking my questions. Retail concentration and acquisitions stepped down from about 72% to 47% in the quarter. So I know this will vary from period to period. But is there anything to read in that?

[Michael Goldsmith, US REITs Analyst at UBS Group]

Is that a function of opportunities? Is it a function of continued interest in diversifying the portfolio? Just trying to understand where your interest in acquisitions lies.

[Sumit Roy, President, CEO & Director at Realty Income]

Good question, Michael. And yes, was very opportunistic. We just found more transactions within the industrial sector and on the credit side that fit our box better than continuing to pursue retail. But it is going to vary. Retail still dominates 80% of our overall portfolio and will continue to be a big part of what we do going forward.

[Michael Goldsmith, US REITs Analyst at UBS Group]

Got it. And as a follow-up, I think you mentioned in a response, your pursuit of different geographies and you brought up data centers. So just wanted to talk a little bit about what you're seeing from that asset class, the opportunities that to acquire further there and just like your overall interest in moving deeper to data centers from here? Thanks.

[Sumit Roy, President, CEO & Director at Realty Income]

Yes. So Michael, our interest in data centers remains intact, continues to accelerate, but the selectivity in that particular area also continues to remain intact. And so look, as long as we find the right partners, as long as we find the right locations and ultimate clients sitting in those assets, we would be very interested in deploying large swaths of capital into that space, but we are not going to compromise our selectivity. We have been approached to do certain transactions and it just doesn't meet our selectivity box, if you will. And so but look, we again, even on that particular area, we made an investment in the first quarter, and we hope to continue to cultivate that particular relationship, and we are looking forward to it bearing fruit in the future.

[Operator]

And our next question will come from Jason Wang with Barclays. Please go ahead.

[Jason Wayne, VP & Equity Research Analyst at Barclays]

Hi, good afternoon. Yes, just lease expirations ticked up a bit quarter over quarter. I'm just wondering if you could break down how much of that was due to leases rejected in bankruptcies?

[Sumit Roy, President, CEO & Director at Realty Income]

I don't think we have that data, Jason. It's a good question. But it was circa $100,000,000 plus minus of lease expirations. And if I remember correctly, 3%, we had a very high number of existing clients renewing their leases. So I'm not sure how many of that remaining 7% were bankruptcy driven releases or what have you.

[Sumit Roy, President, CEO & Director at Realty Income]

I think it was still very much dominated by our natural flow of expirations that occurred in the second quarter. But this number and by the way, I've been talking about this for the last four, five years now, will continue to increase. And this is where I genuinely believe that our asset management team and our data driven approach to resolving leases, etcetera, is going to start to become yet another driver of value creation for us. And over the last, I don't know how many years, but if you look at our lease renewals and our leasing spreads, they have been consistently in the 103% to 104% to 105%. And it really is a function of what I just said.

[Sumit Roy, President, CEO & Director at Realty Income]

It's the experience of the team and the tools that we've created to help assist the team in negotiating transactions. So instead of it being something that we are concerned about, we are actually looking forward this continued increase in the volume of dollars that are going through a renewal process on a year in, year out basis. Next year, it's fairly muted. But in 2027, 2028, we are looking forward to those years.

[Jason Wayne, VP & Equity Research Analyst at Barclays]

Right. And then just on the Dollar Tree sale of Family Dollar, I'm just wondering how many Family Dollars there actually are included into the Dollar Tree exposure and if that's contemplated in your guidance for the rest of the year?

[Sumit Roy, President, CEO & Director at Realty Income]

Yes, that's a good question. So rough numbers, please don't hold me to the precision. It's the total exposure from Dollar Tree, Family Dollar was circa March. Post this separation, it will be 2% is going to go with the Family Dollar and 1%. These are rough, okay, directionally accurate.

[Sumit Roy, President, CEO & Director at Realty Income]

1% will be Dollar Tree. Over the next one years, point so through 2026, there's only 10 basis points of expirations coming through for Family Dollar, 10 basis points coming through for Dollar Tree. This is through 2026. So that's the near term exposure we have to that those two flags.

[Operator]

And our next question will come from Dan Buehn with Bank of America. Please go ahead.

[Daniel Byun, Equity Research Associate at Bank of America]

Good afternoon. Just one for me. Are you starting to see an uptick in interest from U. S. Buyers for the European deals you're looking at?

[Sumit Roy, President, CEO & Director at Realty Income]

We have certainly seen a couple of private, entrants into the European market. So yes, we are starting to see interest from American investors wanting to expand into Europe.

[Daniel Byun, Equity Research Associate at Bank of America]

Got it. Thank you.

[Sumit Roy, President, CEO & Director at Realty Income]

Thank you.

[Operator]

And our next question will come from Linda Tsai with Jefferies. Please go ahead.

[Linda Tsai, Senior Analyst at Jefferies]

Hi. Can you delve more into the increase in the sourcing activity, the $43,000,000,000 What accounted for that? Are you shifting your investment parameters? Or did AI play a role in how you're sourcing?

[Sumit Roy, President, CEO & Director at Realty Income]

That's a great question, Linda. I never thought about using AI. So the channels of sourcing, they have not changed. The asset types, etcetera, they have not changed. Poland is certainly a new entrant that is now going to contribute and has potentially contributed to the €43,000,000,000 But as more and more data center opportunities start to come in, that is going to help with these sourcing numbers being what they are.

[Sumit Roy, President, CEO & Director at Realty Income]

So that is certainly a contributing factor. But I wouldn't say that we have started to evolve the sourcing channels, but I think you've shared with us an avenue that perhaps we should lean into.

[Linda Tsai, Senior Analyst at Jefferies]

Great. And then my second question is you said the mix of Europe versus domestic investments would be similar next quarter. Do you think the initial weighted average cash yields would look similar as well?

[Sumit Roy, President, CEO & Director at Realty Income]

I would say they will be similar to slightly better.

[Operator]

And our next question will come from Uppu Lurana with KeyBanc Capital Markets. Please go ahead.

[Upal Rana, Senior Equity Research Analyst - US REITs at KeyBanc Capital Markets]

Great. Thanks for taking my question. It looks like the probability of a Fed rate cut is likely in September and it seems like there's a growing pressure for further rate cuts if not this year, but it could occur next year. I'm just wondering if this could potentially change your strategy as it relates to Europe versus U. S. Investments?

[Sumit Roy, President, CEO & Director at Realty Income]

Again, a great question, Upal. And if you follow the way our stock trades, it is highly negatively correlated to interest rates. So if interest rates in your opinion, does come down, it should have potentially, and I'm assuming that the ten year comes down as well, it should have a positive impact on our cost of equity through the public channels. And so our ability to do some of those deals that we passed up on, the $3,700,000,000 will increase. So yes, it could change our ability to do more here in The U.

[Sumit Roy, President, CEO & Director at Realty Income]

S. But it's still very unclear to me as to whether interest rates will be cut and or even if it is cut, if it will have a disproportionate impact on the tenure.

[Upal Rana, Senior Equity Research Analyst - US REITs at KeyBanc Capital Markets]

Okay, great. That was helpful. And then it looks like your dispositions on your in your vacant assets increased sequentially. I just wanted to get your sense of how much more you have to do to get to a level you're comfortable with? You mentioned dispositions broadly increasing in your prepared remarks, but any additional color there would be helpful. Thanks.

[Sumit Roy, President, CEO & Director at Realty Income]

Sure. What we have said and we are reiterating this quarter is that it will be very similar to what we've done, last year.

[Operator]

And our next question will come from Eric Borden with BMO Capital Markets. Please go ahead.

[Eric Borden, Vice President at BMO Capital Markets]

Hey, good afternoon. Jonathan, I just want to go back to your comments around FX. I was hoping that you could talk a little bit more about the hedging strategy, that you guys are currently pursuing today. And then if there's any potential tailwind given the relative strength between the EU and USD built into the guidance today? Thank you.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

Sure. Thanks, Eric. I think first of all, to provide context, we have a formal hedging policy that forces us to have a level of discipline. We're not allowed to take too much risk one way or another. And so from a balance sheet standpoint, from an FX hedging perspective, we're pretty evenly matched from an assets and liability standpoint, especially in euro.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

And another thing that I would share is I referenced the forward FX curve. You may not recall, but in 2019 when we did enter the international realm, we did a fifteen year cross currency swap. And that was because the forward curve between the dollar and sterling was extremely attractive. And so that's an option that we have available to us. But I think for us, we try and take as much discretion out of it by virtue of always having some level of hedged earnings, if you will, locked in.

[Jonathan Pong, EVP, CFO & Treasurer at Realty Income]

We never want to have a quarter where we're talking about FX headwinds or tailwinds. We want to focus on the core business. And I think we've been successful in that so far.

[Eric Borden, Vice President at BMO Capital Markets]

All right. Thank you very much. Appreciate it.

[Operator]

And with that, we will conclude our question and answer session. I'd like to turn the conference back over to Sumit Roy for any closing remarks.

[Sumit Roy, President, CEO & Director at Realty Income]

Thank you all for joining us today. We look forward to speaking soon and seeing you at conferences in the coming weeks. Thank you, Joe.

[Operator]

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

Participants

Executives

• Kelsey Mueller, VP & Head - IR
• Sumit Roy, President, CEO & Director
• Jonathan Pong, EVP, CFO & Treasurer

Analysts

• Brad Heffern, Director at RBC Capital Markets
• Smedes Rose, Director at Citigroup
• Ronald Kamdem, MD & Head - US REITs and CRE Research at Morgan Stanley
• John Kilichowski, VP - Equity Research at Wells Fargo
• Ryan Caviola, Associate at Green Street Advisors, LLC
• Elmer Chang, Equity Research Associate at Scotiabank
• Haendel St. Juste, MD & Senior REIT Analyst at Mizuho Financial Group
• Wes Golladay, Senior Research Analyst at Baird
• Michael Goldsmith, US REITs Analyst at UBS Group
• Jason Wayne, VP & Equity Research Analyst at Barclays
• Daniel Byun, Equity Research Associate at Bank of America
• Linda Tsai, Senior Analyst at Jefferies
• Upal Rana, Senior Equity Research Analyst - US REITs at KeyBanc Capital Markets
• Eric Borden, Vice President at BMO Capital Markets