Q4 2025 Earnings Call Transcript

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. [Operator Instructions] 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 CityCenter 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 one 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 in 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 a 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 unsettled forward 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-end 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 focused 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 attempt to be viewed as that one-stop solution provider to our clients. The second part of this puzzle was on how we financed 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'd 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, for 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, so 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 plans for it 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 at $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 billion ], 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 is not something that is scary to us. A lot of us within the company are -- 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. Look, 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 2 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 would be sort of gaming or some of the data centers or some of the retail parks. Just trying to get a sense of a pulse of like how sort of those opportunities are evolving. Is one playing out more or better than the other? Is one 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 of 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 a 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? Or is the AFFO earnings contribution more pickup in 2027?

Jay, in 2026, there will be accretion. The $10-plus million in base management fees is 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 St. Juste with Mizuho.

Sorry. Bill, that's a 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 for all 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 said 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, Haendel. 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 sourced 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 in to 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 is 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 the public vehicle?

Yes. So obviously, what we ended up buying on the public side would sit on the public side. We forgo a lot of transactions that did not meet our year 1 spread requirement, which would have otherwise been purchased had the fund been 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 past 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 a 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-ended 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, would 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 Kammert 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 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 FIRPTA, 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, over 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-or-so million 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 a day's 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 watch list today. And could you update us on your Red Lobster exposure given they're back in the headlines that potentially shut down some locations?

Yes. So Upal, our watch list is right around -- credit watch list is 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%.

Lobsterfest 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. Sumit, 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 allow 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 is something that I'd be able -- 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.

Your 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 have 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 through 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.