Realty Income Corporation (O) Earnings Call Transcript & Summary

This has also allowed us to cultivate a relationship with EG Group, somebody that we've been following closely. They're based in the U.K. and somebody we initiated conversations with a while back, which then sort of manifested in this particular transaction. So it's a win-win. It's partly a function of the environment that we find ourselves in. It's, again, working to our strengths, doing very large transactions does not cause concentration issues for us, which perhaps it would for some of our peers and allows us to form a new relationship with a client that we can continue to do repeat business with.

I'm here today with Sumit Roy, President and CEO of Realty Income Corporation. You recently purchased the Encore Boston Harbor, a gaming asset. Can you tell us about that?

Sure. So this was a transaction that we initially started having conversations a year prior to the close in December of 2022 with Craig, the CEO of Wynn. And we hadn't done a casino asset before and neither had he done a sale leaseback before. And so it really was a combination of two philosophies of how we think about the business, how we think about running our various organizations, and it was a coming of the mines. There was a need for capital for [ Wynn, ] and we wanted to enter into the casino business with perhaps the best operator in this particular space. And that initial conversation essentially led to us doing a sale leaseback, $1.7 billion in size with the -- on the Encore Boston Harbor asset. It's got a 30-year lease. It's with one of the best operators, and that transaction has continued to perform swimmingly since close in December.

Realty Income recently announced the acquisition of up to 415 single-tenant convenience store properties in the U.S. from EG Group. What's attractive about the opportunities that convenience stores offer?

Yes. So that's a particular transaction. Again, EG Group had never done a sale leaseback before. It's largely a function of what we are seeing in the debt capital markets today. The price of capital has gone up. And EG Group that loves to own their own assets was willing to entertain the possibility of doing a sale leaseback and monetizing their real estate, so that they could help deleverage their balance sheet. And given the cost of capital differential between what their cost of debt cost versus what the sale leaseback would potentially yield, they chose to sale leaseback thankfully. And for us, it was getting a set of assets that we've been keeping an eye on for many, many years. Cumberland Farms, which is 80% of this particular portfolio was sold. And I want to say, 3.5, 4 years ago, and these same assets would have traded at 200 basis points inside of where we were able to get it. And this has also allowed us to cultivate a relationship with EG Group, somebody that we've been following closely, they're based in the U.K. and somebody we initiated conversations with a while back, which then sort of manifested in this particular transaction. So it's a win-win. It's partly a function of the environment that we find ourselves in. It's, again, working to our strengths, doing very large transactions does not cause concentration issues for us, which perhaps it would for some of our peers and allows us to form a new relationship with the client that we can continue to do repeat business with.

And Realty Income has developed a green financing framework under which the company can raise capital to issue sustainable focused financial products in support of activities that aim to reduce the company's environmental footprint. Why is this so important?

Well, ESG is becoming more and more important. And for us, personally, being leaders in the net lease space, we wanted to approach this question from: What is it that we can do to help propagate the ESG initiatives? Look, we are certainly constrained by the leases that we have with our clients. We don't have control of our real estate. But by providing services such as LED lighting, solarizing some of our real estate and passing through some of the benefits of doing that by lowering the occupancy cost for some of our clients. These are all things that's good not only for the environment but for sustainability for us and for our relationships going forward. And so for us to be able to -- we were the first net lease company to be able to do -- to do this green bond was super important. It was our way of saying that we are going to figure out ways to work around some of the natural impediments that we face based on the leases that we have in place. And it really gave us another talking point that we could discuss with our clients and figure out ways to help service their needs being a very large-scale net lease company.