Executive Summary / Key Takeaways

• Realty Income Corporation, "The Monthly Dividend Company," continues to deliver dependable, growing income through a highly diversified, net-lease real estate portfolio, underpinned by its S&P 500 Dividend Aristocrat status.
• The company is strategically expanding its global footprint, particularly in Europe, and diversifying capital sources through a new perpetual life private fund, which has already secured $716 million in equity commitments.
• Operational excellence is driven by a proprietary predictive analytics AI tool, enhancing decision-making across the investment lifecycle and contributing to consistent rent recapture rates, such as 103.5% in Q3 2025.
• Despite a cautious macroeconomic outlook, Realty Income raised its 2025 investment volume guidance to $5.5 billion and narrowed its AFFO per share guidance to $4.25-$4.27, reflecting confidence in its disciplined growth and robust liquidity of $3.5 billion.
• Key factors for investors include monitoring the impact of a projected 75 basis points of potential credit loss (primarily from M&A-acquired tenants) and the company's ability to leverage its scale and financial strength in a competitive, evolving global real estate market.

The Enduring Appeal of the Monthly Dividend Company

Realty Income Corporation (NYSE:O), an S&P 500 company founded in 1969, has long distinguished itself as "The Monthly Dividend Company." Since its 1994 NYSE listing, it has achieved over 30 consecutive years of dividend increases, earning it a coveted spot in the S&P 500 Dividend Aristocrats index. This remarkable history is not merely a testament to consistent payouts but reflects a deeply ingrained business model focused on generating dependable, long-term income through its vast portfolio of net-lease commercial properties. In this model, clients bear the responsibility for property taxes, insurance, and maintenance, providing Realty Income with stable, predictable cash flows.

The company's overarching strategy is built on diversification across client types, asset classes, and geographies, complemented by a conservative balance sheet and a disciplined investment approach. This foundation positions Realty Income to capitalize on two significant global megatrends: the increasing demand for durable income-oriented investment solutions from an aging global population and the growing corporate interest in asset-light strategies through large-scale sale-leaseback transactions.

Technological Edge: Predictive Analytics Driving Performance

A core differentiator for Realty Income is its proprietary predictive analytics AI tool, developed over the past six years. This advanced technology is deeply integrated into the company's operations, informing critical decisions across sourcing, underwriting, lease negotiations, and capital recycling. The AI tool continuously learns from real-world lease expirations and outcomes, refining its algorithms to improve prediction accuracy, often achieving accuracy rates north of 90%.

Beyond strategic insights, Realty Income is also implementing other AI tools, such as PredictAP, to drive labor efficiencies. These tools automate clerical tasks like invoice processing, allowing personnel to shift towards higher-value activities such as quality assurance and approvals. For investors, this technological differentiation reinforces the reliability of Realty Income's long-term cash flows, enables proactive operational management, and strengthens its competitive moat. It directly contributes to favorable re-leasing spreads, exemplified by a 103.5% rent recapture rate in Q3 2025, and promises long-term reductions in general and administrative expenses as efficiencies are realized.

Strategic Expansion and Diversification: A Global Footprint

Realty Income's strategic narrative is one of continuous, disciplined expansion. The company's entry into the U.K. market in 2019 marked the beginning of a significant European growth phase, which now spans seven other countries and represents approximately $16 billion in gross asset value, contributing 18% of total annualized base rent. Recent expansions include Poland in Q1 2025, where the company executed its first two transactions, including a sale-leaseback with Eko-Okna for industrial assets.

Europe remains a compelling investment destination due to its fragmented competitive landscape, a larger total addressable market than the U.S., and a lower cost of debt for euro-denominated notes (approximately 100-160 basis points inside U.S. dollar costs). Realty Income is actively acquiring retail parks in the U.K. and Ireland, targeting assets with rents well below market and replacement cost. These acquisitions offer significant value uplift potential, with management estimating a 10.5% to 11% increase from mark-to-market adjustments and cap rate compression, and a potential 40% uplift from full realization and repositioning with new retailers.

Beyond traditional net-lease acquisitions, Realty Income is diversifying into credit investments. Year-to-date through Q3 2025, the company invested $807.43 million in loans, often with existing clients and secured by real estate collateral. These opportunistic loans, such as the data center development loan in Virginia with a 9% yield profile, serve to deepen client relationships, potentially leading to future real estate ownership, while also providing higher yields that help mitigate the impact of the company's floating-rate debt exposure.

A pivotal strategic initiative is the launch of Realty Income's perpetual life U.S. Core Plus Fund. This private capital vehicle, which secured $716 million in equity commitments by October 2025, aims to diversify capital sources, enhance acquisition investment spreads, and generate permanent fee income for public shareholders. The fund will be seeded with properties currently owned by Realty Income, with the company maintaining a meaningful ownership stake to ensure alignment. This complementary capital source allows Realty Income to pursue a broader range of investment opportunities, including those that may not meet the immediate initial spread requirements for on-balance-sheet deployment but offer strong long-term total returns.

Financial Performance and Operational Strength

Realty Income's financial performance in the first nine months of 2025 reflects its robust strategy. The company reported total revenue of $4.26 billion, with rental revenue (including reimbursements) at $4.04 billion. Net income for the nine-month period was $768.15 million. Adjusted Funds From Operations (AFFO) per share for Q3 2025 was $1.09, bringing the year-to-date diluted AFFO to $3.19.

Investment activity has been particularly strong, with $1.4 billion deployed in Q3 2025 at a weighted average initial cash yield of 7.7%, representing a spread of approximately 220 basis points over its short-term weighted average cost of capital. Year-to-date investment volume reached over $3.9 billion, surpassing the total volume for all of 2024 (excluding the Spirit Realty Capital (SRC) merger). The company's sourcing capabilities are evident in the $97 billion in year-to-date sourcing volume, exceeding its prior annual high.

Operational metrics remain solid, with portfolio occupancy at 98.7% as of September 30, 2025, a 10 basis point increase from the prior quarter. The company's proactive asset management is highlighted by a 103.5% rent recapture rate on 284 leases in Q3 2025, generating $71 million in new cash rents, with 87% from existing client renewals. Strategic dispositions also play a key role in portfolio optimization, with 140 properties sold for $215 million in Q3 2025, including 18 convenience stores at a blended 5.5% cap rate. This allows the company to recycle capital into higher-yielding opportunities. Additionally, Realty Income recognized $27.3 million in lease termination income in Q3 2025, primarily from one tenant, which management views as a strategic outcome to maximize risk-adjusted net present value.

The balance sheet remains a source of strength, with $3.5 billion in liquidity at the end of Q3 2025.

Net debt to annualized pro forma EBITDA stood at 5.4x, and the fixed charge coverage ratio was 4.6x. Approximately 93% of the company's debt is fixed rate, mitigating interest rate risk. Subsequent to Q3, Realty Income closed an $800 million unsecured debt offering at a 4.4% weighted average yield to maturity, used to repay higher-coupon notes. The company also has approximately $1 billion in unsettled forward equity, providing ample runway for its investment activities.

Competitive Landscape and Positioning

Realty Income operates in a competitive landscape with other net-lease REITs such as W. P. Carey (WPC), National Retail Properties (NNN), VICI Properties (VICI), and Prologis (PLD), as well as private equity real estate funds. Realty Income's scale, established brand as "The Monthly Dividend Company," and long history of consistent dividends provide significant competitive moats, fostering strong investor loyalty and potentially superior pricing power in attracting capital.

Compared to WPC, Realty Income's more retail-focused portfolio, while diversified, emphasizes stability and predictable cash flows, which may appeal to a different investor base than WPC's broader diversification. Against NNN, Realty Income's larger scale and longer dividend track record offer a competitive edge in market positioning and operational efficiency within the retail segment. Realty Income's income-focused strategy contrasts with VICI's growth-oriented approach in experiential real estate, positioning Realty Income for stability in various market conditions. While Prologis dominates the industrial and logistics sector, Realty Income's strategic expansion into industrial properties, often through development with partners, and its growing interest in data centers, allows it to participate in these high-growth areas.

The increasing competition from large private asset managers in the net-lease space, particularly in the U.S., is acknowledged by management. However, Realty Income's A3/A- credit ratings and disciplined underwriting provide an advantage, especially in an elevated interest rate environment where leverage is a significant factor for many private players. The company's deep relationships, with 80% of its business being repeat transactions, further solidify its competitive standing.

Outlook and Risks

Realty Income's 2025 outlook reflects a balance of continued growth and prudent risk management. The company increased its 2025 investment volume guidance to approximately $5.5 billion, with the understanding that the full AFFO impact of these back-end loaded acquisitions will be realized more in 2026. The AFFO per share guidance was narrowed to $4.25-$4.27.

This guidance incorporates a provision for approximately 75 basis points of potential credit loss, slightly higher than historical experience, primarily stemming from tenants acquired through prior M&A transactions and the move-out of a large office tenant (estimated 1.5 cents per share impact). While these represent a $0.04 negative effect on AFFO, management views them as opportunities to transition to stronger clients. The company does not anticipate a repeat of the $21 million in non-recurring lease termination fees from 2024, expecting future lease termination income to normalize around $20 million annually. Same-store rental revenue is projected to increase by approximately 1% for 2025.

Key risks include general economic conditions, fluctuating interest and currency rates, and inflation. While net leases mitigate direct exposure to rising property expenses, inflationary pressures could impact client solvency. Geopolitical uncertainties and tariffs are continuously monitored, but management believes the diversified portfolio has limited exposure, and potential impacts are already factored into credit assumptions. The company's $40 million investment in Plenty, an indoor farming business, is undergoing restructuring, with the capital at risk, though management anticipates a stronger emergence.

Conclusion

Realty Income Corporation stands as a resilient income powerhouse, consistently delivering dependable monthly dividends backed by a robust and strategically diversified real estate portfolio. Its 56-year operating history, coupled with a proactive approach to global expansion, particularly in the attractive European market, and the innovative use of predictive analytics, underpins its competitive strength. The launch of its private capital fund further enhances its ability to source and fund accretive investments, leveraging its platform for long-term value creation.

While the company operates in an evolving macroeconomic landscape with inherent risks such as potential credit losses and market volatility, its conservative financial management, strong liquidity, and a clear strategic roadmap position it well. Realty Income's commitment to disciplined capital allocation and its ability to adapt to competitive dynamics, including the rise of private capital, reinforce its investment thesis as a stable, growing enterprise for discerning income-focused investors.