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Realty Income International Expansion-Sale Leaseback With REALTY INCOME International Expansion: Sale-Leaseback with Sainsbury’s April 2019 Safe Harbor For Forward-Looking Statements Statements in this investor presentation that are not strictly historical are "forward-looking" statements. Forward-looking statements involve known and unknown risks, which may cause the company‘s actual future results to differ materially from expected results. These risks include, among others, general economic conditions, local and foreign real estate conditions, the completion of the transaction described herein or the anticipated future results therefrom, tenant financial health, the availability of capital to finance planned growth, continued volatility and uncertainty in the credit markets and broader financial markets, property acquisitions and the timing of these acquisitions, charges for property impairments, and the outcome of any legal proceedings to which the company is a party, as described in the company's filings with the Securities and Exchange Commission. Consequently, forward-looking statements should be regarded solely as reflections of the company's current operating plans and estimates. Actual operating results may differ materially from what is expressed or forecast in this investor presentation. The company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date these statements were made. This investor presentation is for informational purposes only, does not constitute an offer to sell or the solicitation of an offer to buy any security of the company, and shall not constitute an offer, solicitation, or sale of any securities of the company in any jurisdiction in which such offer, solicitation, or sale would be unlawful. 2 Contents 4 : Overview 5 : Addressable Market Realty Income Announces International Expansion 7 : Well-Positioned Domestic Business £429 Million Sale-Leaseback 8 : Transaction Highlights with Sainsbury’s(1) 9 : Investment Rationale 10 : Sainsbury’s Overview: A Natural Fit 12 : Portfolio At A Glance 13 : Investment Returns and Hedging Strategy 21 : UK Macroeconomic Analysis 24 : UK Grocery Industry Overview 28 : Additional Background on Sainsbury’s 35 : Summary and Next Steps 37 : Appendix and Property Profiles (1) Expected to close on or around 5/22/19 3 Overview Realty Income will expand to international markets starting with strategic sale-leaseback with Sainsbury’s ~ We estimate the size of the commercial real estate market in Europe to be approximately $11 trillion, with $30 - $35 billion of annual single-tenant transaction volume in our core verticals ~ We believe there is significant demand from high quality tenants in Europe for sale- Strategic leaseback capital on reasonable terms Rationale ~ The Sainsbury’s transaction is consistent with Realty Income’s approach of relationship-based transactions in partnership with industry leaders with strong management teams; geography is the only “difference” in this transaction ~ As this transaction demonstrates, Realty Income is uniquely positioned to build such relationships leveraging its industry-leading scale, size and cost of capital ~ Expanding to Europe is therefore a natural extension of Realty Income’s business model, with a focus on long-term triple net leases with annual growth ~ We intend to establish an office in London, and to judiciously grow our portfolio in Europe over time as we have done in the US ~ We expect our team in Europe to be staffed with our own employees, some of whom Our Intent will relocate from our US office; in the near term we will outsource routine services and like tax and regulatory filings Approach ~ Our European platform will leverage the US business where it makes sense to do so for functions such as Finance, Legal, IT and HR 4 Europe Presents Compelling Market Opportunity Realty Income’s portable business model, cost of capital and scalability represent core competitive advantages ~ Ripe for sale-leaseback consolidation: We estimate $11 trillion of commercial real estate stock in the European market, only $3 trillion of which is owned by professional real estate firms ~ Additive to Realty Income’s addressable market: We estimate that corporate-owned commercial real estate stock is 2x greater in Europe than in U.S., representing a void for a well-capitalized, sizable and scalable institutional investor like Realty Income to fill US vs. Europe Comparison: Estimated Commercial Real Estate Market Value CRE owned by Real Estate All Other Commercial Total Investable Commercial Companies(1) Real Estate(2) Real Estate US $4 Trillion $4 Trillion $8 Trillion Europe $3 Trillion $8 Trillion $11 Trillion US + Europe $7 Trillion $12 Trillion $19 Trillion Median EBITDA Multiple Comparisons • Similar to the U.S., public companies in Europe can unlock trapped RE value through sale-leaseback 16.7x 14.6x 11.1x • We expect market-ascribed valuation differentials 6.4x 6.3x between real estate and operating businesses to benefit us Illustrative SLB Europe Ex-UK UK-Domiciled UK-Domiciled Europe Ex-UK Multiple Real Estate Real Estate Operating Companies • We estimate annualized single-tenant real estate (at 6% cap Companies Companies Companies (~3,700) transaction volume in Europe to be between $30 and rate) (~700) (~90) (~1,500) $35 billion in our target verticals (1) Property owned for the primary purpose of benefitting from investment returns, as distinct from owner-occupied and non-investment leased real estate (2) Includes owner-occupied and non-investment leased real estate Sources: CBRE, MSCI, Bloomberg, Realty Income estimates 5 UK is a Highly Liquid And Logical CRE Market For Our Initial Entry to Europe Historically, ~$65 billion of CRE has traded on an annual basis in the United Kingdom Estimated UK Commercial Real Estate Annual Investment Volume(1) USD in billions(2) Post-Brexit 94.6 Referendum Investment volumes Global 85.9 have held steady post- 82.9 80.7 Financial 81.3 Brexit referendum 76.6 Crisis 72.7 71.6 despite political and 67.9 Average = 64.7 economic uncertainty 56.1 47.1 44.7 43.8 Of the $81 billion of 31.8 33.0 CRE transaction volume in 2018, we estimate $6 - $8 billion of single- tenant volume in our core verticals 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Incumbent competition is modest: Enterprise value of the public REIT market in the UK estimated to be approximately $115 billion -- roughly the size of the publicly traded net lease REIT universe in the US (1) Property types include office, shopping centers, retail, industrial, leisure and alternative / mixed (2) Assuming GBP/USD spot rate as of 4/19/19 Source: Savills, CBRE, MSCI, Realty Income estimates 6 International Growth Augments Well-Positioned Domestic Business Realty Income is expanding its total addressable market from a position of strength $31 $1.6 $3 A3/A- 93% billion billion billion Average Annual Domestic Average Annual Domestic Unsecured Revolving Credit Ratings by Moody’s Adjusted EBITDAre Transactions Sourced Since Investment Volume Since Credit Facility Provides and S&P Support Lowest Margin (Highly Scalable 2013 2013 Ample Liquidity and Cost of Capital in Net Platform and Profitability Flexibility Lease Sector Flow Through) Domestic Transactions Sourced and Investment Volume(1) (USD in billions) Realty Income will continue to remain highly 4% 6% selective in the US and internationally 4% 5% 7% 6% 7% 8% 39 32 32 28 30 12% 24 17 13 1.5 6 0.7 1.0 1.2 1.4 1.3 1.9 1.5 1.8 2010 2011 2012 2013 2014 2015 2016 2017 2018 Investment Volume Transactions Sourced Selectivity (1) 2013 Sourcing and Investment Volume Excludes $3.2 Billion Acquisition of ARCT 7 All data current as of 12/31/2018 Sainsbury’s Sale-Leaseback Highlights Accretive transaction establishes international growth platform with leading UK grocer £429 5.3% 5.8% >200 bps GBP 1st-year cash USD-equivalent Effective 1st-year million cap rate 1st-year cap spread to Transaction size(1) rate(2) leverage-neutral nominal WACC 12 15 years $0.04 per 6.6% Assets acquired Weighted-average share Base-case lease term Annualized unlevered USD leverage-neutral IRR AFFO accretion (1) Excluding acquisition transaction costs of approximately £4.2 million / transaction expected to close on or around 5/22/19 (2) Reflects effective 1st-year USD cap rate net of annual cash flow FX hedge 8 Sainsbury’s Sale-Leaseback: Investment Rationale Realty Income’s first international acquisition represents natural evolution and execution of strategy Realty Income’s sector-leading cost of capital, size and scale are competitive advantages portable to the UK ~ Limited retail real estate supply per capita, healthy market fundamentals UK is an attractive market with sizable ~ Void of large-scale, pure-play net lease institutional competition opportunity for ~ Significant demand for expansion capital from UK operators strategic growth ~ Estimated >$1 trillion potential sale-leaseback market opportunity ~ Tenant operates in defensive, non-discretionary industry Congruent with ~ “Blue Chip” grocery operator with seasoned and highly-regarded management team existing investment criteria ~ Proven strength through multiple economic cycles ~ 15-year triple-net leases, attractive rent growth ~ Annualized AFFO accretion of ~$0.04/sh from Sainsbury’s transaction Accretive returns, ~ Base-case 15-year unlevered USD IRR of 6.6% is attractive given tenant, asset quality minimal FX risk ~ ~85% of FX risk on GBP cash flows to be hedged for 15 years through currency swap 9 £5.5 Billion Enterprise Value £788 Million Free Cash Flow 150-year History Implied Investment Grade(1) Over 185,000 Employees 606 817 £28.9 £542 Top 3 supermarket c-store billion LTM sales per UK grocery locations(2) locations(2) retail sales(3) gross SF(3) operator(4) Founded in 1869, Sainsbury's is one of the leading grocers in the UK operating over 1,400 grocery and convenience stores across the UK and Ireland.
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