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Realty Income Corporation 2020 Annual Report

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Realty Income Corporation 2020 Annual Report REALTY INCOME BUILDING GROWTH BY DESIGN 2020 ANNUAL REPORT ABOUT REALTY INCOME Realty Income, The Monthly Dividend Company®, is an S&P 500 company dedicated to providing stockholders with dependable monthly income. The company is structured as a REIT, and its monthly dividends are supported by the cash flow from over 6,500 real estate properties owned under long-term lease agreements with commercial clients. TABLE OF CONTENTS 2 COMPANY PERFORMANCE 4 LETTER TO SHAREHOLDERS 10 HISTORICAL FINANCIAL PERFORMANCE 12 REAL ESTATE PORTFOLIO 16 DISCIPLINED INVESTMENT PROCESS 18 CONSERVATIVE CAPITAL STRUCTURE 20 DEPENDABLE MONTHLY DIVIDENDS 22 SELECT FINANCIAL DATA 29 COMPANY INFORMATION ABOUT THE COVER The cubes on the cover, none of which are the same, symbolize our commitment to diversity, equality and inclusion (DE&I), a dynamic corporate culture that encourages team members to think outside the box, and a systemic approach to building company growth by design. 15.3% 4.8% 4.4% TOTAL COMPOUND COMPOUND SHAREHOLDER AVERAGE ANNUAL AVERAGE ANNUAL RETURN AFFO PER SHARE DIVIDEND PER GROWTH SHARE GROWTH PERFORMANCE HIGHLIGHTS SINCE 1994 NYSE LISTING (1) 109 93 0 DIVIDEND CONSECUTIVE DIVIDEND INCREASES QUARTERLY REDUCTIONS DIVIDEND INCREASES (1)AS OF 12/31/20 1 COMPANY PERFORMANCE COMPOUND AVERAGE ANNUAL TOTAL SHAREHOLDER RETURN SINCE 1994 NYSE LISTING(1) (AS OF DECEMBER 31, 2020) REALTY15.3% INCOME 15.3% NASDAQ COMPOSITE 11.4% DOW JONES INDUSTRIAL AVERAGE 10.7% S&P 500 10.4% $2.31 EQUITY REIT INDEX 10.1% BILLION INVESTMENT (1)Reference page 27 for additional information on total shareholder return VOLUME COMPARISON OF $100 INVESTED IN REALTY INCOME VS. MAJOR STOCK INDICES (1994-2020) REALTY INCOME $3,331 EQUITY REIT INDEX DOW JONES INDUSTRIAL AVERAGE S&P 500 NASDAQ COMPOSITE $1,711 $1,454 $1,350 $1,261 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 EARNINGS AND DIVIDENDS $3.39 2020 AFFO PER SHARE COMPOUND AVERAGE ANNUAL GROWTH SINCE 1994 NYSE LISTING (1) 4.8% AFFO PER SHARE GROWTH $2.81 2020 ANNUALIZED 4.4% DIVIDEND PER SHARE GROWTH DIVIDEND PER SHARE 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 (1)Annualized dividend amount reflects the December declared dividend rate per share multiplied by 12. Information as of 12/31/2020. 2 2020 PERFORMANCE HIGHLIGHTS 2.1% AFFO PER SHARE GROWTH 3.1% DIVIDEND PER SHARE $2.31 GROWTH BILLION INVESTMENT VOLUME $1.57 BILLION REVENUE $2.31 BILLION INVESTMENT VOLUME 97.9% PORTFOLIO OCCUPANCY 100.0% RECAPTURE RATE ON RE-LEASING ACTIVITY $4.1 BILLION CAPITAL RAISED 3 SUMIT ROY, PRESIDENT & CHIEF EXECUTIVE OFFICER “As I reflect on 2020, it is clear our success would not have been possible without our many partnerships. We Are One Team.” 4 DEAR FELLOW SHAREHOLDERS, I want to share how deeply I appreciate our We remain focused on addressing the team’s continued commitment to delivering hardships faced by many and are proud, and advancing our company’s objectives. committed and inspired by our resiliency My colleagues truly represent and embody and determination to building growth the great values that have driven our by design together with our people, company’s success. The depth and breadth clients, shareholders, and the communities of our talented team members remain key we serve. competitive advantages which were further As I reflect on 2020, it is clear our success demonstrated during the past year. Our would not have been possible without our company, communities, country, and world many partnerships. We Are One Team. We faced a challenging and unprecedented seek to partner with our stakeholders to environment over the last year. Now, as in create shared value through diligent execution the past and future, we embrace adversity of our company’s strategy, constant focus for the opportunities it presents and the on improving our company’s risk profile, lessons we learn. and dedication to being a responsible I am proud of the resiliency of our team, corporate citizen. We are committed to whose dedication to our shared purpose, promoting the following values: mission, vision, and values continue to drive Do the right thing, because how we act our business forward through the persistent is as important as what we accomplish. remote-work environment. Take ownership, because our clients’ success I am committed to the resiliency of our is our success. overall real estate portfolio, which ended the year with portfolio occupancy of 97.9%, Empower each other, so everyone will be demonstrating the stability of our operations inspired to give their best every day. amid macroeconomic volatility. Celebrate differences, because diversity, I am inspired by the resiliency of our equality, and inclusion make us stronger. business, which maintained a strong financial in our community position and delivered AFFO per share growth Give more than we take, and the environment. of 2.1% since last year, reflecting the strength of our clients and partnerships. 5 We remain committed to corporate Earlier this year, it was my pleasure to responsibility today and for our future. welcome Christie Kelly to our management During 2020, we continued to advance our team as Executive Vice President, Chief environmental, social, and governance (ESG) Financial Officer and Treasurer. Christie initiatives. Notably, we expanded our Diversity, joined our Board of Directors in 2019, served Equality and Inclusion (DE&I) program to as a member of our Audit Committee, and include a formal DE&I Policy Statement, has been a valuable contributor. Christie which has been woven into the fabric of brings significant finance, real estate, and our culture through ongoing training and international business experience, and I look development, leader-led conversations, and forward to continuing to partner with active listening. We continued our annual Christie to advance our company’s financial contribution to San Diego Habitat strategies and objectives. for Humanity, shared our organizational Additionally, in February 2021 we welcomed statement supporting racial and social Michelle Bushore as Executive Vice President, equality, and implemented a prompt Chief Legal Officer, General Counsel and response to COVID-19 to benefit and Secretary. Michelle joins our leadership team protect our many stakeholders. with extensive legal, corporate governance, Our commitment to environmental transactional and risk management experience. responsibility remains steadfast. Alongside Mike Pfeiffer will remain serving and leading this report, we are proud to issue our our company through June 2021 as Chief inaugural Sustainability Report which Administrative Officer while assisting Christie details our team’s dedicated efforts and and Michelle through their transition until progress on this important journey. Our his retirement. Sustainability Report can be found in our website’s corporate responsibility section, Mike first joined Realty Income in 1990, played and I encourage all stakeholders to read a pivotal role during the company’s public the Sustainability Report to understand listing in 1994, and his contributions have the significant emphasis we place on these been instrumental to our growth and success. initiatives. While our dedicated Sustainability As the company’s longest tenured executive, Department drives many of these efforts, Mike has been an invaluable leader within our we believe ESG considerations permeate Realty Income community for all stakeholders throughout the organization at every level, and a trusted partner to me. Words cannot including through active oversight by our fully reflect on Mike’s positive impact on all Board of Directors, and I remain focused, of us, as his impact on our company is part dedicated and driven to continue integrating of who we are. Please join me in wishing these values throughout our One Team in Mike only the best during his well-deserved Realty Income and all those we serve. retirement. 6 OUR 2020 RESULTS estate transactions sourced and reviewed. Total investments in the U.K. during 2020 Our disciplined approach to managing the were approximately $921 million, which business continued throughout 2020. During continues to validate our view that the the year, we grew AFFO per share, or the international platform significantly expands cash earnings available to pay dividends our addressable market for growth. Our to our shareholders, by 2.1% to $3.39. This investment strategy continues to focus on growth allowed us to increase the dividend partnering with clients that are high-quality by 3.1% as compared to 2019. The continued operators in resilient industries, and we are strength of our operations enabled us pleased that the majority of our investment to increase the dividend while achieving volume during 2020 included properties an AFFO payout ratio of 82.4%, which we leased to operators in the grocery, home believe provided a comfortable margin of improvement, and general merchandise safety for our shareholders. While our total industries. In addition to our high occupancy shareholder return during 2020 was negative levels of 97.9%, we achieved a 100% rent 11.6% assuming reinvestment of dividends, recapture rate on re-leasing activity during we like to remind our shareholders that the the year. Since our public listing in 1994, company’s stock price does not always move year-end occupancy has never been below commensurate with our operating or financial 96% and, since 1996, we have achieved a rent performance, as external, macroeconomic, recapture rate of over 100% on re-leasing and other factors can impact the company’s activity involving over 3,500 leases. stock price. We seek to deliver favorable long-term risk-adjusted returns for our Through turbulent market conditions in shareholders and, as of year-end, we had 2020, we maintained a strong financial delivered a compound average annual total position and remain committed to being shareholder return since our public listing in one of only a handful of REITs with at least 1994 of 15.3%.
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