Curating Best-in-Class Portfolio

ACQUISITION CAP RATE TO ACHIEVE 150 BPS SPREAD REALTY INCOME Illustration of Capital Allocation Mindset: Utilizing Low Cost of Capital to Assemble Highest-Quality Portfolio in Marketplace 8.0% 7.5% 7.0% "HIGH YIELD" INVESTMENT CHARACTERISTICS (HIGHER CAP RATES): Above-market rents / financially-engineered cap rates Poor credit or limited credit availability and track record Thin industry-specific rent coverage Poor real estate (low residual value) Short lease terms Volatile industries Lower long-term IRR 6.5% 6.0% 5.5% Lower cost of capital allows Realty Income to invest in higher quality opportunities to derive the same spread 5.0% 3.50% 3.75% 4.00% 4.25% 4.50% 4.75% "HIGH QUALITY" INVESTMENT CHARACTERISTICS (LOWER CAP RATES): • • • At- or below-market rents Strong credit / proven sponsors & clients Above-average rent coverage Flexible alternative use • Long lease terms Stable industries Higher long-term IRR 5.00% NOMINAL 1ST-YEAR WACC Note: Cost of capital information is presented for illustrative purposes only. Actual results and calculations may vary materially from these illustrative calculations. Companies with higher cost of capital than Realty Income cannot "afford" to pursue higher-quality opportunities Higher cost of capital forces companies to invest in riskier investment opportunities to derive 150 bps of spread 5.25% 5.50% 5.75% 6.00% 6.25% 28

View entire presentation