Thank you for standing by, and welcome to the Realty Income Second Quarter 2021 Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a Q&A session. If you would like to ask a question during that time, please press star, then number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to hand the call over to Julie Hasselwander, Investor Relations at Realty Income. Thank you all for joining us today for Realty Income Second Quarter Operating Results Conference Call. Discussing our results will be Sumit Roy, President and Chief Executive Officer, and Christie Kelly, Executive Vice President, Chief Financial Officer, and Treasurer. During this conference call, we will make certain statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in any forward-looking statements. We will disclose in greater detail the factors that may cause such differences in the company's Form 10-Q. We will be observing a two-question limit during the Q&A portion of the call in order to give everyone the opportunity to participate. If you would like to ask additional questions, you may reenter the queue. I will now turn the call over to our CEO, Sumit Roy. Thanks, Julie. Welcome everyone. Building enduring relationships is inherent to our purpose as an organization, and I would like to thank all of our stakeholders for their continued support. I would like to express my appreciation to all of my Realty Income colleagues who continue to relentlessly pursue our growth initiatives while in the sustained remote work environment. We are pleased with the momentum across all facets of our business, which is reflected in our revised 2021 AFFO per share guidance of $3.53-$3.59. Our increased guidance range represents an improvement of 2.7% at the midpoint compared to our prior range, as well as an improvement of 5% at the midpoint versus last year, and is a function of several tailwinds to our business. First, an increase to our 2021 acquisition volume guidance to approximately $4.5 billion. Second, the continued improvement in rent collections from our theater clients. Third, our well-priced capital markets activity since the start of June, which further positioned our balance sheet for continued growth. Fourth, our active asset management activities, which resulted in occupancy of 98.5% at quarter end and rent recapture rates in excess of 104% on lease expirations during the quarter. Fifth, the overall quality of our portfolio, which has been curated, refined, and underwritten over our 52-year history, continues to perform throughout a variety of environments. We'll discuss each of these elements in greater detail shortly. Year to date, we have added approximately $2.2 billion of high-quality real estate to our portfolio, including $1.1 billion of new acquisitions in the second quarter. We continue to expand our platform as our size and scale remain key competitive advantages that translate directly into shareholder value. This quarter, we sourced more than $20 billion of acquisition opportunities, ultimately selecting and closing on less than 6%. On a total revenue basis, approximately 54% of the acquisitions made during the quarter are leased to investment-grade rated clients, which brings our total investment-grade client exposure to approximately 50%. The weighted average remaining lease term of the assets added to our portfolio during the quarter was 11.5 years. The largest industry represented in our second quarter acquisitions was U.K. grocery stores, and 7-Eleven remains our largest client. We remain well-diversified as our portfolio consists of over 6,700 assets leased to approximately 630 clients who operate in 58 separate industries located in all 50 U.S. states, Puerto Rico, and the U.K. During the quarter, we continued to generate healthy investment spreads of approximately 172 basis points while acquiring, in our view, the highest quality product in the marketplace. The quality of our acquisitions is evident throughout the entire life cycle of our portfolio, as we have consistently demonstrated favorable recapture rates on expiring leases while maintaining a healthy occupancy level throughout a variety of economic cycles. During the quarter, we re-leased 58 units, recapturing 104.7% of expiring rent. Since our listing in 1994, we have executed over 3,700 re-leases or sales on expiring leases, recapturing over 100% of rent on these re-leased contracts. Occupancy at quarter end was 98.5% based on property count. Our international investment activities continue to support our growth outlook, and our U.K. portfolio has now grown to over $2.7 billion. This quarter, the U.K. accounted for over 50% of the $1.1 billion of total acquisitions for the year. Year to date, we've added approximately $1 billion in high-quality real estate in the U.K. across 41 properties. Of the more than $21 billion in acquisitions opportunities that we sourced, approximately 31% is related to international markets. As we continue to expand our international platform, we will look for additional geographies that offer opportunities similar to that of the U.K. We seek to acquire real estate in markets where opportunities are abundant. There is considerable demand for sale-leaseback transactions from industry leading operators. The local real estate can generate long-term IRRs in excess of our long-term cost of capital. At this time, I'll pass it over to Christie, who will further discuss results from the quarter. Thank you, Sumit. We continue to prioritize a conservative balance sheet structure while procuring attractively priced capital. At quarter end, our net debt to adjusted EBITDA ratio was 5.4x, or 5.3x on a pro forma basis, adjusting for the annualized impact of acquisitions and dispositions during the quarter. I would note that these ratios are before our $9.2 million share offering, which closed subsequent to quarter end. Our fixed charge coverage ratio hit an all-time high for the second quarter in a row, coming in at 6.0x. During the quarter, we raised over $457 million of equity, primarily through our ATM program. Subsequent to quarter end, we executed on two capital raising activities to further enhance the strength of our balance sheet. In July, we raised approximately $594 million through an overnight equity offering. Proceeds were used to pay down short-term borrowing and support our active global investment pipeline. In July, we issued our debut green bond, a GBP 750 million multi-tranche denominated unsecured bond offering of six years and 12-year notes, priced at a combined all-in rate of 1.48% and a weighted average term of approximately 8.8 years. We're proud to be the first net lease REIT to demonstrate our commitment to our ESG initiative with a green bond. This green bond creates further partnership opportunities with our clients to implement sustainable practices at the properties within our portfolio, providing support for environmentally conscious initiatives while achieving mutual sustainability goals. We estimate that over 40% of the proceeds have already been allocated to existing green projects. More information about our green financing framework can be found on the corporate responsibility page of our website. This quarter, our business generated $0.88 of AFFO per share. As Sumit mentioned, increase in theater rent collections are one of the drivers of our improved earnings outlook for 2021. In June, we collected approximately 51% of contractual theater rent, and in July, we collected 98.9% of our contractual theater rent. As a reminder, we own 79 total theater properties, which accounts for 5.4% of our annualized contractual rent. 42 of our theater assets are not on cash accounting, and we continue to recognize 100% of revenue on these assets on an accrual basis, consistent with our accounting treatment during the duration of the pandemic. The remaining 37 theater assets are currently on cash accounting, meaning we will not recognize any revenue associated with these clients until it has been received. These clients accounted for $34 million of annualized contractual rent, or about $2.8 million of contractual rent per month. During the second quarter, we collected 38.3% of theater rents. The rent collections from June and July represent a significant improvement from prior periods. Our theater clients paid us 14% of contractual rent in the first quarter and an average of 31% in April and May. Assuming the pace of collections we recognized for the theater industry in July continues on through the remainder of the year, we would not expect to accrue any additional theater reserves going forward. We believe the increased rent collections reflect significant positive momentum in the theater industry. One after another, the latest blockbusters continue to demonstrate a return to normalcy for the theater industry. In mid-July, opening weekend of Black Widow brought in approximately $158 million in revenue globally, earning the record for the biggest opening weekend since the pandemic. We are cautiously optimistic the momentum we're seeing will continue while closely monitoring the COVID-19 variants. As a monthly dividend company, our mission is to invest in people and places to deliver dependable monthly dividends that increase over time. In July, we declared our 613th consecutive monthly dividend, and we have now increased the dividend 111 times since our listing on the New York Stock Exchange in 1994. Since 1994, we have increased the dividend every year, growing dividends per share at a compound average annual growth rate of approximately 4.4%. As a result of increasing the dividend every year for the last 25 consecutive years, we're proud to be a member of the exclusive S&P 500 Dividend Aristocrats Index, which consists of only three REITs and 65 companies overall. I would like to hand our call back to Sumit. Thank you, Christie. Before we open up the line for questions, I did want to provide a brief update on our pending merger with VEREIT. Our special shareholder meeting to approve the merger is scheduled for August 12th, and we remain focused on a fourth quarter closing, subject to the satisfaction of all closing conditions. As I hope you can all appreciate, we are limited in any incremental information we can provide related to the merger beyond what has already been publicly disclosed. In conclusion, we are energized and pleased with the momentum across all areas of our business, which is reflected in our updated earnings guidance and increased growth projections for the year. As we have proven, with greater size comes enhanced prospects for growth, and we look forward to continuing to execute on these initiatives to ultimately deliver favorable full-cycle AFFO per share growth with minimal volatility. At this time, I would like to open it up for questions. Operator? At this time, if you would like to ask a question, please press star, then one on your telephone key keypad. Please limit yourself to two questions. If you would like to ask additional questions, you may re-enter the queue. Your first question comes from the line of Nate Crossett with Berenberg. Hey. Good afternoon. Thanks for taking the question. Wanted to just touch on activity in the quarter and kind of the outlook for the year. Maybe you could kind of give some color on the mix of the deal flow in the quarter and what you're seeing for the balance of the year. How's it weighting industrial versus retail? Are there a number of portfolio deals in there? If you could just touch on what you're seeing in terms of pricing, both in the U.S. and the U.K. Also, I was curious to hear if you had looked at any transactions in continental Europe yet. Nate, thank you for your questions. I hope to attempt to answer all of them, but I might miss a few. In terms of our volume, look, this is a continuation of a theme that we started the year with. As you might recall, Nate, January, we had come out with a very robust pipeline. We've already sourced year to date more than $40 billion, clearly at the run rate that we've been able to achieve over the last three quarters, year to date, you can have a sense for the robustness of the pipeline. I think the biggest surprise for us has been the volume that we've been able to generate in the U.K., some of which sort of translated to what we were able to accomplish in the second quarter. Even if you look year to date, it's representing about 40% of acquisitions. The quality of the product that we're continuing to see, the relationships that we've been able to establish and grow in the U.K. during a very short period over the last two years is a testament to why we feel very comfortable with having increased our acquisition guidance by another $1.25 billion, given that we are clipping away at $1 billion. In terms of the pipeline, we are very happy with what we are seeing. We are very comfortable with the product that we are seeing, and I think this trend is going to continue. In terms of the makeup, you might have seen that, depending on the quarter, anywhere between 25%-30% of what we are acquiring is industrial. In the second quarter, 15% of overall acquisition was industrial, largely driven by about 35% industrial in the U.S. We, again, on the relationship front, have been able to make a fair amount of progress, are seeing acquisition opportunities sometimes before it even hits the market, and being able to try to get some of these transactions over the finish line with the relationships that we have developed. I think you should expect to see this 15%-25% of our volume coming from the industrial side of the equation in terms of asset type continue over the next few quarters. In terms of cap rates, look, it's a very aggressive market. I think in previous calls I've mentioned that cap rates have continued to compress, tighten, whatever the right word is. I think it's a testament to certainly the type of products that we are pursuing, but more so to the fact that net lease is a very unique way of investing in real estate that is very specific. As such, for the type of products that we pursue, we have continued to see cap rates compress. By the way, this is across the spectrum on the credit curve. It's not just on the investment grade side. In fact, I'd argue on the investment grade side, the compression has been more muted on a relative basis versus what we have seen on the high yield side of the equation. That trend is continuing, and we saw that in the second quarter as well. I believe on the industrial front, it has continued to tighten, but the speed with which it's tightening has certainly slowed down. We are seeing products on the industrial side for well-located assets in the high 3% cap rate, low 4% ZIP code to, on the rare occasion, high 4%, low 5% ZIP code, depending on location. On the retail side, it's a similar story. For high-quality assets with long lease terms, good growth, you're seeing in the low 4% to low 5% ZIP code. If you're willing to compromise on lease term or growth rates or what have you, perhaps credit, you can see transactions transacting in the mid 5% to low 7% ZIP code. The stuff that one buys in the high 6s, low 7%, that has credit profiles, lease terms, et cetera, that obviously has a much higher risk profile associated to it. I don't know if I got all your questions in, Nate, but please let me know if I missed something. No, I think that's good. I'm just also curious, have you guys looked at any transactions on Continental Europe yet? Yes. Thank you. We certainly have, and this is something that I have touched on in some of my previous calls. We just haven't been able to get some of these transactions over the finish line. We are very close. The success that we have accomplished in the U.K. is one that we are trying to mimic in similar geographies with similar risk profiles. With every day, every week that goes by, we are getting ever so close to being able to report to you additional markets that we've been able to add, which will become incremental source of growth for our business. The direct answer to your question is yes, we continue to look at opportunities, and we've come pretty close, but haven't been able to get them over the finish line as of the end of the second quarter. Okay. That's it from me. Thank you. Thanks, Nate. Thanks, Nate. Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Hi, Caitlin. Hi, everyone. You historically mentioned one of the reasons the announced VEREIT deal is attractive is that by being larger, you can do some larger transactions without risking concentration increasing meaningfully. I think you referenced it again in the prepared remarks. I also imagine that those kinds of deals take time to complete. I was wondering if you could comment on what the opportunity set is for something like that, and how frequently you expect a deal of that nature could come up in the future. Is it something that could be once a year or maybe never even happen? Just trying to understand how realistic something like that could be. Yes. That's a very good question, Caitlin. Look, in terms of predicting what can happen in the future, some of what you see is publicly available. You have seen some large companies come out and say, as part of their financing, sale-leaseback is going to be a source of capital, and they've come out with multi-billion dollar numbers. Those are the ones that are obvious. Both, you've seen that here in the U.S., and you've seen that in the U.K. as well with some of the M&A work that happened and large sale-leaseback opportunities on the industrial front in one specific transaction in the U.K., and then there was a retail client here in the U.S. that has come out with something like that. I think what we would like to be able to change is to proactively go and be a solution for transactions that may not be in the public eye. Given the fact that we will have the size and scale, it is more difficult for me to predict as to how many of those opportunities can we create. When you talk to large companies, and you go in there and you say, "Oh, we can take $1 billion of your real estate off the balance sheet," sometimes that's not meaningful enough to engage in a conversation. Here we are talking about $70 billion, $80 billion, $100 billion companies, and that sort of capital doesn't really move the needle for them. What we are very optimistic about is to be able to use our platform on larger scale to be able to have more aggressively some of these conversations that we started a few years ago. The feedback that we had received was, "Oh, yeah, thanks a lot. Just not big enough for us to be meaningful to engage." I think those conversations we hope to get over the finish line and create more opportunities. Caitlin, I can't sit here and tell you that there'll be one or two of those transactions per year. I think we have to view those where we are generating those transactions on our own as opportunistic, and time will tell as to how many of those we can sort of get over the finish line. Even if you were to just look at the ones that are not opportunistic, the ones that are part of M&A capital strategies, you're starting to see a lot more today than you ever did in the past. I've just referenced two transactions in the recent, call it five months, six months period. I'm not trying to suggest that you should extrapolate that, but those types of transactions didn't see the light of day three years ago, four years ago. That's what gives us confidence that being a larger company will allow us to more proactively take advantage of these opportunities that present themselves and be that one-stop shop which even with our current size, we sometimes fell short. Got it. Maybe just talking about on the tenant side, retailer bankruptcies have been pretty limited this year. Could you give some detail on the status of your watchlist, or maybe just more generally, your understanding of how your tenants are doing today? Our watchlist stands right around 4% currently, Caitlin. Again, what gives us a lot of confidence is if you look at our collection numbers in July, which we shared with you, it's above 99%. Some could argue, that 99% may have built in a lot of abatements and reduction in rent that you might have passed on to clients. I just want to make sure that we make it very clear that it doesn't. If you look at the numbers, and we've put this out publicly, if you look at the abatement number, it's about slightly more than $1 million on $1.6 billion of rent. It's about 90 basis points. Not even, actually. It's a lot less than that, what we have abated, and these are largely to smaller operators. When we are collecting above 99% on rent that has largely not been abated, it's very similar to what we had pre-COVID. That should be a testament to the credit profile of the tenants that we are exposed to, and that is by design. We feel very good about where we are, and especially with every month that goes by, this continued optimism that we have in our ability to get back to pre-pandemic levels without having to give abatements, I think is a testament to the credit quality of our operators. Thanks for that. Sure. Thanks, Caitlin. Your next question comes from the line of Katy McConnell with Citi. Hi, Katy. Great. Thank you. Hi, everyone. Hi there. Now that your theater collections are becoming much more stabilized, can you talk about your approach to converting cash basis tenants back to the accrual method eventually, and how we should think about the potential timing of that? Sure. Katy, if you wouldn't mind, I'll have Christie talk to that. Certainly. Thanks, Sumit. Thanks, Katy. Essentially, Katy, we have very positive momentum as we've discussed in our theater industry collections. As we look forward towards the end of the year, there are a couple of things that we're really watching. First, it's going to be collection experience and that it's sustained and in accordance with our contractual and any deferral agreements. Second is in relation to that experience going into not only the third quarter, but the fourth quarter to ensure that we have consistency, that we maintain momentum on collections, and that we're able to report the 98% to 100% collections that we're expecting going forward with no additional reserves. TBD, we're booking and looking and reviewing as part of our routines every week, every month, and we'll have more to report after the third quarter. Okay. Got it. Thank you. Can you discuss how your G&A needs could change in international markets as the U.K. portfolio continues to grow and as you start thinking about entering some new markets? Sure. Katy, part of the strategy we had was to use a combination of folks that we had in-house and some companies that we felt very comfortable with outsourcing to as third-party providers for services that we needed. Obviously, as our portfolio has grown, and now it's about $2.7 billion in the U.K., a lot of these third-party providers provide services that we can accommodate internally at margins that are superior to what we were getting outsourcing those particular functions. As we have grown, we are bringing in-house more and more of these services. One of the other things that we are trying to look at and consider is as we grow into additional markets, and we believe that to be a matter of time, where is it that we should be domiciled, et cetera? We've made a tremendous amount of progress on that front as well. Before we bring in some of these functions in-house, we wanted to make sure that we were structured appropriately to accommodate our continued growth in Europe. There'll be more to come on that front, but we will certainly be able to create synergies by bringing some of these outsourced services in-house, and it's largely going to be a function of where we ultimately decide to be headquartered to help support the European expansion. Those discussions are ongoing and we'll have more to report on that front as and when we establish our operations, et cetera. Got it. Okay. Thanks, everyone. Thanks, Katy. Your next question comes from the line of Greg McGinniss with Scotiabank. Hey, Greg. Thanks. I want to talk about U.K. a little bit more. The investment spread there is wider than what you've been able to achieve in the U.S. Is that just a function of less competition? What are your thoughts on increasing your investment focus on that market since you started investing there? Maybe targeting a higher percentage in U.K. versus U.S. assets than initially thought of. Greg, part of it was, if you looked at the first quarter, we were in the low 5s in terms of what we were able to accomplish in the U.K. It's a function of the asset types that we are able to get over the finish line, as well as some of the operators that we pursue, the lease term, et cetera. We were hoping to actually close on a few transactions that were slightly more higher yielding in the first quarter that slipped into the second quarter, which is the primary reason for this higher cap rate. In terms of competition, every day that goes by, I'm exaggerating of course, but competition in the U.K. is increasing. I think people have started to realize that that is a market that affords good risk-adjusted returns. I don't see competition as being the dictate as to whether we should increase, decrease the quantum of transactions that we pursue in the U.K. We have a very clearly defined strategy in the U.K. If there are transactions that we see, if they meet those particular criteria, we pursue it, and we pursue it aggressively. I think that's what's going to dictate the amount of volume. Now, clearly the volume has increased, and part of it is because it took us a while to establish ourselves, establish our name, and establish the reputation that we have, and the relationships that we've built. If there are opportunities, and if the volume of opportunities increase, you can totally see us increasing the amount of acquisitions that we get over the finish line in the U.K. We're going to be very true to our strategy that we've laid out. That's not to say it's a static strategy that doesn't get looked at and doesn't get added to or subtracted from. It's just something that we spend a lot of time first figuring out what is the right product to pursue, and then react to that strategy that we have thoughtfully laid out for ourselves. Could the volume of acquisitions increase as more and more products start to come to the fore? For sure, it could. Is competition increasing? Yes. I think the way for us to think about our international strategy is to think in terms of newer markets, to continue to add to the volume of overall acquisitions, not necessarily do more in a given location. Okay. To help us better understand the hurdles to additional investment opportunities in Europe, what enabled you to more quickly accomplish the goal of finding significant investment opportunities in the U.K., versus getting those deals across the finish line in continental Europe? Part of it was pricing. It got so aggressive. These were transactions that met a lot of our strategic objectives that we had laid out. There's just a lot of capital that is chasing these deals, like I said. When it got to a point where it didn't make economic sense for us to continue to pursue, we backed away. I think that has largely been the reason why we haven't sort of gotten into some of the other markets. I will say that as we have become more visible in given geographies, just like we did in the U.K., people are getting familiar with our names. There might have been transactions that we might not have seen two years ago or a year and a half ago that we are now seeing because people understand what we were able to do in the U.K. That reputation has translated to continental Europe. The fact that we have pursued a few transactions has obviously lent credence to our ability and our desire to grow our portfolio in those particular markets. I think that is translating into the flow that you need to get into to establish a particular market. We are very optimistic that over the next few quarters, you will start to see us expand into other markets outside of the U.K. All right, thanks. If you wouldn't mind, just a quick follow-up there based on that response. Is it fair to say that you're seeing more competition then in continental Europe versus the U.K.? I wouldn't say it's more than in the U.K. What I would say is the pricing could be the capital markets environment in continental Europe versus the U.K. is different. That translates into a more aggressive pricing environment at times. We're going to be very disciplined. If we don't feel like it makes sense on a risk-adjusted basis, we're not going to pursue it just for the sake of expanding into new markets. Having said all of that, I'm very optimistic about being able to add to our U.K. expansion in the near term. Thanks, Sumit. Appreciate it. Your next question comes from the line of Haendel St. Juste with Mizuho. Hi, Haendel. Hey. Good afternoon out there. Just wanted to go back to the U.K. cap rates, the jump that we saw there over the past quarter. I'm curious, did you enter any new markets within the U.K., like, say, Scotland? Then maybe can you comment on what the expectation should be near term, or how are you thinking about cap rates in U.K. near term? Will it be closer to 5%, like last quarter, or 6%, perhaps closer to the new normal? Thanks. Yeah. Haendel, when we say U.K., we've been looking at transactions in Scotland, Wales, and England. Those are the three countries that we focused on. The fact that we may have closed on a particular transaction, and I don't recall off the top of my head whether we did or we didn't, is not new. From the time we've gone into the U.K., we've been looking at all three countries. Not Northern Ireland yet, just to be clear. The cap rate is really a function of what gets closed in a given quarter, Haendel. As you know, the industrial market trades at lower cap rates, especially if it has the lease term, et cetera. It's a similar story on the retail front as well. Perhaps it's slightly higher than the industrial side, but not that much higher, especially if it has lease term, and it's with one of the top three operators, top four operators on the grocery side of the business. It really is a question of, whether it's industrial or retail. Within retail, is it grocery or home improvement? What is the duration of the lease term? All of that goes into the mix to define what the cap rate is. Yes, within the three countries as well, there is a slight discrepancy in terms of cap rates. What a similar asset would trade in Scotland versus in England. It's a function of all of those various factors that go into what the cap rate is for a given transaction. We have, like I had said before, a very clearly defined strategy. Depending on what gets over the finish line, that translates to the cap rates that we've shared. This particular quarter, it was about 6%, and in the first quarter, it was in the low fives. It blended out to in the mid to high 5% cap rates, which I think is what one should expect going forward. Got it. Appreciate that. One more. Again, fully understanding there's a lot of sensitivity regarding matters pertaining to the pending merger with VEREIT. There's been some confusion amongst a number of us as we've talked to you about the 10% accretion target you outlined for the merger. Maybe can you just clarify for us the 10% accretion. Is that before or after the office portfolio spin off that you're doing concurrently with the merger? Thanks. The 10% is the overall system accretion. It is inclusive of the office assets. It's inclusive of the entire company. That's the extent of the comments I'm going to make. I think you can look at the investor deck that we had put out that walks you through the mechanics of what that 10% really entails. If you look at these two companies and you have one company buying another company, what is the accretion? It's 10%. That's how you should think about it. Okay. Fair enough. It's actually not 10%. Fair enough. Appreciate it. Thank you, Haendel. Thanks, Haendel. Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Hey. Just two quick ones from me. The first, I think, you talked about, historically in the past, given how well the portfolio did during COVID, that there was potential to look at maybe higher yielding, slightly higher risk assets on the acquisition side. Just curious, is that still something that you guys are thinking about integrating in the strategies? Is that still something that's being contemplated? Hi, Ronald. Yes, it's absolutely part and parcel of our strategy. We play across the risk spectrum and the credit spectrum. Just because something is high yielding, doesn't necessarily always mean that it has a risk associated with it, for which you're not getting paid. We don't find those very often. I'll also go ahead and say that. If we do, and it just happens to have a high 6% cap rate associated with it, and the fact that we have certain competencies on our asset management and leasing side of the equation, which we believe are true competencies, that make us what-- based on some of the results that we've shared. We feel a lot better about being able to pursue those opportunities. The more assets that we reposition, et cetera, the better we are able to underwrite some of the risk that's inherent in the high-yielding opportunities that we see. As we continue to build on our competency of repositioning assets and being able to generate spreads that are north of what the existing spreads were, I think we will look at more high-yielding opportunities. They don't come very often. It's certainly part of our strategy, Ronald. Great. The second question was just, going back, I think you talked a little bit about cap rate compression In both the industrial as well as in the retail. Just can you again compare and contrast? Industrial's been very competitive. It sounds like the cap rate compression has moderated relative to the retail. Just curious if those comments are captured accurately, if you could provide a little bit more color there. Sure. Ronald, it's along the range of cap rates that I've shared with you that we are seeing in the market on assets that we are pursuing. I do think that where we have seen compression, the retail assets continue to compress more today than the industrial assets. We hear stories of certain transactions that happen at cap rates that we've never seen before. I would consider that to be one-off. It is a question of a lot of capital chasing the same set of products that we find ourselves interested in, and that has resulted in the environment that we find ourselves. Having said all of that, in the second quarter, we generated over 170 basis points in spread, which is better than our average spread over the duration of our history of acquiring assets. Even in this environment, we are very competitive, and we are able to grow our portfolio and generate above-average spreads. We feel very good about where we are. I don't think that it's a sustainable environment where cap rates continue to compress, especially if, it's funny I say this, but with the 10-year trading in the 115, 116 zip code. Where the expectation is that inflation should come in and interest rates at some point will start to go back up, I think that's going to be the floor for this continued compression. We are starting to see some level of stabilization, certainly on the industrial side. Thank you. Sure. Your next question comes from the line of Brent Dilts with UBS. Great. Thanks, guys. Hey, Brent. Hey there. In the transaction market for theater assets, are you seeing any buyers appear yet or any sellers actively marketing properties as rent collection rates improve? We saw the recent AMC deal for the two Pacific Theatres properties, just wondering more broadly what you're seeing in the market there. Yeah. I think, Brent Dilts, what AMC was able to do is largely along the lines of what their CEO has suggested to the market, that they now are sitting on plenty of capital where they can play offense and where they see opportunities with assets that are well-located but the operator is no longer there or is in a distressed situation. They're going out and buying out the operators. That I think is very prudent. We haven't been in the market trying to sell our assets or anything like that. We had a thesis that we have shared with you and with the market about the theater business as an industry. We've also shared with you that the assets that we believe we have tend to be very well-located and in terms of performance, are in the top two quartiles, a vast majority of our assets. Our expectations have always been that this business will come back and we will start to collect 100% of our rent and that our operators will start to pay back some of the deferred rent, which in one case has already started. I did see some news around assets having traded, and I think it might have been one of our peer companies that sold two of their assets. We really are not playing in the market, Brent. For us, it was more about in the off chance that we do get some of these assets back, how can we reposition them? I think I've made comments in the past around our confidence in being able to reposition some of these assets just given their location and given the demand for alternative use. We haven't been looking to buy more assets, nor have we been looking to sell any of our theater assets. Can't really comment on that outside of what I saw in the press. Okay. Perfect. Just clarification maybe on the guidance for this year. Could you just clarify what is assumed on the recovery of deferred rents from the theater tenants versus your prior assumption? Sure. Yeah, go ahead. Go ahead, Christie. Sorry. Give me- No, please go ahead. Alright. I was just going to say that as it relates to the guidance, Brent, essentially we're expecting as we move forward that we continue to incur and experience positive rent collections similar to the trends that we've been seeing increase through the second quarter and consistent with the experience in July. Oh, okay. Fair enough. Thank you. Thanks, Brent. Thanks. Your next question comes from the line of Linda Tsai with Jefferies. Hi. Good afternoon. Apologize, another cap rate question. In terms of the larger sale-leasebacks for retail and industrial, how do the cap rates on these deals compare to your regular one-off acquisitions? Well, we haven't really seen one of those larger transactions here in the U.S. actually transact. I can't really comment on that, Linda. Traditionally, we had always seen a discount on the portfolio transactions vis-a-vis what you see in the one-off market. My expectation would be that in order to facilitate multi-billion dollar sale-leaseback transactions, that that discount will continue to be there vis-a-vis the one-off markets. Time will tell. We certainly have seen a compression on that discount. I believe that there will have to be a discount in order for an institutional buyer like ourselves to continue to engage. Otherwise, what's the difference? We could pick these assets up on the one-off market, and we certainly have the infrastructure to do that. That's my belief. Thanks. You discussed before the superior cost of capital in the U.K. versus the U.S. What's the differential like currently, and do you view it as sustainable? Sure. On the cost of equity, obviously it's the same. It's really the cost of debt that we see a major difference. You saw what we were able to do on the green bond issuance. I think it priced out at about 1.48% all in. If we were to do a similar issuance here in the U.S., I think the delta would be 30- 40 basis points, maybe even larger. Obviously, the environment today is very different from when we went to the market. Nevertheless, I saw a quote not too long ago on a 10-year unsecured bond. It was 1.95%, 1.98%, and we got almost a nine-year weighted average on the bond issuance that we just did. That was at 1.48%. Yeah, that 50 basis point delta continues to be there, and that's really the advantage that we have, that we have assets that could be financed with capital being raised locally. That's where the cost of capital advantage comes in. Thanks. Sure. Your next question comes from the line of John Massocca with Ladenburg Thalmann. Good afternoon. Hi, John. Hi there. Hi, John. I guess touching back on the industrial investment platform again. Did I hear correctly? It seemed like at the beginning of the call, you were kind of indicating that maybe you're looking to I know historically you've always been in industrial, but maybe further grow that platform. If so, how has your kind of underwriting on industrial assets changed over the years? Maybe this is a misconception on my part, but I've always kind of thought of your industrial investments being primarily kind of high investment-grade rated tenants on long lease term. Has there been any push into areas that maybe have shorter duration leases, maybe some of the more less name brand tenants in an industrial asset? Just anything on that front and how that platform's evolving. Sure. John, I think we've been asked this question around our industrial portfolio and what is the allocation that we would like to see in an optimal portfolio. We've said circa 20%. Today, we are right around 12%. Our desire is to grow that asset type to the 20% zip code. I don't think your question is around why are we doing it. I think you prefaced your question by saying we have been in industrial. I think that hasn't changed. Obviously, as we've underwritten industrial assets now for over 10 years, I think our first investment was in 2010, 2011 timeframe. We have evolved in terms of being able to take on assets that may have only nine years left on a lease rather than what we used to feel comfortable around doing 10 years ago, which was 15-year leases or 20-year leases. Potentially doing it only through the sale-leaseback channels rather than providing capital for takeouts, et cetera. Clearly on the lease term, we are very comfortable taking on high single-digit, mid single-digit lease terms if we can get very comfortable with the market and the inherent rent and what the price per square feet is for given assets and what the market looks like on future rental growth as well as alternative tenants that could step in. If that allows us to pursue some transactions, we will absolutely do that. We are very proud of our industrial asset management team, and we share with you the renewals and the releases that we have on a blended basis. Those types of numbers have continued to give us confidence to grow our business and to grow our platform and to bring in more and more people along with the team that we already have that's very comfortable playing across a lease term, playing across the credit spectrum, et cetera. Having said all of that, we are still predominantly investment grade. We are very comfortable playing across the credit spectrum on the industrial side if we believe it's well located with good real estate metrics associated with it. Okay. Then on the balance sheet side, obviously the U.K. debt issuance was a green bond. I guess maybe kind of both in the U.K. and in the U.S., what's the opportunity set there for more kind of green bond issuance? I guess, what are the advantages essentially from a pricing perspective versus a non-green bond? Christie? Yeah. Thank you, Sumit. Thanks. Appreciate the question, John. Essentially, one of the aspects of green bond is there is some slight of, if you will, favorability associated with the overall rate. Based on our research and tracking, it's about 10 basis points, but it's really more than that. It's really about making a statement as it relates to our ESG initiatives and as well, putting a framework out there that really allows us to partner with our clients in doing the right thing as we focus on reducing our carbon footprint. As we go forward, yes, green bond is something that we're interested in. One of the things that we had talked about in our prepared remarks, is the fact that the bonds that we executed have about 40% fulfillment as it relates to real estate that meets the criteria. We're focused on completing that, not only with acquisitions that we execute in the U.K. and eventually potentially on the continent, but also in the U.S. We think it's a great vehicle for us to move forward with, not only from a liability management perspective and driving competitive weighted average cost of capital, but as I mentioned before, just doing the right thing and allowing us to partner in the right way with our clients to make a difference. Okay. That's it for me. Thank you very much. Thanks, John. Your next question comes from the line of Chris Lucas with Capital One Securities. Hi, Chris. Hi, everybody. Hi. Hello. Sumit, just a couple of quick questions for you. Just on the merger with VEREIT, can you just give us a sense of what are the hurdles left to get through and maybe the expected timing? You mentioned the shareholder vote next week. I'm assuming there's other things that need to get done that push the expected completion date sometime fourth quarter. Yeah. Chris, I'm very limited and constrained in terms of what I can talk about with respect to the merger. All I can tell you is we are right on schedule. One of the biggest hurdles, as you said, is our shareholder vote next week on the 12th. Well, it's on August 12th. If you look at our agreement, et cetera, I think you'll see a couple of other conditions that have been laid out. We feel very comfortable, and we are on schedule so far. I think by the third quarter, we'll have a lot more to share with you. If I can just ask you to be a bit more patient, I'd appreciate it. Sure. I guess just on the significant bump in acquisition guidance, is there any large portfolio transactions that are embedded in that number that we should be aware of? No, Chris. Nothing out of the ordinary. It's just a very healthy pipeline. It's exactly the type of product that you would expect Realty Income to pursue. No large portfolios are part of this guidance. Okay. Great. Thank you for that. Last question, maybe for Christie. Just on the significant ramp in theater rent collections, was there anything in your relationship with them that sort of drove that, or was it just as random as they just decided to pay you in July? As you can imagine, Chris, we're in close contact with our theater clients and have been so since the beginning of the pandemic, even beyond that. As you've seen, their liquidity position has improved significantly. Essentially all theaters are open. With that we've had some great results at the box office. That's all translating to improved collections, together with the fact that we hold essentially the best assets. With that, we're working in partnership. We expect to be paid in full, as Sumit said from the abatement activity, et cetera, very immaterial and nothing in relation to our theater clients. Moving forward, we are continuing to partner. We're focused on getting paid in full, and that's the manner in which we're going forward. Nothing magic. Okay. Last question for me. Just the math as it stands today. Last question for me. Just on the deferral repayment schedule, have you guys outlined sort of what the cadence of that is expected to be? I think we've talked about it in general, Chris, and suffice it to say that as it relates to deferrals, we're not at liberty to talk about any one client. Overall, I can explain to you our strategy, and essentially it's to get paid back in full here in the near term. Essentially, any of our deferral arrangements are spanning, call it a year to 18 months out. We're expected to get paid back in terms of average deferral period within seven months, and as a matter of fact, some of our clients are paying us back early. Overall great job done by the team, and again good partnership with our clients. Your next question comes from the line of Spenser Allaway with Green Street. Thank you. As it relates- Hi there, Spenser. Hi. As it relates to dispositions in the quarter, most of your asset sales were vacant assets. Can you just comment on the market for these assets? Would you say it's harder to offload your vacant assets today than it was pre-COVID, just given the additional headwinds in the market? Spenser, actually, again, it's the exact opposite. If you look at the second quarter and you look at the resolutions, we were able to pick up 50 basis points essentially, from where we were in terms of occupancy at the end of the first quarter versus the second quarter, from 98%- 98.5%. It's largely a testament to what we were able to do on the asset sales side. These are vacant asset sales. I think we had close to 40 resolutions on that front. If you look at what the return profile has been, it continues to be year-to-date in that 8%+ unlevered returns. I think it again goes back to where we buy assets, how fungible are these assets, if not for re-tenanting purposes, to sell it vacant and still be able to capture returns that are well in excess of our long-term weighted average cost of capital. We've been very successful, and part of it is a testament to the team that we have in place. We haven't seen any drop-off, in fact, during this COVID-related downturn that we are coming out of. I would go so far as to say that our speed, our ability to execute more transactions has continued to increase quarter over quarter. That's the reason why we are so proud of being able to get to 98.5%, despite suffering NPC's bankruptcy in the fourth quarter where we were handed back 70 odd assets. We were able to get right back to that 98.5% zip code within two quarters. We feel very good about our team and our ability to continue to take advantage of the market. Okay. It looks like you sold at least one office asset. Can you just comment on that property type and the market for those assets right now, especially for assets with low lease term? I don't want to speak to specifics, Spenser, because we have NDAs, et cetera. Rest assured, that was an asset where if we had discussions with the tenant and it was deemed better to sell it back, and move forward. Again, on that specific asset, our overall return profile was well in advance of what we captured for the second quarter. We feel very good about those opportunistic sales. There is no secret. We've already mentioned that office is not a long-term asset type that we want to be exposed to. When we get these one-off opportunities, we take advantage of them. Your next question comes from the line of Elvis Rodriguez with Bank of America. Great. Thanks for taking the question. Just a quick one on strategy. Sumit, as you think about acquiring these larger portfolios and the sale-leaseback deals, how do you think about the assets you want to keep versus the assets you want to shed in terms of spinning them out versus an outright sale? Yeah. Elvis, that's part of what we do across our portfolio pretty much on a daily basis. It's not just when we are buying large sale-leaseback transactions. Obviously, we are somewhat constrained being a REIT. You have holding period requirements, et cetera. In the past, when we have done large sale-leasebacks or larger sale-leasebacks, there were some assets that we bought into our TRS primarily with the intent of managing our exposure to the tenant. That has always been part of our strategy and will continue to be part of our strategy going forward. Nothing new there. Great. Thank you. Sure. Your next question comes from the line of Greg McGinniss with Scotiabank. Hey, Just a- Hey, Greg. quick follow again. Just a couple quick follow-ups here. There was a lot of movement on the convenience store side of things this quarter with 7-Eleven, Circle K, Speedway, GPM, kind of shifting around top tenant list. Just curious if there were maybe some trades between those tenants that was impacting that? In terms of increasing exposure to 7-Eleven, was that a deal that maybe you may not have pursued without the pending VEREIT merger, or are you comfortable with 6% exposure to certain tenants? Not too long ago, we had 7% exposure to Walgreens. If you notice, Greg, that has over time dwindled down to 7.5%. The biggest movement on the 7-Eleven transaction was that they closed on their Speedway transaction. You might recall we used to have, I don't know how many assets, but we were exposed to Speedway. Once they closed on it's obviously now under 7-Eleven, and that's what shows an increase in the 7-Eleven tenant client exposure. You might have noticed that on the Circle K Couche-Tard side, that went lower, and it's primarily because they sold some of the assets that were our assets to Casey's. That's the reason for some of the Couche-Tard concentration to be reduced from what you had seen in the previous quarter. That's really what's happening. It's not us going out and doing transactions or what have you. Having said that, if transactions were to be available, we would absolutely pursue it. We are very comfortable with individual clients representing 6%, 7%, not across the board, but for certain clients. We are absolutely very comfortable with that. 7-Eleven is definitely one of them. Thank you for the color there. Just a final one from me, kind of following up on Spenser Allaway's question on dispositions. This past quarter was, I guess, the largest number of vacant dispositions in years. Was that just due to the NPC vacancies, or was there any other particular tenant or industry type for those assets? Any color you can provide on the re-leasing or repositioning attempts on those assets would be appreciated as well because obviously you showed success in the other re-leasing numbers this quarter. Yeah. Greg, this is part of our asset management strategy. Obviously, we are very comfortable holding onto assets. It's not like we are trying to manage to an occupancy number. There is an analysis that we go through figuring out what is the holding cost, what does the re-leasing scenario look like, how long is that going to take? Is there going to be capital contribution? Are we better off selling it for whatever it is that we are able to get? What's the return profile look like in a re-leasing scenario versus a sales scenario today? Once you look at the mix, you pursue a particular strategy. That's largely what's driving the decision-making process. What we found was, yes, that some of the assets that we sold actually were the bankrupt assets that we got back from NPC's. They were in high demand but not for re-lease. They were in high demand with folks that wanted to buy these assets outright. When we looked at the return profile, it was superior to us holding it and trying to find a new client that could step into those assets. Having said that, there are some assets that we actually re-leased to new clients as well. It's a combination of strategies that we execute. The underlying premise and the goal has always been what is going to maximize our returns. Whatever that answer is, whether it's selling it vacant versus finding a new tenant, that's dictated by these return profiles. This concludes the Q&A portion of Realty Income's conference call. I would now like to turn the call over to Sumit Roy for concluding remarks. Well, thank you very much, and I look forward to coming back to you shortly. Bye-bye. Thank you for your participation. This concludes Realty Income second quarter 2021 operating results conference call.