Core Viewpoint - Realty Income and W.P. Carey are both prominent players in the net-lease REIT sector, offering similar business models and dividend yields, but they differ significantly in size, portfolio composition, and growth strategies [1][5][12]. Group 1: Similarities - Both Realty Income and W.P. Carey operate in the net-lease space, owning single-tenant properties where tenants cover most property-level expenses [2]. - They have exposure to similar asset classes, including retail, warehouse, and industrial properties, with portfolios spanning North America and Europe [2]. - Both companies have long histories in the net lease market, with W.P. Carey being a pioneer in this area [3]. Group 2: Differences - Realty Income has a market capitalization of approximately $50 billion, while W.P. Carey is valued at just under $14 billion, making Realty Income the industry giant [6]. - Realty Income owns over 15,600 properties compared to W.P. Carey's roughly 1,600 properties, indicating a significant difference in portfolio size [6]. - W.P. Carey has a greater focus on industrial and warehouse assets, which are typically larger, whereas Realty Income emphasizes retail properties, which are generally smaller [7]. Group 3: Dividend Policies - Realty Income has a track record of increasing its dividend for 30 consecutive years, while W.P. Carey recently reduced its dividend in late 2023 after exiting the office sector [9]. - Realty Income pays dividends monthly, while W.P. Carey pays on a quarterly basis, which may appeal differently to investors [9]. - W.P. Carey has resumed increasing its dividend quarterly, with a recent increase of approximately 1.1% (3.5% annualized), while Realty Income's last increase was a modest 0.2% (2.3% annualized) [10][11]. Group 4: Investment Appeal - Realty Income is characterized as a stable, slow-moving giant, appealing to conservative investors, while W.P. Carey is seen as more aggressive and capable of faster growth, attracting more risk-tolerant income investors [12]. - A combined investment in both REITs could provide a balanced approach, leveraging the strengths of each [8].

Financial Data and Key Metrics Changes - The company reported normalized FFO of $10.8 million or $0.07 per share, down from $0.13 per share in the prior year quarter [21] - Adjusted EBITDAre increased slightly year over year to $115.8 million [21] - Interest expense increased by $10.1 million compared to the prior year [21] Business Line Data and Key Metrics Changes - Comparable hotel RevPAR grew by 2.6% year over year, with GOP and adjusted hotel EBITDA declining due to renovations and increased costs [5][9] - Full service hotels reported a 1.9% increase in RevPAR, while select service portfolio saw a 10.6% increase [9][10] - Extended stay portfolio's RevPAR was flat, impacted by renovations [10] Market Data and Key Metrics Changes - The lodging portfolio experienced a slowdown in RevPAR growth as the quarter progressed, influenced by reduced government and international travel [6][30] - Group revenue pace increased by 6.5% year over year, indicating strong demand despite overall market challenges [33] Company Strategy and Development Direction - The company plans to sell 123 hotels in 2025, with estimated proceeds of $1.1 billion to strengthen the balance sheet and reinvest in growth opportunities [7][13] - A strategic shift towards increasing net lease exposure is anticipated, with a target of 54% net lease and 46% lodging assets post-disposition [14] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing macroeconomic uncertainties but expressed confidence in portfolio optimization initiatives and durable cash flows from net lease assets [14] - The company expects RevPAR for Q2 to be between $99 and $102, with adjusted hotel EBITDA projected at $69 million to $74 million [25] Other Important Information - The company is focused on capital expenditures of approximately $250 million for the year, with $120 million to $140 million allocated for maintenance capital [27] - The company has recognized an impairment on 16 hotels, with expectations of a gain on sale for the remaining hotels in the portfolio [68][70] Q&A Session Summary Question: Can you walk us through the RevPAR trends in the quarter? - Management indicated that RevPAR started strong in January but showed deceleration by March, with preliminary April numbers showing a decrease of 1% year over year [30][31] Question: What is the impact of international and government business on demand? - Approximately 30% of the portfolio is in top markets, with a modest decrease in government contracts noted [32][33] Question: How confident is the company in completing hotel sales at the expected price? - Management expressed confidence due to a robust selection process and active diligence with buyers [34][36] Question: Will the company continue to have hotel exposure in the future? - The company plans to maintain hotel exposure while increasing net lease properties, expecting performance progress on both sides [40][41] Question: What caused the shift in timing for hotel dispositions? - The shift was attributed to the diligence process associated with larger portfolios rather than broader market concerns [59][60] Question: How is the CapEx program being managed in light of potential tariff impacts? - The company is monitoring tariffs and has locked in pricing for many projects, with contingencies in place to manage costs [62][63] Question: What types of properties were acquired in the net lease segment? - The company acquired a car wash and a casual dining concept, with plans for further acquisitions in QSR and casual dining [76][78] Question: What is the outlook for the Sonesta brand in relation to the hotel portfolio? - The plan is for the hotels being sold to retain the Sonesta franchise agreements [84]

Financial Data and Key Metrics Changes - In Q1 2025, the company generated distributable earnings of $25.5 million or $0.20 per share, achieving a return on equity of 6.6% with adjusted leverage of 1.4 times [4][14] - As of March 31, 2025, the company had $1.3 billion in liquidity, with 83% of its asset base unencumbered and 72% of its debt comprised of unsecured corporate bonds [6][7] - The carrying value of the securities portfolio increased by 37% from year-end to $1.5 billion, with a weighted average yield of 5.67% [19] Business Line Data and Key Metrics Changes - The loan portfolio stood at $1.7 billion, representing 38% of total assets, with a weighted average yield of 8.7% [8] - New loan originations in Q1 totaled $329 million, with 74% backed by multifamily or industrial assets [9][24] - The real estate portfolio generated $12.2 million of net operating income during the first quarter, primarily consisting of net leased properties [11][20] Market Data and Key Metrics Changes - The company noted that the current macroeconomic environment is characterized by persistent interest rate volatility and geopolitical uncertainty, impacting commercial real estate demand [12][13] - The company expects to see more attractive lending opportunities as acquisitions become more common and newly built multifamily units come off construction loans [22][23] Company Strategy and Development Direction - The company is focused on redeploying liquidity generated from loan payoffs into new loans at lower reset basis, reflecting current market conditions [5] - The strategy includes a shift towards unsecured debt as the primary funding source, aiming for potential investment-grade ratings [8][17] - The company plans to maintain a disciplined approach to capital deployment, prioritizing higher-yielding loans over securities [25][75] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating market volatility due to substantial liquidity and a robust balance sheet [6][13] - The company anticipates an increase in loan originations for the remainder of 2025, despite potential slowdowns in certain areas [39][44] - Management highlighted the importance of being well-capitalized to capitalize on opportunities that arise from market fluctuations [13][81] Other Important Information - The company repurchased $20 million in principal value of unsecured bonds during the first quarter and declared a $0.23 per share dividend [16][18] - The CECL reserve remained at $52 million, which management believes is sufficient to cover potential losses [10][19] Q&A Session Summary Question: What was the origination activity in the quarter? - The company noted that the blended spread was wide, with opportunities arising from market volatility and special situations [30][31] Question: Do you expect originations to maintain or exceed the pace generated in the first quarter? - Management expects originations to exceed the first quarter pace [39] Question: How are you thinking about the net lease portfolio longer term? - The company is open to selling properties but is not actively managing to sell; they are prepared to hold assets [45][49] Question: What is the outlook for the ten-year treasury yield? - Management anticipates the ten-year yield will rise due to the U.S. deficit, projecting it could reach around 4.75% in six months [57] Question: How do you protect against interest rate risk when adding CMBS? - The company hedges with swaps and focuses on floating rate instruments to mitigate volatility [63]