Good afternoon. My name is Keisha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Realty Income Second Quarter 2020 Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I would turn the call over to Mr. Andrew Crum, Associate Director of Realty Income. You may begin.

Thank you all for joining us today for Realty Income’s second quarter 2020 operating results conference call. Discussing our results will be Sumit Roy, President and Chief Executive Officer; and Jonathan Pong, Senior Vice President, Head of Capital Markets and Finance. 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 observe a two-question limit during the Q&A portion of the call, in order to allow everyone the opportunity to participate. If you’d like to ask additional questions, you may re-enter the queue. I will now turn the call over to our CEO, Sumit Roy.

Thanks, Andrew. Welcome, everyone. I’d like to start by expressing my gratitude and appreciation towards my colleagues, whose resiliency and determination to remain extremely productive in the face of the current pandemic continues to drive our business. We are one team, and all employees have embraced this concept through effective communication and collaboration while working remotely. Further, we empathize with the individuals and businesses impacted by COVID-19 and we continue to partner with our clients to seek mutually beneficial outcomes. Our operating results for the second quarter continue to demonstrate the stability and resiliency of our business as we generated AFFO per share of $0.86 and ended the quarter with a portfolio occupancy of 98.5%. During the quarter, we invested over $154 million in high-quality real estate, including $58 million invested internationally in the UK, which brings us to $640 million invested year-to-date. Our quarter-end net debt-to-EBITDA ratio of 5.1 times positions us well going forward with significant financial flexibility. While uncertainty remains due to the COVID-19 pandemic, our business focuses primarily on owning real estate leased to essential retail and industrial tenants, continues to perform well. Rent collection since hitting a low of 84.9% in May has steadily improved. As of July 31, we have collected 86.5% of contractual rent for the second quarter. We have collected 99.1% of contractual rent for the second quarter from investment-grade-rated tenants, which further validates the importance of having a high-quality real estate portfolio that leads to large, well-capitalized clients. While we have not historically prioritized investment-grade-rated tenants as a primary objective, during periods of economic uncertainty, high-grade credit tenants tend to provide more reliable streams of income. For the month of July, we have collected 91.5% of contractual rent, representing the second consecutive month of improved rent collection and the highest monthly rent collection since the pandemic began. Uncollected rent continues to be primarily in the theater, health and fitness, and restaurant industries, as these industries account for approximately 81% of uncollected rent during the second quarter. Importantly, we continue to expect to collect the vast majority of uncollected rent as we consider and negotiate rent deferral agreements on a case-by-case basis. We disclosed in our financial supplement the percentage of contractual rent collected by industry. Our top four industries: convenience stores, drug stores, dollar stores, and grocery stores, each sell essential goods and represent approximately 37% of rental revenue. We have received almost all of the contractual rent due to us from tenants in these industries for the second quarter. Other industries, such as theaters, health and fitness, and restaurants have been challenged due to store closures and social distancing guidelines, but we are encouraged by improved rent collection in recent months. We remain constructive on the long-term viability of these industries, particularly given our partnership with the top operators in each of these verticals. The success of the theater industry has largely been tied to the quality of films produced by Hollywood, and the U.S. box office reached an all-time high as recently as 2018. Additionally, the economic business model for studios continues to suggest that the theater distribution channel will remain attractive going forward. We also expect the non-discretionary and low-price point propositions of the quick-service restaurant and health and fitness industries to support resiliency in their rent-paying capabilities, particularly as their businesses begin to reopen in certain areas of the country. As we continue to manage our portfolio to support long-term value creation, we believe the breadth and depth of our asset management and real estate operations department is a key competitive advantage compared to our competitors. Moving on to investment activity during the first quarter. In the second quarter of 2020, we invested approximately $154 million in 32 properties located in 15 states and the United Kingdom at a weighted average initial cash cap rate of 6.3% and with a weighted average lease term of 11.8 years. On a total revenue basis, approximately 41% of acquisitions during the quarter were from investment-grade-rated tenants. 100% of the revenues were generated from retail tenants. These assets are leased to 14 different tenants across eight industries. We closed six discrete transactions in the second quarter, with approximately 9% of second-quarter investment volume being sale-leaseback transactions. Of the $154 million invested during the quarter, $96 million were invested domestically in 30 properties at a weighted average initial cash cap rate of 6.5% with a weighted average lease term of 12.8 years. During the quarter, $58 million was invested internationally in two properties located in the UK at a weighted average initial cash cap rate of 6.1% with a weighted average lease term of 9.9 years. Year-to-date, we’ve invested $640 million in 94 properties located in 25 states and the United Kingdom at a weighted average initial cash cap rate of 6.1% with a weighted average initial lease term of 13.6 years. On a revenue basis, 37% of total acquisitions are from investment-grade-rated tenants, 97% of revenues are generated from retail, and 3% are from industrial assets. These assets are leased to 29 different tenants across 17 industries. We closed 23 independent transactions year-to-date, with approximately 22% of year-to-date investment volume being sale-leaseback transactions. Of the $640 million invested year-to-date, $416 million was invested domestically in 88 properties at a weighted average initial cash cap rate of 6.5% with a weighted average lease term of 14.3 years. Year-to-date, approximately $224 million was invested internationally in six properties located in the UK at a weighted average initial cash cap rate of 5.3% with a weighted average lease term of 11.8 years. Transaction flow remains healthy as we sourced approximately $14.5 billion in the second quarter. Of the $14.5 billion sourced during the quarter, $9 billion were domestic opportunities, and $5.5 billion were international opportunities. Investment-grade opportunities represented 65% of the volume sourced for the second quarter. Of the opportunities sourced during the quarter, 55% were portfolios and 45% or approximately $6.5 billion were one-off assets. Year-to-date, we sourced approximately $32.6 billion in potential transaction opportunities. Of these opportunities, $19.3 billion were domestic opportunities and $13.3 billion were international opportunities. Investment-grade opportunities represented 49% of the volume sourced year-to-date. Of the $32.6 billion sourced year-to-date, 56% were portfolios and 44% were one-off assets. Of the $154 million in total acquisitions closed in the second quarter, 41% were one-off transactions. Our investment spreads relative to our weighted average cost of capital during the quarter averaged approximately 131 basis points. We define investment spreads as initial cash yield less our nominal first year weighted average cost of capital. Looking forward, our investment pipeline remains robust, and we are well positioned with strong financial flexibility. Accordingly, we are reinstating our 2020 acquisition guidance with a range of $1.25 billion to $1.75 billion. Moving on to dispositions. During the quarter, we sold 12 properties for net proceeds of $7.4 million, and we realized an unlevered IRR of 6.1%. This brings us to 29 properties sold year-to-date for $133.6 million at a net cash cap rate of 6.2%, and we realized an unlevered IRR of 10.5%. Our portfolio is well diversified by tenant, industry, geography, and property type, which contributes to the stability of our cash flow. At quarter-end, our properties were leased to approximately 600 tenants in 50 different industries located in 49 states, Puerto Rico, and the UK. 84% of our rental revenue is from our traditional retail properties. The largest component outside of retail is industrial properties, accounting for approximately 11% of rental revenue. Walgreens remains our largest tenant at 6% of rental revenue. Convenience stores remain our largest industry at 12% of rental revenue. Within our overall retail portfolio, approximately 95% of our rent comes from tenants with a service non-discretionary and/or low price point component to their business. We continue to believe these characteristics allow our tenants to operate in a variety of economic environments and to compete more effectively with e-commerce. These factors have been particularly relevant in today’s retail climate, where the vast majority of recent U.S. retailer bankruptcies have been in industries that do not possess these characteristics. We continue to feel good about the credit quality in the portfolio, with approximately half of our annualized rental revenue generated from investment-grade-rated tenants. The weighted average rent coverage ratio for our retail properties is 2.7 times on a four-wall basis, while the median is 2.5 times. Occupancy, based on the number of properties, was 98.5%, consistent with the prior quarter. During the quarter, we released 65 properties, recapturing 101.4% of the expiring rent. During the first half of 2020, we released 158 properties, recapturing 100.1% of expiring rents. Since our listing in 1994, we have released or sold over 3,300 properties with leases expiring, recapturing over 100% of rent on those properties that were released. Our same-store rental revenue decreased 0.4% during the quarter and 0.2% year-to-date. Our reported same-store growth includes deferred rent and unpaid rent that we have deemed to be collectible over the existing lease term. The decrease in same-store rental revenue is primarily driven by write-offs we recognized in the restaurant industry, as well as partially due to a change in methodology, as we are now recognizing percentage rent during the period it is accrued rather than during the period it is paid. Moving on, I’ll provide additional detail on our financial results for the quarter, starting with the income statement. Our G&A expense as a percentage of rental and other revenue for the quarter was 4.8%. Our year-to-date G&A expense ratio, excluding approximately $3.5 million severance related to the departure of our former CFO, was 4.6%. We continue to have the lowest G&A ratio in the net lease REIT sector, reflecting our best-in-class efficiency and the scale benefits afforded to us given our size. Our non-reimbursable property expenses as a percentage of rental and other revenue was 1.4% for both the quarter and year-to-date periods. AFFO per share during the quarter was $0.86, which includes approximately $60.2 million or $0.17 per share on a fully diluted basis of deferred and unpaid rent that we deemed earned during the period and probable of being collected during the existing lease term. Briefly turning to the balance sheet, we have continued to maintain our conservative capital structure and remain one of the few REITs with at least two A ratings. During the quarter, we issued $600 million of senior unsecured notes due 2031 with an effective yield to maturity of 3.36%. Subsequent to the quarter end, we added an additional $315 million at an effective yield to maturity of 2.34%, blending out to just shy of 3% for the entire $950 million of notes. Additionally, we raised approximately $98.1 million of equity during the quarter, primarily through our ATM program. Year-to-date, we have raised over $1.8 billion of well-priced capital, including approximately $874 million of equity and $950 million of debt. We ended the quarter with low leverage and strong coverage metrics, with a net debt-to-adjusted EBITDA ratio of 5.1 times and a fixed charge coverage ratio of 5.4 times. We continue to have very strong liquidity with approximately $400 million of cash on hand and $2.5 billion available under our revolving credit facility as of July 31, which provides us significant financial flexibility. Looking forward, the overall debt maturity schedule remains in excellent shape, with a weighted average maturity of bonds at 8.3 years. Additionally, we have next to $140 million of debt coming due through 2021. In summary, our balance sheet is in great shape, and we continue to have low leverage, strong coverage metrics, and ample liquidity. In June, we increased the dividend for the 107th time in our company’s history. We have increased our dividend every year since the company’s listing in 1994, growing the dividend at a compound average annual rate of approximately 4.5%. We are proud to be one of only three REITs in the S&P 500 Dividend Aristocrats Index, having increased the dividend every year for the last 25 consecutive years. Moving on, we have always managed the business with a focus on economic resiliency and generating stable and increasing cash flow through various economic environments. We continue to do so through the current climate of uncertainty driven by COVID-19. We deliberately designed a high-quality real estate portfolio leased primarily to tenants providing non-discretionary or low-price point goods or services, emphasizing partnerships with large, well-capitalized operators who are leaders in their respective industries. Our judicious balance sheet management and the strength of our financial position are evidenced by our 2A credit ratings, and our current financial flexibility and liquidity positions us favorably to capitalize on growing opportunities going forward. We have reinstated our 2020 acquisitions guidance with a range of $1.25 billion to $1.75 billion. At this time, I’d like to open it up for questions.

And your first question comes from Shivani Sood from Deutsche Bank.

Hi, thanks for taking the question. Touching on the investment pipeline, I’m just curious, in terms of potential acquisitions, the depth of the buyer pool that you’re seeing out there in terms of competition. And how it compares to pre-COVID levels? I guess, is it mostly public buyers or private and has it been different for larger portfolio transactions?

Yes, it’s a very good question, Shivani. The way to answer it is that for the high-quality essential retail product, the competition for that product remains fierce. In fact, it’s translating into cap rates that I would say have tightened compared to pre-COVID levels. In terms of the number of potential buyers looking at that product, it continues to be very strong. I would say that we don’t see as many public net lease companies in the space today compared to what we did pre-COVID. However, given what we’ve heard in the recent second-quarter earnings announcement, I expect that’s going to change. But at least over the second quarter and in transactions that we pursued more recently, the number of public buyers tends to be fewer. On the international side, however, the number of buyers, and most of the time we’re competing with private institutions, continues to be very strong. In fact, there have been occasions where we walked away from transactions that were right down the fairway for us, but due to pricing getting very competitive. So in general, I would say that all the products we are pursuing, the competition remains strong, and I expect that most of the public net lease buyers are going to stop playing in that space sooner now.

And then as a follow-up, in terms of the reinstated investment guidance, could the strength of the UK markets suggest that more of those investment volumes will be sourced in the U.S. versus the UK? Thank you.

Sure. Look, I think the UK market, and I’d say the overall European market, has continued to be a very strong source of growth for us. There were about $650 million worth of sale-leaseback opportunities that practically meet all the criteria you’d be looking for outside of pricing. Given our disciplined approach to acquisitions, we chose not to continue to pursue those transactions. If you look at the sourcing numbers, of the $34 billion, $13 billion has been sourced internationally, which is well above what we had originally anticipated when we entered the UK market. The product remains strong in the international markets. I would say that even in the U.S., our sourcing numbers are a testament to that. There remains plenty of products available, both on the sale-leaseback side of the equation, as well as on the one-off market. The reason we felt comfortable reinstating our acquisition guidance is a testament to the pipeline that we currently have, the discussions we have with our relationship tenants, and what we are seeing on the sourcing side of the equation.

Thanks very much for that color.

Thank you.

And our next question comes from Nate Crossett with Berenberg.

Can you guys hear me?

There’s a bit of static, but we can hear you.

You guys mentioned that you’ve seen some tightening for the high-quality product. Obviously, you guys have a lot of it. I’m just wondering if you guys are considering selling some of it into this attractive pricing and maybe redeploying that capital elsewhere.

Look, our business philosophy has been that the products that we like, we would like to hold forever. I’m being a bit facetious there, but the idea being that trying to time the market and sell when we believe that the cap rates are low doesn’t always play out. Our history has proven that if we hold onto assets and continue to work with our partners, whom these assets are deemed critical, we will create value. We will create value with less volatility and on equivalent nominal terms. That has sort of proven to be the case. But that’s not to say that opportunistically we won’t take advantage of the market like we did in the first quarter, where on the consumer electronic side of the business, we decided to sell the assets back to our tenants with whom we were discussing other opportunities. We were able to generate an 11% unlevered IRR based on selling those assets back. But our philosophy is, let’s buy the assets that work for our tenants, let’s get into very long-term leases with minimal to zero capital invested in those assets, and we will create value, especially if it continues to work for our tenants.

Okay. That’s helpful. And then just one on the pipeline. I was wondering if you guys could just give a little color on how much of it is retail versus industrial, and then the same in the UK. You mentioned $13 billion sourcing, just curious how much of that is retail versus industrial?

Yes. I would say the vast majority is retail. It’s not to say that we are not seeing industrial. Those are the only two products that we are really looking at right now, Nate. But I would say, anywhere between 60% to 70% of what we are sourcing is on the retail side of the ledger, and 30% to 40% is on the industrial side. It’s no secret we want to grow the industrial portion of our asset type. We have made a concerted effort to cultivate relationships with folks who could potentially provide us with this product, and it is starting to take shape, generating some transaction flow from that side of the business. But what keeps us a little bit on the sidelines continues to be the fact that our cost of capital is not quite where it was four months ago. If that constraint were removed regarding the product itself and what’s available, there is plenty of very good product in the industries that we want to participate in with operators we'd love to grow our relationship with. So yes, it’s about a 60% to 70% split on retail, 30% to 40% on industrial.

Okay. Thanks guys.

Our next question comes from Christy McElroy with Citi.

Hi, thank you so much. Sumit, just a follow-up on those comments and your comments on balance sheet and capital raising. Just in terms of your desire to do more of these deals. From a capital raising standpoint, you recently issued debt, you did an equity raise earlier this year or you just did some more on the ATM, but you tend to run at a conservative leverage level. So as you think about doing more deals, and you mentioned cost of capital, just from a funding standpoint, what should we expect in terms of further equity raises in the context of your guidance?

Yes, that’s a good question, Christy. We believe that we can get to the midpoint of our guidance without having to necessarily rely upon the equity markets. We can still stay within what we would deem as conservative, what our rating agencies would deem as being in line with the ratings that we have. Having said that, our hope is that with continued positive results on the operating side of the business and consistently providing information that allows our cost of equity to improve, we would opportunistically be happy to continue to raise equity capital. The point I want to leave you with is that we don’t have to do that. Part of the reason we entered 2011 and did the large equity raise was to create enough capacity and under-leverage our balance sheet coming out of March so that if we needed to lean on the debt capital markets, which normalized much sooner than the equity markets, we could do so and still stay within levels that our rating agencies would continue to support the 2A ratings. So that’s where we are.

And then just to follow-up on your comments about theaters. Just two things really: how much of the theater and non-payment of rents could ultimately turn into vacancy in your view? And then from a broader perspective, you talked about the economic model. What are your thoughts on that changing in light of the recent AMC universal deal and other deals that could follow that in terms of theater operators’ ability to pay the kind of rent that they’re paying today?

Yes. Look, let’s talk about AMC. We’ve just agreed to terms with AMC. They started paying partial rent in the month of July, which was a very good signal to us. We’ve entered into a payback arrangement for the deferred rent that we negotiated. The payback period is expected to be longer, averaging 2.7 years. But the fact that we were able to enter into an agreement with AMC, and that they were able to start paying us rent for July, are good signs. We’re seeing the same thing you’re seeing. The advantage we have is that we can communicate directly with AMC. What they’ve shared with us regarding the agreement entered into with Universal is that they believe that within the first 17 days, they get 75% to 90% of box office revenues. For blockbusters, they may generate 90% of the receipts within the first three weeks. They don’t anticipate significant cannibalization, since the movies will be advertised as PVOD only after the first two weeks of theatrical release. The fact that they also receive a share of PVOD revenues is another source of revenue that gives them comfort. The basic premise is that the economic pie in entering this agreement is expected to increase for both parties. Time will tell; we’ve run our own scenarios based on AMC's information, and at the corporate level, we believe they’ll be either at 0% to negative 5% in profitability through this arrangement. We believe they can sustain through November, even in a scenario where they have zero openings. Obviously, if the slowdown continues leading to more theaters shutting down, or they’re unable to open as they’ve indicated, there’s a chance they may come back and request further agreements.

But Sumit, don’t you – it’s Michael Bilerman speaking. You don’t share in the revenues when I stream the Universal movie in my house. There’s a percentage of the revenues that are produced that as a landlord you don’t receive, right? Doesn’t it ultimately diminish the value of a theater box that you own? Shouldn’t that mean a higher cap rate and lower rent? Just because the revenues generated in that box are not what they used to be? This goes beyond the COVID situation; it addresses the original issue with theaters, which was that PVOD was increasing, and now we’ve had a massive change from 75 to 17 days that nobody expected.

Yes. Michael, that might turn out to be exactly the case. From a theater perspective, I think you’re right. The actual box may generate less profitability for AMC going forward. However, here’s the other piece to consider. The math associated with something viewed in theaters versus PVOD does not align well for studios if PVOD becomes their only revenue stream. The majority of their profitability is derived from the 55% to 60% of revenues that theaters generate. It’s much higher for big blockbuster movies, which Hollywood tends to migrate towards. I believe this arrangement is more for movies that may not be as popular, allowing studios to maximize revenue, perhaps through PVOD. The conversations we've had indicate that this agreement should allow studios to become more profitable but should also enable theaters to generate better content, thereby benefitting both parties.

Thank you.

Our next question comes from Nick Yulico with Scotiabank.

This is Greg McGinniss on with Nick. Sumit, the guiding level of acquisitions, inclusive of or exclusive of any potential portfolio deals? How do you think about your ability to underwrite those $200 million-plus transactions given the number of tenants and leases in this more uncertain environment?

Yes. Even where we are today, I think we feel confident regarding our cost of equity. Our overall cost of capital will allow us to continue to pursue transactions that meet our criteria, including the industries and operators we want to work with, as well as the real estate asset types. Our confidence about reaching the acquisition numbers stems from our pipeline and the inbound opportunities we've seen over the last two and a half to three months. With volatility that we witnessed earlier on in the quarter has calmed down, it gives us the conviction to aim at that $1.25 billion to $1.75 billion acquisition number. Our ability to execute $200 million portfolio deals is still intact, and being under-leveraged allows us to lean more on the debt side of our capital stack rather than the more volatile equity side. Having that optionality gives us the confidence to present that figure.

Okay. So the portfolio deals may be included within that guidance number at this point?

Absolutely. Sorry, I didn’t answer that directly. That’s correct.

Okay. Thanks. Shifting gears a little bit, just given the current presidential polls looking to target 1031 exchanges and the tax plan. Would you expect the removal of like-kind exchanges to impact the business measurably, or even potentially the types of assets that you look to acquire?

I wouldn’t use the word measurable, but yes, on the margin, do I expect it will have an impact? Absolutely. We don’t necessarily compete much with 1031 buyers, maybe on the quick-service restaurant side of the business. We may encounter some of these buyers on one-off transactions, but primarily we are buying portfolios or smaller portfolio transactions. Notably, most of our dispositions tend to be vacant assets, and those buyers don’t typically engage in that area. They usually tend to be developers or tenants aiming to own their own space, so any potential impact would mostly occur if we sell occupied assets on an individual basis. That said, that is not a big element of our overall portfolio.

Great. Thank you.

Sure.

And our next question comes from Spenser Allaway with Green Street Advisors.

Thank you. In terms of the rent deferrals you've granted to tenants this year, have any of the terms changed since first negotiated? Have any tenants indicated that they would be paying back rent ahead of the original payback period?

Yes, actually. So I’ll answer your first question, the second part first, Spenser. We’ve been sharing our monthly collection information on a regular basis. If you recall, we announced April rents with 82.9% collection, and today it's tracking at 88.4%. Similarly for May, we reported 84.9%, today it’s at 86.1%. Every month, we've observed some tenants make payments that initially we thought we’d need deferment agreements with. Some of them were from the restaurant side of the equation, while others came from health and fitness, or data centers. They decided to start paying us for April, May, and June earlier than expected due to improved business conditions. Regarding the first part of your question about altering the leases, the majority of what we entered into, which constitutes about $14 million of the total $16 million in agreements, has been done without requiring amendments to the leases themselves. The expectation is to be paid back during the original lease term, thus maintaining accounting compliance. There are some tenants requesting a longer payback period, beyond the original lease term, but that is a very minor percentage. Most cases have involved no lease modification.

Thank you.

Our next question comes from Todd Stender with Wells Fargo.

Thanks. Sumit, if I heard you right, it sounds like you walked away from a portfolio transaction in the quarter. Just if I heard that right, getting a sense of what the cap rate was on that to see how low is too low for you guys? And maybe what the investment spread just wasn’t there.

Yes, Todd. There were a couple of transactions in that $650 million I mentioned. Both were international, and they were both assets I would have loved to acquire. I don’t want to specify the cap rates, as they are fairly large transactions, and some are not public yet. However, if you look at the spreads we achieved, we made about 135 basis points of spread, which is 15 basis points lower than our average spread historically. Yes, we’re open to smaller spreads, but not to a point that doesn't justify having enough of a positive uplift from these investments, especially considering the risks involved. If you analyze the industry or the operator, we must have high confidence about their ability to survive beyond the initial lease term of 15 to 20 years. We’ve managed to achieve spreads up to 131 basis points, willing to go below the average spread, but there's a threshold we won't go beyond.

Got it, okay. Thank you. And I’m not sure if I missed this, but in looking at the same-store revenue growth, quick-service restaurants seemed to create the biggest hit. I wouldn’t have guessed that, but maybe casual dining to that degree. Can you flesh out what happened there within QSR?

Sure. There are a couple of operators that constituted a significant portion of that write-off. One is NPC that filed for bankruptcy. Another tenant is still paying rent but we don’t have the same level of confidence in their prospects. This tenant has been on our watch list for over a year. They did pay us July rent, yet we determined that we must write them off. These two operators account for the QSR piece of the write-off.

Okay, thank you.

Sure.

And our next question comes from John Massocca with Ladenburg Thalmann.

Yes. So apologies if I missed this in the prepared remarks, but as you look into July, how much of the uncollected rent was deferred and how much was not subject to an agreement? Are there any industries driving this portion, and was it deferred?

Yes. We did not share what the results for July look like yet, John. Of the 86.5% that we collected for the second quarter, the 13.5% that remained uncollected, 9% of that is of the $46.2 million, which we’ve been negotiating rents on. There isn’t an agreement in place yet. $14.1 million, or approximately 3%, are in negotiations that are close to being finalized. The remaining 1.3% of that 13.5% uncollected was written off. We haven’t shared the July uncollected breakdown, but with negotiations completing successfully, that number has reduced. We will provide more details at a later date.

Okay. And then I guess this question could go towards your overall portfolio, maybe even specifically with regards to health and fitness. Have you seen any operators do that, and are you concerned about increased commercial restrictions that came into place due to regional pandemic spikes in July? Do you have any kind of initial take on how that may or may not impact August rent collection?

Yes. Thankfully, all of this was playing out in the month of July. How people felt at the beginning of July was very different from the end of July when contraction rates began to rise, especially in states like Texas, Florida, Arizona, and California. Thankfully, most health and fitness facilities in Florida and Texas can operate with restrictions on how many members can visit clubs. While all of this was playing out, we were negotiating closely with one of our two largest health and fitness clients and were close to a resolution with one of them. The other largest operator has paid us rent throughout the pandemic. Will they potentially come back and talk to us if the downturn continues? Yes, that’s possible. However, as of now, they have paid July rent. We believe our July collections stood at 91.5%.

And just a quick point of clarification: the tenant that you’re negotiating with paid the July rent, not the ones who have paid rent through the entire period of 2Q and July?

Right. So, of the two largest operators in our top 20, one has consistently paid us rental income, while the other has paid us rent for the month of July.

And our next question comes from Haendel St. Juste with Mizuho.

Hey there, most of mine have been asked, but I wanted to get some clarification on something you mentioned earlier. You mentioned that some tenants paid partial rents. Can you discuss which tenants or industries you’ve moved to partial rents beyond the movies? And do you also have tenants you’ve moved to percentage rents and/or have you abated rent for you yet? Thanks.

Sure, Haendel. The majority of the negotiations for the deferment part of the equation were based on independently confirming the liquidity situations for tenants and their ability to pay. There’s been a significant focus on assessing their operational capacity and financing beforehand. Industries significantly impacted by this pandemic include theater, health and fitness, daycare, and restaurants. These all have different financial profiles. Nearly all of our theaters are closed today, with expectations of reopening on August 20 for AMC and August 21 for Regal. Looking at daycare facilities, a significant number are partially open due to occupancy number restrictions. Health and fitness facilities are open or partially open, but even with limited occupancy, they’re recovering better than other industries since, historically, they usually operate at about 30% occupancy rates. Taking everything into account, we assess payment patterns based on industry and operator relationships. We’ve achieved 91.5% collection for the month of July. Will some of these tenants start to pay partial rents in coming months? That is the expectation. But I remain cautious, as it’s all dependent on seeing patterns of contraction rates and mortality rates stabilize. If they contain, we should do okay. If it deteriorates further, we could see some of these negotiations revisited.

Certainly, certainly. Appreciate that. One more question. I’m not sure if I missed it earlier, but has your inclination to invest overseas here in Europe changed? You mentioned Canada in the past. Last year, that was nearly half of your investment volumes. What’s your appetite here on perceived risk? Or could we see the bulk of your investments become domestic?

Yes. Haendel, the vast majority of our investments, even last year, were here in the U.S. We had about $800 million of the $3.7 billion that we did in the UK market. This year, the mix is about two-thirds domestic and one-third international. We expect this mix to continue for the remainder of the year, but when we initially entered the UK market, we anticipated that 25% of our acquisitions would be in the UK and 75% would remain in the U.S. That has shifted slightly to one-third, two-thirds. I expect this will be a relevant range going forward.

Thank you.

And our next question comes from Anthony Paolone with J.P. Morgan.

Thank you. So you have 12% of your revenue that you’re either negotiating or you’re done with the deferral agreement. Just trying to understand if everything plays out the way these are drafted or have been put together, what do collections look like come, say, 1Q or 2Q 2021? Is it 92%? Is it 98%? Just trying to understand the cadence of this returning to par, so to speak.

Look, the first metric I’m focused on is whether we can start collecting 100% of what’s owed to us. Fortunately, we are trending in that direction with every month that passes. The second positive element is not only are we seeing improvements in collections each month, but some tenants have returned to pay us rents they owed for the previous months of April, May, and June. This helps us grow confident that they’re recovering enough to settle back rents. To contextualize, if the COVID situation continues to worsen, it’s possible that those tenants could come back and request further terms. As long as the situation remains stable, I expect those trends in collections will only continue. Our initial focus is to reach 100% collection of current rents for a given month

Okay, thank you. And then a second question on 7-Eleven, I think the second largest tenant. Given what they announced earlier in the week, can you comment on your appetite for having substantially more exposure to one tenant, balancing it against perhaps having very good credit quality that has served you well?

Yes. We like the convenience store business. It has grown to be 12% of our overall portfolio at this point. We have a strong relationship with 7-Eleven. The fact they were able to buy another tenant of ours, which is Speedway, is positive news from my perspective. They're consolidating the industry. I went through their investor presentation yesterday and saw some very interesting statistics that further reinforce what a good operator they are, as well as the synergies they can create. That said, we want to be mindful of maintaining a prudent portfolio. Not every tenant or industry is created equal. If a particular operator presents an opportunity in which we have great confidence, like 7-Eleven, we can pursue that, but we can’t let convenience stores dominate 40% of our portfolio. We won’t let a single tenant dominate significantly in our portfolio on a permanent basis. However, if it presents itself, we’re eager to have discussions.

Great. Thank you for the color.

Sure.

And this concludes the Q&A portion of Realty’s Income conference call. I would now like to turn the call over to Sumit Roy for concluding remarks.

Thank you all for joining us today. We will keep everyone updated on the business moving forward. Thank you, Keisha, for orchestrating this call. We appreciate it.