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. [Operator Instructions] 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 be observing a two question when they turning to Q&A portion of the call, in order to get 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 remaining 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 to date – 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, which primarily focuses 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. And 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 a high-quality real estate portfolio leads to large, well capitalized clients. While we have not historically prioritized investment-grade-rated tenants as a primary objective, during the periods of economic uncertainty, high-grade credit tenants tend to provide more reliable streams of income as the last few months have proven out. For the month of July, we have collected 91.5% of…

[Operator Instructions] 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 transaction?

Yes, it’s a very good question, Shivani. The way to answer it is, for the high quality essential retail product, the competition for that product remains fierce. And in fact, it’s translating into cap rates that I would say has tightened vis-à-vis pre-COVID levels. And so in terms of number of potential buyers, looking at that product continues to be very strong. I would say that we don’t see as many public net lease companies in the space today. And this is an overall comment as we did pre-COVID. But given what we’ve heard in the recent second quarter earnings announcement, I expect that 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 tend to be less. On the international side, however, the number of buyers and most of the time we’re competing with private institutes has continued to be very strong. And in fact, there have been occasions where we walked away from transactions that were right down the fairway for us, but because of pricing getting very, very competitive. So in general, I would say that all the products that 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 that strengthen the UK markets suggest that more those investment volumes to 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 lease back opportunities that basically take all of the criteria that you’d be looking for outside of pricing. And given our disciplined approach to acquisitions, we chose to not continue to pursue those transactions. And if you look at the sourcing numbers, of the $34 billion, $13 billion was – has been sourced internationally. And that is well above what we had originally anticipated when we went into the UK market. And so the product remains strong in the international markets. I would say that even here in the U.S., our sourcing numbers is a testament to it. There remains plenty of products, both on the sale lease back side of the equation, as well as on the one off market. And the reason why we felt very comfortable reinstating our acquisition guidance is a testament to the pipeline that we currently have. The discussions that we currently 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 you’re redeploying that capital elsewhere.

Look, our business philosophy has been that the products that we like we would like to hold it forever, and 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 and et cetera. Doesn’t always play out and our history has proven that if we hold onto assets and continue to work with our partners or whom these assets are deemed critical, we will create value and we will create value with less volatility and of equivalent nominal terms. And that has sort of proven out 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 having discussions of looking at other opportunities. But also looking to, to potentially help them address some of their own objectives, and we were able to generate 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. And that continues to be our philosophy.

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 going to be on the industrial side. Look, it’s no secret. We want to grow the industrial portion of our asset type. It’s something that we are very much focused on. 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 and we are being able to generate some transaction flow from that side of the business, but what’s 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. And if that were no longer a constraint in terms of 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 that we would love to grow our relationship with. And so yes, it’s about 60% to 70%, 30% to 40% is the split.

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 market – the capital markets. And 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 continuing to post information that will allow our cost of equity to improve that opportunistically, we will be happy to continue to raise equity capital. But the point I want to leave you with is, we don’t have to do that. Part of the reason why we entered 2011 and we did the very large equity raise was to get in a situation, where we had created enough of a capacity and had under leveraged our balance sheet coming out in March, where if we needed to lean on the debt capital markets, which seem to have corrected a lot sooner than the equity markets have, we could lean on that side of the equation and still stay within levels that, that our rating agencies would continue to support the 2 A ratings. So that’s where we are.

And then just to follow-up on your comments on theater. Just to two things really, how much of the theater and non-payment of rents could ultimately turn into vacancy in your view. And then just from a broader perspective, you talked about the economic model, what are your thoughts on that economic model changing in light of the recent AMC universal deal and other deals that could follow that in terms of theater operator’s 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 of 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 on the deferred rent that we’ve entered into. And the payback is going to be longer. It’s going to have – the average payback is going to be 2.7 years. But the fact that we were able to enter into an agreement with AMC, the fact that they were able to start paying us rent for the month of July. These are good signs. Look, we’re seeing the same thing that you’re seeing. The advantage that we have is we can pick up the phone and we can have a conversation with the AMC. And what they’ve shared with us with regards to the agreement that they’ve entered into with Universal is the basic premise for them doing this. Was that they believe that within the first 17 days, they get 75% to 90% of the box office revenues. And for the blockbusters, they generate 90% of the receipts within the first three weeks. So they didn’t believe that there would be significant cannibalization since the movie will be advertised as PVOD only after the first two weeks of the theatrical release. And the fact that they also get a share of the PVOD revenues is another source of revenue stream that gave them comfort. But the basic premise was that the economic pie in entering into this sort of an agreement is actually going to increase for both parties. And so listen, time will tell, we’ve run our own scenarios based on the information that AMC has shared. And at the corporate level, we believe that, they’ll be either at 0% to negative…

But Sumit, don’t you – it’s Michael Bilerman speaking. You don’t share in the revenues that when I am going to stream the Universal movie in my house, there is a certain percentage of the revenues that this industry is producing that as a landlord to the box you don’t have, right? So doesn’t it ultimately diminish the value of a feed or a box that you own, right? So shouldn’t it have a higher cap rate and lower rent? Just because the revenues that are going to be generated in that box are not what they used to be? Putting aside the whole COVID thing, right? This just – this goes to the original issue with theaters, which was PVOD was increasing. And now we’ve had a massive change going from 75 to 17 days that nobody expected.

Yes. And Michael, that might turn out to be exactly the case. And from a theater perspective, I think you’re right. The actual box will potentially be generating less profitability for EMC, the corporate. But here’s the other piece that I want us to contemplate. And listen, these are all pieces that we are putting out and we are trying to run numbers, et cetera. But if you look at the math associated with something that is shown in the theater versus PVOD, even for the studios, the math is not going to pencil if it is PVOD only. The vast majority of their profitability comes from getting that 55% to 60% of revenues that are generated at the theaters. And it is much more for these big blockbuster movies, which tends to be where Hollywood is migrating towards. And I think this arrangement is more for movies that potentially are not quite as popular, its lower budget, how do we continue to maximize the revenue and perhaps PVOD is a better way to maximize that piece of movies that are being generated by studios. And so really, based on the conversations, we’ve had, the idea here is that this is going to allow the studios to become more profitable, but it should also at the very least make theaters at the corporate level. Either home or potentially participate in some upside. And at least, the studios become healthier. They’ll be able to generate better movies and be able to generate big tent movies, and that should translate to better content for the theater industry. But this is a thesis. So I get your concern, Michael. We are following this very closely and we’ll see how all of this plays out.

Thank you.

And our next question comes from Nick Yulico with Scotiabank.

This is Greg McGinniss on with Nick. Sumit, the guiding level of acquisitions, inclusive or exclusive of any potential portfolio deals. And 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. So even where we are today, Nick, I think we feel you’re not super excited about our cost of equity, but our overall cost of capital still will allow us to continue to chase transactions that we otherwise believe checks all of the boxes. In terms of the industries, we want to focus on the operators within those industries, we want to be in and the real estate asset type. And that hasn’t changed. What gave us confidence in being able to put out the acquisition numbers was really our pipeline. And the number of inbounds that we started to get over the last two and a half, three months. And the fact that, the volatility that was that we saw earlier on in the quarter, where our stock could move 8%, 9% on a day that seems to have gotten a bit more benign. It gave us the confidence to be able to go out and say, based on the pipeline we’ve created, based on the discussions we having, that we’ll be able to hit that $1.25 billion to $1.75 billion acquisition number. And our ability to do $200 million portfolio deals has not changed and the fact that we are today under leveraged. I think allows us to not have to rely on the most volatile of biggest component of our capital stack, which is equity. We can just lean on the debt side of the equation, it seems to have normalized considerably since the earlier month. And be able to finance our acquisition. So having that optionality is obviously what gave us a confidence to be able to go out with a number that we feel likely to need.

Okay. So the portfolio deals may be included within the 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 by looking to go after 1031 exchanges and the tax plan. Would you expect the removal of white kind exchanges to have a measurable impact on the business or maybe the types of assets that you look to acquire?

I wouldn’t use the word measurable, but yes on the margin, do I expect you to have an impact, absolutely. We don’t necessarily compete with 1031 buyers too much maybe on the quick service restaurant side of the business. We will run into some of these buyers on a one off transaction, but by and large, we are buying portfolios, even smaller portfolio transactions. And we have all of the usual suspects that are not 1031, who play in that market. Then switching over to the disposition market. Most of our dispositions tend to be vacant assets and you don’t see 1031 buyers playing in that particular market. It tends to be developers or tenants who want to own their own space, who tend to play in that particular market. So the only area where we might see them is sending occupied assets on a one off basis. And that doesn’t end to be a big part 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 guys granted to tenants so far this year. Has any of the terms changed since first negotiated and/or have any tenants indicated that they would be paying back run ahead of the original payback period?

Yes, actually – so I’ll answer your first question. Second part of your question first, Spenser, that’s, okay. We’ve been sharing our monthly collection information pretty much on a monthly basis. And if you recall, when we first came out with April rents we had said it was 82.9% today. It’s tracking at 88.4% for me rented with a similar trend. We originally came up with 82%. Today, it’s at 84.9%. But similarly with June, we were at 85.7% and today it’s at 86.1%. So in each one of these months, what happened was we’ve had some of our tenants who went back and made us home. Some of them were on from the, on the restaurant side of the equation. Some of them were health and fitness businesses, and some were data centers that basically decided to make us hold for the month of April, may and June. So that’s certainly happened where initially we thought we may have to pursue deferment agreements with some of these tenants. And they came back because the business has opened earlier than they expected and/or they felt better about the liquidity situation and decided to make us home. With respect to the first part of your question, Spenser around, did we have to alter the leases, the vast majority of what we have entered into, which is that $14 million worth of rent of the total $16 million that we entered into an agreement has been done without having to make amendments to the lease itself to the original lease term. And so that is the main reason why, we are being able to stay within the accounting rules to view these as different rents. So we haven’t had to sort of request a longer duration or a payback, et cetera. We expect to be paid back during the original lease term, and therefore we didn’t have to enter into any of lease modification. And that is a similar story on the remaining $46 million that we have entered into discussions with. Now around the edges, there have been some tenants where they requested a longer payback period, which went beyond the original lease term. And those have obviously been – they are not part of the deferred rent agreements, which didn’t result in a lease amendment. And so – but that’s a very, very small percentage. The vast majority has been with – without having to make amendments to the lease itself.

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, just getting a sense of maybe 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. Actually, there were a couple of transactions there in the $650 million that I talked about. Both were international and they were both products that we would have absolutely love to have owned. I don’t want to speak to the specific cap rates because these are fairly large transactions. And if you do some amount of research, you’ll be able to figure them out. And one’s not public yet. So – but what I will say is if you look at, I’ll answer your question slightly differently, Todd, if you look at the spreads we are making, we made about $135 million – 135 basis points of spreads, which was 15 basis points inside of our average spread that we’ve made in the history of our acquisitions. And so the point I want to make is, yes, we are willing to make smaller spread, but not to a point, which does not justify day one having enough of a positive uplift from these investments and take into account some of the risks that are inherent in these investments, though, if you look at the industry, you look at the operator, these are the types of businesses and operators that you feel a very high level of confidence that not only will they make it through the initial lease term, but will continue to operate these businesses post their initial lease term, and these lease terms tend to be 15 years to 20 years. So – but we have – we’ve done up to 131 of basis point spread. So we are certainly willing to go south of what our average spread has been, but there is a point beyond which we won’t go.

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

Sure. So there are a couple of operators that constituted the biggest chunk of that write-off. One’s NPC that filed BK. And another one is continuing to pay rent, but it’s just one that we feel we don’t have the same level of confidence. And this is a name that has been on our watch list for over a year now. And in fact, they did end up paying July rent. But nevertheless, we feel like our level of confidence doesn’t quite meet that 75% collectibility threshold, and so we decided to write those off. And so that’s – those are the two names that constitute 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 kind of not subject to an agreement? And are there any industries that are driving this portion and was it deferred?

Yes. We did not share with you, John, what the results are for July in terms of our negotiation. What I have shared with you is of the 86.5% that we collected for the second quarter, i.e. the 13.5% that remained uncollected, 9% of that is basically that $46.2 million that we’ve shared with you in terms of rent that we are in the midst of negotiating. There isn’t an agreement in place. $14.1 million or approximately 3% are our negotiations that have completed or are very close to being penciled. And then the remaining 1.3% of that 13.5% uncollected was written off. So that’s the – those are the three buckets of that 13.5% that we didn’t collect for the second quarter. We haven’t shared for the month of July, the 8.5% of uncollected, what’s the breakup there. But those numbers, obviously, the – what was being negotiated, that number has reduced because some of those negotiations have gotten over the finish line. But we will bring those – we will share that information 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 concerned about increased commercial restrictions that came into place as you kind of saw regional pandemic spikes in July? And I guess, do you have any kind of initial take on how that may or may not impact August rent collection?

Yes. Look, 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 the contraction rates have started to go up and were very concentrated in the small states, in Texas, in Florida, in Arizona, California. And clearly, there was, if not a slowing down, there was even potentially an unwinding of the openings. But outside of California where health and fitness were asked to reclose, Florida, Texas, they continue to basically just have the restrictive – the restrictions in place in terms of the number of potential members who could be visiting the clubs, et cetera, to stay in place. And where they unwinded were on the – more on the bars and beaches and things like that. And while all of this was playing out, we were in negotiations with one of our two largest health and fitness clients and we are close to an agreement with one of them. And the other largest operator has continued to pay rent throughout the pandemic to us. So look, does that mean that they may not come back to us and talk to us if the slowdown occurs or if there is an unwinding of some of the openings? Yes, that’s a possibility. But it was happening real time. And at least as of today, we have not heard back from this particular operator. So – and by the way, they ended up paying July rent. So that’s part of the reason why our collections in July has been as high as it has of 91.5%.

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

Right. So we – of the two largest operators that part of our top 20. One has paid us rent all through. And the other one ended up paying July rent.

Okay, very helpful. That’s it for me. Thank you very much.

Sure.

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 talk about some of the tenants or maybe the industry that you’ve moved to partial rents beyond, say, the movies? And do you also have tenants you’ve moved to percentage rents and/or have abated rent for you yet? Thanks.

Sure, Haendel. Look, I think most of the negotiations on the deferred part of the equation was around us independently verifying the liquidity situation for some of these tenants and whether or not they were open, what was their balance sheet strength and their ability to pay and that is sort of how – and in speaking with them, we have concluded as to whether there needs to be some sort of a deferment or not. And then what shape is that deferment going to take? Should we have then pay partial rent for the next few months? Should we have them pay 100% of the rent for the next few months, but make us hold on the previous three months where we may not have collected any rent? All of that has been on a case-by-case basis, Haendel. And so with the – if you think about our portfolio and you look at the industries that have been most impacted by this COVID-19 induced pandemic, it’s the ones we’ve been talking about. It’s the theater business, it’s the health and fitness business, it’s daycare to some extent and the restaurant business. And they all have a different profile attached to them. If you look at the theaters, we have almost 100% of our theaters close today with the expectation that they will start opening up in August 20 for EMC and August 21 for Regal. But that, again, is subject to change if things don’t improve. If you look at the day care business, most of the day care business has either been – has been partially open. Because they still continue to have restrictions in terms of the number of what percentage of occupancy they can hit. Then you look at the health and fitness business, a lot of the health and fitness business is open, either fully open or partially open. But even these occupancy numbers of – you can’t have more than 30% occupancy does not impact the health and fitness business as much as it impacts some of these other businesses because they tend to run at 30% occupancy anyway. So when you take all of that into account, then you create a profile of who can pay what rent. And that leads to the types of agreements that we’ve entered into, which translates to that 91.5% collection for the month of July. And so the remaining piece that hasn’t been collected, what shape is that going to take? Are some of them going to start paying partial rent in the coming months? That is the expectation. But I remain cautious because it is all subject to what we see happening with the contraction rates and the mortality rates. And as long as they are stable to contain, I think we are going to be okay. But if it continues to get worse, and there is a chance that we may see some of these shutdowns reoccur and some of these discussions revisited.

Certainly, certainly. Appreciate that. And I have one more. I’m not sure if I missed it earlier, I’ve been in and off this call with power outages here, but did you talk about your inclination to invest oversea here and Europe. You talked about Canada in the past. Last year, that was, I believe, nearly half of your investment volumes. So curious on what your appetite here is how you perceive that risk? Or perhaps could we see the bulk of your investments be more domestic? Thank you.

Yes. Haendel, the vast majority of our investments, even last year, was here in the U.S. We had about $800 million of the $3.7 billion that we did, was in the UK market. This year, the mix is 1/3, 2/3. So 2/3 of it has been here in the U.S. and 1/3 has been in the UK, and we expect that mix to play out over the remainder. But when we first entered into the UK markets, what we had shared with the market at that time was that 25% of our acquisitions we thought was going to be in the UK and 75% was going to continue to be here in the U.S. And that has shifted slightly to 1/3, 2/3. And I expect it’s going to be in between those two numbers for the remainder of the year.

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. So just trying to understand if everything plays out the way these are being drafted or have been written, what is – 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, Anthony, is to see, can we start collecting 100% of what’s owed to us. And the good news here is that at least we are trending in that direction with every month that has gone by. And the second element of the good news that I’ve seen is, not only are we trending upwards in terms of what is owed for a given month, but some of these tenants have gone back and paid us on rents that they didn’t pay in the months of April, May and June. And so that continues to give us confidence that, at least they are feeling confident enough to pay us back rents that we hadn’t even agreed to in terms of a deferment agreement. But I want to put all of that in context here. Look, if the COVID-19 situation continues to deteriorate, it’s not out of the realm of possibility that some of these guys would come back and talk to us and say, "Hey, sorry, we have to pause again because all of our stores have been shut down again." But as long as that doesn’t happen or that doesn’t happen in scale, then I think these trends are going to continue. And the first thing I’m going to be trying to look for is when are we reaching that 100% of the old rents for a given month, when are we getting that 100% collection? And as soon as we get that, then we start to focus on, okay, all the deferred amounts and the agreements that we have put in place, are they starting to pay back portions of it? Because if you look at the vast majority of the agreements that are already in place, most of the payback is 4.5 months, 4.7 months. Sorry, 4.5 months of deferred rent and the payback is within a 12-month period. So portions of it need to start getting paid back over the next few months. And so if we start to see them paying their monthly rent plus some of the deferred rent, that’s when I know we are back to normal. And the rest of it is all noise as far as I can see. I mean, look, it’s important to see what is happening in each state and all of that, but ultimately, it needs to translate to our operators being able to run their businesses and feel confident enough to make the call.

Okay, thank you. And then second question is on 7-Eleven, I think second largest tenant. Just given what they announced earlier in the week, can you just comment on your appetite for having substantially more exposure to, say, one tenant and balancing that against perhaps being like a very good credit, which has served you well right now.

Yes. So Anthony, look, we like the convenience store business. It is the industry that we have – to be 12% of our overall portfolio is convenience stores right now. And within that, we are very grateful to have a very good relationship with 7-Eleven. And the fact that they were able to buy another tenant of ours, which is Speedway, is a good thing in my mind. They’re consolidating the industry. I was going through their investor presentation yesterday, and it’s got some very interesting statistics, some of which continues to reconfirm what a good operator they are and some of the synergies that they can create. Having said that, we want to be mindful of being able to run a very prudent portfolio. And – but not every tenant and not every industry is created equal. If there is an industry and there is a particular operator that we would make exceptions for, it is absolutely 7-Eleven and it is absolutely the convenience store business. But we can’t let convenience store dominate 40% of our portfolio and nor can we let a single-tenant dominate a big chunk of our register on a permanent basis. But are we willing to help support some of our clients with whom we’ve had an amazing relationship and we believe in the industry and we believe in a particular tenant? The answer is yes. So this is like one of our – my colleagues told us. This is the [risk on detail] for Realty Income to be able to go out and do these very large-scale transactions and be able to help our clients and at the same time, create a portfolio that continues to become incredibly strong. And so these are the opportunities that we were hoping to have discussions around them. Yes, if it presents itself and I don’t know if it’s going to be all $5 billion sale-leaseback that they have identified. But if it’s portions of it, we’d be happy to engage in that.

Great. Thank you for the color.

Sure.

[Operator Instructions] And our next question comes from Linda Tsai with Jefferies.

Thank you for taking my questions. I just had one. Understanding is a function of acquisition mix and capital costs. How do you see the 131 basis points investment spread you generated this quarter? And how does that trend in the forthcoming quarters?

Linda, you were breaking up, and I don’t know if it’s just me, but I think your question was around the spreads that we achieved in the second quarter and how do we see it going forward? Is that right?

Yes, that’s right.

Okay. Yes. So look, the – our cost of capital in the second quarter was obviously impacted by what happened to the cost of equity during the three months, where we were in the midst of the COVID-19 situation. And the fact that our stated spread was 131 basis points. It’s largely being driven by 2/3 of the equity piece, being priced reflective of where we were trading in these three months. And the question of if our cost of equity is where it is today or continues to improve from where it is today, those spreads should improve. Because the product that we are seeing is very much along the lines of what we have done in the first half. There’s just a lot more of it. And so our expectation is that our spreads will improve. Our expectation is that our overall cost of capital will improve. But the fact that we have optionality to not lean on one particular source of capital versus the other, I think just gives us more optionality in terms of how do we permanently finance our transaction? And then what ultimately turns out to be the permanent spread that we are able to trap? I think that is left to be seen, but the expectation is that it should continue to improve going forward.

Thanks.

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, and we’ll keep everyone updated on the business going forward. Thank you, Keisha, for orchestrating this call. We really appreciate it.