Executive Summary - Spruce Point Capital Management€¦ · • Ranked the #1 Short-Seller in the world by Sumzero after a comprehensive study of 12,000 analyst recommendations dating

1

Executive Summary

3

About Spruce Point Capital Management

Report Date Company / Ticker Enterprise Value At Report Date ($ billions) CEO Departure / Date

7/13/17 Gentex / GNTX $4.7 Fred Bauer / Jan 2018

4/13/16 Sabre Corp / SABR $11.2 Tom Klein / June 2016

12/17/15 Intertain / IT.TO $1.5 John FitzGerald / Feb 2016

8/19/15 Caesarstone / CSTE $1.7 Yos Shiran / May 2016

2/10/15 Greif / GEF $3.2 David Fischer / Oct 2015

11/13/14 AMETEK / AME $14.0 Frank Hermance / May 2016

1/15/14 LKQ Corp / LKQ $11.8 Robert Wagman / March 2017

3/5/13 Boulder Brands / BDBD $1.0 Stephen Hughes / June 2015

6/14/12 Bazaarvoice / BV $1.2 Bret Hurt / Nov 2012

CEO Departures Post Recent Spruce Point Research Activism

Spruce Point Capital Is An Industry Recognized Research Activist Investment Firm Founded In 2009

• Founded by Ben Axler, a former investment banker with 17 years experience on Wall Street

• Ranked the #1 Short-Seller in the world by Sumzero after a comprehensive study of 12,000 analyst recommendations dating back to 2008 (March 2015)

• Ranked the #13 Most Influential FinTweeter on Twitter according to Sentieo analysis (Dec 2016)

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Spruce Point Has Established A Short Position In Realty Income (NYSE: O), Sees 30% to 45% Downside For The Following Reasons

The Allure of Rising Magic Dividends: Realty Income (“O Realty” or “the Company”) promotes itself as “The Monthly Dividend Company®” and preaches “The Magic of Rising Dividends” – it even goes so far as to market itself differently to retail investors vs. sophisticated institutional investors. The Company is very dependent on issuing stock at inflated prices to fund its acquisitivegrowth strategy, keep its cost of capital low, and consistently raise its dividend. The model has worked well for years when times were good, but we believe this magic cycle is about to break down as investors reassess O Realty’s growth profile amidst deteriorating tenant quality, rising interest rates, and a more volatile and discerning capital market backdrop.

Deceptive Same Store Property Reporting: Our forensic accounting work indicates that the true underlying economic performance of O Realty’s properties, as measured by Same Store Rents (SSR) are declining vs. the company’s promotion that it is growing. The Company disclosed its SSR growth rate of 1.2% in 2016. Our industry normalized definition of same store property performancesuggests that that SSR declined by 0.8% in that period – an astounding 2.0% overstatement. Once investors come to grips with our irrefutable conclusion, we expect a major revaluation in O Realty’s share price. There are ample case studies to show 40%-50% share price declines when investors revalue a REIT’s declining performance. For example, Wall Street has penalized a few REITs (DDR, BRX, KIM) that own retail properties where the same store growth profile has swung from positive to negative growth. We believe that O Realty is the next REIT that is going to be penalized for a deteriorating growth profile by investors.

Dispositions And Vacancies Are Rising And Likely Aiding Occupancy And SSR Metric Inflation: We believe that dispositions and vacancies are likely managed to cosmetically inflate occupancy and aid O Realty’s SSR metric. We show dispositions on the rise as well as a larger percentage of property sales coming from vacancies. These trends may indicate more competition from malls as well as the limited alternative use for many of O’s real estate properties.

Investors Should Be Concerned By Background of Management and Audit Committee Oversight By Board: We find that O Realty’s executive management team is comprised almost entirely of ex-investment bankers, trained in the art of financial engineering. Itshould, therefore, come as no surprise that O Realty could use financial magic to embellish its performance. We have little faith in the Company’s audit committee raising any objections or concerns about management’s practices. We find that the audit committee is comprised of a PGA golf professional, and former executives from Wells Fargo and KPMG, two of the most scandal-ridden financial and accounting organizations in recent history. Given all the factors we have noted, it makes sense that insider ownership trends are at all-time lows, and lowest amongst its REIT peers.

5

Spruce Point Has Established A Short Position In Realty Income (NYSE: O), Sees 30% to 45% Downside For The Following Reasons

Tenant Quality Deteriorating As Retail Landscape Changes: We conducted a deep dive into the tenant quality and find that O Realty has outsized risk exposure to drug stores, grocery stores and movie theaters -- three retail subsectors facing disintermediation. Drug stores (O’s largest sector exposure) are consolidating their retail footprint (i.e. Walgreens purchase of +2,000 Rite Aid stores), while SSS performance at the store front is down. Even worse, headlines such as Amazon teaming up with Berkshire Hathaway and JPMorgan to disrupt the healthcare business present a now tangible long-term risk that the traditional drug delivery value chain through a retail footprint could move increasing online. The Amazon risk extends also to the grocery store vertical given its recent acquisition of Whole Foods. We believe that any retail transaction that is done repetitively and frequently (i.e. grocery and drug store) is ripe for online disruption, and therefore poses significant risk to the traditional brick and mortar chains and their related real estate profiles. Lastly, movie theater trends (both box office sales and attendance) likely peaked in 2015, and theater chains are not expanding screens. Physical movie theater locations are at increasing risk of disruption as Hollywood and media companies (e.g. Netflix, Amazon, Hulu) are spending money to produce original content for their own “at home” media streaming offerings, and new releases that skip the movie theater completely.

Interest Rate Tightening Cycle Another Major Negative Backdrop For O Realty: We expect REITs such as O Realty to remain under pressure. Consensus expectations is that the 10 year treasury will surpass 3.0% by 1Q’19 and O Realty’s historical stock performance exhibits negative correlation with increases in interest rates. We expect O Realty to underperform the REIT sector given our newly documented growth concerns and premium valuation enumerated below.

Operating Metrics Have Deteriorated While O Realty’s Valuation Remains Sky High: O Realty has lured a dizzying array of analysts to relentlessly promote its story, and make it the most expensive triple net lease retail REIT by a wide margin. Analysts see an average of 18% upside to $59/share, yet seem to ignore glaring signs of weakness. Even Janet Yellen warned that commercial real estate prices are “quite high relative to rents.” O Realty has the lowest occupancy rate of 98.3%. If it had not sold 91 vacant properties since the beginning of 2016, the occupancy metric might be as low as 96.6%. Furthermore, O Realty essentially has the lowest remaining lease term of 9.6 years amongst its peers and the highest amount of leases expirations (7.8%) versus its peers over the next two years. In that context, we created a dividend sustainability index where we incorporate average remaining lease duration in order to assess O Realty’s sustainable dividend paying ability vs. prior year periods. This index now stands at its lowest level since the beginning of our data set in 2005. Metrics like this can be an early warning sign that the underlying fundamentals are not as safe as they had been historically. We expect that once investors come to grips with the fact that O Realty’s true growth rate is negative, its multiple will re-rate in line with historical precedents, and its share price will decline by approximately 30% - 45% or $28 - $35 per share.

Evidence of A Deteriorating Business Model

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Capital Structure And Valuation

Source: Bloomberg and Company Filings(1) Data presented for 2017 is as of September 30, 2017(2) Implied Cap Rate = NOI / Enterprise Value

Realty Income Corp Capitalization as of 02/06/18($MM, except where noted)

Price $50.00Diluted S/O 281.8Market Cap 14,089.3

Pref. Stock 0.0Minority Interest 19.5Debt 5,787.0Total Debt 5,806.5

Cash 3.2Net Debt / (Cash) 5,803.3

Enterprise Value 19,892.6

2016 2017E 2018E 2019E

Revenue 1,103.2 1,213.9 1,301.4 1,378.6% Growth 7.8% 10.0% 7.2% 5.9%

Net Operating Income (NOI) 1,040.0 1,145.0 1,240.0 1,327.0% Margin 94.3% 94.3% 95.3% 96.3%

AFFO / Share $2.88 $3.03 $3.16 $3.26% Growth 5.2% 5.1% 4.3% 3.4%

Dividend / Share $2.41 $2.53 $2.62 $2.75Yield (%) 4.8% 5.1% 5.2% 5.5%

EPS $1.18 $1.20 $1.30 $1.37% Growth 7.8% 1.9% 8.6% 5.4%

Occupancy(1) 98.3% 98.3%

Locations(1) 4,944.0 5,062.0

Total Square Feet (MM)(1) 83.0 86.5

Valuation2016 2017E 2018E 2019E

EV/Revenue 18.0x 16.4x 15.3x 14.4x

P/ FFO 17.4x 16.5x 15.8x 15.3x

Implied Cap Rate(2) 5.2% 5.8% 6.2% 6.7%

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The Virtuous Circle Gone Bad

Lower Cost Of Capital

WiderInvestment

spreads

Higher StockPrice

HigherGrowth Rate

Lower StockPrice

Higher Cost Of Capital

LowerInvestment

spreads

Lower or noGrowth Rate

Spruce Point’s “New Reality View”O Realty’s “Historical View”

Source: 3Q17 Investor Presentation

Entering a negative feedback loop: We believe that O Realty is highly dependent on keeping its stock premium inflated to lower its cost of capital to pursue growth. However, we will illustrate that its growth is declining, which will leads to a

lower stock price, higher cost of capital and lower investment spreads.

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Same Property Revenues Are Declining, Not Growing As O Realty Portrays

Our definition represents the true economic performance of the property base and therefore does not ignore vacancies. The magnitude of the overstatement is 2% which is the difference between growth vs. decline

Distorted O Realty

View

Better Reflects

EconomicReality

Source: Company Filings (4Q16 Supplement) and Spruce Point Methodology

Properties $ Source

2016 SSR Performance (O Realty Defined)YTD 4Q 2016 4,045 888.5 4Q16 SupplementYTD 4Q 2015 4,045 878.4 4Q16 SupplementIncrease in dollars 10.1 4Q16 SupplementIncrease in percent 1.2% <-- What O Realty wants you to think

2016 SSR Performance (Spruce Point Adjusted)YTD 4Q 2016 4,136 888.5 4Q16 SupplementYTD 4Q 2015 4,136 895.3 <-- Illustrated on Page 16Decrease in dollars (6.9)Decrease in percent -0.8% <-- True Economic Performance

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Interest Rate Cycle Is A Macro Negative: O Realty Stock Price vs. 10 Year Yield

Consensus expectations imply a 3% yield for the 10 year by 1Q19 and 3.5% by the 2Q20. As interest rates rise, O Realty’s stock price exhibits a negative correlation.

Source: Bloomberg

3.5%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

$65.00

$70.00

2012 2013 2014 2015 2016 2017 2018 2019 2020

O Realty Price 10 Year Yield 10 Year Yield Expectations

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Dividend Sustainability Index At Its Lowest Level

O Realty’s share price enthusiasm has been historically aided by its ability to consistently raise its dividend over time. However, when comparing the duration of the remaining lease terms and current run-rate FFO, the dividend

sustainability index now stands at its lowest levels since our dataset began in 2005

Source: Company Filings, Spruce Point Estimates(1) Dividend Sustainability = (Run-Rate FFO x Remaining Lease Term) / Run-Rate Dividend

Avg. Remaining

Lease DividendTerm Run-Rate Run-Rate Sustainability(1)

Period (Years) FFO Div (Years)

3Q17 9.60 $3.14 $2.63 11.454Q16 9.80 $3.09 $2.42 12.484Q15 10.00 $2.85 $2.29 12.454Q14 10.20 $2.57 $2.20 11.954Q13 10.80 $2.45 $2.18 12.124Q12 11.00 $2.23 $1.82 13.494Q11 11.30 $2.05 $1.74 13.344Q10 11.40 $1.87 $1.74 12.314Q09 11.20 $1.87 $1.71 12.264Q08 11.90 $1.82 $1.68 12.874Q07 13.00 $1.90 $1.64 15.134Q06 12.90 $1.83 $1.52 15.564Q05 12.40 $1.72 $1.38 15.45

13.00

9.60

8.0

9.0

10.0

11.0

12.0

13.0

14.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 3Q17

Average O Realty Lease Term

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Peer Group Comparison

O Realty looks priced for perfection. O trades at the highest multiple within their retail triple net lease peers. As highlighted below, when the growth profile of a REIT begins to decline, the AFFO multiple compresses significantly.

Source: Bloomberg, Company Filings and Spruce Point Estimates(1) For shopping centers, this metric is Same Property NOI; For the triple net lease retail, this metric is Same Store Rental Revenue(2) P/ AFFO for 2016 and 2017 is based on stock prices at 12/31/15 and 12/31/16, respectively. 2017 and 2018 P/ AFFO multiple is based on current stock prices

See case studies for KIM, BRX, and DDR which illustrate the multiple compression that occurs when the growth profile is reduced

P/AFFO KIM BRX DDR

2017 20.7x 15.5x 15.4x2018E 12.1x 9.7x 8.8x

MultipleCompression 8.6x 5.8x 6.6x

Mkt Same Property Growth(1) P/ AFFO(2) Cap DivTicker Price Cap EV 2015 2016 1Q17 2Q17 3Q17 2016 2017 2018E 2019E Rate Yield

Shopping Centers (Mkt Cap > $2.5B)

REG $57.79 $9,830.7 $13,705.1 4.4% 3.5% 3.7% 3.2% 5.0% 24.4x 23.3x 18.4x 17.6x 5.8% 3.7%

KIM 14.67 6,244.3 12,650.0 3.1% 2.8% 2.2% 0.3% 3.1% 22.7x 20.7x 12.1x 11.6x 7.9% 7.6%

FRT 112.22 8,141.2 11,818.5 2.6% 3.1% 4.3% 3.9% 4.4% 30.6x 30.0x 22.3x 21.3x 5.1% 3.6%

BRX 15.03 4,583.2 10,266.9 3.2% 2.5% 3.2% 1.3% 1.5% 16.3x 15.5x 9.7x 9.5x 8.8% 7.3%

DDR 7.46 2,748.7 7,281.9 3.4% 2.5% -0.1% -0.1% -0.9% 15.3x 15.4x 8.8x 9.0x 8.8% 10.2%

WRI 27.54 3,536.9 5,889.0 3.3% 3.3% 3.7% 2.6% 2.8% 18.5x 18.0x 13.8x 13.5x 6.5% 5.6%

RPAI 11.62 2,638.9 4,461.9 2.9% 3.5% 2.0% 1.8% 1.0% 18.2x 22.1x 14.6x 13.6x 7.8% 5.7%

Shopping Center Average 3.3% 3.0% 2.7% 1.9% 2.4% 20.9x 20.7x 14.2x 13.7x 7.2% 6.2%

Retail Triple Net Lease

VER $6.95 $6,770.9 $12,797.9 1.1% 0.2% -0.3% 0.0% 0.1% 10.1x 11.5x 9.7x 9.7x 7.8% 7.9%

NNN $38.01 5,779.5 8,867.2 1.1% 0.8% ND ND ND 16.8x 17.4x 14.3x 13.7x 6.4% 5.0%

SRC $7.78 3,546.9 7,398.1 0.7% 0.2% -0.5% 1.1% 1.2% 11.3x 12.8x 9.4x 9.6x 8.5% 9.3%

STOR $23.19 4,406.5 6,765.2 ND ND ND ND ND 14.2x 14.5x 12.7x 12.1x 6.1% 5.3%

Triple Net Lease Retail Average 1.0% 0.4% -0.4% 0.6% 0.7% 13.1x 14.0x 11.5x 11.3x 7.2% 6.9%

O $50.07 $14,109.0 $19,912.3 1.3% 1.2% 0.9% 0.4% 1.0% 17.4x 16.4x 15.9x 15.4x 5.8% 5.2%O - Adj $28.02 -0.8% 8.9x

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Peer Group – Triple Net Lease Retail

We question why the street is valuing O Realty at the highest amongst its peers when its occupancy, lease duration and near term lease renewals all reflect a status at the bottom of their peer group. Further, we will show later in this

presentation why the growth profile should be questioned.

Highest Valuationi.e. “most expensive”

Lowest Occupancy Second lowest duration of leases (by 0.1 years)Most leases up for renewal in next two years

Lowest Insider Ownership

Source: Bloomberg, Company Filings and Spruce Point Estimates(1) We adjust the occupancy for the 91 vacant property sales since the beginning of 2016(2) Relative Rank from 1 (best) to 5 (worst)

Valuation Tenant Metrics: Occupancy and Duration Insider RepresentationImplied Div Avg. Duration Lease Maturities Insider

P/ 18E AFFO Cap Rate Div Yield Occupancy of Leases (years) 2018 -- 2019 OwnershipTicker Metric Rel. Rank (2) Metric Rel. Rank (2) Metric Rel. Rank (2) Metric Rel. Rank (2) Metric Rel. Rank (2) Metric Rel. Rank (2) Metric Rank

VER 9.7x 2 7.8% 2 7.9% 2 99.0% 3 9.5 5 7.7% 4 0.37% 4

NNN 14.3x 4 6.4% 3 5.0% 5 98.8% 4 11.4 2 5.3% 2 0.96% 1

SRC 9.4x 1 8.5% 1 9.3% 1 99.1% 2 10.1 3 6.9% 3 0.56% 3

STOR 12.7x 3 6.1% 4 5.3% 3 99.5% 1 14.0 1 1.0% 1 0.91% 2

Average 11.1x 7.6% 7.4% 99.0% 10.3 6.6% 0.63%

O 15.9x 5 5.8% 5 5.2% 4 98.3% 5 9.6 4 7.8% 5 0.25% 5

O Adj(1) 96.6%

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Case Studies: 40% - 50% Downside When Growth Goes Negative For REITs

Spruce Point has identified three recent REITS that revised organic growth lower > Share prices declined 40%-50%

DDR Corp. (DDR) Brixmor Property Group (BRX)

Kimco Realty Corp (KIM)

SSR “Same Property” Analysis

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Same Store Property Performance: What O Realty Wants You To Believe Vs. Reality

We believe that the underlying economic performance of a REIT should encompass a “Same Store” metric for all properties owned regardless of whether they are occupied or vacant. O Realty excludes vacancies from their same

store pool. This is not standard industry practice as we find a majority of retail peers include vacancies.

Distorted View

ReflectsEconomic

Reality

As an investor, we prefer an all encompassing metric that discloses

performance of all properties

Source: 3Q17 Supplemental, Page 21(1) O Realty’s same store pool also excludes properties under development or involved in eminent domain

Occupied / O Realty Spruce PointVacant Property Cohort Definition(1) Definition

Occupied Property owned and occupied, for current and prior perior

Included Included

Vacant Properties that become vacant in current period

Excluded Included

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Same Property Revenues Are Declining, Not Growing As O Realty Portrays

Our definition represents the true economic performance of the property base and therefore does not ignore vacancies. The magnitude of the overstatement is 2% which is the difference between growth vs. decline

Distorted O Realty

View

Better Reflects

EconomicReality

Source: Company Filings (4Q16 Supplement) and Spruce Point Methodology

Properties $ Source

2016 SSR Performance (O Realty Defined)YTD 4Q 2016 4,045 888.5 4Q16 SupplementYTD 4Q 2015 4,045 878.4 4Q16 SupplementIncrease in dollars 10.1 4Q16 SupplementIncrease in percent 1.2% <-- What O Realty wants you to think

2016 SSR Performance (Spruce Point Adjusted)YTD 4Q 2016 4,136 888.5 4Q16 SupplementYTD 4Q 2015 4,136 895.3 <-- Illustrated on following pageDecrease in dollars (6.9)Decrease in percent -0.8% <-- True Economic Perfomance

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Same Property Revenues Are Declining, Not Growing As O Realty Portrays (cont’d)

We rebuilt the 2016 SSR pool by beginning with 2015 SSR pool and then adjusting for acquired properties and properties released after a period of vacancy to arrive at proper comparison to the prior year.

Sources: 2015 10K, Supplements – 4Q14, 4Q15, 1Q16, 2Q16, 3Q16, 4Q16(1) Missed revenue opportunity from vacancies is imputed in order to tie to Realty Income's 2016 SSR Pool

Properties $ Source

2015 SSR Pool 3,636 794.4 4Q15 Supplement+ 2014 Acqusitions 479 99.3 2015 10K+ 2014 Re-leased after vacancy 21 1.6 4Q14 Supplemental

2015 SSR Pool rolled forward prior to vacancies 4,136 895.3

- 2016 Vacancies (removed from SSR Pool) (91) (17.0) (1) 1Q16, 2Q16, 3Q16, 4Q16 Supplemental Data + 2016 SSR Increase 10.1 4Q16 Supplement

2016 SSR Rental Properties and Revenue 4,045 888.5 4Q16 Supplement

Vacancies Removed

From O Realty’s2016 SSR

Supplement Source: 1Q16 2Q16 3Q16 4Q16 FY16

Lease Expirations 77 43 54 82 256- Less Re-leased to Same Tenant (29) (29) (38) (48) (144)- Less Re-leased to New Tenant (without vacancy) (5) (3) (3) (10) (21) = Period Vacancies 43 11 13 24 91

Dispositions and Vacancies

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YTD Total2014 2015 2016 2017 2014 - 3Q17

DispositonsVacant Properties 17 29 57 34 137Occupied Properties 29 9 18 11 67

Total 46 38 75 45 204

% of TotalVacant Properties 37% 76% 76% 76% 67%Occupied Properties 63% 24% 24% 24% 33%

Total 100% 100% 100% 100% 100%

Dispositions of Vacant PropertiesProperty Sold 17 29 57 34 137Sale Price $11,373 $20,545 $48,008 $31,337 $111,263

Cap Rate NA NA NA NA NAOriginal Investment ($) $24,727 $29,713 $85,542 $47,245 $187,227Investment Gain (Loss) ($13,354) ($9,168) ($37,534) ($15,908) ($75,964)

Investment Gain (Loss) -54% -31% -44% -34% -41%

Dispositions of Occupied PropertiesProperty Sold 29 9 18 11 67Sale Price $95,230 $44,897 $39,586 $37,674 $217,387

Cap Rate 6.9% 7.6% 7.3% 7.8% 7.3%Original Investment ($) $66,237 $36,155 $34,064 $32,671 $169,127Investment Gain (Loss) $28,993 $8,742 $5,522 $5,003 $48,260

Investment Gain (Loss) 44% 24% 16% 15% 29%

A Closer Look At Asset Dispositions

Source: Company Filings and Supplemental Data

# of dispositions are increasing

Vacant property sales are now

76% of property sales

41% loss on sales of vacant

properties

We believe that dispositions can be managed to cosmetically enhance aggregate occupancy rates across the portfolio as well as selling properties that may result in re-leased recapture rates that would dilute O Realty’s SSRs

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A Closer Look At Vacancies And Releasing Activities Suggests Problems Lurking

Source: Company Filings and Supplemental Data

Re-leasing activity has declined. Does this indicate limited alternative

use? Or have malls and shopping centers started to infringe on the

typical box tenants?

% of vacancy sales from the available pool have increased

Tenant demands upon releasing are increasing -- the amount of capital

required to release the same property is now 69% of year 1 rent vs. 0% in

2014 and 2015

Vacancy trends indicate a tougher triple net lease environment for landlords. Have the recent vacancies issue at malls begun to blead over to the stand-alone boxes? Are malls and shopping centers now offering leases that typical triple

net lease tenants cannot refuse?

2014 2015 2016 LTM 17

+Vacant Properties - BOP 70 70 71 82+ Lease Expirations 220 283 256 299

= Releasing properties availability 290 353 327 381

- Leasing Activity -- Units 203 253 186 245% of Release Properties Available 70% 72% 57% 64%

= Vacant Properties available 87 100 141 136Vacant Property Sales -- Units 17 29 57 50

% Vacant Property Sales / 20% 29% 40% 37%Vacant Properties Available

Re-leased to Same TenantLeasing Activity -- Units 173 216 144 212Prior Cash Rents $31,393 $33,536 $20,915 $37,571New Cash Rents 31,681 34,679 21,908 40,897Recapture Rate 100.9% 103.4% 104.7% 108.9%Additional Invested Capital 0 0 3,720 28,209

% of New Cash Rent 0% 0% 17% 69%

O Realty’s Tenants’ Exposed To Systemic Disintermediation

23

Retail Tenant Risk

Amazon has been rumored to enter the pharmacy business (Bloomberg.com) and the Whole Foods acquisition implies that the expansion of the Amazon eco-system could pose secular risks to a significant portion of what historically has been deemed safe haven real estate assets for the triple-net lease space. We believe that any retail transaction that is

done repetitively and frequently (i.e. grocery and drug store) will move online and poses significant threat to the traditional brick and mortar chains and their related real estate.

Source: Company Filings, Investor Presentations and Supplements, Bloomberg.com(1) estimate based on locations as % of total for pharmacy and grocery

Amazon RiskStreaming / On Demand

Lead To Lower Usage

Ticker Pharmacy Grocery Theater Total

NNN 2.1% 1.5% 4.8% 8.4%SRC 5.1% 5.3% 7.4% 17.8%STOR(1) 0.1% 0.7% 6.3% 7.1%VER 6.7% 4.5% 0.0% 11.2%

O 10.8% 4.6% 5.1% 20.5%

% of Rental Revenue By End Market As of Sept 30, 2017

24

Walgreens Is O Realty’s #1 Tenant

Walgreen’s U.S. store foot print is suffering with SSS down since the end of 2015. Further, we see looming risk from store closures from its recently closed deal to acquire 2,186 stores from Rite Aid. In October 2017, Walgreens

announced a store optimization program where it will close approximately 600 stores.

Source: Walgreen’s Company Filings, Fiscal year ends in August

Front Store SSS Annual Closures and Relocations

WGA has cumulatively closed or relocated +1,300 stores since 2013 (~16% of U.S. Retail base)

88144

518

251

171

245

2012 2013 2014 2015 2016 2017

0.6%

(0.7%)

2.0%

1.5%

(0.3%)

(1.0%) (0.9%)

2012 2013 2014 2015 2016 2017 1Q18

25

A Close Look At CVS: #11 Tenant

CVS’s store foot print is suffering with SSS at the store front down since the end of 2012. Further, CVS’s announced acquisition of Aetna is likely competitive positioning in advance of Amazon’s entry into the pharmacy business.

We believe omni-channel competition poses severe risk for the traditional brick and mortar pharmacy retail footprint

Source: CVS Company Filings, Bostonglobe.com

Front Store SSS Annual Closures and Relocations

91

82

89

96

2013 2014 2015 2016

3.4%

(0.5%)

(4.0%)

(5.0%)

(1.5%)

(4.9%)

(2.1%)(2.8%)

2012 2013 2014 2015 2016 1Q17 2Q17 3Q17

26

Movie Theaters: 5.1% of O Realty’s Rent

Industry Box office and attendance trends are both suffering from systemic issues in the exhibitor business. The shrinking window where content can been seen exclusively in a movie theater versus at home has narrowed

significantly. Furthermore, some movies are released via an on demand device at the same time as the theater release. Perhaps, even more alarming Netflix, Amazon, Google, Apple, and Facebook all are devoting more capital to original

content. We believe as these trends become more pronounced that they will pose risk to all of the movie theater chains, which have not been investing in new screen growth (bottom right chart). Lastly, there is limited alternative use for movie theater real estate, so releasing to a new tenant will be challenging without significant capital outlays.

Source: boxofficemojo.com and National Association of Theater Owners

US Box Office ($bn) > DownAttendance (in millions) > Down

$10.8 $10.9

$10.4

$11.1

$11.4

$11.1

2012 2013 2014 2015 2016 2017

1,3621,344

1,268

1,320 1,315

1,234

2012 2013 2014 2015 2016 2017 0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2013 2014 2015 2016 2017

Indoor Outdoor

# of US Movie Screens > Flat

27

2.0x

2.1x

2.2x

1.9x

2014 2015 2016 9M 17

A Close Look At AMC Theaters: #6 Tenant

AMC’s EBITDAR to Rent is well below O’s corporate average of 2.7x and has weakened significantly in the most recent YTD period. The equity markets have already identified the theater level risk:

AMC’s stock is down ~64% from January 2017

Source: Bloomberg, Company Filings

AMC EBITDAR / Rent AMC Stock Performance

Disclosure and Financial Control Issues

29

Evidence of Financial Control Issues

We observe disclosure inconsistencies about property acquisitions in FY 2015. The disclosures below illustrates 6 more properties acquired in 2015 per the 2016 10K versus the original disclosure in

the 2015 10K. This heightens our previous worries about financial engineering and audit controls at O Realty.

Source: 2015 10K 2016 10K

# of properties acquired in 2015: 248 254

10K MD&A Disclosure: The 248 properties (5.6 million square feet) we acquired in 2015, which generated $41.9

million of rent in 2015;

The 254 properties (5.6 million square feet) we acquired in 2015, which generated $80.3 million of rent in 2016, compared to $41.9

million in 2015, an increase of $38.4 million;

6 More properties appeared to have been acquired, yet the rent generated did not change? Is there such a thing a

“retro-active” property purchases?

Source: Company Filings

30

O Realty Does Not Disclose All Its Tenants

Investors have asked for tenant level disclosure and now a majority of the retail triple net lease peers are providing detail at the tenant level. Why is O hesitant to provide this level of disclosure?

Source: Company Filings

Company/Ticker Tenant Disclosure

National Retail / NNN Tenant Level

Spirit Realty / SRC Tenant Level

STORE Capital / STOR Industry Only

Vereit / VER Tenant Level

Realty /Income / O Industry Only

Rising Interest Rates: From Tailwind To Major Headwind

32

O Stock Price vs. 10 Year Yield

Consensus expectations imply a 3% yield for the 10 year by 1Q19 and 3.5% by the 2Q20. As interest rates rise, O Realty’s stock price exhibits a negative correlation.

Source: Bloomberg

3.5%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

$65.00

$70.00

2012 2013 2014 2015 2016 2017 2018 2019 2020

O Realty Price 10 Year Yield 10 Year Yield Expectations

33

AFFO Per Share Growth Largely Attributable To Low Interest Rate Env’t In The Last 9yrs

We attribute ~2.3% of annual AFFO per share growth from 2008 to 2017 is from interest rate savings. If you strip out the growth from interest rate savings, the AFFO / Share grew at annualized rate of 3.5%. We warn investors not to

extrapolate O Realty’s AFFO historical growth as interests turn from a tailwind to a headwind.

Source: Company Filings(1) 2017 AFFO reflects the midpoint of company guidance

O Realty View2008 AFFO/ Share $1.832017 AFFO/ Share(1) $3.05

CAGR 5.8%

Spruce Point View2008 PF AFFO $2.232017 AFFO/ Share(1) $3.05

CAGR 3.5%

2008 AFFO $1.83

2008 Weighted Avg. Interest Rate 6.63%2017 Weighted Avg. Interest Rate 4.36%

Difference 2.27%

2008 Average Debt 1,782,790Rate Differential 2.27%

PF Interest Savings 40,442Avg Shares 101,112 Increase an AFFO based on 2017 cost of debt $0.40

2008 PF AFFO $2.23

Management and Governance Concerns

35

Ivory Tower Management At Realty Income

Executive / Title Prior Experience

John P. Case / CEO Former Investment Banker (RBC, UBS)

Sumit Roy / COO Former Investment Banker (UBS, ML)

Paul M. Meurer / CFO Former Investment Banker (ML, GS)

Neil M. Abraham / CIO Former REIT portfolio manager (Alliance Bernstein)

Benjamin N. Fox / SVP Former Investment Banker (JPM)

Investors should not be surprised by our findings that O Realty portrays its results in the best light possible with aggressive presentation of its SSR metrics. O Realty’s management team is comprised of a diversified group of

investment bankers – skilled in the art of financial engineering. Prior, to joining O Realty, none of its top management team have had much experience rolling-up their sleeves and managing real estate at the ground level.

Source: Company Website

36

Board Level Concerns At The Audit Level

Investors should strongly evaluate O’s Board of Directors, and in particular, its audit committee members tasked with overseeing management’s accounting and financial policies.

Director Committee Membership Background Concern

Greg McLaughlin

Audit / Compensation

Mr. McLaughlin is currently the President, PGA TOUR Champions and a Senior Vice President with the PGA TOUR in Ponte Vedra Beach, Florida (2014-present).

A golfing pro with no stated corporate or real estate experience on his bio

Ron MerrimanAudit (Chair)

/ Corp. Governance

Ronald L. Merriman is a retired Vice Chairman and partner of KPMG LLP, a global accounting and consulting firm (1967-1997). At KPMG LLP, Mr. Merriman served as Vice Chairman of the Executive Management Committee

Merriman was a high level executive at KPMG. In recent years during his departure, KPMG has repeatedly been sanctioned by the DOJ for criminal violations (“Largest ever tax fraud” and “Fraudulent Scheme to Steal Confidential Info”)

A. Larry Chapman

Audit / Technology Risk

A. Larry Chapman is a retired 37-year veteran of Wells Fargo, having served most recently as Executive Vice President and the Head of Commercial Real Estate from 2006 until his retirement in June 2011, and as a member of the Wells Fargo Management Committee

In recent years, Wells Fargo culture of greed has been exposed through its fake account scandal. A Vanity Fair article explores the issues: “How Wells Fargo’s Cutthroat Corporate Culture Allegedly Drove Bankers To Fraud”

Kathleen Allen Audit and Technology Risk

Professor at Marshall School of Business and the founding director of the Center for Technology Commercialization at the University of Southern California (1991-present). She was the co-founder and chairwoman of Gentech Corporation (1994-2004) and in 2006 co-founded /became the CEO and served on the board of directors of a non-profit

No real estate experience

37

Insider Ownership Declining, While Passive Indices Buying A Red Flag

Insider ownership levels are at the lowest since inception, while index buyers such as Vanguard represent a disturbing trend of increased ownership. We suspect Vanguard might be taking O Realty’s SSR growth figures at face value and

plugging them into their financial models to calibrate the share price. We hope our evidence suggesting declining SSR will help to correct the over-valuation issue.

Source: O Realty Proxy Statements, Capital IQ

Persistent Decline of Insider Beneficial Ownership Disturbing Trend of Rules Based Index Buying

Month Ended March

2013 2014 2015 2016 2017 Trend

All Insiders 0.9% 0.6% 0.4% 0.3% 0.3%

Top 5 ETFs 27.2% 30.5% 37.0% 38.4% 37.2%Vanguard 12.1% 13.0% 14.2% 16.4% 17.0%Blackrock 8.4% 8.7% 10.0% 8.9% 9.6%State Street 3.2% 3.1% 6.2% 6.3% 6.5%

Northern Trust 1.5% 1.4% 1.4% 1.8% 1.7%

Invesco 1.9% 4.3% 5.1% 5.1% 2.4%

4.30%

0.30%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Valuation and Downside Case

39

Analyst Always Bullish, Still See 18% Upside In O Realty

O Realty’s bullish analysts point to its advantageous cost of capital, and relative balance sheet strength. We believe that the analyst community needs to spend more time analyzing the core “organic” growth profile of the Company.

We also believe that the underlying systemic pressures in some of its major retail sub-sectors needs to be a risk that investors are appropriately compensated for. We applaud Goldman Sachs for being the lone skeptic and below market

price target on O Realty. We expect other brokers to follow with downgrades.

Source: Bloomberg(1) Includes analysts that provide price targets(2) Based on $50 / share

Broker (1) Recommendation Price Target

Stifel Buy $65.00

Wells Fargo Outperform 63.00

Janney Montgomery Buy 62.00

Morgan Stanley Overweight 60.00

DA Davidson Neutral 60.00

JP Morgan Neutral 60.00

Capital One Equal weight 60.00

RBC Sector perform 60.00

Baird Neutral 59.00

Mizuho Neutral 56.00

MUFG Neutral 56.00

UBS Neutral 56.00

Goldman Sachs Sell/Neutral 50.00

Average Price Target% Upside From Current (2)

$59.00+18%

40

Peer Group Comparison

O Realty looks priced for perfection. O trades at the highest multiple within their retail triple net lease peers. As highlighted below, when the growth profile of a REIT begins to decline, the AFFO multiple compresses significantly.

Source: Bloomberg, Company Filings and Spruce Point Estimates(1) For shopping centers, this metric is Same Property NOI; For the triple net lease retail, this metric is Same Store Rental Revenue(2) P/ AFFO for 2016 and 2017 is based on stock prices at 12/31/15 and 12/31/16, respectively. 2017 and 2018 P/ AFFO multiple is based on current stock prices

See case studies for KIM, BRX, and DDR which illustrate the multiple compression that occurs when the growth profile is reduced

P/AFFO KIM BRX DDR

2017 20.7x 15.5x 15.4x2018E 12.1x 9.7x 8.8x

MultipleCompression 8.6x 5.8x 6.6x

Mkt Same Property Growth(1) P/ AFFO(2) Cap DivTicker Price Cap EV 2015 2016 1Q17 2Q17 3Q17 2016 2017 2018E 2019E Rate Yield

Shopping Centers (Mkt Cap > $2.5B)

REG $57.79 $9,830.7 $13,705.1 4.4% 3.5% 3.7% 3.2% 5.0% 24.4x 23.3x 18.4x 17.6x 5.8% 3.7%

KIM 14.67 6,244.3 12,650.0 3.1% 2.8% 2.2% 0.3% 3.1% 22.7x 20.7x 12.1x 11.6x 7.9% 7.6%

FRT 112.22 8,141.2 11,818.5 2.6% 3.1% 4.3% 3.9% 4.4% 30.6x 30.0x 22.3x 21.3x 5.1% 3.6%

BRX 15.03 4,583.2 10,266.9 3.2% 2.5% 3.2% 1.3% 1.5% 16.3x 15.5x 9.7x 9.5x 8.8% 7.3%

DDR 7.46 2,748.7 7,281.9 3.4% 2.5% -0.1% -0.1% -0.9% 15.3x 15.4x 8.8x 9.0x 8.8% 10.2%

WRI 27.54 3,536.9 5,889.0 3.3% 3.3% 3.7% 2.6% 2.8% 18.5x 18.0x 13.8x 13.5x 6.5% 5.6%

RPAI 11.62 2,638.9 4,461.9 2.9% 3.5% 2.0% 1.8% 1.0% 18.2x 22.1x 14.6x 13.6x 7.8% 5.7%

Shopping Center Average 3.3% 3.0% 2.7% 1.9% 2.4% 20.9x 20.7x 14.2x 13.7x 7.2% 6.2%

Retail Triple Net Lease

VER $6.95 $6,770.9 $12,797.9 1.1% 0.2% -0.3% 0.0% 0.1% 10.1x 11.5x 9.7x 9.7x 7.8% 7.9%

NNN $38.01 5,779.5 8,867.2 1.1% 0.8% ND ND ND 16.8x 17.4x 14.3x 13.7x 6.4% 5.0%

SRC $7.78 3,546.9 7,398.1 0.7% 0.2% -0.5% 1.1% 1.2% 11.3x 12.8x 9.4x 9.6x 8.5% 9.3%

STOR $23.19 4,406.5 6,765.2 ND ND ND ND ND 14.2x 14.5x 12.7x 12.1x 6.1% 5.3%

Triple Net Lease Retail Average 1.0% 0.4% -0.4% 0.6% 0.7% 13.1x 14.0x 11.5x 11.3x 7.2% 6.9%

O $50.07 $14,109.0 $19,912.3 1.3% 1.2% 0.9% 0.4% 1.0% 17.4x 16.4x 15.9x 15.4x 5.8% 5.2%O - Adj $28.02 -0.8% 8.9x

41

Peer Group – Triple Net Lease Retail

We question why the street is valuing O Realty at the highest amongst its peers when its occupancy, lease duration and near term lease renewals all reflect a status at the bottom of their peer group. Further, we will show later in this

presentation why the growth profile should be questioned.

Highest Valuationi.e. “most expensive”

Lowest Occupancy Second lowest duration of leases (by 0.1 years)Most leases up for renewal in next two years

Lowest Insider Ownership

Source: Bloomberg, Company Filings and Spruce Point Estimates(1) We adjust the occupancy for the 91 vacant property sales since the beginning of 2016(2) Relative Rank from 1 (best) to 5 (worst)

Valuation Tenant Metrics: Occupancy and Duration Insider RepresentationImplied Div Avg. Duration Lease Maturities Insider

P/ 18E AFFO Cap Rate Div Yield Occupancy of Leases (years) 2018 -- 2019 OwnershipTicker Metric Rel. Rank (2) Metric Rel. Rank (2) Metric Rel. Rank (2) Metric Rel. Rank (2) Metric Rel. Rank (2) Metric Rel. Rank (2) Metric Rank

VER 9.7x 2 7.8% 2 7.9% 2 99.0% 3 9.5 5 7.7% 4 0.37% 4

NNN 14.3x 4 6.4% 3 5.0% 5 98.8% 4 11.4 2 5.3% 2 0.96% 1

SRC 9.4x 1 8.5% 1 9.3% 1 99.1% 2 10.1 3 6.9% 3 0.56% 3

STOR 12.7x 3 6.1% 4 5.3% 3 99.5% 1 14.0 1 1.0% 1 0.91% 2

Average 11.1x 7.6% 7.4% 99.0% 10.3 6.6% 0.63%

O 15.9x 5 5.8% 5 5.2% 4 98.3% 5 9.6 4 7.8% 5 0.25% 5

O Adj(1) 96.6%

42

Spruce Point Estimates 30% - 45% Downside

We arrive at our price target by applying a range of AFFO multiples commensurate with precedent REIT stocks going into financial decline (DDR, Brixmor, Kimco)

The forward AFFO multiple compresses by an average of 7.0x for

retail REITS that transition to a lower growth or negative

growth profile

Valuation Ranges

Current Optimistic Base Realistic

2018E AFFO $3.15 $3.15 $3.15 $3.15

x Multiple 15.9x 10.9x 9.9x 8.9x

= Implied Share Price $50.00 $34.32 $31.17 $28.02

% downside (31%) (38%) (44%)

Appendix: REIT Case Studies of Declining Growth And Market Reaction

44

DDR Corp Case Study

A reduction in guidance of Same Store NOI growth by 2.25% from the guidance midpoints (i.e. from 1.5% to -0.75%) resulted in a stock down 48% over a 5 month period.

Source: Bloomberg

45

Brixmor Property (BRX) Case Study

A reduction in guidance of Same Store NOI growth in both FY16 and FY17 from original expectations and the stock is now down 40% from when the reduction in growth expectations began

Source: Bloomberg

46

Kimco Realty (KIM) Case Study

KIM is another example of a REIT where their same store growth profile was reduced and the result is a stock down 52% since July of 2016.

Source: Bloomberg