What changed in this filing

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Item 1. Financial Statements

2020-08-04 compared with 2020-05-05 · 441 added, 199 removed, 447 unchanged (59% of the section changed)

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(dollars in thousands, except per share and share count data)

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

ASSETS (unaudited)

Real estate held for investment, at cost:

Land $ 5,772,734 $ 5,684,034

Buildings and improvements 14,096,997 13,833,882

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Cash and cash equivalents 35,345 54,011

Short-term investment 300,000 —

Accounts receivable 255,609 181,969

1 unchanged sentence

Other assets, net 460,554 328,661

Total assets $ 19,102,547 $ 18,554,796

LIABILITIES AND EQUITY

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Stockholders’ equity:

Common stock and paid in capital, par value $0.01 per share, 740,200,000 shares authorized, 343,402,030 and 333,619,106 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

Common stock and paid in capital, par value $ 0.01 per share, 740,200,000 shares authorized, 345,023,421 and 333,619,106 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

13,704,121 12,873,849

Distributions in excess of net income ( 3,306,588 ) ( 3,082,291 )

Accumulated other comprehensive loss

( 53,084 ) ( 17,102 )

Total stockholders’ equity 10,344,449 9,774,456

Noncontrolling interests 29,470 29,702

Total equity 10,373,919 9,804,158

Total liabilities and equity $ 19,102,547 $ 18,554,796

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(dollars in thousands, except per share data) (unaudited)

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2020 2019 2020 2019

Rental (including reimbursable) $ 410,201 $ 364,252 $ 822,358 $ 718,289

Other 4,435 1,198 6,619 1,526

Total revenue 414,636 365,450 828,977 719,815

Depreciation and amortization 168,328 150,426 332,913 287,943

Interest 77,841 72,488 153,766 142,508

Property (including reimbursable) 26,452 21,342 52,058 42,978

General and administrative 19,063 18,585 40,027 33,693

Income taxes 2,838 1,155 5,601 2,600

Provisions for impairment 13,869 13,061 18,347 17,733

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Gain on sales of real estate 1,323 6,891 39,829 14,154

Foreign currency and derivative losses, net

Foreign currency and derivative gains (losses), net 502 136 ( 1,062 ) 136

Loss on extinguishment of debt — — ( 9,819 ) —

Net income 108,070 95,420 255,213 206,650

Net income attributable to noncontrolling interests ( 246 ) ( 226 ) ( 562 ) ( 514 )

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Weighted average common shares outstanding:

Basic 343,515,406 311,032,972 340,061,487 307,293,949

Diluted 343,685,259 311,322,162 340,281,265 307,580,127

Other comprehensive income:

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(dollars in thousands) (unaudited)

Three Months Ended March 31, 2020 and 2019

Distributions

Accumulated other comprehensive loss

Three Months Ended June 30, 2020 and 2019

capital Distributions

net income Accumulated

comprehensive

stockholders’

Noncontrolling

Balance, December 31, 2018

equity Noncontrolling

interests Total

Balance, March 31, 2020 343,402,030 $ 13,604,055 $ ( 3,173,468 ) $ ( 42,572 ) $ 10,388,015 $ 29,624 $ 10,417,639

Net Income — — 107,824 — 107,824 246 108,070

Other comprehensive loss — — — ( 10,512 ) ( 10,512 ) — ( 10,512 )

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Share issuances, net of costs 1,555,966 96,996 — — 96,996 — 96,996

Issuance of common partnership units

Redemption of common units

Share-based compensation, net

65,425 3,070 — — 3,070 — 3,070

Balance, June 30, 2020 345,023,421 $ 13,704,121 $ ( 3,306,588 ) $ ( 53,084 ) $ 10,344,449 $ 29,470 $ 10,373,919

Balance, March 31, 2019 303,807,421 $ 10,748,467 $ ( 2,752,775 ) $ ( 11,797 ) $ 7,983,895 $ 25,181 $ 8,009,076

Net income — — 95,194 — 95,194 226 95,420

Other comprehensive loss — — — ( 2,800 ) ( 2,800 ) — ( 2,800 )

Distributions paid and payable — — ( 212,356 ) — ( 212,356 ) ( 315 ) ( 212,671 )

Share issuances, net of costs 14,384,215 969,162 — — 969,162 — 969,162

Share-based compensation, net 27,077 4,407 — — 4,407 — 4,407

Balance, June 30, 2019 318,218,713 $ 11,722,036 $ ( 2,869,937 ) $ ( 14,597 ) $ 8,837,502 $ 25,092 $ 8,862,594

Six Months Ended June 30, 2020 and 2019

capital Distributions

net income Accumulated

comprehensive

stockholders’

equity Noncontrolling

interests Total

Balance, December 31, 2019 333,619,106 $ 12,873,849 $ ( 3,082,291 ) $ ( 17,102 ) $ 9,774,456 $ 29,702 $ 9,804,158

Net income — — 254,651 — 254,651 562 255,213

Other comprehensive loss — — — ( 35,982 ) ( 35,982 ) — ( 35,982 )

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Share-based compensation, net

Balance, March 31, 2020

123,849 2,500 — — 2,500 — 2,500

Balance, June 30, 2020 345,023,421 $ 13,704,121 $ ( 3,306,588 ) $ ( 53,084 ) $ 10,344,449 $ 29,470 $ 10,373,919

Balance, December 31, 2018 303,742,090 $ 10,754,495 $ ( 2,657,655 ) $ ( 8,098 ) $ 8,088,742 $ 32,236 $ 8,120,978

Net income — — 206,136 — 206,136 514 206,650

Other comprehensive loss — — — ( 6,499 ) ( 6,499 ) — ( 6,499 )

Distributions paid and payable — — ( 418,418 ) — ( 418,418 ) ( 588 ) ( 419,006 )

Share issuances, net of costs 14,416,113 971,313 — — 971,313 — 971,313

Issuance of common partnership units — — — — — 6,286 6,286

Redemption of common units — ( 6,869 ) — — ( 6,869 ) ( 13,356 ) ( 20,225 )

Share-based compensation, net 60,510 3,097 — — 3,097 — 3,097

Balance, June 30, 2019 318,218,713 $ 11,722,036 $ ( 2,869,937 ) $ ( 14,597 ) $ 8,837,502 $ 25,092 $ 8,862,594

The accompanying notes to consolidated financial statements are an integral part of these statements.

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(dollars in thousands) (unaudited)

Three Months Ended

Six months ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

$ 255,213 $ 206,650

Adjustments to net income:

Depreciation and amortization

332,913 287,943

Amortization of share-based compensation

Non-cash revenue adjustments

( 1,507 ) ( 4,351 )

Loss on extinguishment of debt

Amortization of net premiums on mortgages payable

( 710 ) ( 708 )

Amortization of deferred financing costs

Loss on interest rate swaps

Foreign currency and derivative losses, net

Foreign currency and derivative losses (gains), net 1,062 ( 136 )

Gain on sales of real estate

( 39,829 ) ( 14,154 )

Provisions for impairment on real estate

18,347 17,733

Change in assets and liabilities

Accounts receivable and other assets

( 61,091 ) ( 11,250 )

Accounts payable, accrued expenses and other liabilities

( 16,881 ) ( 4,679 )

Net cash provided by operating activities

514,644 489,663

CASH FLOWS FROM INVESTING ACTIVITIES

Investment in real estate

( 632,174 ) ( 1,604,575 )

Improvements to real estate, including leasing costs

( 4,710 ) ( 11,767 )

Proceeds from sales of real estate

133,643 51,052

Purchase of short-term investment ( 300,000 ) —

Insurance and other proceeds received

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Net cash used in investing activities

( 803,133 ) ( 1,574,909 )

CASH FLOWS FROM FINANCING ACTIVITIES

Cash distributions to common stockholders

( 474,294 ) ( 413,410 )

Borrowings on line of credit

2,324,409 1,404,000

Payments on line of credit

( 2,385,859 ) ( 1,648,000 )

Principal payment on term loan

( 250,000 ) ( 70,000 )

Proceeds from notes and bonds payable issued 593,922 895,774

Principal payment on notes payable

( 250,000 ) —

Principal payments on mortgages payable

( 14,730 ) ( 2,492 )

Payments upon extinguishment of debt

Proceeds from common stock offerings, net

728,883 845,061

Proceeds from dividend reinvestment and stock purchase plan

Proceeds from At-the-Market (ATM) program, net 94,076 122,155

Redemption of common units

Distributions to noncontrolling interests

( 794 ) ( 635 )

Net receipts on derivative settlements

Debt issuance costs ( 5,526 ) ( 7,331 )

Other items, including shares withheld upon vesting

( 7,901 ) ( 4,195 )

Net cash provided by financing activities

349,977 1,104,800

Effect of exchange rate changes on cash and cash equivalents

( 2,175 ) ( 733 )

Net increase in cash, cash equivalents and restricted cash

59,313 18,821

Cash, cash equivalents and restricted cash, beginning of period

71,005 21,071

Cash, cash equivalents and restricted cash, end of period

$ 130,318 $ 39,892

For supplemental disclosures, see note 17.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

June 30, 2020

Basis of Presentation

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Unless otherwise indicated, all dollar amounts are expressed in United States (U.S.) dollars.

At March 31, 2020 we owned 6,525 properties, located in 49 U.S.

At June 30, 2020 we owned 6,541 properties, located in 49 U.S.

states, Puerto Rico and the United Kingdom (U.K.), consisting of approximately 106.4 million leasable square feet.

Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements

Summary of Significant Accounting Policies and Procedures

The accompanying consolidated financial statements include the accounts of Realty Income and other subsidiaries for which we make operating and financial decisions (i.e., control), after elimination of all material intercompany balances and transactions.

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Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of our taxable REIT subsidiaries.

The income taxes recorded on our consolidated statements of income and comprehensive income represent amounts paid by Realty Income and its subsidiaries for city and state income and franchise taxes and for U.K.

The income taxes recorded on our consolidated statements of income and comprehensive income represent amounts accrued or paid by Realty Income and its subsidiaries for city and state income and franchise taxes and for U.K.

income taxes.

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These impacts may continue and increase in severity as the duration of the pandemic lengthens, which may, in turn, adversely impact the fair value estimates of our real estate and recording of impairments on our properties.

As a result, we are evaluating certain key assumptions involving fair value estimates of our real estate.

As a result, we have evaluated certain key assumptions involving fair value estimates of our real estate and collectibility of our accounts receivable.

We continue to evaluate the potential impacts of the COVID-19 pandemic and the measures taken to limit its spread on our business and industry segments as the situation continues to evolve and more information becomes available.

However, as of March 31, 2020, we have determined that the COVID-19 pandemic and the measures taken to limit its spread have not had a material impact on our consolidated financial statements as of and for period ended March 31, 2020.

Based on the status of our business operations as of March 31, 2020, as a result of the COVID-19 pandemic, we expect to remain in compliance with the financial covenants for our unsecured notes and credit facility over the next 12 months.

Based on the status of our business operations as of June 30, 2020, as a result of the COVID-19 pandemic, we expect to remain in compliance with the financial covenants for our unsecured notes and credit facility over the next 12 months.

On April 8, 2020, the Financial Accounting Standards Board, or FASB, staff and FASB board members responded to questions about the accounting for COVID-19 related rent concessions under Topic 842, Leases .

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The FASB staff has provided clarifying guidance for leases where the total lease cash flows will remain substantially the same or less than those after the COVID-19 related effects, though companies may choose to forgo the evaluation of the enforceable rights and obligations of the original lease contract as a practical expedient.

Instead, the company would account for rent concessions, whatever their form (e.g.

the company would account for rent concessions, whatever their form (e.g.

rent deferral, abatement or other), either (1) as if they are part of the enforceable rights and obligations of the parties under the existing lease contract;

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If we conclude collection of substantially all lease payments is less than probable, rental revenue recognized is limited to cash received and existing operating lease receivables must be written off as an adjustment to rental revenue.

We assess collectability of our future lease payments based on an analysis of creditworthiness, economic trends, including the COVID-19 pandemic, and other facts and circumstances related to the applicable tenants.

As we collect the majority of our rent in advance and at this time we do not have any tenant specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable, the impact of the COVID-19 pandemic on our tenants' ability to pay rent did not have a significant impact on our consolidated financial statements for the quarter ended March 31, 2020.

However, since the conversations regarding rent collections for tenants affected by COVID-19 are ongoing we do not currently know the types of concessions, if any, that will ultimately be granted and, as a result, have not yet made an election to proceed with option (1) or (2) above.

During the first three months of 2020, we reclassified 'Real estate held for sale, net', which was previously presented in 'Net real estate', into a new caption entitled 'Real estate and lease intangibles held for sale, net'.

The majority of concessions granted to our tenants during the second quarter of 2020 as a result of the COVID-19 pandemic have been rent deferrals with the original lease term unchanged.

In these cases, we have currently determined that the collection of substantially all rent payments is probable.

We also currently anticipate future concessions to be similar.

In accordance with the April 8, 2020 guidance provided by the FASB staff, we have elected to account for these leases as if the right of deferral existed in the lease contract and therefore continue to recognize lease revenue in accordance with the lease contract in effect.

In limited circumstances, the undiscounted cash flows resulting from deferrals granted during the second quarter of 2020 increased significantly from original lease terms, which required us to account for these as lease modifications, and resulted in an insignificant impact to rental revenue for the three months ended June 30, 2020.

Similarly, rent abatements granted during the second quarter of 2020, which were also accounted for as lease modifications, impacted our rental revenue by an insignificant amount for the three months ended June 30, 2020.

We assess collectability of our future lease payments based on an analysis of creditworthiness, economic trends (including trends arising from the COVID-19 pandemic) and other facts and circumstances related to the applicable tenants.

If the collection of substantially all of the future lease payments is less than probable, we write-off the receivable balances associated with the lease and cease to recognize lease income, including straight-line rent, unless cash is received when due.

The following table summarizes reserves recorded as a reduction of rental revenue (dollars in millions):

Three months ended June 30, Six months ended June 30,

2020 2019 2020 2019

Rental revenue reserves $ 6.4 $ 0.4 $ 7.4 $ 1.0

Straight-line rent reserves 2.1 — 2.8 1.4

Total rental revenue reserves $ 8.5 $ 0.4 $ 10.2 $ 2.4

As of June 30, 2020, we do not have any further tenant specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable.

However, since the conversations regarding rent collections for tenants affected by the COVID-19 pandemic are ongoing and we do not currently know the types of future concessions, if any, that will ultimately be granted, there may be impacts in future periods that could change this assessment as the situation continues to evolve and as more information becomes available.

During the first six months of 2020, we reclassified 'Real estate held for sale, net', which was previously presented in 'Net real estate', into a new caption entitled 'Real estate and lease intangibles held for sale, net'.

The reclassification out of 'Net real estate' incorporates intangibles held for sale into a more appropriate presentation of the held for sale caption.

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Supplemental Detail for Certain Components of Consolidated Balance Sheets (dollars in thousands):

Accounts Receivable consist of the following at:

June 30, 2020 December 31, 2019

Straight-line rent receivables $ 161,033 $ 147,047

Other receivables 94,576 34,922

$ 255,609 $ 181,969

Lease intangible assets, net, consist of the following at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

In-place leases

$ 1,679,972 $ 1,612,153

Accumulated amortization of in-place leases

( 690,000 ) ( 627,676 )

Above-market leases

743,095 710,275

Accumulated amortization of above-market leases

( 224,890 ) ( 201,369 )

$ 1,508,177 $ 1,493,383

Other assets, net, consist of the following at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Right of use asset - operating leases, net $ 117,444 $ 120,533

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Derivative assets and receivables - at fair value 19,011 12

Prepaid expenses

Goodwill 14,383 14,430

Impounds related to mortgages payable 13,290 12,465

Prepaid expenses 12,570 11,839

Credit facility origination costs, net 9,418 11,453

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Value-added tax receivable — 9,682

Other items 4,475 4,871

$ 460,554 $ 328,661

Distributions payable consist of the following declared distributions at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Common stock distributions

$ 81,276 $ 76,622

Noncontrolling interests distributions

$ 81,384 $ 76,728

Accounts payable and accrued expenses consist of the following at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Derivative liabilities and payables - at fair value $ 73,980 $ 26,359

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Property taxes payable 21,964 18,626

Accrued income taxes

Value-added tax payable 4,921 13,434

Accrued income taxes 4,481 4,450

Accrued costs on properties under development 1,860 5,870

Mortgages, term loans, credit line - interest payable and interest rate swaps 1,496 1,729

Other items 21,200 31,457

$ 201,176 $ 177,039

Lease intangible liabilities, net, consist of the following at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Below-market leases

$ 449,013 $ 447,522

Accumulated amortization of below-market leases

( 126,269 ) ( 114,419 )

$ 322,744 $ 333,103

Other liabilities consist of the following at:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Lease liability - operating leases, net $ 119,718 $ 122,285

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Lease liability - financing leases 6,100 5,946

$ 248,547 $ 262,221

Short-term investment

Short-term investment represents a term deposit with a bank that was not readily convertible to cash as of June 30, 2020.

The term deposit matured on July 24.

Investments in Real Estate

We acquire land, buildings and improvements necessary for the successful operations of commercial tenants.

Acquisitions During the First Three Months of 2020 and 2019

Below is a summary of our acquisitions for the three months ended March 31, 2020 :

Number of Properties

(in millions)

($ in millions)

Weighted Average Lease Term (Years)

Initial Average Cash Lease Yield

Three Months Ended March 31, 2020 (1)

Acquisitions During the First Six Months of 2020 and 2019

Below is a summary of our acquisitions for the six months ended June 30, 2020:

Properties Square Feet

(in millions) Investment

($ in millions) Weighted

(Years) Initial

Six months ended June 30, 2020 (1)

Acquisitions - U.S.

(in 25 states)

80 1.8 $ 412.6 14.4 6.5 %

Acquisitions - U.K.

6 0.5 223.7 11.8 5.3 %

Total acquisitions 86 2.3 636.3 13.6 6.1 %

Properties under development - U.S.

None of our investments during the first three months of 2020 caused any one tenant to be 10% or more of our total assets at March 31, 2020 .

All of our investments in acquired properties during the first three months of 2020 are 100 % leased at the acquisition date.

Represents investments of £ 133.3 million Sterling during the three months ended March 31, 2020 converted at the applicable exchange rate on the date of acquisition.

8 0.2 3.9 10.5 8.8 %

94 2.5 $ 640.2 13.6 6.1 %

(1) None of our investments during the first six months of 2020 caused any one tenant to be 10% or more of our total assets at June 30, 2020.

All of our investments in acquired properties during the first six months of 2020 are 100 % leased at the acquisition date.

(2) Represents investments of £ 180.1 million Sterling during the six months ended June 30, 2020 converted at the applicable exchange rate on the date of acquisition.

(3) The tenants occupying the new properties operate in 17 industries, and are 96.5 % retail and 3.5 % industrial, based on rental revenue.

Approximately 36 % of the rental revenue generated from acquisitions during the first three months of 2020 is from investment grade rated tenants, their subsidiaries or affiliated companies.

The $ 486.0 million invested during the first three months of 2020 was allocated as follows:

$ 70.2 million to land (of which $ 7.4 million was related to right of use assets under long-term ground leases), $ 56.9 million to right of use assets under ground leases, $ 295.9 million to buildings and improvements, $ 64.8 million to intangible assets related to leases, $ 508,000 to financing receivables related to certain leases with above-market terms, $ 1.4 million to

intangible liabilities related to below-market leases and $ 934,000 to lease liabilities under ground leases.

There was no contingent consideration associated with these acquisitions.

The properties acquired during the first three months of 2020 generated total revenues of $ 3.9 million and net income of $ 1.2 million during the three months ended March 31, 2020 .

Below is a summary of our acquisitions for the three months ended March 31, 2019:

Number of Properties

(in millions)

($ in millions)

Weighted Average Lease Term (Years)

Initial Average Cash Lease Yield

Three months ended March 31, 2019 (1)

Approximately 37 % of the rental revenue generated from acquisitions during the first six months of 2020 is from investment grade rated tenants, their subsidiaries or affiliated companies.

The acquisitions during the first six months of 2020, which had no associated contingent consideration, were allocated as follows (dollars in millions):

Acquisitions - U.S.

Acquisitions - U.K.

Six months ended June 30, 2020

(USD) (£ Sterling)

$ 82.9 £ 22.8

Buildings and improvements 278.4 60.8

Lease intangible assets 54.5 42.0

Other assets (2)

Lease intangible liabilities ( 2.3 ) —

Other liabilities (3)

$ 414.1 £ 180.1

land includes £ 6.4 million of right of use assets under long-term ground leases.

other assets consists of $ 810,000 financing receivables with above-market terms and $ 689,000 of right of use assets under ground leases.

other assets entirely consists of right of use assets under ground leases.

other liabilities entirely consists of lease liabilities under ground leases.

The properties acquired during the first six months of 2020 generated total revenues of $ 13.6 million and net income of $ 4.6 million during the six months ended June 30, 2020.

Below is a summary of our acquisitions for the six months ended June 30, 2019:

Properties Square Feet

(in millions) Investment

($ in millions) Weighted

(Years) Initial

Six months ended June 30, 2019 (1)

Acquisitions - U.S.

(in 34 states)

175 4.2 $ 1,040.9 15.9 6.8 %

Acquisitions - U.K.

12 1.1 549.2 14.8 5.3 %

Total acquisitions 187 5.3 1,590.1 15.5 6.3 %

Properties under development - U.S.

None of our investments during the first three months of 2019 caused any one tenant to be 10% or more of our total assets at March 31, 2019.

All of our investments in acquired properties during the first three months of 2019 were 100 % leased upon acquisition.

The tenants occupying the new properties operated in 14 industries, and the property types consisted of 98.7 % retail and 1.3 % industrial, based on rental revenue.

Approximately 31 % of the rental revenue generated from acquisitions during the first three months of 2019 was from investment grade rated tenants, their subsidiaries or affiliated companies.

The $ 519.5 million invested during the first three months of 2019 was allocated as follows:

$ 121.1 million to land, $ 329.2 million to buildings and improvements, $ 52.4 million to intangible assets related to leases, $ 26.3 million to financing receivables related to certain leases with off-market terms, and $ 9.5 million to intangible liabilities related to certain leases with below-market terms.

There was no contingent consideration associated with these acquisitions.

The properties acquired during the first three months of 2019 generated total revenues of $ 3.5 million and net income of $ 1.8 million during the three months ended March 31, 2019 .

12 0.4 24.1 16.5 7.2 %

199 5.7 $ 1,614.2 15.6 6.3 %

(1) None of our investments during 2019 caused any one tenant to be 10% or more of our total assets at June 30, 2019.

All of our investments in acquired properties during the first six months of 2019 are 100 % leased at the acquisition date.

(2) Represents investments of £ 433.9 million Sterling during the six months ended June 30, 2019 converted at the applicable exchange rate on the date of the acquisition.

(3) The tenants occupying the new properties operated in 17 industries, and are 99.1 % retail and 0.9 % industrial, based on rental revenue.

Approximately 18 % of the rental revenue generated from acquisitions during the first six months of 2019 was from investment grade rated tenants, their subsidiaries or affiliated companies.

The acquisitions during the first six months of 2019, which had no associated contingent consideration, were allocated as follows (dollars in millions):

Acquisitions - U.S.

Acquisitions - U.K.

Six months ended June 30, 2019 (USD) (£ Sterling)

$ 234.7 £ 164.4

Buildings and improvements 704.5 182.0

Lease intangible assets 80.3 90.8

Other assets (2)

Lease intangible liabilities ( 23.0 ) ( 3.3 )

Other liabilities (3)

$ 1,042.9 £ 433.9

land includes £ 13.6 million of right of use assets under long-term ground leases.

other assets entirely consists of financing receivables with above-market terms.

other liabilities entirely consists of deferred rent on certain below-market leases.

The properties acquired during the first six months of 2019 generated total revenues of $ 19.7 million and net income of $ 10.0 million during the six months ended June 30, 2019.

The initial average cash lease yield for a property is generally computed as estimated contractual first year cash net operating income, which, in the case of a net leased property, is equal to the aggregate cash base rent for the first full year of each lease, divided by the total cost of the property.

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Investments in Existing Properties

During the first three months of 2020 , we capitalized costs of $ 2.1 million on existing properties in our portfolio, consisting of $ 138,000 for re-leasing costs and $ 2.0 million for non-recurring building improvements.

In comparison, during the first three months of 2019 , we capitalized costs of $ 3.0 million on existing properties in our portfolio, consisting of $ 323,000 for re-leasing costs, $ 56,000 for recurring capital expenditures, and $ 2.6 million for non-recurring building improvements.

During the first six months of 2020, we capitalized costs of $ 4.4 million on existing properties in our portfolio, consisting of $ 1.1 million for re-leasing costs, $ 23,000 for recurring capital expenditures, and $ 3.3 million for non-recurring building improvements.

In comparison, during the first six months of 2019, we capitalized costs of $ 6.1 million on existing properties in our portfolio, consisting of $ 1.0 million for re-leasing costs, $ 172,000 for recurring capital expenditures, and $ 4.9 million for non-recurring building improvements.

Properties with Existing Leases

Of the $ 486.0 million we invested during the first three months of 2020 , approximately $ 363.0 million was used to acquire 39 properties with existing leases.

In comparison, of the $ 519.5 million we invested during the first three months of 2019 , approximately $ 258.0 million was used to acquire 53 properties with existing leases.

Of the $ 640.2 million we invested during the first six months of 2020, approximately $ 500.3 million was used to acquire 57 properties with existing leases.

In comparison, of the $ 1.6 billion we invested during the first six months of 2019, approximately $ 929.7 million was used to acquire 75 properties with existing leases.

The value of the in-place and above-market leases is recorded to lease intangible assets, net on our consolidated balance sheets, and the value of the below-market leases is recorded to lease intangible liabilities, net on our consolidated balance sheets.

The values of the in-place leases are amortized as depreciation and amortization expense.

The amounts amortized to expense for all of our in-place leases, for the first three months of 2020 and 2019 were $ 32.6 million and $ 26.0 million , respectively.

The amounts amortized to expense for all of our in-place leases, for the first six months of 2020 and 2019 were $ 66.3 million and $ 57.8 million, respectively.

The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of income and comprehensive income.

The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for the first three months of 2020 and 2019 were $ 8.2 million and $ 3.4 million , respectively.

The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for the first six months of 2020 and 2019 were $ 16.1 million and $ 7.9 million, respectively.

If a lease was to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense, as appropriate.

The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at March 31, 2020 (dollars in thousands):

rental revenue

2020 $ ( 12,694 ) $ 64,254

2021 ( 24,568 ) 122,159

2022 ( 23,020 ) 110,185

2023 ( 21,483 ) 97,909

2024 ( 19,872 ) 89,245

Thereafter ( 93,824 ) 506,220

Totals $ ( 195,461 ) $ 989,972

Credit Facility

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dollars, and has a $ 1.0 billion expansion option, which is subject to obtaining lender commitments.

Under our credit facility, our investment grade credit ratings as of March 31, 2020 provide for financing at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 0.775 % with a facility commitment fee of 0.125 % , for all-in drawn pricing of 0.90 % over LIBOR .

Under our credit facility, our investment grade credit ratings as of June 30, 2020 provide for financing at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 0.775 % with a facility commitment fee of 0.125 %, for all-in drawn pricing of 0.90 % over LIBOR.

The borrowing rate is subject to an interest rate floor and may change if our investment grade credit ratings change.

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Our revolving credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation.

At March 31, 2020 , credit facility origination costs of $ 10.3 million are included in other assets, net, as compared to $ 11.5 million at December 31, 2019 , on our consolidated balance sheet.

At June 30, 2020, credit facility origination costs of $ 9.4 million are included in other assets, net, as compared to $ 11.5 million at December 31, 2019, on our consolidated balance sheet.

These costs are being amortized over the remaining term of our revolving credit facility.

At March 31, 2020 , we had a borrowing capacity of $ 2.4 billion available on our revolving credit facility (subject to customary conditions to borrowing) and an outstanding balance of $ 615.2 million , including £282.8 million Sterling, as compared to an outstanding balance of $ 704.3 million , including £ 169.2 million Sterling, at December 31, 2019 .

On April 9, 2020 , we borrowed an additional $ 1.2 billion on our revolving credit facility to increase our cash position to $ 1.25 billion as a conservative measure due to COVID-19.

See Note 21, Subsequent Events .

The weighted average interest rate on outstanding borrowings under our revolving credit facility was 2.1 % during the first three months of 2020 and 3.3 % during the first three months of 2019 .

At March 31, 2020 and December 31, 2019, the weighted average interest rate on borrowings outstanding under our revolving credit facility was 1.3 % and 2.2 % , respectively.

Our revolving credit facility is subject to various leverage and interest coverage ratio limitations, and at March 31, 2020 , we were in compliance with the covenants on our revolving credit facility.

At June 30, 2020, we had a borrowing capacity of $ 2.4 billion available on our revolving credit facility (subject to customary conditions to borrowing) and an outstanding balance of $ 628.6 million, including £ 329.5 million Sterling, as compared to an outstanding balance of $ 704.3 million, including £ 169.2 million Sterling, at December 31, 2019.

The weighted average interest rate on outstanding borrowings under our revolving credit facility was 1.6 % during the first six months of 2020 and 3.3 % during the first six months of 2019.

At June 30, 2020 and December 31, 2019, the weighted average interest rate on borrowings outstanding under our revolving credit facility was 0.9 % and 2.2 %, respectively.

Our revolving credit facility is subject to various leverage and interest coverage ratio limitations, and at June 30, 2020, we were in compliance with the covenants on our revolving credit facility.

In October 2018, in conjunction with entering into our current revolving credit facility, we entered into a $ 250.0 million senior unsecured term loan, which matures in March 2024.

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In conjunction with this term loan, we also entered into an interest rate swap, which effectively fixes our per annum interest on this term loan at 3.89 %.

In June 2015, in conjunction with entering into our previous revolving credit facility, we entered into a $ 250.0 million senior unsecured term loan maturing in June 2020.

Borrowing under this term loan bears interest at the current one-month LIBOR , plus 0.90 % .

In conjunction with this term loan, we also entered into an interest rate swap which effectively fixes our per annum interest rate on this term loan at 2.62 % .

Upon the maturity of this term loan, we intend to either repay the outstanding principal with cash on hand, enter into an amendment to our current term loan, or enter into a new term loan.

Deferred financing costs of $ 1.2 million incurred in conjunction with the $ 250.0 million term loan maturing June 2020 and $ 1.1 million incurred in conjunction with the $ 250.0 million term loan maturing March 2024 are being amortized over the remaining terms of each respective term loan.

The net balance of these deferred financing costs, which was $ 849,000 at March 31, 2020 , and $ 956,000 at December 31, 2019 , is included within term loans, net on our consolidated balance sheets.

In June 2015, in conjunction with entering into our previous revolving credit facility, we entered into a $ 250.0 million senior unsecured term loan which matured in June 2020.

Borrowing under this term loan bore interest at the current one-month LIBOR, plus 0.90 %.

In conjunction with this term loan, we also entered into an interest rate swap which effectively fixed our per annum interest rate on this term loan at 2.62 %.

In June 2020, we repaid the term loan in full upon maturity.

Deferred financing costs of $ 1.2 million incurred in conjunction with the $ 250.0 million term loan which matured June 2020 and $ 1.1 million incurred in conjunction with the $ 250.0 million term loan maturing March 2024 are being amortized over the remaining terms of each respective term loan.

The net balance of deferred financing costs at June 30, 2020 of $ 742,000 relates to the $ 250.0 million term loan maturing March 2024.

The net balance of deferred financing costs at December 31, 2019 of $ 956,000 related to the $ 250.0 million term loan that matured in June 2020 and the $ 250.0 million term loan maturing March 2024.

Mortgages Payable

During the first three months of 2020 , we made $ 1.7 million in principal payments.

During the first three months of 2019 , we made $ 1.2 million in principal payments.

No mortgages were assumed during the first three months of 2020 or 2019 .

During the first six months of 2020, we made $ 14.7 million in principal payments, including the repayment of one mortgage in full for $ 11.4 million.

During the first six months of 2019, we made $ 2.5 million in principal payments.

No mortgages were assumed during the first six months of 2020 or 2019.

Assumed mortgages are secured by the properties on which the debt was placed and are considered non-recourse debt with limited customary exceptions for items such as solvency, bankruptcy, misrepresentation, fraud, misapplication of payments, environmental liabilities, failure to pay taxes, insurance premiums, liens on the property, violations of the single purpose entity requirements, and uninsured losses.

Our mortgages contain customary covenants, such as limiting our ability to further mortgage each applicable property or to discontinue insurance coverage without the prior consent of the lender.

At March 31, 2020 , we were in compliance with these covenants.

The balance of our deferred financing costs, which are classified as part of mortgages payable, net, on our consolidated balance sheets, was $ 1.2 million at March 31, 2020 and $ 1.3 million at December 31, 2019 .

At June 30, 2020, we were in compliance with these covenants.

The balance of our deferred financing costs, which are classified as part of mortgages payable, net, on our consolidated balance sheets, was $ 1.1 million at June 30, 2020 and $ 1.3 million at December 31, 2019.

These costs are being amortized over the remaining term of each mortgage.

The following table summarizes our mortgages payable as of March 31, 2020 and December 31, 2019 , respectively (dollars in thousands):

The following table summarizes our mortgages payable as of June 30, 2020 and December 31, 2019, respectively (dollars in thousands):

Properties (1)

Maturity Remaining

Balance Unamortized

Financing Costs

At March 31, 2020 and December 31, 2019 , there were 27 mortgages on 92 properties.

6/30/2020 91 4.9 % 4.6 % 2.7 $ 393,690 $ 1,126 $ 394,816

12/31/2019 92 4.9 % 4.6 % 3.1 $ 408,419 $ 1,700 $ 410,119

(1) At June 30, 2020, there were 26 mortgages on 91 properties.

At December 31, 2019, there were 27 mortgages on 92 properties.

The mortgages require monthly payments with principal payments due at maturity.

The mortgages were at fixed interest rates, except for one variable rate mortgage on one property, which has been swapped to a fixed interest rate, with a principal balance at March 31, 2020 and December 31, 2019 of $ 7.0 million and $ 7.1 million , respectively.

(2) Stated interest rates ranged from 3.8 % to 6.9 % at each of March 31, 2020 and December 31, 2019 .

(3) Effective interest rates ranged from 3.8 % to 7.6 % at each of March 31, 2020 and December 31, 2019 .

The following table summarizes the maturity of mortgages payable, excluding net premiums of $ 2.6 million and deferred financing costs of $ 1.2 million , as of March 31, 2020 (dollars in millions):

The mortgages were at fixed interest rates, except for one variable rate mortgage on one property, which has been swapped to a fixed interest rate, with a principal balance at June 30, 2020 and December 31, 2019 of $ 7.0 million and $ 7.1 million, respectively.

(2) Stated interest rates ranged from 3.8 % to 6.9 % at each of June 30, 2020 and December 31, 2019.

(3) Effective interest rates ranged from 3.8 % to 7.6 % at each of June 30, 2020 and December 31, 2019.

The following table summarizes the maturity of mortgages payable, excluding net premiums of $ 2.3 million and deferred financing costs of $ 1.1 million, as of June 30, 2020 (dollars in millions):

Year of Maturity

Thereafter 10.8

Notes Payable

Our senior unsecured notes and bonds consist of the following, sorted by maturity date (dollars in millions):

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

5.750 % notes, issued in June 2010 and due in January 2021

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3.250 % notes, issued in June 2019 and due in June 2029

3.250 % notes, issued in May 2020 and due in January 2031 (1)

2.730 % notes, issued in May 2019 and due in May 2034 (2)

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Unamortized net original issuance premiums and deferred financing costs ( 39 ) ( 30 )

$ 6,602 $ 6,288

(1) In July 2020, we issued $ 350 million of 3.250 % senior unsecured notes, which constituted a further issuance of, and formed a single series with, the $ 600 million senior notes issued in May 2020.

See note 21, Subsequent Events .

(2) Represents the principal balance (in U.S.

dollars) of the Sterling-denominated private placement of £ 315.0 million converted at the applicable exchange rates on March 31, 2020 , and December 31, 2019 , respectively.

The following table summarizes the maturity of our notes and bonds payable as of March 31, 2020 , excluding net unamortized original issuance premiums and deferred financing costs (dollars in millions):

dollars) of the Sterling-denominated private placement of £ 315.0 million converted at the applicable exchange rates on June 30, 2020, and December 31, 2019, respectively.

The following table summarizes the maturity of our notes and bonds payable as of June 30, 2020, excluding net unamortized original issuance premiums and deferred financing costs (dollars in millions):

Year of Maturity

As of March 31, 2020 , the weighted average interest rate on our notes and bonds payable was 3.8 % and the weighted average remaining years until maturity was 8.3 years .

All of our outstanding notes and bonds payable have fixed interest rates and contain various covenants, with which we remained in compliance as of March 31, 2020 .

Thereafter 4,591

As of June 30, 2020, the weighted average interest rate on our notes and bonds payable was 3.8 % and the weighted average remaining years until maturity was 8.3 years.

All of our outstanding notes and bonds payable have fixed interest rates and contain various covenants, with which we remained in compliance as of June 30, 2020.

Additionally, interest on all of our senior unsecured note and bond obligations is paid semiannually.

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In January 2020, we completed the early redemption on all $ 250.0 million in principal amount of our outstanding 5.750 % notes due January 2021, plus accrued and unpaid interest.

As a result of the early redemption, we recognized a $ 9.8 million loss on extinguishment of debt on our consolidated statement of income for the first quarter of 2020.

As a result of the early redemption, we recognized a $ 9.8 million loss on extinguishment of debt on our consolidated statement of income for the six months ended June 30, 2020.

Note Issuances

In May 2020, we issued $ 600.0 million of 3.250 % senior unsecured notes due January 2031, or the 2031 Notes.

The public offering price for the 2031 Notes was 98.987 % of the principal amount, for an effective yield to maturity of 3.364 % and gross proceeds of $ 593.9 million.

In June 2019, we issued $ 500.0 million of 3.250 % senior unsecured notes due June 2029, or the 2029 Notes.

The public offering price for the 2029 Notes was 99.359 % of principal amount, for an effective yield to maturity of 3.326 % and gross proceeds of $ 496.8 million.

In May 2019, we issued £ 315.0 million of 2.730 % unsecured notes due May 2034, through a private placement.

The proceeds from each of these offerings were used to repay borrowings outstanding under our credit facility, to fund investment opportunities, and for other general corporate purposes.

Issuances of Common Stock

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After deducting underwriting discounts and other offering costs of $ 21.2 million, the net proceeds of $ 728.9 million were used to repay borrowings under our credit facility, to fund investment opportunities, and for other general corporate purposes.

At-the-Market (ATM) Program

Under our "at-the-market" equity distribution plan, or our ATM program, up to 33,402,405 shares of common stock may be offered and sold (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers' transactions on the New York Stock Exchange ("NYSE:

O") at prevailing market prices or at negotiated prices.

At June 30, 2020, we had 31,891,256 shares remaining for future issuance under our ATM program.

We anticipate maintaining the availability of our ATM program in the future, including the replenishment of authorized shares issuable thereunder.

The following table outlines common stock issuances pursuant to our ATM program (dollars in millions):

Three months ended June 30, Six months ended June 30,

2020 2019 2020 2019

Shares of common stock issued under the ATM program 1,511,149 1,706,695 1,511,149 1,706,695

Gross proceeds $ 95.7 $ 124.2 $ 95.7 $ 124.2

Dividend Reinvestment and Stock Purchase Plan

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Our DRSPP authorizes up to 26,000,000 common shares to be issued.

At March 31, 2020 , we had 11,618,668 shares remaining for future issuance under our DRSPP program.

At June 30, 2020, we had 11,573,851 shares remaining for future issuance under our DRSPP program.

The following table outlines common stock issuances pursuant to our DRSPP program (dollars in millions):

Three Months Ended March 31,

Three months ended June 30, Six months ended June 30,

2020 2019 2020 2019

Shares of common stock issued under the DRSPP program 44,817 27,520 78,817 59,418

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Our DRSPP includes a waiver approval process, allowing larger investors or institutions, per a formal approval process, to purchase shares at a small discount, if approved by us.

We did not issue shares under the waiver approval process during the first three months of 2020 or 2019 .

At-the-Market (ATM) Program

O") at prevailing market prices or at negotiated prices.

At March 31, 2020, we had 33,402,405 shares remaining for future issuance under our ATM program.

We anticipate maintaining the availability of our ATM program in the future, including through replenishing the authorized shares issuable thereunder.

We did not issue any shares under the ATM program during the first three months of 2020 or 2019.

We did not issue shares under the waiver approval process during the first six months of 2020 or 2019.

Noncontrolling Interests

The two noncontrolling interests that we consolidate include an operating partnership, Realty Income, L.P., and a joint venture acquired during 2019.

The following table represents the change in the carrying value of all noncontrolling interests through March 31, 2020 (dollars in thousands):

The two noncontrolling interests in entities that we consolidate include an operating partnership, Realty Income, L.P., and a joint venture acquired during 2019.

The following table represents the change in the carrying value of all noncontrolling interests through June 30, 2020 (dollars in thousands):

Realty Income, L.P.

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Carrying value at December 31, 2019

$ 24,596 $ 5,106 $ 29,702

Distributions

( 647 ) ( 147 ) ( 794 )

Allocation of net income

Carrying value at March 31, 2020

Carrying value at June 30, 2020

$ 24,428 $ 5,042 $ 29,470

(1) 242,007 units were issued on March 30, 2018, 131,790 units were issued on April 30, 2018, and 89,322 units were issued on March 28, 2019.

463,119 remained outstanding at each of March 31, 2020 and December 31, 2019 .

At March 31, 2020 and December 31, 2019 , Realty Income, L.P.

463,119 remained outstanding at each of June 30, 2020 and December 31, 2019 .

At June 30, 2020 and December 31, 2019, Realty Income, L.P.

and the joint venture acquired during 2019 were considered variable interest entities, or VIEs, in which we were deemed the primary beneficiary based on our controlling financial interests.

Below is a summary of selected financial data of consolidated VIEs included in the consolidated balance sheets at March 31, 2020 and December 31, 2019 (in thousands):

March 31, 2020

December 31, 2019

Below is a summary of selected financial data of consolidated VIEs included in the consolidated balance sheets at June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

Net real estate

$ 640,302 $ 654,305

731,943 744,394

Total liabilities

51,688 52,087

Financial Instruments and Fair Value Measurements

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We believe that the carrying values reflected in our consolidated balance sheets reasonably approximate the fair values for cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, line of credit payable, term loans and all other liabilities, due to their short-term nature or interest rates and terms that are consistent with market, except for our mortgages payable assumed in connection with acquisitions and our senior notes and bonds payable, which are disclosed as follows (dollars in millions):

March 31, 2020

Carrying value

June 30, 2020 Carrying value

Estimated fair value

Mortgages payable assumed in connection with acquisitions (1)

$ 393.7 $ 403.8

Notes and bonds payable (2)

December 31, 2019

Carrying value

6,640.6 7,360.0

December 31, 2019 Carrying value

Estimated fair value

Mortgages payable assumed in connection with acquisitions (1)

$ 408.4 $ 417.7

Notes and bonds payable (2)

6,317.6 6,826.1

(1) Excludes non-cash net premiums recorded on the mortgages payable.

The unamortized balance of these net premiums was $ 2.6 million at March 31, 2020 , and $ 3.0 million at December 31, 2019 .

Also excludes deferred financing costs of $ 1.2 million at March 31, 2020 and $ 1.3 million at December 31, 2019 .

The unamortized balance of these net premiums was $ 2.3 million at June 30, 2020, and $ 3.0 million at December 31, 2019.

Also excludes deferred financing costs of $ 1.1 million at June 30, 2020 and $ 1.3 million at December 31, 2019.

(2) Excludes non-cash original issuance premiums and discounts recorded on notes payable.

The unamortized balance of the net original issuance premiums was $ 6.2 million at March 31, 2020 , and $ 6.3 million at December 31, 2019 .

Also excludes deferred financing costs of $ 34.3 million at March 31, 2020 and $ 35.9 million at December 31, 2019 .

The unamortized balance of the net original issuance premiums was approximately $ 3,000 at June 30, 2020, and $ 6.3 million at December 31, 2019.

Also excludes deferred financing costs of $ 38.5 million at June 30, 2020 and $ 35.9 million at December 31, 2019.

The estimated fair values of our mortgages payable assumed in connection with acquisitions and private senior notes payable have been calculated by discounting the future cash flows using an interest rate based upon the relevant forward interest rate curve, plus an applicable credit-adjusted spread.

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The treasury rate locks were entered into to hedge our exposure to the changes in the 10-year US treasury rates in anticipation of potential future debt offerings during the first half of 2020.

These treasury rate locks are designated as cash flow hedges, with any changes in fair value recorded in accumulated other comprehensive income, or AOCI.

The treasury rate locks were designated as cash flow hedges, with any changes in fair value recorded in accumulated other comprehensive income, or AOCI.

The AOCI balance associated with the treasury rate locks on the date of initial issuance of the 2031 Notes in May 2020 is being amortized over the term of the 2031 Notes.

During June 2020, all five treasury rate locks were terminated and we entered into six forward starting interest rate swaps with notional amounts totaling $ 500.0 million in a cashless settlement of the terminated treasury rate locks.

The forward starting swaps were entered into to hedge our exposure to the changes in the 10-year US treasury rates in anticipation of potential future debt offerings through a current estimated range ending in 2023.

The forward starting swaps are designated as cash flow hedges, with any changes in fair value recorded in AOCI.

Due to the size of the initial net investment resulting from the termination value of the treasury rate locks being rolled into them, two of the six forward starting swaps were determined to be hybrid debt instruments containing embedded at-market swap derivative instruments.

As a result, we have bifurcated the derivative instrument and the debt instrument for those two forward starting interest rate swaps for accounting purposes.

The remaining four forward starting interest rates swaps are accounted for as derivative instruments.

In May 2019, we entered into four cross-currency swaps to exchange £ 130 million for $ 166 million maturing in May 2034, in order to hedge the foreign currency risk associated with our Sterling-denominated intercompany loan receivable from our consolidated foreign subsidiaries.

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Changes to fair value are recorded to AOCI.

The following table summarizes the terms and fair values of our derivative financial instruments at March 31, 2020 and December 31, 2019 (dollars in millions):

The following table summarizes the terms and fair values of our derivative financial instruments at June 30, 2020 and December 31, 2019 (dollars in millions):

Derivative Type

Hedge Designation

Accounting Classification Hedge Designation

Notional Amount

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Fair Value - asset (liability)

June 30, December 31, June 30, December 31,

2020 2019 2020 2019

Interest rate swap

Derivative Cash flow

$ 6.9 $ 7.0 6.03 % 09/25/2012 09/03/2021 $ ( 0.3 ) $ ( 0.2 )

Interest rate swap

Derivative Cash flow

— 250.0 1.72 % 06/30/2015 06/30/2020 — ( 0.1 )

Interest rate swap

Derivative Cash flow

250.0 250.0 3.04 % 10/24/2018 03/24/2024 ( 25.9 ) ( 14.7 )

Cross-currency swap (1)

Derivative Cash flow

41.6 41.6 (2) 05/20/2019 05/22/2034 5.0 ( 2.6 )

Cross-currency swap (1)

Derivative Cash flow

41.6 41.6 (3) 05/20/2019 05/22/2034 4.9 ( 2.6 )

Cross-currency swap (1)

Derivative Cash flow

41.6 41.6 (4) 05/20/2019 05/22/2034 4.6 ( 2.9 )

Cross-currency swap (1)

Treasury rate lock (6)

Derivative Cash flow

41.6 41.6 (5) 05/20/2019 05/22/2034 4.5 ( 3.2 )

Forward-starting swap Derivative Cash flow

75.0 — 2.02 % (6) 06/30/2033 ( 7.9 ) —

Forward-starting swap Derivative Cash flow

75.0 — 1.94 % (6) 11/30/2032 ( 7.8 ) —

Forward-starting swap Derivative Cash flow

25.0 — 1.67 % (6) 11/30/2032 ( 2.0 ) —

Forward-starting swap Derivative Cash flow

125.0 — 1.75 % (6) 06/30/2033 ( 9.9 ) —

Forward-starting swap Hybrid debt Cash flow

125.0 — 1.88 % (6) 11/30/2032 ( 12.3 ) —

Forward-starting swap Hybrid debt Cash flow

75.0 — 2.00 % (6) 06/30/2033 ( 7.8 ) —

$ 923.3 $ 673.4 $ ( 54.9 ) $ ( 26.3 )

(1) Represents British Pound Sterling, or GBP, United States Dollar, or USD, cross-currency swap.

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(5) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.755 %.

These treasury rate locks were entered into during February 2020 to hedge our exposure to the changes in the 10-year US treasury rate on potential future debt offerings during the first half of 2020.

In the event we do not execute a debt offering or offerings within the original contract maturity, we may elect to extend the maturity of all or a portion of these contracts.

(6) The five treasury rate locks which were entered into during February 2020 were terminated in June 2020 and converted into six forward starting interest rate swaps through a cashless settlement of the terminated treasury rate locks.

We measure our derivatives at fair value and include the balances within other assets and accounts payable and accrued expenses on our consolidated balance sheets.

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To comply with the provisions of ASC 820, Fair Value Measurement , we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

In adjusting the fair value of our derivative contracts for the effect of nonperformance

risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although we have determined that the majority of the inputs used to value our derivatives fall within level two on the three-level valuation hierarchy, the credit valuation adjustments associated with our derivatives utilize level three inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by ourselves and our counterparties.

However, at March 31, 2020 and December 31, 2019, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.

However, at June 30, 2020 and December 31, 2019, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit

valuation adjustments are not significant to the overall valuation of our derivatives.

As a result, we determined that our derivative valuations in their entirety are classified as level two on the three-level valuation hierarchy.

Unrealized gains and losses in AOCI are reclassified to interest expense in the case of interest rate swaps and to foreign currency gains and losses, net in the case of cross-currency swaps, when the related hedged items are recognized.

During the three months ended March 31, 2020 , we reclassified $ 1.6 million from AOCI as an increase to interest expense for our interest rate swaps and $ 11.4 million for cross-currency swaps into foreign exchange gains.

During the first three months of 2019, we reclassified $ 678,000 from AOCI into interest expense.

We expect to reclassify $ 12.0 million from AOCI as an increase to interest expense relating to interest rate swaps and treasury locks and $ 2.1 million from AOCI to foreign currency gain relating to cross-currency swaps within the next twelve months.

During the three and six months ended June 30, 2020, we reclassified $ 3.7 million and $ 5.3 million, respectively, from AOCI as an increase to interest expense and $ 800,000 and $ 12.2 million for cross-currency swaps into foreign exchange gains.

During the three and six months ended June 30, 2019, we reclassified $ 454,000 and $ 1.1 million, respectively, from AOCI as an increase to interest expense for our interest rate swaps and $ 1.4 million for the three and six months ended June 30, 2019 for cross-currency swaps into foreign exchange gains.

We expect to reclassify $ 11.7 million from AOCI as an increase to interest expense relating to interest rate swaps and treasury rate locks and $ 2.2 million from AOCI to foreign currency gain relating to cross-currency swaps within the next twelve months.

Operating Leases

At March 31, 2020 , we owned 6,525 properties in 49 U.S.

At June 30, 2020, we owned 6,541 properties in 49 U.S.

states, Puerto Rico, and the U.K.

Of the 6,541 properties, 6,505 , or 99.4 %, are single-tenant properties, and the remaining are multi-tenant properties.

At March 31, 2020 , 97 properties were available for lease or sale.

At June 30, 2020, 101 properties were available for lease or sale.

Substantially all of our leases are net leases where the tenant pays or reimburses us for property taxes and assessments, maintains the interior and exterior of the building and leased premises, and carries insurance coverage for public liability, property damage, fire and extended coverage.

Rent based on a percentage of a tenants’ gross sales, or percentage rents, for the first three months of 2020 and 2019 was $ 1.2 million and $ 3.6 million , respectively.

Major Tenants - No individual tenant’s rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the three months ended March 31, 2020 and 2019.

Rent based on a percentage of a tenants’ gross sales, or percentage rents, for the second quarter of 2020 and 2019 was $ 547,000 and $ 495,000 , respectively.

Percentage rents for the first six months of 2020 and 2019 were $ 1.8 million and $ 4.1 million, respectively.

Major Tenants - No individual tenant’s rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the six months ended June 30, 2020 and 2019.

Gain on Sales of Real Estate

The following table summarizes our properties sold during the periods indicated below (dollars in millions):

Three Months Ended March 31,

Three months ended June 30, Six months ended June 30,

2020 2019 2020 2019

Number of properties 12 18 29 37

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If a property is classified as held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell, and depreciation of the property ceases.

During the second quarter of 2020, we assessed the key assumptions used in our impairment analysis for the impact of the COVID-19 pandemic on our portfolio, focusing on tenants experiencing difficulties meeting their lease obligations to us.

As a result of this analysis, we determined that the carrying values of eight properties classified as held for investment were not recoverable.

As a result, we recorded provisions for impairments of $ 8.2 million on these properties, which are included as part of our total impairments recorded during the second quarter of 2020.

The following table summarizes our provisions for impairment during the periods indicated below (dollars in millions):

Three Months Ended March 31,

Three months ended June 30, Six months ended June 30,

2020 2019 2020 2019

Total provisions for impairment $ 13.9 $ 13.1 $ 18.3 $ 17.7

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Classified as held for investment 11 2 14 2

Sold 7 12 14 22

Distributions Paid and Payable

We pay monthly distributions to our common stockholders.

The following is a summary of monthly distributions paid per common share for the first three months of 2020 and 2019 :

At March 31, 2020 , a distribution of $ 0.233 per common share was payable and was paid in April 2020.

The following is a summary of monthly distributions paid per common share for the first six months of 2020 and 2019:

January $ 0.2275 $ 0.2210

February 0.2325 0.2255

March 0.2325 0.2255

April 0.2330 0.2260

May 0.2330 0.2260

June 0.2330 0.2260

$ 1.3915 $ 1.3500

At June 30, 2020, a distribution of $ 0.2335 per common share was payable and was paid in July 2020.

Net Income per Common Share

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The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation:

Three Months Ended March 31,

Three months ended June 30, Six months ended June 30,

2020 2019 2020 2019

Weighted average shares used for the basic net income per share computation

343,515,406 311,032,972 340,061,487 307,293,949

Incremental shares from share-based compensation 169,853 289,190 219,778 286,178

Weighted average shares used for diluted net income per share computation

343,685,259 311,322,162 340,281,265 307,580,127

Unvested shares from share based compensation that were anti-dilutive

122,222 25,171 65,623 29,069

Weighted average partnership common units convertible to common shares that were anti-dilutive

463,119 463,119 463,119 420,679

Supplemental Disclosures of Cash Flow Information

Cash paid for interest was $ 84.1 million in the first three months of 2020 and $ 82.2 million in the first three months of 2019 .

Cash paid for income taxes was $ 2.5 million in the first three months of 2020 and $ 1.7 million in the first three months of 2019 .

Cash paid for interest was $ 149.4 million in the first six months of 2020 and $ 134.9 million in the first six months of 2019.

Cash paid for income taxes was $ 5.3 million in the first six months of 2020 and $ 3.1 million in the first six months of 2019.

The following non-cash activities are included in the accompanying consolidated financial statements:

During the first six months of 2020, the fair value of net derivative liabilities decreased by $ 28.6 million.

Non-refundable deposits from 2019 of $ 13.8 million were applied to acquisitions during the first six months of 2020.

As a result of the adoption of Accounting Standards Update, or ASU, 2016-02 in 2019, we recorded $ 132.0 million of lease liabilities and related right of use assets as lessee under operating leases on January 1, 2019.

During the first three months of 2019 , we issued 89,322 common partnership units of Realty Income, L.P.

During the first six months of 2019, we issued 89,322 common partnership units of Realty Income, L.P.

as partial consideration for an acquisition of properties, totaling $ 6.3 million.

During the first three months of 2020, the fair value of net derivative liabilities decreased by $ 16.4 million .

Non-refundable deposits from 2019 of $ 14.8 million were applied to acquisitions during the first three months of 2020.

Per the requirements of ASU 2016-18 (Topic 230, Statement of Cash Flows ), the following table provides a reconciliation of cash and cash equivalents reported within the consolidated balance sheets to the total of the cash, cash equivalents and restricted cash reported within the consolidated statements of cash flows (dollars in thousands):

March 31, 2020

March 31, 2019

June 30, 2020 June 30, 2019

Cash and cash equivalents shown in the consolidated balance sheets

$ 35,345 $ 27,136

Restricted escrow deposits (1)

Impounds related to mortgages payable (1)

13,290 11,433

Total cash, cash equivalents, and restricted cash shown in the consolidated

statements of cash flows

$ 130,318 $ 39,892

(1) Included within other assets, net on the consolidated balance sheets (see note 3).

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Assets, as of:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Segment net real estate:

Automotive service

$ 284,069 $ 288,453

Automotive tire services

229,406 232,709

277,264 279,373

216,687 208,326

Convenience stores

2,025,986 2,057,157

Dollar stores

1,426,580 1,427,950

1,589,216 1,618,854

Financial services

381,332 389,634

General merchandise

535,432 475,418

Grocery stores - U.S.

903,343 922,349

Grocery stores - U.K.

682,378 663,210

Health and fitness

1,082,135 1,019,796

Home improvement

499,420 495,305

Restaurants-casual dining

552,711 576,526

Restaurants-quick service

1,070,095 1,059,155

Theaters - U.S.

861,151 878,103

Transportation services

711,739 769,614

Wholesale club

390,312 396,690

Other non-reportable segments

2,818,888 2,738,150

Total net real estate

16,538,144 16,496,772

Intangible assets:

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Automotive tire services 6,545 7,322

Beverages 1,380 1,509

Child care 20,844 21,997

Convenience stores 126,567 131,808

Dollar stores 80,232 82,701

Drug stores 175,374 183,319

Financial services 15,968 17,130

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Grocery stores - U.S.

171,874 180,197

Grocery stores - U.K.

196,666 153,407

Health and fitness 71,881 74,428

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Theaters - U.S.

33,983 36,089

Transportation services 56,087 66,055

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Other corporate assets 1,051,528 564,641

Three months ended March 31,

$ 19,102,547 $ 18,554,796

Three months ended June 30, Six months ended June 30,

Revenue 2020 2019 2020 2019

Segment rental revenue:

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Automotive tire services 8,115 7,952 15,948 15,751

Beverages 7,996 7,915 15,991 15,831

Child care 8,714 7,760 18,195 15,587

Convenience stores 46,819 41,432 93,552 82,646

Dollar stores 31,595 25,112 62,986 50,098

Drug stores 35,617 32,343 70,916 65,513

Financial services 7,573 7,694 15,116 15,412

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Grocery stores - U.S.

19,485 17,211 38,994 33,336

Grocery stores - U.K.

11,739 2,915 22,143 2,915

Health and fitness 27,961 26,254 56,239 52,479

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Theaters - U.S.

24,448 20,909 49,014 38,565

Transportation services 15,975 16,192 31,960 32,218

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Rental (including reimbursable) 410,201 364,252 822,358 718,289

Other 4,435 1,198 6,619 1,526

Total revenue $ 414,636 $ 365,450 $ 828,977 $ 719,815

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The 2012 Plan offers our directors and employees an opportunity to own our stock or rights that will reflect our growth, development and financial success.

Under the terms of the 2012 plan, the aggregate number of shares of our common stock subject to options, restricted stock, stock appreciation rights, restricted stock units and other awards, will be no more than 3,985,734 shares.

Under the terms of the 2012 plan, the aggregate number of shares of our common stock subject to options, restricted stock, stock appreciation rights, restricted stock units, performance shares and other awards, will be no more than 3,985,734 shares.

The 2012 Plan has a term of ten years from the date it was adopted by our Board of Directors.

The amount of share-based compensation costs recognized in general and administrative expense on our consolidated statements of income and comprehensive income was $ 5.5 million during the first three months of 2020 (including $ 1.8 million of accelerated share-based compensation costs for our former Chief Financial Officer ("CFO") upon his departure from the company), and $ 2.8 million during the first three months of 2019 .

The amount of share-based compensation costs recognized in general and administrative expense on our consolidated statements of income and comprehensive income was $ 4.9 million during the second quarter of 2020, $ 4.5 million during the second quarter of 2019, $ 10.4 million during the first six months of 2020 (including $ 1.8 million of accelerated share-based compensation costs for our former Chief Financial Officer ("CFO") upon his departure from the company) and $ 7.3 million during the first six months of 2019.

Upon the departure of our former CFO in the first quarter of 2020, we incurred a severance charge of $ 3.5 million, consisting of $ 1.6 million of cash, $ 1.8 million related to share-based compensation expense and $ 58,000 of professional fees.

Restricted Stock

During the first three months of 2020 , we granted 62,873 shares of common stock under the 2012 Plan.

These shares vest over a four-year service period, with the exception of 4,541 shares granted to our former CFO, which vested upon his departure from the Company.

As of March 31, 2020 , the remaining unamortized share-based compensation expense related to restricted stock totaled $ 12.4 million , which is being amortized on a straight-line basis over the service period of each applicable award.

During the first six months of 2020, we granted 100,473 shares of common stock under the 2012 Plan.

This included 36,000 total shares of restricted stock granted to the independent members of our Board of Directors in connection with our annual awards in May 2020, 24,000 shares of which vested immediately and 12,000 shares of which vest in equal parts over a three -year service period.

Our restricted stock awards vest over a four -year service period, with the exception of shares granted to our independent directors, and 4,541 shares granted to our former CFO, which vested upon his departure from the Company.

As of June 30, 2020, the remaining unamortized share-based compensation expense related to restricted stock totaled $ 11.5 million, which is being amortized on a straight-line basis over the service period of each applicable award.

The amount of share-based compensation is based on the fair value of the stock at the grant date.

We define the grant date as the date the recipient and Realty Income have a mutual understanding of the key terms

and conditions of the award, and the recipient of the grant begins to benefit from, or be adversely affected by, subsequent changes in the price of the shares.

We define the grant date as the date the recipient and Realty Income have a mutual understanding of the key terms and conditions of the award, and the recipient of the grant begins to benefit from, or be adversely affected by, subsequent changes in the price of the shares.

Performance Shares and Restricted Stock Units

During the first three months of 2020 , we granted 98,844 performance shares, as well as dividend equivalent rights, to our executive officers.

During the first six months of 2020, we granted 98,844 performance shares, as well as dividend equivalent rights, to our executive officers.

The performance shares are earned based on our Total Shareholder Return (TSR) performance relative to select industry indices and peer groups as well as achievement of certain operating metrics, and vest 50 % on the first and second January 1 after the end of the three -year performance period, subject to continued service.

During the first three months of 2020 , we also granted 9,966 restricted stock units, all of which vest over a four -year service period.

During the first six months of 2020, we also granted 9,966 restricted stock units, all of which vest over a four -year service period.

These restricted stock units have the same economic rights as shares of restricted stock.

As of March 31, 2020 , the remaining share-based compensation expense related to the performance shares and restricted stock units totaled $ 15.6 million .

As of June 30, 2020, the remaining share-based compensation expense related to the performance shares and restricted stock units totaled $ 13.8 million.

The fair value of the performance shares were estimated on the date of grant using a Monte Carlo Simulation model.

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We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated financial position or results of operations.

At March 31, 2020 , we had commitments of $ 6.1 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements.

In addition, as of March 31, 2020 , we had committed $ 13.2 million under construction contracts related to development projects, which is expected to be paid in the next twelve months.

At June 30, 2020, we had commitments of $ 12.2 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements.

In addition, as of June 30, 2020, we had committed $ 3.6 million under construction contracts related to development projects, which is expected to be paid in the next twelve months.

Subsequent Events

In April 2020 , we declared a dividend of $ 0.233 per share to our common stockholders, which will be paid in May 2020 .

On April 9, 2020 , we borrowed an additional $ 1.2 billion under revolving credit facility to increase our cash position to $ 1.25 billion as a conservative measure due to the COVID-19 pandemic.

As of May 1, 2020 , we had $ 1.9 billion of borrowings outstanding under our revolving credit facility, including £ 325.5 million of Sterling-denominated borrowings, with a remaining available capacity of $ 1.1 billion .

The revolving credit facility also has a $ 1.0 billion expansion option, which is subject to obtaining lender commitments.

In addition, on April 9, 2020 , we withdrew our 2020 guidance that was provided on February 19, 2020 due to the ongoing uncertainty regarding the impact of the COVID-19 pandemic and the measures taken to limit its spread.

We are continuing to evaluate these impacts on our business as the situation continues to evolve and feel it is not prudent to provide revised guidance at this time.

As of May 1, 2020 :

We have collected 82.9 % of contractual rent (1) due for the month of April 2020 across our total portfolio;

We are in rent deferral discussions with tenants that account for a majority of the unpaid contractual rent for the month of April 2020, as well as certain tenants that did pay April contractual rent ;

We have collected 82.9 % of contractual rent due for the month of April 2020 from our top 20 tenants (2) ;

We have collected 99.9 % of contractual rent due for the month of April 2020 from our investment grade tenants (3) .

Contractual rent is the aggregate cash amount charged to tenants inclusive of April monthly base rent receivables, offset by applicable discounts or credits.

rent (which is payable in pounds Sterling) was converted at the exchange rate in effect on May 1, 2020 .

(2 ) We define top 20 tenants as our 20 largest tenants based on percentage of total portfolio annualized rental revenue.

(3) We define investment grade tenants as tenants with a credit rating, and tenants that are subsidiaries or affiliates of companies with a credit rating, of Baa3/BBB- or higher from one of the three major rating agencies (Moody’s/S&P/Fitch).

• In July 2020, we declared a dividend of $ 0.2335 per share to our common stockholders, which will be paid in August 2020.

• In July 2020, we issued $ 350 million of additional aggregate amount of our existing 3.250 % senior unsecured notes due in January 2031, or the 2031 Notes.

The public offering price for the 2031 Notes was 108.241 % of the principal amount, for an effective yield to maturity of 2.341 %.

The gross proceeds of approximately $ 378.8 million from this offering will be used to repay borrowings under our credit facility, to fund potential investment opportunities and for other general corporate purposes.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements