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Item 7. Management’s Discussion and Analysis

2021-02-23 compared with 2020-02-24 · 347 added, 222 removed, 328 unchanged (63% of the section changed)

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The company is structured as a real estate investment trust, or REIT, requiring it annually to distribute at least 90% of its taxable income (excluding net capital gains) in the form of dividends to its stockholders.

The monthly dividends are supported by the cash flow generated from real estate owned under long-term, net lease agreements with commercial tenants.

The monthly dividends are supported by the cash flow generated from real estate owned under long-term net lease agreements with our commercial clients.

Realty Income was founded in 1969, and listed on the New York Stock Exchange (NYSE:

Over the past 51 years, Realty Income has been acquiring and managing freestanding commercial properties that generate rental revenue under long-term net lease agreements.

As of February 2020, the company is a member of the S&P 500 Dividend Aristocrats ® index for having increased its dividend every year for the last 25 consecutive years.

Over the past 52 years, Realty Income has been acquiring and managing freestanding commercial properties that generate rental revenue under long-term net lease agreements with our commercial clients.

We refer to our tenants as clients because we strive to build mutually beneficial relationships and we believe their success is our success.

The company is a member of the S&P 500 Dividend Aristocrats ® index for having increased its dividend every year for over 25 consecutive years.

At December 31, 2020, we owned a diversified portfolio:

• Of 6,592 properties;

With an occupancy rate of 98.6% , or 6,389 properties leased and 94 properties available for lease;

Leased to 301 different commercial tenants doing business in 50 separate industries;

• With an occupancy rate of 97.9%, or 6,452 properties leased and 140 properties available for lease or sale;

• Doing business in 51 separate industries;

• Located in 49 U.S.

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• With approximately 110.8 million square feet of leasable space;

With a weighted average remaining lease term (excluding rights to extend a lease at the option of the tenant) of approximately 9.2 years;

• With a weighted average remaining lease term (excluding rights to extend a lease at the option of our client) of approximately 9.0 years;

• With an average leasable space per property of approximately 16,810 square feet;

approximately 12,340 square feet per retail property and 245,270 square feet per industrial property.

Of the 6,483 properties in the portfolio at December 31, 2019 , 6,452 , or 99.5% , are single-tenant properties, of which 6,362 were leased, and the remaining are multi-tenant properties.

Unless otherwise specified, references to rental revenue in the Management's Discuss and Analysis of Financial Condition and Results of Operations are exclusive of reimbursements from tenants for recoverable real estate taxes and operating expenses totaling $69.1 million , $47.0 million and $46.1 million for 2019, 2018 and 2017, respectively.

Of the 6,592 properties in the portfolio at December 31, 2020, 6,555, or 99.4%, are single-client properties, of which 6,419 were leased, and the remaining are multi-client properties.

Unless otherwise specified, references to rental revenue in the Management's Discuss and Analysis of Financial Condition and Results of Operations are exclusive of reimbursements from clients for recoverable real estate taxes and operating expenses totaling $79.4 million, $69.1 million and $47.0 million for 2020, 2019 and 2018, respectively.

In addition, references to reserves recorded as a reduction of rental revenue include amounts reserved for in the current period, as well as unrecognized contractual rental revenue and unrecognized straight-line rental revenue for leases accounted for on a cash basis.

LIQUIDITY AND CAPITAL RESOURCES

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Over the long term, we believe that common stock should be the majority of our capital structure;

however, we may issue additional preferred stock or debt securities.

however, we may issue preferred stock or debt securities.

We may issue common stock when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties.

In addition, we may issue common stock to permanently finance properties that were initially financed by our credit facility or debt securities.

In addition, we may issue common stock to permanently finance properties that were initially financed by our credit facility, commercial paper program, or debt securities.

However, we cannot assure you that we will have access to the capital markets at all times and at terms that are acceptable to us.

Our primary cash obligations, for the current year and subsequent years, are included in the “Table of Obligations,” which is presented later in this section.

We expect to fund our operating expenses and other short-term liquidity requirements, including property acquisitions and development costs, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to common or preferred stockholders, primarily through cash provided by operating activities, borrowing on our credit facility and periodically through public securities offerings.

We expect to fund our operating expenses and other short-term liquidity requirements, including property acquisitions and development costs, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to common stockholders, primarily through cash provided by operating activities, borrowings on our credit facility and under our commercial paper program and through public securities offerings.

Conservative Capital Structure

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Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios.

At December 31, 2019 , our total outstanding borrowings of senior unsecured notes and bonds, term loans, mortgages payable and credit facility borrowings were $7.9 billion , or approximately 24.4% of our total market capitalization of $32.5 billion .

At December 31, 2020, our total outstanding borrowings of senior unsecured notes and bonds, term loan and mortgages payable were $8.85 billion, or approximately 28.2% of our total market capitalization of $31.34 billion.

We define our total market capitalization at December 31, 2020 as the sum of:

• Shares of our common stock outstanding of 361,303,445, plus total common units outstanding of 463,119, multiplied by the last reported sales price of our common stock on the NYSE of $62.17 per share on December 31, 2020, or $22.49 billion;

Outstanding borrowings of $704.3 million on our credit facility, including £169.2 million Sterling;

Outstanding mortgages payable of $408.4 million , excluding net mortgage premiums of $3.0 million and deferred financing costs of $1.3 million ;

Outstanding borrowings of $500.0 million on our term loans, excluding deferred financing costs of $956,000 ;

Outstanding senior unsecured notes and bonds of $6.3 billion , excluding unamortized net original issuance premiums of $6.3 million and deferred financing costs of $35.9 million .

• Outstanding mortgages payable of $299.6 million, excluding net mortgage premiums of $1.7 million and deferred financing costs of $973,000;

• Outstanding borrowings of $250.0 million on our term loan, excluding deferred financing costs of $642,000;

• Outstanding senior unsecured notes and bonds of $8.30 billion, including Sterling-denominated notes of £715.0 million, and excluding unamortized net original issuance premiums of $14.6 million and deferred financing costs of $49.2 million;

• No borrowings outstanding on our revolving credit facility.

Universal Shelf Registration

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The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

At-the-Market (ATM) Programs

Under our ATM equity distribution plan, or our ATM program, pursuant to which up to 33,402,405 additional 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 NYSE at prevailing market prices or at negotiated prices.

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 NYSE at prevailing market prices or at negotiated prices.

During 2020, we issued 17,724,374 shares and raised approximately $1.09 billion of gross proceeds under the ATM program.

At December 31, 2020, we had 15,678,031 shares remaining for future issuance under our current ATM program.

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

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

Year Ended December 31,

Shares of common stock issued under the ATM program

Gross proceeds

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

Issuances of Common Stock

In March 2020, we issued 9,690,500 shares of common stock in an overnight underwritten public offering, including 690,500 shares purchased by the underwriters upon exercise of their option to purchase additional shares.

After deducting underwriting discounts and other offering costs of $21.2 million, the net proceeds of $728.9 million were primarily used to repay borrowings under our revolving credit facility.

In January 2021, we issued 12,075,000 shares of common stock in an overnight underwritten public offering, including 1,575,000 shares purchased by the underwriters upon exercise of their option to purchase additional shares .

The company used the net proceeds from the offering, along with available cash and additional borrowings, to fund property acquisitions and for general corporate purposes and working capital.

Dividend Reinvestment and Stock Purchase Plan

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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 2019 or 2018.

We did not issue shares under the waiver approval process during 2020.

During 2020, we issued 149,289 shares and raised approximately $9.1

million under our DRSPP.

At December 31, 2020, we had 11,503,379 shares remaining for future issuance under our DRSPP program.

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

Year Ended December 31,

Shares of common stock issued under the DRSPP program

Gross proceeds

Revolving Credit Facility

In August 2019, we amended and restated our unsecured credit facility, or our credit facility, in order to allow borrowings in multiple currencies.

The amended and restated credit facility is otherwise substantively consistent with the prior credit agreement entered into in October 2018.

Our credit facility consists of a $3.0 billion unsecured revolving credit facility with an initial term that expires in March 2023 and includes, at our option, two six-month extensions and a $250.0 million unsecured term loan due March 2024.

The unsecured revolving credit facility allows us to borrow in up to 14 currencies, including U.S.

dollars, and has a $1.0 billion expansion option.

Under our credit facility, our investment grade credit ratings as of December 31, 2019 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.

Revolving Credit Facility and Commercial Paper Program

We have a $3.0 billion unsecured revolving credit facility with an initial term that expires in March 2023 and includes, at our option, two six-month extensions.

The multicurrency revolving facility allows us to borrow in up to 14 currencies, including U.S.

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

Under our revolving credit facility, our investment grade credit ratings as of December 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 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 credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation.

At December 31, 2019 , we had a borrowing capacity of $2.3 billion available on our revolving credit facility and an outstanding balance of $704.3 million , including £169.2 million Sterling.

The weighted average interest rate on borrowings outstanding under our revolving credit facility during 2019 was 3.1% per annum.

At December 31, 2020, we had no outstanding borrowings on our revolving credit facility and available borrowing capacity of $3.0 billion.

The weighted average interest rate on borrowings under our revolving credit facility during 2020 was 1.5% per annum.

We must comply with various financial and other covenants in our credit facility.

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Any additional borrowings will increase our exposure to interest rate risk.

We generally use our credit facility for the short-term financing of new property acquisitions.

In August 2020, we established a U.S.

dollar-denominated unsecured commercial paper program.

Under the terms of the program we may, from time to time, issue unsecured commercial paper notes up to a maximum aggregate amount outstanding of $1.0 billion.

Borrowings under this program generally mature in one year or less.

At December 31, 2020, we had no outstanding commercial paper borrowings.

The weighted average interest rate on borrowings under our commercial paper program was 0.3% from inception of the plan through December 31, 2020.

We use our $3.0 billion revolving credit facility as a liquidity backstop for the repayment of the notes issued under the commercial paper program.

We generally use our credit facility and commercial paper borrowings for the short-term financing of new property acquisitions.

Thereafter, we generally seek to refinance those borrowings with the net proceeds of long-term or permanent financing, which may include the issuance of common stock, preferred stock or debt securities.

We cannot assure you, however, that we will be able to obtain any such refinancing, or that market conditions prevailing at the time of the refinancing will enable us to issue equity or debt securities at acceptable terms.

We regularly review our credit facility and may seek to extend, renew or replace our credit facility, to the extent we deem appropriate.

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

We regularly review our credit facility and commercial paper program and may seek to extend, renew or replace our credit facility, to the extent we deem appropriate.

In October 2018, in conjunction with entering into our revolving credit facility, we entered into a $250.0 million senior unsecured term loan, which matures in March 2024, and is governed by the credit agreement that governs our revolving credit facility.

Borrowing under this term loan bears interest at the current one-month LIBOR plus 0.85%.

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%.

The terms of this term loan were not impacted by the amendment and restatement of our credit agreement in August 2019.

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

The terms of this term loan were not impacted by the amendment and restatement of our credit agreement in August 2019.

In January 2013, in conjunction with our acquisition of American Realty Capital Trust, Inc., or ARCT, we entered into a $70.0 million senior unsecured term loan with an initial maturity date of January 2018.

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, until its termination in January 2018, effectively fixed our per annum interest rate on this term loan at 2.05% .

In 2018, we entered into two separate six –month extensions of this loan, during which periods the interest was borne at the current one–month LIBOR, plus 0.90% .

In January 2019, we paid off the outstanding principal and interest on this term loan.

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.

Mortgage Debt

As of December 31, 2020, we had $299.6 million of mortgages payable, all of which were assumed in connection with our property acquisitions.

Additionally, at December 31, 2019 , we had net premiums totaling $3.0 million on these mortgages and deferred financing costs of $1.3 million .

Additionally, at December 31, 2020, we had net premiums totaling $1.7 million on these mortgages and deferred financing costs of $973,000.

We expect to pay off the mortgages payable as soon as prepayment penalties have declined to a level that would make it economically feasible to do so.

During 2019, we made $20.7 million of principal payments, including the repayment of one mortgage in full for $15.8 million .

During 2020, we made $108.8 million of principal payments, including the repayment of nine mortgages in full for $103.4 million.

Notes Outstanding

Our senior unsecured note and bond obligations consist of the following as of December 31, 2020, sorted by maturity date (dollars in millions):

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

3.250% notes, $450 issued in October 2012 and $500 issued in December 2017, both due in October 2022 (1)

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3.875% notes, issued in April 2018 and due in April 2025 500

0.750% notes, issues December 2020 and due in March 2026 325

4.125% notes, $250 issued in September 2014 and $400 issued in March 2017, both due in October 2026 650

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3.250% notes, issued in June 2019 and due in June 2029 500

1.625% notes, issued in October 2020 and due December 2030 (2)

3.250% notes, $600 issued in May 2020 and $350 issued in July 2020, both due in January 2031 950

1.800% notes, issued in December 2020 and due in March 2033 400

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 (35)

(1) In January 2021, we completed the early redemption on all $950.0 million in principal amount of our outstanding 3.250% notes due October 2022, plus accrued and unpaid interest.

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

dollars) of the Sterling-denominated private placement of £315.0 million Sterling converted at the applicable exchange rate on December 31, 2019 .

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

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

The public offering price for the 2029 Notes was 99.36% of the principal amount, for an effective yield to maturity of 3.326% and net proceeds of approximately $492.2 million.

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

dollars) of the October 2020 Sterling-denominated note offering and May 2019 Sterling-denominated private placement of £400.0 million and £315.0 million, respectively, converted at the applicable exchange rate on December 31, 2020.

During the year ended December 31, 2020 we issued the following notes and bonds (in millions):

2020 Issuances Date of

Issuance Maturity date Principal

issued Price of par value Effective yield to

May 2020 January 2031 $600 98.99 % 3.36%

July 2020 January 2031 $350 108.24 % 2.34%

October 2020 December 2030 £400 99.19 % 1.71%

December 2020 March 2026 $325 99.19 % 0.91%

December 2020 March 2033 $400 98.47 % 1.94%

The net proceeds of $391.3 million from the December 2020 offering of 1.800% notes due 2033 and the net proceeds of $320.3 million from the December 2020 offering of 0.750% notes due 2026 were used, along with available cash and additional borrowings, as necessary to redeem in January 2021 all $950 million aggregate principal amount of our outstanding 3.25% notes due 2022 at the applicable redemption price, plus accrued interest and, to the extent not used for those purposes, to fund investment opportunities and for other general corporate purposes.

The net proceeds from the October 2020 Sterling-denominated offering of £400.0 million approximated $508.2 million, as converted at the applicable exchange rate on the closing of the offering, and were used to repay GBP-denominated borrowings outstanding under our $3.0 billion revolving credit facility, to settle an outstanding GBP/USD currency exchange swap arrangement and, to the extent not used for those purposes, to fund investment opportunities and for other general corporate purposes.

The net proceeds of $376.6 million from the July 2020 note offering and the net proceeds of $590.0 million from the May 2020 note offering were used to repay borrowings under our credit facility, to fund potential investment opportunities and for other general corporate purposes.

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

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

Additionally, with the exception of interest on our 1.625% senior unsecured notes due in December 2030, which is paid annually, interest on all of our other senior note and bond obligations is paid semiannually.

The following is a summary of the key financial covenants for our senior unsecured notes, as defined and calculated per the terms of our senior notes and bonds.

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The actual amounts as of December 31, 2020 are:

Note Covenants

Limitation on incurrence of total debt

< 60% of adjusted assets

Limitation on incurrence of secured debt

< 40% of adjusted assets

Note Covenants Required Actual

Limitation on incurrence of total debt < 60% of adjusted assets

Limitation on incurrence of secured debt < 40% of adjusted assets

Debt service coverage (trailing 12 months) (1)

Maintenance of total unencumbered assets

> 150% of unsecured debt

Maintenance of total unencumbered assets > 150% of unsecured debt

(1) Our debt service coverage ratio is calculated on a pro forma basis for the preceding four-quarter period on the assumptions that:

(i) the incurrence of any Debt (as defined in the covenants) incurred by us since the first day of such four-quarter period and the application of the proceeds therefrom (including to refinance other Debt since the first day of such four-quarter period), (ii) the repayment or retirement of any of

our Debt since the first day of such four-quarter period, and (iii) any acquisition or disposition by us of any asset or group since the first day of such four quarters had in each case occurred on January 1, 2019, and subject to certain additional adjustments.

(i) the incurrence of any debt (as defined in the covenants) incurred by us since the first day of such four-quarter period and the application of the proceeds therefrom (including to refinance other Debt since the first day of such four-quarter period), (ii) the repayment or retirement of any of our debt since the first day of such four-quarter period, and (iii) any acquisition or disposition by us of any asset or group since the first day of such four quarters had in each case occurred on January 1, 2020, and subject to certain additional adjustments.

Such pro forma ratio has been prepared on the basis required by that debt service covenant, reflects various estimates and assumptions and is subject to other uncertainties, and therefore does not purport to reflect what our actual debt service coverage ratio would have been had transactions referred to in clauses (i), (ii) and (iii) of the preceding sentence occurred as of January 1, 2020, nor does it purport to reflect our debt service coverage ratio for any future period.

The following is our calculation of debt service and fixed charge coverage at December 31, 2020 (in thousands, for trailing twelve months):

Net income attributable to the Company

Net income available to common stockholders $ 395,486

interest expense, excluding the amortization of deferred financing costs 299,015

loss on extinguishment of debt 9,819

provision for taxes 14,693

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Debt service and fixed charge coverage ratio 5.1

Authorized Shares

In May 2019, our stockholders approved an increase in the number of authorized shares of our common stock under our articles of incorporation to 740,200,000 from 370,100,000.

Cash Reserves

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We believe that our cash and cash equivalents on hand, cash provided from operating activities, and borrowing capacity is sufficient to meet our liquidity needs for the next twelve months.

We intend, however, to use permanent or long-term capital to fund property acquisitions and to repay future borrowings under our credit facility.

We intend, however, to use permanent or long-term capital to fund property acquisitions and to repay future borrowings under our credit facility and commercial paper program.

Credit Agency Ratings

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As of December 31, 2020, we were assigned the following investment grade corporate credit ratings on our senior unsecured notes and bonds:

Moody’s Investors Service has assigned a rating of A3 with a “stable” outlook, Standard & Poor’s Ratings Group has assigned a rating of A- with a “stable” outlook, and Fitch Ratings has assigned a rating of BBB+ with a “stable” outlook.

Based on our ratings as of December 31, 2019 , the facility interest rate was LIBOR, plus 0.775% with a facility commitment fee of 0.125%, for all-in drawn pricing of 0.90% over LIBOR.

Moody’s Investors Service has assigned a rating of A3 with a “stable” outlook and Standard & Poor’s Ratings Group has assigned a rating of A- with a “stable” outlook.

In addition, we were assigned the following ratings on our commercial paper at December 31, 2020:

Moody's Investors Service has assigned a rating of P-2 and Standard & Poor's Ratings Group has assigned a rating of A-2.

Based on our ratings as of December 31, 2020, the facility interest rate was LIBOR, plus 0.775% with a facility commitment fee of 0.125%, for all-in pricing of 0.90% over LIBOR.

Our credit facility provides that the interest rate can range between:

(i) LIBOR, plus 1.45% if our credit rating is lower than BBB-/Baa3 or unrated and (ii) LIBOR, plus 0.75% if our credit rating is A/A2 or higher.

(i) LIBOR, plus 1.45% if our credit rating is lower than BBB-/Baa3 or unrated and (ii) LIBOR,

plus 0.75% if our credit rating is A/A2 or higher.

In addition, our credit facility provides for a facility commitment fee based on our credit ratings, which range from:

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The following table summarizes the maturity of each of our obligations as of December 31, 2020 (dollars in millions):

Maturity Credit

Facility and Commercial Paper Program (1)

and Bonds (2)

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Ground Leases

2021 $ — $ — $ — $ 44.2 $ 302.3 $ 1.6 $ 13.7 $ 106.8 $ 468.6

2022 — 950.0 — 111.8 301.6 1.6 13.6 — 1,378.6

2023 — 750.0 — 20.6 266.6 1.6 13.7 — 1,052.5

2024 — 350.0 250.0 112.2 223.2 1.6 13.8 — 950.8

2025 — 500.0 — 0.7 192.9 1.4 13.5 — 708.5

Thereafter — 5,752.4 — 10.1 1,222.4 18.8 55.9 — 7,059.6

Totals $ — $ 8,302.4 $ 250.0 $ 299.6 $ 2,509.0 $ 26.6 $ 124.2 $ 106.8 $ 11,618.6

(1) The initial term of the credit facility expires in March 2023 and includes, at our option, two six-month extensions.

(2) Excludes both non–cash original issuance discounts and premiums recorded on notes payable of $6.3 million and deferred financing costs of $35.9 million at December 31, 2019 .

At December 31, 2020, there were no outstanding borrowings under our revolving credit facility or commercial paper program.

(2) Excludes both non–cash original issuance discounts and premiums recorded on notes payable of $14.6 million and deferred financing costs of $49.2 million.

Excludes the impact of the January 2021 early redemption of all $950.0 million in principal of the 3.250% notes due October 2022.

(3) Excludes deferred financing costs of $642,000.

(4) Excludes both non–cash net premiums recorded on the mortgages payable of $3.0 million and deferred financing costs of $1.3 million at December 31, 2019 .

(5) Interest on the term loans, notes, bonds, mortgages payable, and credit facility has been calculated based on outstanding balances as of December 31, 2019 through their respective maturity dates.

(4) Excludes both non–cash net premiums recorded on the mortgages payable of $1.7 million and deferred financing costs of $973,000.

(5) Interest on the term loans, notes, bonds, mortgages payable, credit facility and commercial paper program has been calculated based on outstanding balances through their respective maturity dates.

Excludes the impact of the January 2021 early redemption of all $950.0 million in principal of the 3.250% notes due October 2022.

(6) Realty Income currently pays the ground lessors directly for the rent under the ground leases.

(7) Our tenants, who are generally sub-tenants under ground leases, are responsible for paying the rent under these ground leases.

In the event a tenant fails to pay the ground lease rent, we are primarily responsible.

(7) Our clients, who are generally sub-tenants under ground leases, are responsible for paying the rent under these ground leases.

In the event our client fails to pay the ground lease rent, we are primarily responsible.

(8) “Other” consists of $100.0 million of commitments under construction contracts and $6.8 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements.

Our credit facility, term loans, and notes payable obligations are unsecured.

Our credit facility, commercial paper program, term loan, and notes payable obligations are unsecured.

Accordingly, we have not pledged any assets as collateral for these obligations.

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In the commercial real estate market, property prices generally continue to fluctuate.

Likewise, during certain periods, the global credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital.

Likewise, during certain periods, including the current market, the global credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital.

We continually monitor the commercial real estate and global credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly.

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for the year ended December 31, 2020:

Number of Properties

(in millions)

($ in millions)

Weighted Average Lease Term (Years)

Initial Average Cash Lease Yield

Number of Properties Leasable Square Feet Investment

($ in thousands) Weighted Average Lease Term (Years) Initial Average Cash Lease Yield (1)

Year ended December 31, 2020 (2)

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(in 30 states)

202 5,476,009 $ 1,302,220 14.9 5.8 %

Acquisitions - U.K.

24 2,120,256 920,934 10.8 6.1 %

Total Acquisitions 226 7,596,265 $ 2,223,154 13.2 5.9 %

Properties under Development - U.S.

None of our investments during 2019 caused any one tenant to be 10% or more of our total assets at December 31, 2019 .

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

Represents investments of £625.8 million Sterling during the year ended December 31, 2019 converted at the applicable exchange rate on the date of acquisition.

The tenants occupying the new properties operate in 31 industries, and are 94.6% retail and 5.4% industrial, based on rental revenue.

Approximately 36% of the rental revenue generated from acquisitions during 2019 is from investment grade rated tenants, their subsidiaries or affiliated companies.

18 1,601,095 84,127 15.3 5.6 %

244 9,197,360 $ 2,307,281 13.2 5.9 %

(1) 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.

Since it is possible that a tenant could default on the payment of contractual rent, we cannot provide assurance that the actual return on the funds invested will remain at the percentages listed above.

Since it is possible that our client could default on the payment of contractual rent, we cannot provide assurance that the actual return on the funds invested will remain at the percentages listed above.

Contractual net operating income for the fourth quarter of 2020 includes approximately $700,000 received as a settlement credit for a property acquired in the U.S.

as reimbursement of a free rent period.

In the case of a property under development or expansion, the contractual lease rate is generally fixed such that rent varies based on the actual total investment in order to provide a fixed rate of return.

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estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs.

We may continue to pursue development or expansion opportunities under similar arrangements in the future.

(2) None of our investments during 2020 caused any one client to be 10% or more of our total assets at December 31, 2020.

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

(3) Represents investments of £707.8 million Sterling during the year ended December 31, 2020 converted at the applicable exchange rate on the date of acquisition.

(4) Our clients occupying the new properties operate in 26 industries, and are 86.6% retail and 13.4% industrial, based on rental revenue.

Approximately 61% of the rental revenue generated from acquisitions during 2020 is from our investment grade rated clients, their subsidiaries or affiliated companies.

Portfolio Discussion

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At December 31, 2020, we had 140 properties available for lease out of 6,592 properties in our portfolio, which represents a 97.9% occupancy rate based on the number of properties in our portfolio.

The following table summarized our leasing results for the year ended December 31, 2019:

The following tables summarize our leasing results for the periods indicated below:

Three months ended December 31, 2020

Properties available for lease at September 30, 2020

Lease expirations (1)

Re-leases to same client (2)

Re-leases to new client (2)(3)

Vacant dispositions (34)

Properties available for lease at December 31, 2020

(1) Includes scheduled and unscheduled expirations (including leases rejected in bankruptcy), as well as future expirations resolved in the current quarter.

(2) The annual new rent on these re-leases was $21.01 million, as compared to the previous annual rent of $20.95 million on the same properties, representing a rent recapture rate of 100.3% on the properties re-leased during the three months ended December 31, 2020.

(3) Re-leased all five properties to new clients after a period of vacancy.

Year ended December 31, 2020

Properties available for lease at December 31, 2019 94

Lease expirations (1)

Re-leases to same tenant (1)

Re-leases to new tenant (1)(2)

Re-leases to same client (2)

Re-leases to new client (2)(3)

Vacant dispositions (86)

Properties available for lease at December 31, 2020 140

(1) Includes scheduled and unscheduled expirations (including leases rejected in bankruptcy), as well as future expirations resolved in the current year.

(2) The annual new rent on these re-leases was $66.24 million, as compared to the previous annual rent of $66.26 million on the same properties, representing a rent recapture rate of 100.0% on the properties re-leased during the year ended December 31, 2020.

Re-leased to eight new tenants after a period of vacancy, and seven new tenants without vacancy.

As part of our re-leasing costs, we pay leasing commissions to unrelated, third party real estate brokers consistent with the commercial real estate industry standard, and sometimes provide tenant rent concessions.

We do not consider the collective impact of the leasing commissions or tenant rent concessions to be material to our financial position or results of operations.

At December 31, 2019 , our average annualized rental revenue was approximately $14.88 per square foot on the 6,389 leased properties in our portfolio.

At December 31, 2019 , we classified 23 properties with a carrying amount of $96.8 million as held for sale on our balance sheet.

(3) Re-leased five properties to new clients without a period of vacancy, and 13 properties to new clients after a period of vacancy.

We do not consider the collective impact of the leasing commissions or rent concessions to our clients to be material to our financial position or results of operations.

At December 31, 2020, our average annualized contractual rent was approximately $15.38 per square foot on the 6,452 leased properties in our portfolio.

At December 31, 2020, we classified 21 properties with a carrying amount of $19.0 million, as real estate and lease intangibles held for sale, net on our balance sheet.

The expected sale of these properties does not represent a strategic shift that will have a major effect on our operations and financial results and is consistent with our existing disposition strategy to further enhance our real estate portfolio and maximize portfolio returns.

Investments in Existing Properties

In 2019 , we capitalized costs of $17.9 million on existing properties in our portfolio, consisting of $2.1 million for re-leasing costs, $801,000 for recurring capital expenditures, and $15.0 million for non-recurring building improvements.

In 2018, we capitalized costs of $17.9 million on existing properties in our portfolio, consisting of $3.9 million for re-leasing costs, $1.1 million for recurring capital expenditures, and $12.9 million for non-recurring building improvements.

During 2020, we capitalized costs of $7.0 million on existing properties in our portfolio, consisting of $1.8 million for re-leasing costs, $198,000 for recurring capital expenditures, and $5.0 million for non-recurring building improvements.

In comparison, during 2019, we capitalized costs of $17.9 million on existing properties in our portfolio, consisting of $2.1 million for re-leasing costs, $801,000 for recurring capital expenditures, and $15.0 million for non-recurring building improvements.

The majority of our building improvements relate to roof repairs, HVAC improvements, and parking lot resurfacing and replacements.

The amounts of our capital expenditures can vary significantly, depending on the rental market, tenant credit worthiness, the lease term and the willingness of tenants to pay higher rents over the terms of the leases.

We define recurring capital expenditures as mandatory and repetitive landlord capital expenditure obligations that have a limited useful life.

We define non-recurring capital expenditures as property improvements where we invest additional capital that extend the useful life of the properties.

The amounts of our capital expenditures can vary significantly, depending on the rental market, credit worthiness of our clients, the lease term and the willingness of our clients to pay higher rents over the terms of the leases.

We define recurring capital expenditures as mandatory and recurring landlord capital expenditure obligations that have a limited useful life.

We define non-recurring capital expenditures as property improvements in which we invest additional capital that extend the useful life of the properties.

Increases in Monthly Dividends to Common Stockholders

We have continued our 52-year policy of paying monthly dividends.

In addition, we increased the dividend five times during 2019 and twice in 2020.

In addition, we increased the dividend five times during 2020 and once in 2021.

As of February 2021, we have paid 93 consecutive quarterly dividend increases and increased the dividend 109 times since our listing on the NYSE in 1994.

2019 Dividend increases

Month Month Dividend Increase

2020 Dividend increases Declared Paid per share per share

1st increase Dec 2019 Jan 2020 $ 0.2275 $ 0.0005

2nd increase Jan 2020 Feb 2020 $ 0.2325 $ 0.0050

3rd increase Mar 2020 Apr 2020 $ 0.2330 $ 0.0005

4th increase Jun 2020 Jul 2020 $ 0.2335 $ 0.0005

5th increase Sep 2020 Oct 2020 $ 0.2340 $ 0.0005

2021 Dividend increases

The dividends paid per share during 2019 totaled approximately $2.7105, as compared to approximately $2.6305 during 2018, an increase of $0.08, or 3.0%.

1st increase Dec 2020 Jan 2021 $ 0.2345 $ 0.0005

The dividends paid per share during 2020 totaled $2.7940, as compared to $2.7105 during 2019, an increase of $0.0835, or 3.1%.

The monthly dividend of $0.2345 per share represents a current annualized dividend of $2.81 per share, and an annualized dividend yield of approximately 4.5% based on the last reported sale price of our common stock on the NYSE of $62.17 on December 31, 2020.

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We believe that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition.

We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other

factors, to ensure that they are reasonable for reporting purposes.

We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes.

However, actual results may differ from these estimates and assumptions.

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In addition, any assumed mortgages are recorded at their estimated fair values.

The estimated fair values of our mortgages payable have been calculated by discounting the future cash flows using applicable interest rates that have been adjusted for factors, such as industry type, tenant investment grade, maturity date, and comparable borrowings for similar assets.

The estimated fair values of our mortgages payable have been calculated by discounting the future cash flows using applicable interest rates that have been adjusted for factors, such as industry type, client investment grade, maturity date, and comparable borrowings for similar assets.

The use of different assumptions in the allocation of the purchase price of the acquired properties and liabilities assumed could affect the timing of recognition of the related revenue and expenses.

Another significant judgment must be made as to if, and when, impairment losses should be taken on our properties when events or a change in circumstances indicate that the carrying amount of the asset may not be recoverable.

A provision is made for impairment if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property.

If estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property, a fair value analysis is performed and, to the extent the estimated fair value is less than the current book value, a provision for impairment is recorded to reduce the book value to estimated fair value.

Key inputs that we utilize in this analysis include projected rental rates, estimated holding periods, capital expenditures, and property sales capitalization rates.

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If events should occur that require us to reduce the carrying value of our real estate by recording provisions for impairment, they could have a material impact on our results of operations.

When assessing the collectability of future lease payments, one of the key factors we have considered during 2020 has been the COVID-19 pandemic.

We generally assess collectability based on an analysis of creditworthiness,

economic trends, and other facts and circumstances related to our applicable clients.

If the collection of substantially all of the future lease payments is less than probable, we will 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.

Unless otherwise specified, references to reserves recorded as a reduction of rental revenue include amounts reserved for in the current period, as well as unrecognized contractual rental revenue and unrecognized straight-line rental revenue for leases accounted for on a cash basis.

As of December 31, 2020, other than the information related to the reserves we have recorded to such date, we do not have any further client specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable.

However, there may be impacts in future periods that could change this assessment as the situation continues to evolve and as more information becomes available.

The COVID-19 pandemic and the measures taken to limit its spread are negatively impacting the economy across many industries, including the industries in which some of our clients operate.

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

As a result, we evaluated certain key assumptions involving fair value estimates of our real estate, recording of impairments on our properties and collectability 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.

The following is a comparison of our results of operations for the years ended December 31, 2020, 2019 and 2018.

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The following summarizes our total revenue (dollars in thousands):

2020 2019 2018 2020

Rental (excluding reimbursable) $ 1,560,171 $ 1,415,733 $ 1,274,596 $ 144,438 $ 141,137

Rental (reimbursable) 79,362 69,085 46,950 10,277 22,135

Other 12,092 6,773 6,292 5,319 481

Total revenue $ 1,651,625 $ 1,491,591 $ 1,327,838 $ 160,034 $ 163,753

Rental Revenue

The increase in rental revenue in 2019 compared to 2018 is primarily attributable to:

The 779 properties (13.4 million square feet) we acquired in 2019, which generated $85.0 million of rent in 2019;

The 753 properties (4.8 million square feet) we acquired in 2018, which generated $112.7 million of rent in 2019, compared to $54.0 million in 2018, an increase of $58.7 million;

Same store rents generated on 4,811 properties (83.4 million square feet) during 2019 and 2018, increased by $18.0 million, or 1.6%, to $1.176 billion from $1.158 billion;

partially offset by

A net decrease of $15.7 million relating to properties sold in 2019 and during 2018;

A net decrease in straight-line rent and other non-cash adjustments to rent of $3.2 million in 2019 as compared to 2018;

A net decrease of $1.8 million relating to the aggregate of (i) rental revenue from properties (130 properties comprising 3.2 million square feet) that were available for lease during part of 2019 or 2018, (ii) rental revenue for 10 properties under development, and (iii) lease termination settlements.

In aggregate, the revenues for these items totaled $24.9 million in 2019, compared to $26.7 million in 2018.

The increase in rental revenue in 2018 compared to 2017 is primarily attributable to:

The 753 properties (4.8 million square feet) we acquired in 2018, which generated $54.0 million of rent in 2018;

The 287 properties (7.2 million square feet) we acquired in 2017, which generated $95.7 million of rent in 2018, compared to $35.8 million in 2017, an increase of $59.9 million;

Same store rents generated on 4,629 properties (78.1 million square feet) during 2018 and 2017, increased by $9.5 million, or 0.9%, to $1.08 billion from $1.07 billion;

A net increase in straight-line rent and other non-cash adjustments to rent of $5.7 million in 2018 as compared to 2017;

partially offset by

A net decrease of $13.2 million relating to properties sold in 2018 and during 2017;

A net decrease of $7.5 million relating to the aggregate of (i) rental revenue from properties (123 properties comprising 2.7 million square feet) that were available for lease during part of 2018 or 2017, (ii) rental revenue for five properties under development, and (iii) lease termination settlements.

In aggregate, the revenues for these items totaled $15.9 million in 2018, compared to $23.4 million in 2017.

Rental Revenue (excluding reimbursable)

The table below summarizes the increase in rental revenue (excluding reimbursable) in 2020 compared to 2019 (dollars in thousands):

Year Ended December 31, Increase/(Decrease)

Number of Properties Square Footage 2020 2019 $ Change % Change

Properties acquired during 2020 & 2019 1,014 22,388,061 $ 282,038 $ 85,039 $ 196,999 231.7 %

Same store rental revenue 5,403 84,641,826 1,237,358 1,259,303 (21,945) (1.7) %

Properties sold during 2020 & 2019 221 4,234,228 6,567 22,389 (15,822) (70.7) %

Straight-line rent and other non-cash adjustments N/A N/A 7,384 15,177 (7,793) (51.3) %

Vacant rents, development and other (1)

180 3,916,555 26,824 33,825 (7,001) (20.7) %

Totals $ 1,560,171 $ 1,415,733 $ 144,438 10.2 %

(1) Relates to the aggregate of (i) rental revenue from properties (174 properties comprising 2,973,551 square feet) that were available for lease during part of 2020 or 2019, (ii) rental revenue for properties (6 properties comprising 943,004 square feet) under development, and (iii) lease termination settlements.

The table below summarizes the increase in rental revenue (excluding reimbursable) in 2019 compared to 2018 (dollars in thousands):

Year Ended December 31, Increase/(Decrease)

Number of Properties Square Footage 2019 2018 $ Change % Change

Properties acquired during 2019 & 2018 1,532 18,219,735 $ 197,784 $ 54,028 $ 143,756 266.1 %

Same store rental revenue 4,811 83,399,809 1,175,576 1,157,577 17,999 1.6 %

Properties sold during 2019 & 2018 221 1,933,496 3,615 19,306 (15,691) (81.3) %

Straight-line rent and other non-cash adjustments N/A N/A 13,821 16,993 (3,172) (18.7) %

Vacant rents, development and other (1)

140 4,653,664 24,937 26,692 (1,755) (6.6) %

Totals $ 1,415,733 $ 1,274,596 $ 141,137 11.1 %

(1) Relates to the aggregate of (i) rental revenue from properties (130 properties comprising 3,249,304 square feet) that were available for lease during part of 2019 or 2018, (ii) rental revenue for properties (10 properties comprising 1,404,360 square feet) under development, and (iii) lease termination settlements.

For purposes of determining the same store rent property pool, we include all properties that were owned for the entire year-to-date period, for both the current and prior year, except for properties during the current or prior year that;

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Each of the exclusions from the same store pool are separately addressed within the applicable sentences above, explaining the changes in rental revenue for the period.

Of the 6,483 properties in the portfolio at December 31, 2019 , 6,452 , or 99.5% , are single-tenant properties and the remaining are multi-tenant properties.

Of the 6,452 single-tenant properties, 6,362 , or 98.6% , were net leased at December 31, 2019 .

Of our 6,362 leased single-tenant properties, 5,456 or 85.8% were under leases that provide for increases in rents through:

Our calculation of same store rental revenue includes rent deferred for future payment as a result of lease concessions we granted in response to the COVID-19 pandemic and recognized under the practical expedient provided by the Financial Accounting Standards Board (FASB).

Same store rental revenue in 2020 was negatively impacted by reserves recorded as reductions of rental revenue of $39.9 million, compared to $1.4 million in 2019.

There was no same store rental income impact by reserves recorded as a reduction of rental revenue in 2018.

Our calculation of same store rental revenue also includes uncollected rent for which we have not granted a lease concession.

If these applicable amounts of rent deferrals and uncollected rent were excluded from our calculation of same store rental revenue, the decrease for 2020 relative to 2019 would have been (5.1)%.

Rental revenue was negatively impacted by rent reserves during 2020, primarily due to the COVID-19 pandemic, particularly with respect to the ongoing disruption to the theater industry.

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

Year ended December 31,

2020 2019 2018

Rental revenue reserves $ 44.1 $ 1.4 $ 1.1

Straight-line rent reserves 8.4 1.5 0.2

Total rental revenue reserves $ 52.5 $ 2.9 $ 1.3

Of the 6,592 properties in the portfolio at December 31, 2020, 6,555, or 99.4%, are single-client properties and the remaining are multi-client properties.

Of the 6,555 single-client properties, 6,419, or 97.9%, were net leased at December 31, 2020.

Of our 6,419 leased single-client properties, 5,486 or 85.5% were under leases that provide for increases in rents through:

• Base rent increases tied to a consumer price index (typically subject to ceilings);

Percentage rent based on a percentage of the tenants’ gross sales;

• Percentage rent based on a percentage of our client's gross sales;

• Fixed increases;

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Percentage rent in 2020 was less than 1% of rental revenue and we anticipate percentage rent to be less than 1% of rental revenue in 2021.

Our portfolio of real estate, leased primarily to commercial tenants under net leases, continues to perform well and provides dependable lease revenue supporting the payment of monthly dividends to our stockholders.

At December 31, 2020, our portfolio of 6,592 properties was 97.9% leased with 140 properties available for lease, as compared to 98.6% leased, with 94 properties available for lease at December 31, 2019.

It has been our experience that approximately 1% to 4% of our property portfolio will be unleased at any given time;

however, it is possible that the number of properties available for lease could exceed these levels in the future.

It has been our

experience that approximately 1% to 4% of our property portfolio will be available for lease at any given time;

however, it is possible that the number of properties available for lease or sale could increase in the future, given the nature of economic cycles and other unforeseen global events, such as the ongoing COVID-19 pandemic and the measures taken to limit its spread.

Rental Revenue (reimbursable)

A number of our leases provide for contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses.

The increase in tenant reimbursements in the years presented is primarily due to the growth of our portfolio from acquisitions.

A number of our leases provide for contractually obligated reimbursements from clients for recoverable real estate taxes and operating expenses.

The increase in contractually obligated reimbursements by our clients in the years presented is primarily due to the growth of our portfolio due to acquisitions.

Other Revenue

The increase in other revenue for 2019 was primarily related to interest income recognized on financing receivables for certain leases with above-market terms as compared to 2018, partially offset by lower proceeds from property insurance claims, condemnations and interest income from our investments in United States government money market funds.

The increase in other revenue for 2018 was primarily related to higher proceeds from property insurance claims, condemnations and interest income from our investments in United States government money market funds as compared to 2017.

The increase in other revenue for 2020 was primarily related to interest income recognized on financing receivables for certain leases with above-market terms as compared to 2019.

In addition, interest income from our money market accounts was higher for 2020 as compared to 2019, which is primarily due to higher average investment balances.

Total Expenses

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Increase (Decrease)

2020 2019 2018 2020

Depreciation and amortization $ 677,038 $ 593,961 $ 539,780 $ 83,077 $ 54,181

General and administrative (1)

Interest 309,336 290,991 266,020 18,345 $ 24,971

Property (excluding reimbursable) 25,241 19,500 19,376 5,741 $ 124

Property (reimbursable) 79,362 69,085 46,950 10,277 $ 22,135

General and administrative (1)

73,215 66,483 84,148 6,732 $ (17,665)

Income taxes 14,693 6,158 5,340 8,535 $ 818

Provisions for impairment 147,232 40,186 26,269 107,046 $ 13,917

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Total revenue (2)

$ 1,572,263 $ 1,422,506 $ 1,280,888

General and administrative expenses as a percentage of total revenue (1)(2)

4.4 % 4.7 % 5.1 %

Property expenses (excluding reimbursable) as a percentage of total revenue (2)

1.6 % 1.4 % 1.5 %

(1) General and administrative expenses for 2020 included an executive severance charge related to the departure of our former CFO in March 2020.

The total value of cash, stock compensation and professional fees incurred as a result of this severance was $3,463 and was recorded to general and administrative expense.

In order to present a normalized calculation of our general and administrative expenses as a percentage of total revenue for 2020, we have excluded this executive severance charge to arrive at a normalized general and administrative amount of $69,752, which was used for our calculation.

General and administrative expenses for 2018 included a one–time severance payment made to our former CEO in October 2018.

The total value of cash, stock compensation and professional fees incurred as a result of this severance was $28.3 million;

however, the net amount, after incorporating accruals for CEO compensation previous to this severance, was $18,651 and was recorded to general and administrative expense (see our discussion of Adjusted Funds from Operations Available to Common Stockholders, or AFFO, which is not a financial measure under generally accepted accounting principles, which includes a reconciliation of this amount).

The total value of cash, stock compensation and professional fees incurred as a result of this severance was $28,293;

however, the net amount, after incorporating accruals for CEO compensation previous to this severance, was $18,651 and was recorded to general and administrative expense.

In order to present a normalized calculation of our general and administrative expenses as a percentage of total revenue for 2018, we have excluded this one–time executive severance charge to arrive at a normalized general and administrative amount of $65,497, which was used for our calculation.

Executive severance charges are excluded from Adjusted Funds from Operations Available to Common Stockholders, or AFFO, which is not a financial measure under generally accepted accounting principles.

See our discussion of AFFO, which includes a reconciliation of this amount.

(2) Excludes rental revenue (reimbursable).

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The following is a summary of the components of our interest expense (dollars in thousands):

Interest on our credit facility, term loans, notes, mortgages and interest rate swaps

2020 2019 2018

Interest on our credit facility, commercial paper, term loans, notes, mortgages and interest rate swaps $ 293,879 $ 277,802 $ 260,103

Credit facility commitment fees 3,812 3,803 2,774

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Loss (gain) on interest rate swaps 4,132 2,752 (2,733)

Dividend on preferred shares subject to redemption

Amortization of net mortgage premiums (1,258) (1,415) (1,520)

Amortization of net note (premiums) and discounts

Obligations related to financing lease liabilities

Interest capitalized

Amortization of net note premiums (1,754) (995) (1,256)

Other items (169) (441) (59)

Interest expense $ 309,336 $ 290,991 $ 266,020

Credit facility, term loans, mortgages and notes

Credit facility, commercial paper, term loans, mortgages and notes

Average outstanding balances (dollars in thousands) $ 8,240,829 $ 7,100,032 $ 6,662,952

Average interest rates 3.48 % 3.89 % 3.90 %

The increase in interest expense from 2019 to 2020 is primarily due to the October 2020 issuance of our 1.625% notes due 2030, May and July 2020 issuances of our 2031 Notes, the May 2019 issuance of our 2.730% notes due 2034, the June 2019 issuance of our 3.250% notes due 2029, and higher interest related to mortgages assumed during December 2019, partially offset by the January 2020 repayment of our 5.750% notes due 2021, the June 2020 repayment of one of our $250.0 million term loans, and lower average interest rates.

The increase in interest expense from 2018 to 2019 is primarily due to the October 2018 issuance of our $250.0 million senior unsecured term loan, the May 2019 issuance of our 2.730% notes due 2034, the June 2019 issuance of our 3.250% notes due 2029, and a loss on our interest rate swaps in 2019.

The increase in interest expense from 2017 to 2018 is primarily due to the April 2018 issuance of our 3.875% notes due 2025.

This increase was partially offset by the December 2017 early redemption of our 6.75% notes due 2019 and lower outstanding debt balances on mortgages payable as a result of mortgage payoffs in 2018.

At December 31, 2020, the weighted average interest rate on our:

Credit facility outstanding borrowings of $704.3 million was 2.2% ;

Term loans outstanding of $500.0 million (excluding deferred financing costs of $956,000 ) was 3.3% ;

Mortgages payable of $408.4 million (excluding net premiums totaling $3.0 million and deferred financing costs of $1.3 million on these mortgages) was 4.9% ;

• Term loan outstanding of $250.0 million (excluding deferred financing costs of $642,000 and considering that one of our $250.0 million term loans was paid off in June 2020) was swapped to fixed at 3.9%;

• Mortgages payable of $299.6 million (excluding net premiums totaling $1.7 million and deferred financing costs of $973,000 on these mortgages) was 4.9%;

• Notes and bonds payable of $8.30 billion (excluding unamortized net original issuance premiums of $14.6 million and deferred financing costs of $49.2 million) was 3.4%;

Combined outstanding notes, bonds, mortgages, term loan and credit facility borrowings of $7.9 billion (excluding all net premiums and deferred financing costs) was 3.8% .

General and Administrative Expenses

General and administrative expenses are expenditures related to the operations of our company, including employee–related costs, professional fees, and other general overhead costs associated with running our business.

In January 2020, we had 194 employees, as compared to 165 employees in January 2019, and 152 employees in January 2018.

The fluctuation of general and administrative costs in 2019 and 2018 is primarily due to the severance charge of $18.7 million incurred in 2018 and related to our former CEO who departed the company in October 2018.

Additionally, compensation costs in both years increased due to higher headcount.

• Combined outstanding notes, bonds, mortgages and term loan of $8.85 billion (excluding all net premiums and deferred financing costs) was 3.5%.

Property Expenses (excluding reimbursable)

Property expenses (excluding reimbursable) consist of costs associated with unleased properties, non-net-leased properties and general portfolio expenses.

Expenses related to unleased properties and non-net-leased properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections and legal fees.

Property expenses (excluding reimbursable) consist of costs associated with properties available for lease, non-net-leased properties and general portfolio expenses.

Expenses related to properties available for lease and non-net-leased properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections and legal fees.

General portfolio costs include, but are not limited to, insurance, legal, property inspections, and title search fees.

At December 31, 2020, 140 properties were available for lease, as compared to 94 at December 31, 2019 and 80 at December 31, 2018.

The increase in property expenses (excluding reimbursable) in 2019 is primarily attributable to higher property taxes and maintenance associated with our expanding portfolio size.

The 2018 decrease was primarily attributable to lower bad debt expense.

The increase in property expenses (excluding reimbursable) in 2020 is primarily due to reserves for contractually obligated reimbursements by our clients, an increase in repairs and maintenance expense, and an increase in portfolio size and the number of vacant properties at year-end.

Property Expenses (reimbursable)

The increase in property expenses (reimbursable) in both 2019 and 2018 was primarily attributable to the increased portfolio size, which contributed to higher contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses primarily due to our acquisitions in each year.

The increase in property expenses (reimbursable) in both 2020 and 2019 was primarily attributable to the increased portfolio size, which contributed to higher contractually obligated reimbursements from our clients for recoverable real estate taxes and operating expenses primarily due to our acquisitions in each year.

General and Administrative Expenses

General and administrative expenses increased in 2020 primarily due to a severance charge of $3.5 million for our former CFO, who departed the company in March 2020, higher payroll-related costs, and higher corporate–level professional fees, partially offset by lower costs for terminated acquisitions and travel.

The decrease in general and administrative costs in 2019 is primarily due to the severance charge of $18.7 million incurred in 2018 that related to our former CEO, who departed the company in October 2018.

Income taxes are for city and state income and franchise taxes, and for U.K.

income taxes paid by us and our subsidiaries.

The increase in income taxes in 2020 was primarily attributable to our U.K.

investments, which contributed to higher U.K.

income taxes as compared to 2019.

Provisions for Impairment

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Year Ended December 31,

2020 2019 2018

Total provisions for impairment $ 147.2 $ 40.2 $ 26.3

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Classified as held for investment 42 5 3

Sold 51 45 41

During 2020, we identified the impact of the COVID-19 pandemic as an impairment triggering event for properties occupied by certain of our clients experiencing difficulties meeting their lease obligations to us.

After considering the impacts of the COVID-19 pandemic on the key assumptions, we determined that the carrying values of 38 properties classified as held for investment for the year ended December 31, 2020 were not recoverable.

As a result, we recorded provisions for impairment of $105.0 million for the year ended December 31, 2020 on the applicable properties impacted by the COVID-19 pandemic.

Of the provisions for impairment recorded during 2020 for properties impacted by the COVID-19 pandemic, a total of 13 assets occupied by certain of our clients in the theater industry were impaired for $83.8 million, which reduced the carrying value of the properties from $123.4 million to their estimated fair value of $39.6 million.

Impairments recorded on other properties during the year ended December 31, 2020 totaled $42.2 million.

Gain on Sales of Real Estate

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Year Ended December 31,

2020 2019 2018

Number of properties sold 126 93 128

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Gain on sales of real estate $ 76.2 $ 30.0 $ 24.6

At December 31, 2019, we classified 23 properties with a carrying amount of $96.8 million as held for sale on our balance sheet.

Foreign Currency and Derivative Gains, Net

We borrow in the local currencies of the countries in which we invest.

We borrow in the functional currencies of the countries in which we invest.

Foreign currency gains and losses are primarily a result of intercompany debt and certain remeasurement transactions.

Loss on Extinguishment of Debt

In December 2017, we completed the early redemption on all $550.0 million of outstanding 6.75% notes due August 2019, plus accrued and unpaid interest.

As a result of the early redemption, we recognized a $42.4 million loss on extinguishment of debt.

Preferred Stock Dividends

We did not pay any preferred stock dividends in 2019 or 2018.

Preferred stock dividends totaled $3.9 million in 2017.

Additionally, in April 2017, we paid a final dividend on our Class F preferred stock of $1.7 million, which was recorded to interest expense.

Excess of Redemption Value over Carrying Value of Preferred Shares Redeemed

When we issued the irrevocable notice of redemption on our Class F preferred stock in March 2017, we incurred a non-cash charge of $13.4 million for the excess of redemption value over the carrying value.

The non-cash charge represents the Class F preferred stock original issuance cost that was paid in 2012.

In January 2020, we completed the early redemption on all $250.0 million in principal amount of outstanding 5.75% 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 during 2020.

Net Income Available to Common Stockholders

The following summarizes our net income available to common stockholders (dollars in millions, except per share data):

Year Ended December 31,

Year Ended December 31, % Increase/(decrease)

2020 2019 2018 2020 versus 2019

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Net income available to common stockholders

$ 395.5 $ 436.5 $ 363.6 (9.4) % 20.0 %

Net income per share (1)

$ 1.14 $ 1.38 $ 1.26 (17.4) % 9.5 %

(1) All per share amounts are presented on a diluted per common share basis.

The calculation to determine net income available to common stockholders includes provisions for impairment, gains from the sale of properties, and foreign currency gains and losses, which can vary from period to period based on timing and significantly impact net income attributable to the Company and available to common stockholders.

Net income available to common stockholders in 2020 was impacted by the following transactions:

(i) $147.2 million of provisions for impairment, (ii) $52.5 million in reserves recorded as a reduction of rental revenue, (iii) a $9.8 million loss on extinguishment of debt due to the January 2020 early redemption of the 5.750% notes due 2021, and (iv) a $3.5 million executive severance charge for our former CFO.

For 2019, the only comparable charges were $40.2 million in provisions for impairment and $2.9 million in reserves recorded as a reduction of rental revenue.

Net income available to common stockholders in 2018 was impacted by a severance payment made to our former CEO in October 2018.

The total value of cash, stock compensation and professional fees incurred as a result of this severance was $28.3 million;

however, the net amount, after incorporating accruals for CEO compensation previous to this severance, was $18.7 million, equivalent to $0.06 per share.

Net income available to common stockholders in 2017 was impacted by a loss of $42.4 million, or $0.15 per share, loss on extinguishment of debt upon the early redemption on all $550.0 million in principal amount of our outstanding 6.75% notes due August 2019, which were redeemed during December 2017.

Net income was also impacted by a non-cash charge of $13.4 million, or $0.05 per share, for the redemption of the 6.625% Monthly Income Class F Preferred Stock that was redeemed in April 2017.

This charge is based on the excess of redemption value over the carrying value of the 6.625% Monthly Income Class F Preferred Stock that represents the original issuance cost that we paid in 2012.

The calculation to determine net income available to common stockholders includes impairments, gains from the sale of properties, and foreign currency gains and losses, which can vary from period to period based on the timing and significantly impact net income available to the Company and available to common stockholders.

however, the net amount, after incorporating accruals for CEO compensation previous to this severance, was $18.7 million.

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate (Adjusted EBITDA re )

The National Association of Real Estate Investment Trust (Nareit) came to the conclusion that a Nareit-defined EBITDA metric for real estate companies (i.e., EBITDA for real estate, or EBITDAre) would provide investors with a consistent measure to help make investment decisions among REITs.

Our definition of “Adjusted EBITDAre” is generally consistent with the Nareit definition, other than our adjustment to remove foreign currency and derivative gains and losses and the one-time executive severance charge, as described below (which is consistent with our previous calculations of "Adjusted EBITDAre").

We define Adjusted EBITDAre, a non-GAAP financial measure, for the most recent quarter, as earnings (net income) before (i) interest expense, including non-cash loss (gain) on swaps, (ii) income and franchise taxes, (iii) real estate depreciation and amortization, (iv) impairment losses, (v) gain on sales of real estate, (vi) foreign currency and derivative gains, net, and (vii) executive severance charge (as described in the Adjusted Funds from Operations section).

Our Adjusted EBITDAre may not be comparable to Adjusted EBITDAre reported by other companies or as defined by Nareit, and other companies may interpret or define Adjusted EBITDAre differently than we do.

Management believes Adjusted EBITDAre to be a meaningful measure of a REIT’s performance because it is widely followed by industry analysts, lenders and investors.

Management also believes the use of an annualized quarterly Adjusted EBITDAre metric is meaningful because it represents the company’s current earnings run rate for the period presented.

The ratio of our total debt to our annualized quarterly Adjusted EBITDAre is also used to determine vesting of performance share awards granted to our executive officers.

Adjusted EBITDAre should be considered along with, but not as an alternative to net income as a measure of our operating performance.

Our ratio of net debt-to-Adjusted EBITDAre, which is used by management as a measure of leverage, is calculated as net debt (which we define as total debt per the consolidated balance sheet, less cash and cash equivalents) divided by annualized quarterly Adjusted EBITDAre.

The following table summarizes our Adjusted EBITDAre calculation for the periods indicated below:

The National Association of Real Estate Investment Trusts (Nareit) came to the conclusion that a Nareit-defined EBITDA metric for real estate companies (i.e., EBITDA for real estate, or EBITDA re ) would provide investors with a consistent measure to help make investment decisions among REITs.

Our definition of “Adjusted EBITDA re ” is generally consistent with the Nareit definition, other than our adjustments to remove foreign currency and derivative gains and losses and executive severance charges (which is consistent with our previous calculations of "Adjusted EBITDA").

We define Adjusted EBITDA re , a non–GAAP financial measure, for the most recent quarter as earnings (net income) before (i) interest expense, including non-cash loss (gain) on swaps, (ii) income and franchise taxes, (iii) real estate depreciation and amortization, (iv) provisions for impairment, (v) gain on sales of real estate, (vi) foreign currency and derivative gains and losses, net, and (vii) executive severance charges (as described in the Adjusted Funds from Operations section).

Our Adjusted EBITDA re may not be comparable to Adjusted EBITDA re reported by other companies or as defined by Nareit, and other companies may interpret or define Adjusted EBITDA re differently than we do.

Management believes Adjusted EBITDA re to be a meaningful measure of a REIT’s performance because it is widely followed by industry analysts, lenders and investors.

Management also believes the use of an annualized quarterly Adjusted EBITDA re metric, which we refer to as Annualized Adjusted EBITDA re , is meaningful because it represents the Company’s current earnings run rate for the period presented.

The ratio of our total debt to our annualized quarterly Adjusted EBITDA re is also used to determine vesting of performance share awards granted to our executive officers.

Adjusted EBITDA re should be considered along with, but not as an alternative to net income as a measure of our operating performance.

We define Annualized Pro Forma Adjusted EBITDA re as Annualized Adjusted EBITDA re , subject to certain adjustments to incorporate operating income from properties we acquired or stabilized during the applicable quarter and to remove operating income from properties we disposed of during the applicable quarter, giving pro forma effect to all transactions as if they occurred at the beginning of the applicable period.

We believe Annualized Pro Forma Adjusted EBITDA re is a useful non-GAAP supplemental measure, as it excludes properties that were no longer owned at the balance sheet date and includes the annualized rent from properties acquired during the quarter.

Our ratios of net debt-to-Adjusted EBITDA re and net debt-to-Pro Forma Adjusted EBITDA re , which are used by management as a measure of leverage, are calculated as net debt (which we define as total debt per the consolidated balance sheet, less cash and cash equivalents), divided by annualized quarterly Adjusted EBITDA re and annualized Pro Forma Adjusted EBITDA re , respectively.

The following table summarizes our Adjusted EBITDA re calculation for the periods indicated below:

For the Quarter Ended December 31,

Dollars in thousands 2020 2019 2018

Net income (1)

$ 118,150 $ 129,553 $ 85,303

Interest 78,764 75,073 70,635

Income taxes 4,500 1,736 1,607

Depreciation and amortization 175,041 156,594 137,711

Executive severance charge (2)

Impairment loss

Provisions for impairment 23,790 8,950 1,235

Gain on sales of real estate (22,667) (14,168) (5,825)

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Quarterly Adjusted EBITDA re

$ 374,267 $ 355,946 $ 309,317

Annualized Adjusted EBITDA re (3)

$ 1,497,068 $ 1,423,784 $ 1,237,268

Annualized Pro Forma Adjustments 25,910 77,793 11,306

Annualized Pro Forma Adjusted EBITDA re

$ 1,522,978 $ 1,501,577 $ 1,248,574

$ 7,992,991 $ 7,847,536 $ 6,489,589

Net Debt/Adjusted EBITDA re

(1) Interest expense includes a loss on extinguishment of debt of $42.4 million for the year ended December 31, 2017.

(2) Reflects an $18.7 million severance charge for our former CEO upon his departure in October 2018.

(3) We calculate Annualized Adjusted EBITDA re by multiplying the Quarterly Adjusted EBITDA re by four.

(4) During 2019, the definition of Net Debt/ Adjusted EBITDA re was changed to include debt net of cash and cash equivalents.

Under the prior definition, debt to Adjusted EBITDA re was 5.3 and 5.5 for the quarters ended December 31, 2018 and 2017, respectively.

Net Debt/Pro forma Adjusted EBITDA re

(1) Net income for 2020 was negatively impacted by $18.1 million of rent reserves recorded as reductions of rental revenue, of which $3.3 million relates to straight-line rent.

(2) The executive severance charge in 2018 reflects an $18.7 million severance charge for our former CEO upon his departure in October 2018.

(3) We calculate Annualized Adjusted EBITDAre by multiplying the Quarterly Adjusted EBITDAre by four.

(4) Net Debt is total debt per the consolidated balance sheet, less of cash and cash equivalents.

The Annualized Pro Forma Adjustments consist of adjustments to incorporate operating income from properties we acquired or stabilized during the applicable quarter and to remove operating income from properties we disposed of during the applicable quarter, giving pro forma effect to all transactions as if they occurred at the beginning of the applicable period.

The Annualized Pro Forma Adjustments are consistent with the debt service coverage ratio calculated under financial covenants for our senior unsecured notes and bonds.

The following table summarizes our Annualized Pro forma Adjusted EBITDA re calculation for the periods indicated below:

Dollars in thousands 2020 2019 2018

Annualized pro forma adjustments from properties acquired or stabilized $ 27,431 $ 77,431 $ 14,633

Annualized pro forma adjustments from properties disposed (1,521) 362 (3,327)

Annualized Pro forma Adjustments $ 25,910 $ 77,793 $ 11,306

FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (FFO)

The following summarizes our funds from operations available to common stockholders (FFO) (dollars in millions, except per share data):

The following summarizes our FFO (dollars in millions, except per share data):

2020 2019 2018 2020 versus 2019

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FFO available to common stockholders

$ 1,142.1 $ 1,039.6 $ 903.3 9.9 % 15.1 %

FFO per share (1)

$ 3.31 $ 3.29 3.12 0.6 % 5.4 %

(1) All per share amounts are presented on a diluted per common share basis.

Our FFO in 2018 was impacted by a severance payment made to our former CEO in October 2018.

FFO in 2020 was impacted by reserves recorded as a reduction of rental revenue related to the COVID-19 pandemic, a loss on extinguishment of debt due to the early redemption of the 5.750% notes due 2021 in January 2020 and an executive severance charge for our former CFO in March 2020.

FFO in 2018 was impacted by a severance payment made to our former CEO in October 2018.

The total value of cash, stock compensation and professional fees incurred as a result of this severance was $28.3 million;

however, the net amount, after incorporating accruals for CEO compensation previous to this severance, was $18.7 million, equivalent to $0.06 per share.

Our FFO in 2017 was impacted by a loss of $42.4 million, or $0.15 per share, on extinguishment of debt upon the early redemption on all $550.0 million of our outstanding 6.75% notes due August 2019 during December 2017.

FFO in 2017 was also impacted by a non-cash redemption charge of $13.4 million, or $0.05 per share, upon the redemption of the 6.625% Monthly Income Class F Preferred Stock that was redeemed in April 2017.

This charge is based on the excess of redemption value over the carrying value of the 6.625% Monthly Income Class F Preferred Stock that represents the original issuance cost that we paid in 2012.

however, the net amount, after incorporating accruals for CEO compensation previous to this severance, was $18.7 million.

The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable GAAP measure) to FFO.

Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts):

2020 2019 2018

Net income available to common stockholders $ 395,486 $ 436,482 $ 363,614

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FFO allocable to dilutive noncontrolling interests 1,418 1,403 867

FFO per common share:

Diluted FFO $ 1,143,537 $ 1,040,994 $ 904,124

FFO per common share, basic and diluted 3.31 3.29 3.12

Distributions paid to common stockholders $ 964,167 $ 852,134 $ 761,582

FFO available to common stockholders in excess of distributions paid to common stockholders

$ 177,952 $ 187,457 $ 141,675

Weighted average number of common shares used for computation per share:

We define FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trust’s definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus impairments of depreciable real estate assets, and reduced by gains on property sales.

Basic 345,280,126 315,837,012 289,427,430

Diluted 345,878,377 316,601,350 289,923,984

We define FFO, a non-GAAP financial measure, consistent with the National Association of Real Estate Investment Trusts' definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus provisions for impairments of depreciable real estate assets, and reduced by gains on property sales.

We consider FFO to be an appropriate supplemental measure of a REIT’s operating performance as it is based on a net income analysis of property portfolio performance that adds back items such as depreciation and impairments for FFO.

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The use of FFO is recommended by the REIT industry as a supplemental performance measure.

In addition, FFO is used as a measure of our compliance with the financial covenants of our credit facility.

ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (AFFO)

The following summarizes our adjusted funds from operations available to common stockholders (AFFO) (dollars in millions, except per share data):

The following summarizes our AFFO (dollars in millions, except per share data):

2020 2019 2018 2020 versus 2019

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AFFO available to common stockholders

$ 1,172.6 $ 1,050.0 $ 924.6 11.7 % 13.6 %

AFFO per share (1)

$ 3.39 $ 3.32 3.19 2.1 % 4.1 %

(1) All per share amounts are presented on a diluted per common share basis.

AFFO for 2020 was impacted by reserves recorded as a reduction of rental revenue related to the COVID-19 pandemic.

We consider AFFO to be an appropriate supplemental measure of our performance.

Other companies in our industry use a similar measurement, but they may use the term “CAD” (for Cash Available for Distribution), “FAD” (for Funds Available for Distribution) or other terms.

Our AFFO calculations may not be comparable to AFFO, CAD or FAD reported by other companies, and other companies may interpret or define such terms differently than we do.

The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable GAAP measure) to FFO and AFFO.

2020 2019 2018

Net income available to common stockholders (1)

$ 395,486 $ 436,482 $ 363,614

Cumulative adjustments to calculate FFO (2)

746,633 603,109 539,643

FFO available to common stockholders 1,142,119 1,039,591 903,257

Executive severance charge (3)

3,463 — 18,651

Loss on extinguishment of debt 9,819 — —

Excess of redemption value over carrying value of Class F preferred share redemption

Amortization of share-based compensation 14,727 13,662 15,470

Amortization of deferred financing costs (4)

4,968 4,754 3,991

Amortization of net mortgage premiums (1,258) (1,415) (1,520)

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Straight-line payments from cross-currency swaps (5)

2,573 4,316 —

Leasing costs and commissions (1,859) (2,102) (3,907)

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Other adjustments (6)

(2,519) (1,404) 268

Total AFFO available to common stockholders $ 1,172,626 $ 1,050,015 $ 924,558

AFFO allocable to dilutive noncontrolling interests 1,438 1,442 901

Diluted AFFO $ 1,174,064 $ 1,051,457 $ 925,459

AFFO per common share:

Basic $ 3.40 $ 3.32 $ 3.19

Diluted $ 3.39 $ 3.32 $ 3.19

Distributions paid to common stockholders $ 964,167 $ 852,134 $ 761,582

AFFO available to common stockholders in excess of distributions paid to common stockholders

$ 208,459 $ 197,881 $ 162,976

Weighted average number of common shares used for computation per share:

Basic 345,280,126 315,837,012 289,427,430

Diluted 345,878,377 316,601,350 289,923,984

(1) As of December 31, 2020, there was $24.5 million of uncollected rent deferred as a result of lease concessions we granted in response to the COVID-19 pandemic and recognized under the practical expedient provided by the FASB and $51.9 million of uncollected rent for which we have not granted a lease concession.

Deferrals accounted for as modifications totaling $236,000 for 2020 have not been added back to AFFO.

(2) See reconciling items for FFO presented under “Funds from Operations Available to Common Stockholders (FFO).”

(2) The executive severance charge represents the incremental costs incurred upon our former CEO's departure in October 2018 per the reconciliation below:

Stock compensation

Professional fees

Total value of severance

Amount accrued for CEO compensation prior to separation

Incremental severance

(3) Includes the amortization of costs incurred and capitalized upon issuance of our notes payable, assumption of our mortgages payable and upon issuance of our term loans.

(3) The executive severance charge in 2020 represents the incremental costs incurred upon our former CFO's departure in March 2020, consisting of $1.6 million of cash, $1.8 million of share-based compensation expense and $58,000 of professional fees.

The executive severance charge in 2018 represents the incremental costs incurred upon our former CEO's departure in October 2018, consisting of $9.8 million of cash, $17.9 million of share-based compensation expense and $574,000 of professional fees, reduced by $9.6 million accrued for CEO compensation prior to separation.

(4) Includes the amortization of costs incurred and capitalized upon issuance of our notes payable, assumption of our mortgages payable and upon issuance of our current and previous term loans.

The deferred financing costs are being amortized over the lives of the respective mortgages and term loans.

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IMPACT OF INFLATION

Tenant leases generally provide for limited increases in rent as a result of increases in the tenants’ sales volumes, increases in the consumer price index (typically subject to ceilings), or fixed increases.

Leases generally provide for limited increases in rent as a result of fixed increases, increases in the consumer price index (typically subject to ceilings), or increases in the clients’ sales volumes.

We expect that inflation will cause these lease provisions to result in rent increases over time.

During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation.

Moreover, our use of net lease agreements tends to reduce our exposure to rising property expenses due to inflation because the tenant is responsible for property expenses.

Inflation and increased costs may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue.

Moreover, our use of net lease agreements tends to reduce our exposure to rising property expenses due to inflation because the client is responsible for property expenses.

Inflation and increased costs may have an adverse impact on our clients if increases in their operating expenses exceed increases in revenue.

IMPACT OF NEWLY ADOPTED ACCOUNTING STANDARDS

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What changed 10-K

Item 7. Management’s Discussion and Analysis