REALTY INCOME CORP 10-K

Item 8: Financial Statements and Supplementary Data Table of Contents A. Reports of Independent Registered Public Accounting Firm B. Consolidated Balance Sheets, December 31, 2020 and 2019 C. Consolidated Statements of Income and Comprehensive Income, Years ended December 31, 2020, 2019 and 2018 D. Consolidated Statements of Equity, Years ended December 31, 2020, 2019 and 2018 E. Consolidated Statements of Cash Flows, Years ended December 31, 2020, 2019 and 2018 F. Notes to Consolidated Financial Statements G. Consolidated Quarterly Financial Data (unaudited) for 2020 and 2019 H. Schedule III Real Estate and Accumulated Depreciation Schedules not filed: All schedules, other than that indicated in the Table of Contents, have been omitted as the required information is either not material, inapplicable or the information is presented in the financial statements or related notes. -62- Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Realty Income Corporation: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Realty income Corporation and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income and comprehensive income, equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting . Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases . Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Evaluation of the fair values used in the allocation of the purchase price of real estate acquisitions As discussed in Note 4 to the consolidated financial statements, during 2020, the Company acquired $2.3 billion of real estate properties. As discussed in Note 2, the purchase price of a real estate acquisition is typically allocated to land, building and improvements, and identified lease related intangible assets and liabilities based on their estimated relative fair values. We identified the evaluation of the fair values used in the purchase price allocated to land, building and improvements, and identified lease related intangible assets and liabilities as a critical audit matter. Specifically, the measurement of the fair values of land, building and improvements, and identified lease related intangible assets and liabilities is dependent upon significant assumptions that are subject to potential management bias and for which relevant external market data is not always readily available. Such assumptions include market land and building values, market rental rates, and discount rates. There was a high degree of subjective and complex auditor judgment required in evaluating the fair value measurements given the sensitivity of the fair value measurements to changes in these assumptions. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to allocate the purchase price of real estate acquisitions. This included controls over the selection and review of the significant assumptions used to estimate fair value. For a selection of real estate acquisitions, we involved valuation professionals with specialized skills and knowledge who assisted in evaluating the significant assumptions used to estimate the fair value measurements to allocate the purchase price, and the qualifications of third-party valuation professionals. The evaluation included comparison of the Company’s assumptions noted above to independently developed ranges using market data from industry transaction databases, and published industry reports. For a selection of real estate acquisitions, we compared the amounts allocated to land, building and improvements, and lease related intangible assets and liabilities as a percentage of the total acquisition value to the Company’s historical allocation percentages for similar types of properties. We assessed potential management bias by evaluating the results of the procedures performed. Evaluation of the provision for impairment of long-lived real estate assets As discussed in Note 2 to the consolidated financial statements, during 2020, the Company recorded provisions for impairment of long-lived real estate assets of $147.2 million. A provision for impairment is recorded if estimated future operating cash flows (undiscounted and without interest charges) including estimated disposition proceeds to be received are less than the current book value of the real estate asset. The impairment recorded is measured as the amount by which the book value of the real estate asset exceeds its fair value. We identified the evaluation of the provision for impairment of long-lived real estate assets as a critical audit matter. The Company’s property level operating cash flow projections are used to both identify if an impairment has occurred and in determining a real estate asset’s fair value. These projections are dependent upon assumptions that are subject to potential management bias and for which relevant external market data is not always readily available. These assumptions include the expected property holding period, projected rental rates, and current and terminal property capitalization rates. Given the sensitivity of the operating cash flow projections to changes in these assumptions, there was a high degree of subjective and complex auditor judgment required in evaluating the assumptions. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to identify and measure impairments including selection and review of the assumptions used to determine the property level operating cash flow projections. For a selection of properties, we evaluated the projected rental rates and property holding period assumptions in the Company’s property level operating cash flow projections by comparing to lease agreements, the Company’s historical holding period data, market data from industry transaction databases, and published industry reports. We also involved valuation professionals with specialized skills and knowledge who assisted in evaluating the projected market rent and current and terminal capitalization rates utilized by the Company. This evaluation included comparison to independently developed ranges using publicly available market data. We also performed a sensitivity analysis over the assumptions noted above, used to determine the Company’s property level operating cash flow projections for a selection of properties. We assessed potential management bias by evaluating the results of the procedures performed. Evaluation of lease revenue As discussed in Note 2 to the consolidated financial statements, rental revenue for leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term. When the Company concludes collection of substantially all future lease payments for a lease is less than probable, the Company writes off the receivable balances associated with the lease as a reduction to rental revenue for the period and it ceases to recognize rental revenue on a straight-line basis for that lease. Rental revenue recognition is limited to the lesser of cash received or the amount that would have been recognized on a straight-line basis for that lease. Rental revenue was $1.6 billion for the year ended December 31, 2020, and accounts receivable was $285.7 million as of December 31, 2020. We identified the evaluation of the probability of collection of lease payments as a critical audit matter. The significant assumption used in the evaluation is the creditworthiness of the client and any guarantors. Evaluating the Company’s probability assessment of collection of substantially all the lease payments for the individual leases required significant auditor judgment, because of the subjective nature of management’s judgment and the potential impact of the current economic environment on the significant assumption. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s collectability probability assessment process, including the assessment of the creditworthiness of the client and any guarantors. For a selection of the Company’s leases, we evaluated the Company’s determination of the collectability of substantially all of the contractual lease payments by performing the following: (i) read the lease agreement, (ii) obtained and read third-party credit reports, (iii) searched for and read publicly available information, including the client’s financial statements, analyst reports, recent public filings and news articles to evaluate the Company’s collection probability assessment, (iv) considered the rental payment history of the lessee and (v) inquired of Company employees to obtain evidence regarding creditworthiness of the clients. (signed) KPMG LLP We have served as the Company’s auditor since 1993. San Diego, California February 23, 2021 -63- Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Realty Income Corporation: Opinion on Internal Control Over Financial Reporting We have audited Realty Income Corporation and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 23, 2021 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. (signed) KPMG LLP San Diego, California February 23, 2021 -64- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2020 and 2019 (dollars in thousands, except per share data) 2020 2019 ASSETS Real estate held for investment, at cost: Land $ 6,318,926 $ 5,684,034 Buildings and improvements 14,696,712 13,833,882 Total real estate held for investment, at cost 21,015,638 19,517,916 Less accumulated depreciation and amortization ( 3,549,486 ) ( 3,117,919 ) Real estate held for investment, net 17,466,152 16,399,997 Real estate and lease intangibles held for sale, net 19,004 96,775 Cash and cash equivalents 824,476 54,011 Accounts receivable, net 285,701 181,969 Lease intangible assets, net 1,710,655 1,493,383 Other assets, net 434,297 328,661 Total assets $ 20,740,285 $ 18,554,796 LIABILITIES AND EQUITY Distributions payable $ 85,691 $ 76,728 Accounts payable and accrued expenses 241,336 177,039 Lease intangible liabilities, net 321,198 333,103 Other liabilities 256,863 262,221 Line of credit payable and commercial paper — 704,335 Term loans, net 249,358 499,044 Mortgages payable, net 300,360 410,119 Notes payable, net 8,267,749 6,288,049 Total liabilities 9,722,555 8,750,638 Commitments and contingencies Stockholders’ equity: Common stock and paid in capital, par value $ 0.01 per share, 740,200,000 shares authorized, 361,303,445 and 333,619,106 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively 14,700,050 12,873,849 Distributions in excess of net income ( 3,659,933 ) ( 3,082,291 ) Accumulated other comprehensive loss ( 54,634 ) ( 17,102 ) Total stockholders’ equity 10,985,483 9,774,456 Noncontrolling interests 32,247 29,702 Total equity 11,017,730 9,804,158 Total liabilities and equity $ 20,740,285 $ 18,554,796 The accompanying notes to consolidated financial statements are an integral part of these statements. -65- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Years Ended December 31, 2020, 2019 and 2018 (dollars in thousands, except per share data) 2020 2019 2018 REVENUE Rental (including reimbursable) $ 1,639,533 $ 1,484,818 $ 1,321,546 Other 12,092 6,773 6,292 Total revenue 1,651,625 1,491,591 1,327,838 EXPENSES Depreciation and amortization 677,038 593,961 539,780 Interest 309,336 290,991 266,020 Property (including reimbursable) 104,603 88,585 66,326 General and administrative 73,215 66,483 84,148 Income taxes 14,693 6,158 5,340 Provisions for impairment 147,232 40,186 26,269 Total expenses 1,326,117 1,086,364 987,883 Gain on sales of real estate 76,232 29,996 24,643 Foreign currency and derivative gains, net 4,585 2,255 — Loss on extinguishment of debt ( 9,819 ) — — Net income 396,506 437,478 364,598 Net income attributable to noncontrolling interests ( 1,020 ) ( 996 ) ( 984 ) Net income available to common stockholders $ 395,486 $ 436,482 $ 363,614 Amounts available to common stockholders per common share: Net income Basic 1.15 1.38 1.26 Diluted 1.14 1.38 1.26 Weighted average common shares outstanding: Basic 345,280,126 315,837,012 289,427,430 Diluted 345,415,258 316,159,277 289,923,984 Other comprehensive income: Net income available to common stockholders $ 395,486 436,482 363,614 Foreign currency translation adjustment ( 2,606 ) 186 — Unrealized loss on derivatives, net ( 34,926 ) ( 9,190 ) ( 8,098 ) Comprehensive income available to common stockholders $ 357,954 $ 427,478 $ 355,516 The accompanying notes to consolidated financial statements are an integral part of these statements. -66- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY Years Ended December 31, 2020, 2019 and 2018 (dollars in thousands) Shares of common stock Common stock and paid in capital Distributions in excess of net income Accumulated other comprehensive loss Total stockholders’ equity Noncontrolling interests Total equity Balance, December 31, 2017 284,213,685 $ 9,624,264 $ ( 2,252,763 ) $ — $ 7,371,501 $ 19,207 $ 7,390,708 Net income — — 363,614 — 363,614 984 364,598 Other comprehensive loss — — — ( 8,098 ) ( 8,098 ) — ( 8,098 ) Distributions paid and payable — — ( 768,506 ) — ( 768,506 ) ( 1,996 ) ( 770,502 ) Share issuances, net of costs 19,304,878 1,119,297 — — 1,119,297 — 1,119,297 Contributions by noncontrolling interests — — — — — 18,848 18,848 Redemption of common units 88,182 2,829 — — 2,829 ( 5,581 ) ( 2,752 ) Reallocation of equity — ( 774 ) — — ( 774 ) 774 — Share-based compensation, net 135,345 8,879 — — 8,879 — 8,879 Balance, December 31, 2018 303,742,090 $ 10,754,495 $ ( 2,657,655 ) $ ( 8,098 ) $ 8,088,742 $ 32,236 $ 8,120,978 Net income — — 436,482 — 436,482 996 437,478 Other comprehensive loss — — — ( 9,004 ) ( 9,004 ) — ( 9,004 ) Distributions paid and payable — — ( 861,118 ) — ( 861,118 ) ( 1,296 ) ( 862,414 ) Share issuances, net of costs 29,818,978 2,117,983 — — 2,117,983 — 2,117,983 Contributions by noncontrolling interests — — — — — 11,370 11,370 Redemption of common units — ( 6,866 ) — — ( 6,866 ) ( 14,257 ) ( 21,123 ) Reallocation of equity — ( 653 ) — — ( 653 ) 653 — Share-based compensation, net 58,038 8,890 — — 8,890 — 8,890 Balance, December 31, 2019 333,619,106 $ 12,873,849 $ ( 3,082,291 ) $ ( 17,102 ) $ 9,774,456 $ 29,702 $ 9,804,158 Net income — — 395,486 — 395,486 1,020 396,506 Other comprehensive loss — — — ( 37,532 ) ( 37,532 ) — ( 37,532 ) Distributions paid and payable — — ( 973,128 ) — ( 973,128 ) ( 1,596 ) ( 974,724 ) Share issuances, net of costs 27,564,163 1,817,978 — — 1,817,978 — 1,817,978 Contributions by noncontrolling interests — — — — — 3,168 3,168 Reallocation of equity — 47 — — 47 ( 47 ) — Share-based compensation, net 120,176 8,176 — — 8,176 — 8,176 Balance, December 31, 2020 361,303,445 $ 14,700,050 $ ( 3,659,933 ) $ ( 54,634 ) $ 10,985,483 $ 32,247 $ 11,017,730 The accompanying notes to consolidated financial statements are an integral part of these statements. -67- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2020, 2019 and 2018 (dollars in thousands) 2020 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 396,506 $ 437,478 $ 364,598 Adjustments to net income: Depreciation and amortization 677,038 593,961 539,780 Loss on extinguishment of debt 9,819 — — Amortization of share-based compensation 16,503 13,662 27,267 Non-cash revenue adjustments ( 3,562 ) ( 9,338 ) ( 7,835 ) Amortization of net premiums on mortgages payable ( 1,258 ) ( 1,415 ) ( 1,520 ) Amortization of net premiums on notes payable ( 1,754 ) ( 995 ) ( 1,256 ) Amortization of deferred financing costs 11,003 9,795 9,021 Loss (gain) on interest rate swaps 4,353 2,752 ( 2,733 ) Foreign currency and derivative gains, net ( 4,585 ) ( 2,255 ) — Gain on sales of real estate ( 76,232 ) ( 29,996 ) ( 24,643 ) Provisions for impairment on real estate 147,232 40,186 26,269 Change in assets and liabilities Accounts receivable and other assets ( 79,240 ) ( 8,954 ) ( 6,901 ) Accounts payable, accrued expenses and other liabilities 19,720 24,056 18,695 Net cash provided by operating activities 1,115,543 1,068,937 940,742 CASH FLOWS FROM INVESTING ACTIVITIES Investment in real estate ( 2,283,130 ) ( 3,572,581 ) ( 1,769,335 ) Improvements to real estate, including leasing costs ( 8,708 ) ( 23,536 ) ( 25,350 ) Proceeds from sales of real estate 259,459 108,911 142,286 Insurance and other proceeds received — — 7,648 Collection of loans receivable — — 5,267 Non-refundable escrow deposits — ( 14,603 ) ( 200 ) Net cash used in investing activities ( 2,032,379 ) ( 3,501,809 ) ( 1,639,684 ) CASH FLOWS FROM FINANCING ACTIVITIES Cash distributions to common stockholders ( 964,167 ) ( 852,134 ) ( 761,582 ) Borrowings on line of credit and commercial paper program 3,528,042 2,816,632 1,774,000 Payments on line of credit and commercial paper program ( 4,246,755 ) ( 2,365,368 ) ( 1,632,000 ) Principal payment on term loan ( 250,000 ) ( 70,000 ) ( 125,866 ) Proceeds from notes and bonds payable issued 2,200,488 897,664 497,500 Principal payment on notes payable ( 250,000 ) — ( 350,000 ) Proceeds from term loan — — 250,000 Payments upon extinguishment of debt ( 9,445 ) — — Principal payments on mortgages payable ( 108,789 ) ( 20,723 ) ( 21,905 ) Proceeds from common stock offerings, net 728,883 845,061 — Proceeds from dividend reinvestment and stock purchase plan 9,109 8,437 9,114 Proceeds from At-the-Market (ATM) program 1,094,938 1,264,518 1,125,364 Redemption of common units — ( 21,123 ) ( 2,752 ) Distributions to noncontrolling interests ( 1,596 ) ( 1,342 ) ( 1,930 ) Net receipts on derivative settlements 4,106 4,881 — Debt issuance costs ( 19,456 ) ( 9,129 ) ( 18,685 ) Other items, including shares withheld upon vesting ( 23,279 ) ( 4,772 ) ( 33,387 ) Net cash provided by financing activities 1,692,079 2,492,602 707,871 Effect of exchange rate changes on cash and cash equivalents 4,431 ( 9,796 ) — Net increase in cash, cash equivalents and restricted cash 779,674 49,934 8,929 Cash, cash equivalents and restricted cash, beginning of year 71,005 21,071 12,142 Cash, cash equivalents and restricted cash, end of year $ 850,679 $ 71,005 $ 21,071 For supplemental disclosures, see note 15. The accompanying notes to consolidated financial statements are an integral part of these statements. -68- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES N OTES T O C ONSOLIDATED F INANCIAL S TATEMENTS December 31, 2020, 2019, and 2018 1. Organization and Operation Realty Income Corporation (“Realty Income,” the “Company,” “we,” “our” or “us”) is organized as a Maryland corporation. We invest in commercial real estate and have elected to be taxed as a real estate investment trust, or REIT. At December 31, 2020, we owned 6,592 properties, located in 49 U.S states, Puerto Rico and the United Kingdom (U.K.), containing approximately 110.8 million leasable square feet. Information with respect to number of properties, square feet, average initial lease term and initial average cash lease yield is unaudited. 2. Summary of Significant Accounting Policies and Procedures and Newly Adopted Accounting Standards Federal Income Taxes . We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended. We believe we have qualified and continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income. Assuming our dividends equal or exceed our taxable net income, we generally will not be required to pay federal corporate income taxes on such income. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of our taxable REIT subsidiaries. The income taxes recorded on our consolidated statements of income and comprehensive income represent amounts accrued or paid by Realty Income and its subsidiaries for city and state income and franchise taxes and for U.K. income taxes. Earnings and profits that determine the taxability of distributions to stockholders differ from net income reported for financial reporting purposes due to differences in the estimated useful lives and methods used to compute depreciation and the carrying value (basis) of the investments in properties for tax purposes, among other things. We regularly analyze our various federal and state filing positions and only recognize the income tax effect in our financial statements when certain criteria regarding uncertain income tax positions have been met. We believe that our income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities. Therefore, no provisions for uncertain income tax positions have been recorded in our financial statements. Net Income per Common Share. Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted net income per common share is computed by dividing net income available to common stockholders, plus income attributable to dilutive shares and convertible common units for the period, by the weighted average number of common shares that would have been outstanding assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation. 2020 2019 2018 Weighted average shares used for the basic net income per share computation 345,280,126 315,837,012 289,427,430 Incremental shares from share-based compensation 135,132 322,265 179,532 Weighted average partnership common units convertible to common shares that were dilutive — — 317,022 Weighted average shares used for diluted net income per share computation 345,415,258 316,159,277 289,923,984 Unvested shares from share-based compensation that were anti-dilutive 70,581 8,113 13,148 Weighted average partnership common units convertible to common shares that were anti-dilutive 463,119 442,073 297,576 -69- Table of Contents Lease Revenue Recognition and Accounts Receivable . The majority of our leases are accounted for as operating leases. Under this method, leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term. Any rental revenue contingent upon our client’s sales is recognized only after our client exceeds their sales breakpoint. Rental increases based upon changes in the consumer price indexes are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements. Contractually obligated rental revenue from our clients for recoverable real estate taxes and operating expenses are included in contractually obligated reimbursements by our clients, a component of rental revenue, in the period when such costs are incurred. Taxes and operating expenses paid directly by our clients are recorded on a net basis. Other revenue, includes property-related revenue not included in rental revenue and interest income recognized on financing receivables for certain leases with above-market terms. We assess collectability of our future lease payments based on an analysis of creditworthiness, economic trends (including trends arising from the COVID-19 pandemic) and other facts and circumstances related to the applicable clients. If the collection of substantially all of the future lease payments is less than probable, we record a reserve of the receivable balances associated with the lease and cease to recognize lease income, including straight-line rent, unless cash is received when due. 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. As a result, we have closely monitored the collectability of our accounts receivable and 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. On April 8, 2020, the Financial Accounting Standards Board, or FASB, staff and FASB board members responded to questions about the accounting for COVID-19 related rent concessions under Topic 842, Leases . The accounting for these rent concessions under Topic 842 depends on the enforceable rights and obligations of the parties under the original lease contract (including those arising from the laws of the jurisdiction governing the lease contract) and the nature of any changes to the terms and conditions of the contract. If a rent concession under these circumstances is required by the original lease contract (e.g. by a force majeure clause), the concession will generally be accounted for as a variable lease payment. In contrast, if the lessor is under no obligation to grant a rent concession, the lessor’s agreement to grant one should be accounted for as a lease modification. The FASB staff has provided clarifying guidance for leases for which the total lease cash flows will remain substantially the same or less than those after the COVID-19 related effects, though companies may choose to forgo the evaluation of the enforceable rights and obligations of the original lease contract as a practical expedient. Instead, the company would account for rent concessions, whatever their form (e.g. rent deferral, abatement or other), either (1) as if they are part of the enforceable rights and obligations of the parties under the existing lease contract; or (2) as a lease modification. If accounting for a concession as a lease modification, the full lease modification requirements under Topic 842 apply. Under either policy election, we must continue to assess the probability of collecting substantially all of the lease payments to which we are entitled under the original lease contract as required under Topic 842. If a company concludes collection of substantially all lease payments under a lease is less than probable, rental revenue recognized for that lease is limited to cash received going forward, existing operating lease receivables must be written off as an adjustment to rental revenue, and no further operating lease receivables are recorded for that lease until such future determination is made that substantially all lease payments under that lease are now considered more than probable. The majority of concessions granted to our clients during 2020 as a result of the COVID-19 pandemic have been rent deferrals with the original lease term unchanged. We currently anticipate future concessions to be similar. In accordance with the April 8, 2020 guidance provided by the FASB staff, we have elected to account for these leases as if the right of deferral existed in the lease contract and therefore continue to recognize lease revenue in accordance with the lease contract in effect. In limited circumstances, the undiscounted cash flows resulting from deferrals granted during 2020 increased significantly from original lease terms, which required us to account for these as lease modifications, and resulted in an insignificant impact to rental revenue for 2020. Similarly, rent abatements granted during 2020, which were also accounted for as lease modifications, impacted our rental revenue by an insignificant amount for 2020. -70- Table of Contents 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. 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 As of December 31, 2020, other than the information related to the reserves recorded to 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, since the conversations regarding rent collections for our clients affected by the COVID-19 pandemic are ongoing and we do not currently know the types of future concessions, if any, that will ultimately be granted, there may be impacts in future periods that could change this assessment as the situation continues to evolve and as more information becomes available. We also evaluated certain properties impacted by the COVID-19 pandemic for impairment (see Provisions for Impairment section below). Principles of Consolidation . The accompanying consolidated financial statements include the accounts of Realty Income and other subsidiaries for which we make operating and financial decisions (i.e. control), after elimination of all material intercompany balances and transactions. We consolidate entities that we control and record a noncontrolling interest for the portion that we do not own. Noncontrolling interest that was created or assumed as part of a business combination or asset acquisition was recognized at fair value as of the date of the transaction (see note 10). We have no unconsolidated investments. Cash Equivalents and Restricted Cash . We consider all short-term, highly liquid investments that are readily convertible to cash and have an original maturity of three months or less at the time of purchase to be cash equivalents. Restricted cash includes cash proceeds from the sale of assets held by qualified intermediaries in anticipation of the acquisition of replacement properties in tax-free exchanges under Section 1031 of the U.S. Internal Revenue Code, impounds related to mortgages payable and cash that is not immediately available to Realty Income (i.e. escrow deposits for future acquisitions). Cash accounts maintained on behalf of Realty Income in demand deposits at commercial banks and money market funds may exceed federally insured levels or may be held in accounts without any federal insurance or any other insurance or guarantee. However, Realty Income has not experienced any losses in such accounts. Gain on Sales of Properties . When real estate is sold, the related net book value of the applicable assets is removed and a gain from the sale is recognized in our consolidated statements of income and comprehensive income. We record a gain from the sale of real estate provided that various criteria, relating to the terms of the sale and any subsequent involvement by us with the real estate, have been met. Allocation of the Purchase Price of Real Estate Acquisitions . A majority of our acquisitions qualify as asset acquisitions and the transaction costs associated with those acquisitions are capitalized. When acquiring a property for investment purposes, we typically allocate the cost of real estate acquired, inclusive of transaction costs, to: (1) land, (2) building and improvements, and (3) identified intangible assets and liabilities, based in each case on their relative estimated fair values. Intangible assets and liabilities consist of above-market or below-market lease value of in-place leases and the value of in-place leases, as applicable. Additionally, above-market rents on certain leases under which we are a lessor are accounted for as financing receivables amortizing over the lease term, while below-market rents on certain leases under which we are a lessor are accounted for as prepaid rent. In an acquisition of multiple properties, we must also allocate the purchase price among the properties. The allocation of the purchase price is based on our assessment of estimated fair values of the land, building and improvements, and identified intangible assets and liabilities, and is often based upon various characteristics of the market where the property is located. 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, client investment grade, maturity date, and -71- Table of Contents 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. Our estimated fair value determinations are based on management’s judgment, utilizing various factors, including: market land and building values, market rental rates, discount rates and capitalization rates. Our methodology for measuring and allocating the fair value of real estate acquisitions includes both observable market data (categorized as level 2 on the three-level valuation hierarchy of Accounting Standards Codification (ASC) Topic 820, Fair Value Measurement), and unobservable inputs that reflect our own internal assumptions (categorized as level 3 under ASC Topic 820). Given the significance of the unobservable inputs we believe the allocations of fair value of real estate acquisitions should be categorized as level 3 under ASC Topic 820. For certain of our purchase price allocations we have used the assistance of an independent third party real estate valuation firm. The allocation of tangible assets (which includes land and buildings/improvements) of an acquired property with an in-place lease is based upon relative fair value. Land is typically valued utilizing the sales comparison (or market) approach. Buildings and improvements are typically valued under the replacement cost approach. In allocating the fair value to identified intangibles for above-market or below-market leases, an amount is recorded based on the present value of the difference between (i) the contractual amount to be paid pursuant to the in-place lease and (ii) our estimate of fair market lease rate for the corresponding in-place lease, measured over the remaining term of the lease. The value of in-place leases is determined by our estimated costs related to acquiring a tenant and the carrying costs that would be incurred over the vacancy period to locate a tenant if the property were vacant, considering market conditions and costs to execute similar leases at the time of acquisition. The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of income and comprehensive income. The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to depreciation and amortization expense over the remaining periods of the respective leases. If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease are recorded to revenue or expense as appropriate. Depreciation and Amortization . Land, buildings and improvements are recorded and stated at cost. Major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives, while ordinary repairs and maintenance are expensed as incurred. Buildings and improvements that are under redevelopment, or are being developed, are carried at cost and no depreciation is recorded on these assets. Additionally, amounts essential to the development of the property, such as pre-construction, development, construction, interest and other costs incurred during the period of development are capitalized. We cease capitalization when the property is available for occupancy upon substantial completion of property improvements to accommodate the client's use, but in any event no later than one year from the completion of major construction activity. Properties are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows: Buildings 25 years or 35 years Building improvements 4 to 35 years Equipment 5 to 25 years Lease commissions and property improvements to accommodate the client's use The shorter of the term of the related lease or useful life Acquired in-place leases Remaining terms of the respective leases Provisions for Impairment. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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 assumptions that we utilize in this analysis include projected rental rates, estimated holding periods, capital expenditures and property sales capitalization rates. If a property is classified as held for -72- Table of Contents sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell, and depreciation of the property ceases. If a property was previously reclassified as held for sale but the applicable criteria for this classification are no longer met, the property is reclassified to real estate held for investment. A property that is reclassified to held for investment is measured and recorded at the lower of (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held for investment, or (ii) the fair value at the date of the subsequent decision not to sell. Twenty-one properties were classified as held for sale at December 31, 2020. During 2020, we identified the impact of the COVID-19 pandemic as an impairment triggering event for properties occupied by certain clients experiencing difficulties meeting their lease obligations to us. After considering the impacts of the COVID-19 pandemic on the key assumptions noted above, we determined that the carrying values of 38 properti es 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. The following table summarizes our provisions for impairment during the periods indicated below (dollars in millions): Year Ended December 31, 2020 2019 2018 Total provisions for impairment $ 147.2 $ 40.2 $ 26.3 Number of properties: Classified as held for sale 6 1 — Classified as held for investment 42 5 3 Sold 51 45 41 Equity Offering Costs. Underwriting commissions and offering costs have been reflected as a reduction of additional paid-in-capital on our consolidated balance sheets. Noncontrolling Interests. Noncontrolling interests are reflected on our consolidated balance sheets as a component of equity. Derivative and Hedging Activities. We record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. We may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or we elect not to apply hedge accounting. As of December 31, 2020 we had one interest rate swap in place on our $ 250.0 million unsecured term loan. Our objective in using derivatives is to add stability to interest expense and to manage our exposure to interest rate movements. We designated these interest rate swaps as hedges in accordance with Topic 815, Derivatives and Hedging. We record interest rate swaps on the consolidated balances sheet at fair value. Changes to fair value are recorded to accumulated other comprehensive income, or AOCI, and are amortized through interest expense over the term of the associated debt. During December 2020, we entered into a currency exchange swap to exchange £ 463.1 million for $ 625.0 million, which matured in January 2021. The currency exchange swap was entered into to hedge our exposure to foreign currency risk associated with Sterling-denominated liabilities. As the currency exchange swap is not accounted for as a hedging instrument, the change in fair value is recorded in earnings through the caption entitled 'Foreign currency and derivative gains, net' in the consolidated statements of income and comprehensive income. The net -73- Table of Contents loss from derivatives not designated in hedging relationships for 2020 totaled $ 14.5 million. We did not hold any derivatives that were not designated in hedging relationships during 2019. In February 2020, we entered into five forward starting treasury rate locks with notional amounts totaling $ 500.0 million. The treasury rate locks were entered into to hedge our exposure to the changes in the 10-year US treasury rates in anticipation of potential future debt offerings during the first half of 2020. The treasury rate locks were designated as cash flow hedges, with any changes in fair value recorded in AOCI. Upon the initial issuance of the 2031 Notes in May 2020, we amortized the AOCI balance over the term of the 2031 Notes. In June 2020, all five treasury rate locks were terminated and we entered into six forward starting interest rate swaps with notional amounts totaling $ 500.0 million in a cashless settlement of the terminated treasury rate locks. The forward starting swaps were entered into to hedge our exposure to the changes in the 3-month USD-LIBOR swap rate in anticipation of potential future debt offerings through a current estimated range ending in 2023. The forward starting swaps are designated as cash flow hedges, with any changes in fair value recorded in AOCI. Upon issuance of the 2031 Notes during July 2020, the AOCI balance associated with four of the forward starting swaps with a notional amount of $ 350.0 million we amortized over the term of the notes. However, we elected not to terminate the four forward starting interest rate swaps, and redesignated the swaps in a new hedging relationship for a future debt issuance to hedge our exposure to the changes in the 10-year US treasury rates in anticipation of potential future debt offerings between May 2020 and December 2023. Upon issuance during December 2020 of $ 325.0 million of 0.750 % notes due March 2026 and $ 400.0 million of 1.800 % notes due March 2033, the AOCI balance associated with four of the forward starting swaps with a notional amount of $ 350.0 million, representing the change in fair value for the swaps from the July issuance of the 2031 notes through the December note issuances, and the AOCI balance associated with the two remaining forward starting swaps with a notional amount of $ 150.0 million, representing the change in fair value from their inception during June 2020 through the December note issuances, are being amortized over the term, by first applying the notional to the $ 400.0 million of 1.800 % notes due March 2033 and $ 100.0 million of notional to the remaining $ 325.0 million of 0.750 % notes due March 2026. However, we elected not to terminate any of the six forward starting interest rate swaps, and redesignated the swaps in a new hedging relationship to hedge our exposure to the changes in the 10-year US treasury rates in anticipation of potential future debt offerings between December 2020 and December 2023. Due to the size of the initial net investment resulting from the termination value of the treasury rate locks being rolled into them, two of the six forward starting swaps were determined to be hybrid debt instruments containing embedded at-market swap derivative instruments. As a result, we have bifurcated the derivative instrument and the debt instrument for those two forward starting interest rate swaps for accounting purposes. The remaining four forward starting interest rates swaps are accounted for as derivative instruments. In May 2019, we entered into four cross-currency swaps to exchange £ 130 million Sterling for $ 166 million maturing in May 2034, in order to hedge the foreign currency risk associated with our Sterling-denominated intercompany loan receivable from our consolidated foreign subsidiaries. These cross-currency swaps were designated as cash flow hedges on their trade date. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in earnings over the life of the hedges on a systematic and rational basis, as documented at hedge inception in accordance with our accounting policy election. The earnings recognition of excluded components is presented in foreign currency and derivative gains, net on our consolidated statements of income and comprehensive income, which is the same caption item as the hedged transactions. Use of Estimates . The consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles, or GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications . During 2020, we reclassified 'Real estate held for sale, net', which was previously presented in 'Net real estate', into a new caption entitled 'Real estate and lease intangibles held for sale, net'. The reclassification out of 'Net real estate' incorporates intangibles held for sale into a more appropriate presentation of the held for sale caption. Intangibles held for investment are included in the captions entitled 'Lease intangible assets, net' and 'Lease intangible liabilities, net' in the consolidated balance sheets. The December 31, 2019 balance sheet has been reclassified to match the current period classification. Newly Issued Accounting Standards. In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform . ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, -74- Table of Contents 2020 and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. We are currently evaluating the impact that the expected market transition from LIBOR to alternative references rates will have on our financial statements as well as the applicability of the aforementioned expedients and exceptions provided in ASU 2020-04. Recently Adopted Accounting Standards. In February 2016, the FASB issued ASU 2016-02 (Topic 842, Leases), which replaced Topic 840, Leases. Under this amended topic, the accounting applied by a lessor is largely unchanged from that applied under Topic 840, Leases. The large majority of our leases remain classified as operating leases, and we continue to recognize lease income on a generally straight-line basis over the lease term. Although primarily a lessor, we are also a lessee under several ground lease arrangements. We adopted Topic 842, Leases, effective as of January 1, 2019 using the effective date method, and elected the practical expedients available for implementation under the standard for all classes of underlying assets. As a result, we recognize lease obligations for ground leases designated as operating and financing leases with corresponding right of use assets and liabilities (see note 3). Additionally, above-market rents on certain of our leases under which we are a lessor are accounted for as financing receivables amortizing over the lease term, and below-market rents on certain of our leases under which we are a lessor are accounted for as prepaid rent (see note 3). Also, as a result of the adoption of this standard, contractually obligated reimbursements by our clients and property expenses are now presented on a gross basis as both contractually obligated reimbursements by our clients included in rental revenue, and as a reimbursable expense included in property expenses, respectively, on our consolidated statements of income and comprehensive income. Property taxes and insurance paid directly by the lessee to a third party will continue to be presented on a net basis. These presentation changes had no impact on our results of operations. As a result, there was no restatement of prior issued financial statements and, similarly, no cumulative effect adjustment to opening equity; however, we have elected to aggregate prior period tenant reimbursement revenue within rental revenue to be consistent with the current period presentation within the statements of income and comprehensive income. 3. Supplemental Detail for Certain Components of Consolidated Balance Sheets (dollars in thousands): A. Accounts Receivable, net, consist of the following at: December 31, 2020 December 31, 2019 Straight-line rent receivables, net $ 174,074 $ 147,047 Client receivables, net 111,627 34,922 $ 285,701 $ 181,969 B. Lease intangible assets, net, consist of the following at: December 31, 2020 December 31, 2019 In-place leases $ 1,840,704 $ 1,612,153 Accumulated amortization of in-place leases ( 744,375 ) ( 627,676 ) Above-market leases 866,567 710,275 Accumulated amortization of above-market leases ( 252,241 ) ( 201,369 ) $ 1,710,655 $ 1,493,383 C. Other assets, net, consist of the following at: December 31, 2020 December 31, 2019 Financing receivables $ 131,291 $ 81,892 Right of use asset - financing leases 118,585 36,901 Right of use asset - operating leases, net 112,049 120,533 Restricted escrow deposits 21,220 4,529 Goodwill 14,180 14,430 Prepaid expenses 11,795 11,839 Corporate assets, net 8,598 5,251 Credit facility origination costs, net 7,705 11,453 Impounds related to mortgages payable 4,983 12,465 Value-added tax receivable 1,130 9,682 Non-refundable escrow deposits 1,000 14,803 Derivative assets and receivables - at fair value 10 12 Other items 1,751 4,871 $ 434,297 $ 328,661 D. Accounts payable and accrued expenses consist of the following at: December 31, 2020 December 31, 2019 Notes payable - interest payable $ 83,219 $ 75,114 Derivative liabilities and payables - at fair value 73,356 26,359 Property taxes payable 23,413 18,626 Accrued costs on properties under development 12,685 5,870 Value-added tax payable 8,077 13,434 -75- Table of Contents Accrued income taxes 5,182 4,450 Mortgages, term loans, and credit line - interest payable and interest rate swaps 1,044 1,729 Other items 34,360 31,457 $ 241,336 $ 177,039 E. Lease intangible liabilities, net, consist of the following at: December 31, 2020 December 31, 2019 Below-market leases $ 460,895 $ 447,522 Accumulated amortization of below-market leases ( 139,697 ) ( 114,419 ) $ 321,198 $ 333,103 F. Other liabilities consist of the following at: December 31, 2020 December 31, 2019 Rent received in advance and other deferred revenue $ 130,231 $ 127,687 Lease liability - operating leases, net 114,559 122,285 Lease liability - financing leases 6,256 5,946 Security deposits 5,817 6,303 $ 256,863 $ 262,221 4. Investments in Real Estate We acquire land, buildings and improvements necessary for the successful operations of our commercial clients. A. Acquisitions during 2020 and 2019 Below is a summary of our acquisitions for the year ended December 31, 2020: Number of Properties Leasable Square Feet Investment ($ in thousands) Weighted Average Lease Term (Years) Initial Average Cash Lease Yield Year Ended December 31, 2020 (1) Acquisitions - U.S. (in 30 states) 202 5,476,009 $ 1,302,220 14.9 5.8 % Acquisitions - U.K. (2) 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. 18 1,601,095 84,127 15.3 5.6 % Total (3) 244 9,197,360 $ 2,307,281 13.2 5.9 % (1) 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. (2) 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. (3) 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. The acquisitions during the year ended December 31, 2020, which had no associated contingent consideration, were allocated as follows (dollars in millions): Acquisitions - U.S. Acquisitions - U.K. Year Ended December 31, 2020 (USD) (£ Sterling) Land (1) $ 337.5 £ 247.1 Buildings and improvements 768.4 258.7 Lease intangible assets (2) 203.1 139.8 Other assets (3) 52.4 62.9 Lease intangible liabilities (2) ( 12.9 ) ( 0.7 ) Other liabilities (4) ( 0.9 ) — $ 1,347.6 £ 707.8 (1) U.K. land includes £ 88.6 million of right of use assets under long-term ground leases. (2) The weighted average amortization period for acquired lease intangible assets and liabilities is 15.9 years. (3) U.S. other assets consists of $ 51.7 million of financing receivables with above-market terms and $ 689,000 of right of use assets under ground leases. U.K. other assets consists entirely of right of use assets under ground leases. (4) U.S. other liabilities consists entirely of lease liabilities under ground leases. -76- Table of Contents The properties acquired during 2020 generated total revenues of $ 54.6 million and net income of $ 19.4 million during the year ended December 31, 2020. Below is a summary of our acquisitions for the year ended December 31, 2019: Number of Properties Leasable Square Feet Investment ($ in thousands) Weighted Average Lease Term (Years) Initial Average Cash Lease Yield Year Ended December 31, 2019 (1) Acquisitions - U.S. (in 45 states) 753 11,630,423 $ 2,860,806 13.0 6.8 % Acquisitions - U.K. (2) 18 1,583,676 797,846 15.6 5.2 % Total Acquisitions 771 13,214,099 3,658,652 13.4 6.4 % Properties under Development - U.S. 18 522,173 56,585 15.1 7.3 % Total (3) 789 13,736,272 3,715,237 13.5 6.4 % (1) None of our investments during 2019 caused any one client to be 10% or more of our total assets at December 31, 2019. All of our 2019 investments in acquired properties were 100 % leased at the acquisition date. (2) 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. (2) Our clients occupying the new properties operated 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 was from our investment grade rated clients, their subsidiaries or affiliated companies. The acquisitions during the year ended December 31, 2019, which had no associated contingent consideration, were allocated as follows (dollars in millions): Acquisitions - U.S. Acquisitions - U.K. Year Ended December 31, 2019 (USD) (£ Sterling) Land (1) $ 780.0 £ 251.0 Buildings and improvements 1,776.1 249.3 Lease intangible assets (2) 290.1 129.9 Other assets (3) 82.0 — Lease intangible liabilities (4) ( 41.9 ) ( 4.4 ) Other liabilities (5) ( 8.4 ) — $ 2,877.9 £ 625.8 (1) U.K. land includes £ 24.9 million of right of use assets under long-term ground leases. (2) The weighted average amortization period for acquired lease intangible assets is 13.3 years. (3) U.S other assets consists entirely of financing receivables with above-market terms. (4) The weighted average amortization period for acquired lease intangible liabilities is 18.1 years. (5) U.S. other liabilities consists entirely of deferred rent on certain below-market leases. The properties acquired during 2019 generated total revenues of $ 92.0 million and net income of $ 36.9 million during the year ended December 31, 2019. The initial average cash lease yield for a property is generally computed as estimated contractual first year cash net operating income, which, in the case of a net leased property, is equal to the aggregate cash base rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a 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. 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. When the lease does not provide for a fixed rate of return on a property under development or expansion, the initial average cash lease yield is computed as follows: 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. -77- Table of Contents B. Investments in Existing Properties 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. C. Properties with Existing Leases Of the $ 2.3 billion we invested during 2020, approximately $ 1.86 billion was used to acquire 127 properties with existing leases. In comparison, of the $ 3.7 billion we invested during 2019, approximately $ 2.72 billion was used to acquire 575 properties with existing leases. The value of the in-place and above-market leases is recorded to lease intangible assets, net on our consolidated balance sheets, and the value of the below-market leases is recorded to lease intangible liabilities, net on our consolidated balance sheets. The values of the in-place leases are amortized as depreciation and amortization expense. The amounts amortized to expense for all of our in-place leases, for 2020, 2019, and 2018 were $ 134.6 million, $ 112.0 million, and $ 106.6 million, respectively. The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of income and comprehensive income. The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for 2020, 2019, and 2018 were $ 30.9 million, $ 22.1 million, and $ 16.9 million, respectively. If a lease was to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense, as appropriate. The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at December 31, 2020 (in thousands): Net decrease to rental revenue Increase to amortization expense 2021 $ ( 31,717 ) $ 138,254 2022 ( 30,283 ) 126,762 2023 ( 28,745 ) 114,571 2024 ( 27,164 ) 105,775 2025 ( 26,609 ) 96,398 Thereafter ( 148,610 ) 514,569 Totals $ ( 293,128 ) $ 1,096,329 5. Revolving Credit Facility and Commercial Paper Program A. Credit Facility 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 revolving credit facility allows us to borrow in up to 14 currencies, including U.S. dollars, and has a $ 1.0 billion expansion option, which is subject to obtaining lender commitments. Under our credit facility, our investment grade credit ratings as of 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. We also have other interest rate options available to us under our revolving credit facility. Our revolving credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation. At December 31, 2020, credit facility origination costs of $ 7.7 million are included in other assets, net, as compared to $ 11.5 million at December 31, 2019, on our consolidated balance sheet. These costs are being amortized over the remaining term of our revolving credit facility. -78- Table of Contents At December 31, 2020, we had a borrowing capacity of $ 3.0 billion available on our revolving credit facility (subject to customary conditions to borrowing) and no outstanding balance, as compared to an outstanding balance of $ 704.3 million, including £ 169.2 million Sterling, at December 31, 2019. The weighted average interest rate on outstanding borrowings under our revolving credit facility was 1.5 % during 2020 and 3.1 % during 2019. At December 31, 2019, the weighted average interest rate on borrowings outstanding under our revolving credit facility was 2.2 %. Our revolving credit facility is subject to various leverage and interest coverage ratio limitations, and at December 31, 2020, we were in compliance with the covenants on our revolving credit f acility. B. Commercial Paper Program 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. The commercial paper will rank on a parity in right of payment with all of our other unsecured senior indebtedness outstanding from time to time, including borrowings under our revolving credit facility, our term loan facility and our outstanding senior unsecured notes. Proceeds from commercial paper borrowings are used for general corporate purposes. 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. 6. Term Loans In October 2018, in conjunction with our revolving credit facility, we entered into a $ 250.0 million senior unsecured term loan, which matures in March 2024. 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 %. In June 2015, in conjunction with entering into our previous credit facility, we entered into a $ 250.0 million senior unsecured term loan which matured in June 2020. Borrowing under this term loan bore interest at the current one-month LIBOR, plus 0.90 %. In conjunction with this term loan, we also entered into an interest rate swap which effectively fixed our per annum interest rate on this term loan at 2.62 %. In June 2020, we repaid the term loan in full upon maturity. Deferred financing costs of $ 1.2 million incurred in conjunction with the $ 250.0 million term loan, which matured June 2020, and $ 1.1 million incurred in conjunction with the $ 250.0 million term loan maturing March 2024 are being amortized over the remaining terms of each respective term loan. The net balance of deferred financing costs at December 31, 2020 of $ 642,000 relates to the $ 250.0 million term maturing March 2024. The net balance of deferred financing costs at December 31, 2019 of $ 956,000 related to the $ 250.0 million term loan that matured in June 2020 and the $ 250.0 million term loan maturing March 2024. 7. Mortgages Payable During 2020, we made $ 108.8 million in principal payments, including the repayment of nine mortgages in full for $ 103.4 million. During 2019, we made $ 20.7 million in principal payments, including the repayment of one mortgage in full for $ 15.8 million. No mortgages were assumed during 2020. During 2019, we assumed two mortgages totaling $ 130.8 million on 33 properties. Assumed mortgages are secured by the properties on which the debt was placed and are considered non-recourse debt with limited customary exceptions for items such as solvency, bankruptcy, misrepresentation, fraud, misapplication of payments, environmental liabilities, failure to pay taxes, insurance premiums, liens on the property, violations of the single purpose entity requirements, and uninsured losses. Our mortgages contain customary covenants, such as limiting our ability to further mortgage each applicable property or to discontinue insurance coverage without the prior consent of the lender. At December 31, 2020, we were in compliance with these covenants. -79- Table of Contents The balance of our deferred financing costs, which are classified as part of mortgages payable, net, on our consolidated balance sheets, at December 31, 2020 and 2019 was $ 973,000 and $ 1.3 million, respectively. These costs are being amortized over the remaining term of each mortgage. The following summarizes our mortgages payable as of December 31, 2020 and 2019, respectively (dollars in thousands): As Of Number of Properties (1) Weighted Average Stated Interest Rate (2) Weighted Average Effective Interest Rate (3) Weighted Average Remaining Years Until Maturity Remaining Principal Balance Unamortized Premium and Deferred Finance Costs Balance, net Mortgage Payable Balance 12/31/2020 68 4.9 % 4.6 % 2.9 $ 299,631 $ 729 $ 300,360 12/31/2019 92 4.9 % 4.6 % 3.1 $ 408,419 $ 1,700 $ 410,119 (1) At December 31, 2020, there were 18 mortgages on 68 properties. At December 31, 2019, there were 27 mortgages on 92 properties. The mortgages require monthly payments with principal payments due at maturity. At December 31, 2020, all mortgages were at fixed interest rates. At December 31, 2019, we had one variable rate mortgage with a principal balance of $ 7.1 million that was swapped to a fixed interest rate. (2) Stated interest rates ranged from 3.8 % to 6.9 % at each of December 31, 2020 and 2019, respectively. (3) Effective interest rates ranged from 4.0 % to 5.5 % at December 31, 2020, while effective interest rates ranged from 3.8 % to 7.6 % at December 31, 2019. The following table summarizes the maturity of mortgages payable, excluding net premiums of $ 1.7 million and deferred financing costs of $ 973,000 , as of December 31, 2020 (dollars in millions): Year of Maturity Principal 2021 $ 44.2 2022 111.8 2023 20.6 2024 112.2 2025 0.7 Thereafter 10.1 Totals $ 299.6 -80- Table of Contents 8. Notes Payable A. General Our senior unsecured notes and bonds consist of the following, sorted by maturity date (dollars in millions): December 31, 2020 December 31, 2019 5.750 % notes, issued in June 2010 and due in January 2021 $ — $ 250 3.250 % notes, $ 450 issued in October 2012 and $ 500 issued in December 2017, both due in October 2022 (1) 950 950 4.650 % notes, issued in July 2013 and due in August 2023 750 750 3.875 % notes, issued in June 2014 and due in July 2024 350 350 3.875 % notes, issued in April 2018 and due in April 2025 500 500 0.750 % notes, issued 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 650 650 3.000 % notes, issued in October 2016 and due in January 2027 600 600 3.650 % notes, issued in December 2017 and due in January 2028 550 550 3.250 % notes, issued in June 2019 and due in June 2029 500 500 1.625 % notes, issued in October 2020 and due December 2030 (2) 547 — 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) 431 418 5.875 % bonds, $ 100 issued in March 2005 and $ 150 issued in June 2011, both due in March 2035 250 250 4.650 % notes, $ 300 issued in March 2017 and $ 250 issued in December 2017, both due in March 2047 550 550 Total principal amount 8,303 6,318 Unamortized net original issuance premiums and deferred financing costs ( 35 ) ( 30 ) $ 8,268 $ 6,288 (1) In January 2021, we completed the early redemption of all $ 950.0 million in principal. See note 19, Subsequent Events . (2) Represents the principal balance (in U.S. 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. The following table summarizes the maturity of our notes and bonds payable as of December 31, 2020, excluding unamortized net original issuance premiums of $ 14.6 million and deferred financing costs of $ 49.2 million (dollars in millions): Year of Maturity Principal 2022 (1) $ 950 2023 750 2024 350 2025 500 Thereafter 5,753 Totals $ 8,303 (1) In January 2021, we completed the early redemption of all $ 950.0 million in principal. See note 19, Subsequent Events . As of December 31, 2020, the weighted average interest rate on our notes and bonds payable was 3.4 % and the weighted average remaining years until maturity was 8.2 years. Interest incurred on all of the notes and bonds was $ 252.0 million for 2020, $ 233.5 million for 2019 and $ 213.8 million for 2018. The interest rate on each of these notes and bonds is fixed. Our outstanding notes and bonds are unsecured; accordingly, we have not pledged any assets as collateral for these or any other obligations. Additionally, with the exception of our £ 400.0 million of 1.625 % senior unsecured -81- Table of Contents notes issued in October 2020, for which interest is paid annually, interest on our remaining senior unsecured note and bond obligations is paid semiannually. All of these notes and bonds contain various covenants, including: (i) a limitation on incurrence of any debt which would cause our debt to total adjusted assets ratio to exceed 60 %; (ii) a limitation on incurrence of any secured debt which would cause our secured debt to total adjusted assets ratio to exceed 40 %; (iii) a limitation on incurrence of any debt which would cause our debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of total unencumbered assets not less than 150 % of our outstanding unsecured debt. At December 31, 2020, we were in compliance with these covenants. B. Note Repayments In January 2020, we repaid our $ 250.0 million of outstanding 5.75 % notes, plus accrued and unpaid interest upon maturity. As a result of the early redemption, we recognized a $ 9.8 million loss on extinguishment of debt during the first quarter of 2020. 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. For further information, see note 19, Subsequent Events . C. Note Issuances During the three year period ended December 31, 2020 we issued the following notes and bonds (in millions): 2020 Issuances Date of Issuance Maturity date Principal amount issued Price of par value Effective yield to maturity 3.250 % notes (1) May 2020 January 2031 $ 600 98.99 % 3.36 % 3.250 % notes (1) July 2020 January 2031 $ 350 108.24 % 2.34 % 1.625 % notes October 2020 December 2030 £ 400 99.19 % 1.71 % 0.750 % notes December 2020 March 2026 $ 325 99.19 % 0.91 % 1.800 % notes December 2020 March 2033 $ 400 98.47 % 1.94 % 2019 Issuances 2.730 % notes May 2019 May 2034 £ 315 100.00 % 2.73 % 3.250 % notes June 2019 June 2029 $ 500 99.36 % 3.33 % 2018 Issuance 3.875 % notes April 2018 April 2025 $ 500 99.50 % 3.96 % (1) In July 2020, we issued $ 350.0 million of 3.250 % senior unsecured notes due January 2031 (the "2031 Notes"), which constituted a further issuance of, and formed a single series with, the $ 600.0 million of 2031 Notes issued in May 2020. 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 in 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. The gross proceeds from the May 2019 Sterling-denominated private placement of £ 315.0 million approximated $ 400.9 million, as converted at the applicable exchange rate on the closing of the offering, and were used to fund our initial investment in U.K. properties. -82- Table of Contents The net proceeds of $ 493.5 million from the June 2019 note offering and the net proceeds of approximately $ 494.4 million from the April 2018 note offering were used to repay borrowings outstanding under our credit facility, to fund investment opportunities, and for other general corporate purposes. 9. Issuances of Common Stock A. Issuance of Common Stock in an Overnight Offering 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 the exercise of their option to purchase to purchase additional shares. The net proceeds of $ 728.9 million were used to repay borrowings under our credit facility, to fund investment opportunities, and for other general corporate purposes. In May 2019, we issued 12,650,000 shares of common stock in an overnight underwritten public offering. The net proceeds of $ 845.4 million were used to repay borrowings under our credit facility, to fund investment opportunities, and for other general corporate purposes. We did no t issue any shares in an underwritten offering in 2018. In January 2021, we issued 12,075,000 shares of common stock in an underwritten public offering, including 1,575,000 shares purchased by the underwriters upon the 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. For further information, see note 19, Subsequent Events . B. At-the-Market (ATM) Program Under our "at-the-market" equity distribution plan, or our ATM program, up to 33,402,405 shares of common stock may be offered and sold (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers' transactions on the New York Stock Exchange ("NYSE: O") at prevailing market prices or at negotiated prices. At December 31, 2020, we had 15,678,031 shares remaining for future issuance under our ATM program. We anticipate maintaining the availability of our ATM program in the future, including the replenishment of authorized shares issuable thereunder. The following table outlines common stock issuances pursuant to our ATM program (dollars in millions): Year Ended December 31, 2020 2019 2018 Shares of common stock issued under the ATM program 17,724,374 17,051,456 19,138,610 Gross proceeds $ 1,094.9 $ 1,274.5 $ 1,125.4 C. Dividend Reinvestment and Stock Purchase Plan Our Dividend Reinvestment and Stock Purchase Plan, or our DRSPP, provides our common stockholders, as well as new investors, with a convenient and economical method of purchasing our common stock and reinvesting their distributions. Our DRSPP also allows our current stockholders to buy additional shares of common stock by reinvesting all or a portion of their distributions. Our DRSPP authorizes up to 26,000,000 common shares to be issued. 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, 2020 2019 2018 Shares of common stock issued under the DRSPP program 149,289 117,522 116,268 Gross proceeds $ 9.1 $ 8.4 $ 9.1 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 2020, 2019 or 2018. -83- Table of Contents 10. Noncontrolling Interests In January 2013, we completed our acquisition of American Realty Capital Trust, Inc. (ARCT). Equity issued as consideration for this transaction included common and preferred partnership units issued by Tau Operating Partnership, L.P., or Tau Operating Partnership, the consolidated subsidiary which owns properties acquired through the ARCT acquisition. At December 31, 2018, Tau Operating Partnership and Realty Income, L.P. were considered variable interest entities, or VIEs, in which we were deemed the primary beneficiary based on our controlling financial interests. In January 2019, we redeemed all 317,022 remaining Tau Operating Partnership common units held by nonaffiliates for $ 20.2 million and recorded the excess over carrying value of $ 6.9 million as a reduction to common stock and paid in capital. In conjunction with this redemption, we also paid off the outstanding balance and interest on the $ 70.0 million senior unsecured term loan entered in January 2013 in conjunction with our acquisition of ARCT. Following the redemption, our taxable REIT subsidiary, Crest Net Lease, obtained a 0.11 % interest in Tau Operating Partnership, and we hold 100 % of the ownership interests of Tau Operating Partnership, L.P. While we continue to consolidate the entity, it is no longer considered a VIE. In 2019 and 2018, we completed the acquisitions of portfolios of properties, both by paying cash and by issuing additional common partnership units in Realty Income, L.P. as consideration for the acquisitions. At December 31, 2020, the remaining units from this issuance represent a 1.9 % ownership in Realty Income, L.P. We hold the remaining 98.1 % interests in this entity and consolidate the entity. None of our common partnership units have voting rights. Common partnership units are entitled to monthly distributions equal to the amount paid to common stockholders of Realty Income, and are redeemable in cash or Realty Income common stock, at our option, and at a conversion ratio of one to one, subject to certain exceptions. These issuances with redemption provisions that permit the issuer to settle in either cash or common stock, at the option of the issuer, were evaluated to determine whether temporary or permanent equity classification on the balance sheet was appropriate. We determined that the units meet the requirements to qualify for presentation as permanent equity. In December 2020, we completed the acquisition of a development property by acquiring a controlling interest in a joint venture. We are the managing member of this joint venture, and possess the ability to control the business and manage the affairs of this entity. At December 31, 2020, we and our subsidiaries held an 75.8 % interest, and consolidated this entity in our consolidated financial statements. In December 2019, we completed the acquisition of nine properties by acquiring a controlling interest in a joint venture. We are the managing member of this joint venture, and possess the ability to control the business and manage the affairs of this entity. At December 31, 2020, we and our subsidiaries held an 89.9 % interest, and consolidated this entity in our consolidated financial statements. In 2016, we completed the acquisition of two properties by acquiring a controlling interest in two entities. In December 2018, we acquired all of the outstanding minority ownership interests associated with one of these entities. In July 2019, we acquired all of the outstanding minority interest associated with the remaining entity. -84- Table of Contents The following table represents the change in the carrying value of all noncontrolling interests through December 31, 2020 (dollars in thousands): Tau Operating Partnership units (1) Realty Income, L.P. units (2) Other Noncontrolling Interests Total Carrying value at December 31, 2018 $ 13,356 $ 17,912 $ 968 $ 32,236 Reallocation of equity — 653 — 653 Redemptions ( 13,356 ) — ( 901 ) ( 14,257 ) Additions to noncontrolling interest — 6,286 5,084 11,370 Distributions — ( 1,219 ) ( 77 ) ( 1,296 ) Allocation of net income — 964 32 996 Carrying value at December 31, 2019 $ — $ 24,596 $ 5,106 $ 29,702 Reallocation of equity — ( 47 ) — ( 47 ) Additions to noncontrolling interest — — 3,168 3,168 Distributions — ( 1,297 ) ( 299 ) ( 1,596 ) Allocation of net income — 848 172 1,020 Carrying value at December 31, 2020 $ — $ 24,100 $ 8,147 $ 32,247 (1) 317,022 Tau Operating Partnership units were issued on January 22, 2013. No units remained outstanding as of December 31, 2020 and 2019. (2) 242,007 units were issued on March 30, 2018, 131,790 units were issued on April 30, 2018 and 89,322 units were issued on March 28, 2019. 463,119 units remained outstanding as of December 31, 2020 and 2019. At December 31, 2020 and 2019, respectively, Realty Income, L.P. and the joint ventures acquired during 2020 and 2019 were considered variable interest entities, or VIEs, in which we were deemed the primary beneficiary based on our controlling financial interests. Below is a summary of selected financial data of consolidated VIEs included in the consolidated balance sheets at December 31, 2020 and 2019 (in thousands): December 31, 2020 December 31, 2019 Net real estate $ 635,963 $ 654,305 Total assets 723,668 744,394 Total liabilities 47,962 52,087 11. Distributions Paid and Payable We pay monthly distributions to our common stockholders. The following is a summary of monthly distributions paid per common share for 2020, 2019 and 2018: Month 2020 2019 2018 January $ 0.2275 $ 0.2210 $ 0.2125 February 0.2325 0.2255 0.2190 March 0.2325 0.2255 0.2190 April 0.2330 0.2260 0.2195 May 0.2330 0.2260 0.2195 June 0.2330 0.2260 0.2195 July 0.2335 0.2265 0.2200 August 0.2335 0.2265 0.2200 September 0.2335 0.2265 0.2200 October 0.2340 0.2270 0.2205 November 0.2340 0.2270 0.2205 December 0.2340 0.2270 0.2205 Total $ 2.7940 $ 2.7105 $ 2.6305 -85- Table of Contents The following presents the federal income tax characterization of distributions paid or deemed to be paid per common share for the years: 2020 2019 2018 Ordinary income $ 2.2798764 $ 2.1206964 $ 2.0269173 Nontaxable distributions 0.4902835 0.5898036 0.6035827 Total capital gain distribution 0.0238401 — — Totals $ 2.7940000 $ 2.7105000 $ 2.6305000 At December 31, 2020, a distribution of $ 0.2345 per common share was payable and was paid in January 2021. At December 31, 2019, a distribution of $ 0.2275 per common share was payable and was paid in January 2020. 12. Operating Leases A. At December 31, 2020, we owned 6,592 properties in 49 U.S. states, Puerto Rico and the U.K. Of the 6,592 properties, 6,555 , or 99.4 %, are single-client properties, and the remaining are multi-client properties. At December 31, 2020, 140 properties were available for lease or sale. Substantially all of our leases are net leases where our client pays or reimburses us for property taxes and assessments, maintains the interior and exterior of the building and leased premises, and carries insurance coverage for public liability, property damage, fire and extended coverage. Rent based on a percentage of our client's gross sales, or percentage rents, was $ 5.1 million for 2020, $ 8.0 million for 2019 and $ 5.9 million for 2018. At December 31, 2020, minimum future annual rents to be received on the operating leases for the next five years and thereafter are as follows (dollars in thousands): 2021 $ 1,684,817 2022 1,629,281 2023 1,543,909 2024 1,428,212 2025 1,343,730 Thereafter 8,371,347 Totals $ 16,001,296 B. Major Clients - No individual client's rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the years ended December 31, 2020, 2019 or 2018. 13. Gain on Sales of Real Estate The following table summarizes our properties sold during the periods indicated below (dollars in millions): Year Ended December 31, 2020 2019 2018 Number of properties 126 93 128 Net sales proceeds $ 262.5 $ 108.9 $ 142.3 Gain on sales of real estate $ 76.2 $ 30.0 $ 24.6 These property sales do not represent a strategic shift that will have a major effect on our operations and financial results, and therefore do not require presentation as discontinued operations. 14. Financial Instruments and Fair Value Measurements Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure for assets and liabilities measured at fair value requires allocation to a three-level valuation hierarchy. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. -86- Table of Contents We believe that the carrying values reflected in our consolidated balance sheets reasonably approximate the fair values for cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, line of credit payable and commercial paper borrowings, term loans and all other liabilities, due to their short-term nature or interest rates and terms that are consistent with market, except for our mortgages payable assumed in connection with acquisitions and our senior notes and bonds payable, which are disclosed as follows (dollars in millions): At December 31, 2020 Carrying value Estimated fair value Mortgages payable assumed in connection with acquisitions (1) $ 299.6 $ 309.4 Notes and bonds payable (2) 8,302.4 9,324.0 At December 31, 2019 Carrying value Estimated fair value Mortgages payable assumed in connection with acquisitions (1) $ 408.4 $ 417.7 Notes and bonds payable (2) 6,317.6 6,826.1 ( 1) Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums is $ 1.7 million at December 31, 2020, and $ 3.0 million at December 31, 2019. Also excludes deferred financing costs of $ 973,000 at December 31, 2020, and $ 1.3 million at December 31, 2019. (2) Excludes non-cash original issuance premiums and discounts recorded on notes payable. The unamortized balance of the net original issuance premiums was $ 14.6 million at December 31, 2020, and $ 6.3 million at December 31, 2019. Also excludes deferred financing costs of $ 49.2 million at December 31, 2020 and $ 35.9 million at December 31, 2019. The estimated fair values of our mortgages payable assumed in connection with acquisitions and private senior notes payable have been calculated by discounting the future cash flows using an interest rate based upon the relevant forward interest rate curve, plus an applicable credit-adjusted spread. Because this methodology includes unobservable inputs that reflect our own internal assumptions and calculations, the measurement of estimated fair values related to our mortgages payable is categorized as level three on the three-level valuation hierarchy. The estimated fair values of our publicly-traded senior notes and bonds payable are based upon indicative market prices and recent trading activity of our senior notes and bonds payable. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values related to our notes and bonds payable is categorized as level two on the three-level valuation hierarchy. The following table summarizes the terms and fair values of our derivative financial instruments at December 31, 2020 and 2019 (dollars in millions): Derivative Type Accounting Classification Hedge Designation Notional Amount Strike Effective Date Maturity Date Fair Value - asset (liability) December 31, December 31, December 31, December 31, 2020 2019 2020 2019 Interest rate swap (1) Derivative Cash flow $ — $ 7.0 6.03 % 09/25/2012 09/03/2021 $ — $ ( 0.2 ) Interest rate swap Derivative Cash flow — 250.0 1.72 % 06/30/2015 06/30/2020 — ( 0.1 ) Interest rate swap Derivative Cash flow 250.0 250.0 3.04 % 10/24/2018 03/24/2024 ( 22.6 ) ( 14.7 ) Cross-currency swap (2) Derivative Cash flow 41.6 41.6 (3) 05/20/2019 05/22/2034 ( 5.2 ) ( 2.6 ) Cross-currency swap (2) Derivative Cash flow 41.6 41.6 (4) 05/20/2019 05/22/2034 ( 5.1 ) ( 2.6 ) Cross-currency swap (2) Derivative Cash flow 41.6 41.6 (5) 05/20/2019 05/22/2034 ( 5.4 ) ( 2.9 ) Cross-currency swap (2) Derivative Cash flow 41.6 41.6 (6) 05/20/2019 05/22/2034 ( 5.7 ) ( 3.2 ) Currency exchange swap (2) Derivative N/A 625.0 — (7) 12/23/2020 01/29/2021 ( 8.2 ) — Forward-starting swap Derivative Cash flow 75.0 — 2.02 % (8) 06/30/2033 ( 5.0 ) — Forward-starting swap Derivative Cash flow 75.0 — 1.94 % (8) 11/30/2032 ( 5.2 ) — Forward-starting swap Derivative Cash flow 25.0 — 1.67 % (8) 11/30/2032 ( 1.1 ) — Forward-starting swap Derivative Cash flow 125.0 — 1.75 % (8) 06/30/2033 ( 5.2 ) — Forward-starting swap Hybrid debt Cash flow 125.0 — 1.88 % (8) 11/30/2032 ( 7.9 ) — Forward-starting swap Hybrid debt Cash flow 75.0 — 2.00 % (8) 06/30/2033 ( 4.9 ) — $ 1,541.4 $ 673.4 $ ( 81.5 ) $ ( 26.3 ) -87- Table of Contents (1) In connection with the early prepayment of a mortgage loan during the fourth quarter of 2020, the swap was terminated with a payment of $ 0.2 million and we recognized an associated loss on derivative of $ 0.2 million. (2) Represents British Pound Sterling, or GBP, United States Dollar, or USD, cross-currency swap. (3) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.800 %. (4) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.803 %. (5) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.745 %. (6) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.755 %. (7) The forward GBP-USD exchange rate is 1.35 . (8) The five treasury rate locks which were entered into during February 2020 were terminated in June 2020 and converted into six forward starting interest rate swaps through a cashless settlement of the terminated treasury rate locks. We measure our derivatives at fair value and include the balances within other assets and accounts payable and accrued expenses on our consolidated balance sheets. We have agreements with each of our derivative counterparties containing provisions under which we could be declared in default on our derivative obligations if repayment of our indebtedness is accelerated by the lender due to our default. We utilize interest rate swap agreements to manage interest rate risk and cross-currency swaps to manage foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, spot and forward rates, as well as option volatility. To comply with the provisions of ASC 820, Fair Value Measurement , we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although we have determined that the majority of the inputs used to value our derivatives fall within level two on the three-level valuation hierarchy, the credit valuation adjustments associated with our derivatives utilize level three inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by ourselves and our counterparties. However, at December 31, 2020 and 2019, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety are classified as level two on the three-level valuation hierarchy. Unrealized gains and losses in AOCI are reclassified to interest expense in the case of interest rate swaps and to foreign currency gains and losses, net in the case of cross-currency swaps, when the related hedged items are recognized. During 2020, we reclassified $ 11.4 million from AOCI as an increase to interest expense for our interest rate swaps and $ 3.6 million for 2020 in cross-currency swap losses into foreign currency and derivative gains, net. During 2019, we reclassified $ 3.4 million from AOCI as an increase to interest expense for our interest rate swaps and $ 5.5 million for 2019 in cross-currency swap losses into foreign currency and derivative gains, net. During 2018, there were no outstanding derivatives designated as hedges and accounted for through AOCI. As a result, there were no amounts to reclassify from AOCI during 2018. We expect to reclassify $ 10.3 million from AOCI as an increase to interest expense relating to interest rate swaps and $ 1.0 million from AOCI to foreign currency gain relating to cross-currency swaps within the next twelve months. 15. Supplemental Disclosures of Cash Flow Information Cash paid for interest was $ 285.6 million in 2020, $ 275.3 million in 2019, and $ 251.5 million in 2018. Cash paid for income taxes was $ 13.1 million in 2020, $ 4.2 million in 2019, and $ 4.7 million in 2018. The following non-cash activities are included in the accompanying consolidated financial statements: A. During 2020, the fair value of derivatives decreased by $ 55.2 million. B. Non-refundable deposits from 2019 of $ 13.8 million were applied to acquisitions during 2020. -88- Table of Contents C. As a result of the adoption of Accounting Standards Codifications Topic 842, Leases , on January 1, 2019, we recorded $ 132.0 million of lease liabilities and related right of use assets as lessee under operating leases. D. During 2019, we issued 89,322 common partnership units of Realty Income, L.P. totaling $ 6.3 million, as partial consideration for an acquisition of properties. E. During 2019, we recorded $ 5.1 million to noncontrolling interests in connection with the acquisition of a controlling interest in a consolidated joint venture. F. During 2019, we assumed mortgages payable to the third-party lenders of $ 130.8 million. G. During 2018, we issued 373,797 common partnership units of Realty Income, L.P. as partial consideration for an acquisition of properties, totaling $ 18.8 million. H. During 2018, we completed the acquisition of a property using $ 7.5 million in funds that were held in a non-refundable escrow account. Per the requirements of ASU 2016-18 (Topic 230, Statement of Cash Flows ) the following table provides a reconciliation of cash and cash equivalents reported within the consolidated balance sheets to the total of the cash, cash equivalents and restricted cash reported within the consolidated statements of cash flows (dollars in thousands): December 31, 2020 December 31, 2019 Cash and cash equivalents shown in the consolidated balance sheets $ 824,476 $ 54,011 Restricted escrow deposits (1) 21,220 4,529 Impounds related to mortgages payable (1) 4,983 12,465 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 850,679 $ 71,005 (1) Included within other assets, net on the consolidated balance sheets (see note 3). These amounts consist of cash that we are legally entitled to, but that is not immediately available to us. As a result, these amounts were considered restricted as of the dates presented. 16. Common Stock Incentive Plan In 2012, our Board of Directors adopted and stockholders approved the Realty Income Corporation 2012 Incentive Award Plan, or the 2012 Plan, to enable us to motivate, attract and retain the services of directors and employees considered essential to our long-term success. The 2012 Plan offers our directors and employees an opportunity to own our stock or rights that will reflect our growth, development and financial success. Under the terms of the 2012 plan, the aggregate number of shares of our common stock subject to options, restricted stock, stock appreciation rights, restricted stock units, performance shares and other awards, will be no more than 3,985,734 shares. The 2012 Plan has a term of ten years from the date it was adopted by our Board of Directors. The amount of share-based compensation costs recognized in general and administrative expense on our consolidated statements of income and comprehensive income was $ 16.5 million during 2020, $ 13.7 million during 2019 and $ 27.3 million during 2018. Upon the departure of our former CFO in March 2020, we incurred a severance charge of $ 3.5 million, consisting of $ 1.6 million of cash, $ 1.8 million of share-based compensation expense and $ 58,000 of professional fees. Upon the departure of our former CEO in October 2018, we incurred a severance charge of $ 28.3 million, consisting of $ 9.8 million of cash, $ 17.9 million of share-based compensation expense and $ 574,000 of professional fees. The incremental severance of $ 18.7 million consists of the $ 28.3 million total severance charge reduced by $ 9.6 million of compensation accrued prior to separation. The net amount of accelerated equity awards expensed in 2018 related to his departure was $ 11.8 million. -89- Table of Contents A. Restricted Stock The following table summarizes our common stock grant activity under our 2012 Plan. 2020 2019 2018 Number of shares Weighted average price (1) Number of shares Weighted average price (1) Number of shares Weighted average price (1) Outstanding nonvested shares, beginning of year 259,698 $ 58.39 307,821 $ 53.44 475,768 $ 52.32 Shares granted 103,473 $ 67.84 87,327 $ 69.83 183,952 $ 52.21 Shares vested ( 141,486 ) $ 56.94 ( 126,363 ) $ 54.45 ( 310,706 ) $ 51.05 Shares forfeited ( 2,203 ) $ 66.48 ( 9,087 ) $ 55.71 ( 41,193 ) $ 53.06 Outstanding nonvested shares, end of each period 219,482 $ 63.69 259,698 $ 58.39 307,821 $ 53.44 (1) Grant date fair value. The vesting schedule for shares granted to non-employee directors is as follows: • For directors with less than six years of service at the date of grant, shares vest in 33.33 % annual increments upon re-election to the Board at each of the three Annual Meetings of Stockholders following the grant date; • For directors with six years of service at the date of grant, shares vest in 50 % annual increments upon re-election to the Board at each of the two Annual Meetings of Stockholders following the grant date; • For directors with seven years of service at the date of grant, shares are 100 % vested upon re-election to the Board in the following year; and • For directors with eight or more years of service at the date of grant, there is immediate vesting as of the date the shares of stock are granted. During May 2020, we granted 36,000 shares of restricted stock to the independent members of our Board of Directors, in connection with our annual awards, of which 24,000 shares vested immediately, and 12,000 shares vest in equal parts over a three-year service period. Our restricted stock awards granted to employees typically vest annually in equal parts over a four-year service period. During 2020, 67,473 shares were granted to our employees, and vest over a four-year service period, with the exception of 4,541 shares granted to our former CFO, which vested upon his departure from the Company. As of December 31, 2020, the remaining unamortized share-based compensation expense related to restricted stock totaled $ 8.6 million, which is being amortized on a straight-line basis over the service period of each applicable award. The amount of share-based compensation is based on the fair value of the stock at the grant date. We define the grant date as the date the recipient and Realty Income have a mutual understanding of the key terms and conditions of the award, and the recipient of the grant begins to benefit from, or be adversely affected by, subsequent changes in the price of the shares. B. Performance Shares During 2020, 2019 and 2018, we granted performance share awards, as well as dividend equivalent rights, to our executive officers. The number of performance shares that vest for each of the three years is based on the achievement of the following performance goals: Weighting for year granted Performance Awards Metrics 2020 2019 2018 Total shareholder return (“TSR”) ranking relative to MSCI US REIT Index 70 % 45 % 45 % TSR ranking relative to J.P. Morgan Net Lease Peer Group N/A 26 % 26 % Dividend per share Growth Rate 15 % 16 % 16 % Debt-to-Adjusted EBITDA re Ratio N/A 13 % 13 % Net Debt-to-Adjusted EBITDA re Ratio 15 % N/A N/A The performance shares are earned based on our performance related to our metrics above, and vest 50 % on the first and second January 1 after the end of the three-year performance period, subject to continued service. The performance period for the 2018 performance awards began on January 1, 2018 and ended on December 31, 2020. -90- Table of Contents The performance period for the 2019 performance awards began on January 1, 2019 and will end on December 31, 2021. The performance period for the 2020 performance awards began on January 1, 2020 and will end on December 31, 2022. The fair value of the performance shares was estimated on the date of grant using a Monte Carlo Simulation model. The following table summarizes our performance share grant activity: 2020 2019 2018 Number of performance shares Weighted average price (1) Number of performance shares Weighted average price (1) Number of performance shares Weighted average price (1) Outstanding nonvested shares, beginning of year 304,663 $ 62.25 223,392 $ 58.78 245,309 $ 62.49 Shares granted 136,729 $ 79.98 128,581 $ 65.34 269,868 $ 51.98 Shares vested ( 139,012 ) $ 63.66 ( 47,310 ) $ 54.27 ( 291,785 ) $ 54.88 Shares forfeited ( 10,621 ) $ 66.64 — $ — — $ — Outstanding nonvested shares, end of each period 291,759 $ 69.73 304,663 $ 62.25 223,392 $ 58.78 (1) Grant date fair value. As of December 31, 2020, the remaining share-based compensation expense related to the performance shares totaled $ 8.9 million and is being recognized on a tranche-by-tranche basis over the service period. C. Restricted Stock Units During 2020, 2019 and 2018 we also granted restricted stock units that primarily vest over a four-year service period and have the same economic rights as shares of restricted stock: 2020 2019 2018 Number of restricted stock units Weighted average price (1) Number of restricted stock units Weighted average price (1) Number of restricted stock units Weighted average price (1) Outstanding nonvested shares, beginning of year 15,511 $ 59.82 14,968 $ 54.62 24,869 $ 55.97 Shares granted 9,966 $ 78.79 5,482 $ 69.58 8,383 $ 49.96 Shares vested ( 6,807 ) $ 58.63 ( 4,939 ) $ 54.90 ( 10,118 ) $ 55.01 Shares forfeited — $ — — $ — ( 8,166 ) $ 53.45 Outstanding nonvested shares, end of each period 18,670 $ 70.38 15,511 $ 59.82 14,968 $ 54.62 (1) Grant date fair value. The amount of share-based compensation for the restricted stock units is based on the fair value of our common stock at the grant date. The expense amortization period is the lesser of the four-year service period or the period over which the awardee reaches the qualifying retirement age. For employees who have already met the qualifying retirement age, restricted stock units are fully expensed at the grant date. As of December 31, 2020, the remaining share-based compensation expense related to the restricted stock units totaled $ 399,000 and is being recognized on a straight-line basis over the service period. 17. Segment Information We evaluate performance and make resource allocation decisions on an industry by industry basis. For financial reporting purposes, we have grouped our clients into 51 activity segments. All of the properties are incorporated into one of the applicable segments. Unless otherwise specified, all segments listed below are located within the U.S. Because substantially all of our leases require our clients to pay or reimburse us for operating expenses, rental revenue is the only component of segment profit and loss we measure. Our investments in industries outside of the U.S. are managed as separate operating segments. -91- Table of Contents The following tables set forth certain information regarding the properties owned by us, classified according to the business of our respective clients (dollars in thousands): Assets, as of December 31: 2020 2019 Segment net real estate: Automotive service $ 328,340 $ 288,453 Beverages 347,366 279,373 Child care 216,718 208,326 Convenience stores 2,101,005 2,057,157 Dollar stores 1,420,210 1,427,950 Drug stores 1,555,106 1,618,854 Financial services 374,508 389,634 General merchandise 730,806 475,418 Grocery stores - U.S. 907,634 922,349 Grocery stores - U.K. 1,131,760 663,210 Health and fitness 1,050,791 1,019,796 Home improvement - U.S. 608,222 495,305 Restaurants-casual dining 515,226 576,526 Restaurants-quick service 1,062,918 1,059,155 Theaters - U.S. 767,117 878,103 Transportation services 729,640 769,614 Wholesale club 407,584 396,690 Other non-reportable segments 3,230,205 2,970,859 Total segment net real estate 17,485,156 16,496,772 Intangible assets: Automotive service 55,018 58,854 Beverages 9,401 1,509 Child care 19,848 21,997 Convenience stores 121,151 131,808 Dollar stores 77,176 82,701 Drug stores 167,975 183,319 Financial services 14,611 17,130 General merchandise 108,646 66,135 Grocery stores - U.S. 181,764 180,197 Grocery stores - U.K. 282,211 153,407 Health and fitness 67,537 74,428 Home improvement - U.S. 97,228 72,979 Restaurants-casual dining 20,553 23,289 Restaurants-quick service 47,517 52,353 Theaters - U.S. 28,292 36,089 Transportation services 53,902 66,055 Wholesale club 36,165 23,372 Other non-reportable segments 321,660 247,761 Other corporate assets 1,544,474 564,641 Total assets $ 20,740,285 $ 18,554,796 -92- Table of Contents Revenue for the years ended December 31, 2020 2019 2018 Segment rental revenue: Automotive service $ 35,090 $ 32,365 $ 28,303 Beverages 32,771 31,807 31,488 Child care 35,643 31,749 21,865 Convenience stores 189,658 166,755 142,194 Dollar stores 126,719 102,695 94,782 Drug stores 140,993 127,853 129,565 Financial services 30,531 30,189 29,429 General merchandise 49,352 35,366 29,249 Grocery stores - U.S. 78,106 69,691 63,594 Grocery stores - U.K. 51,459 17,819 — Health and fitness 104,744 105,896 94,638 Home improvement - U.S. 46,392 42,351 37,939 Restaurants-casual dining 46,265 45,238 46,171 Restaurants-quick service 88,163 92,018 72,465 Theaters - U.S. 78,653 87,698 70,560 Transportation services 64,131 66,500 63,565 Wholesale club 38,713 38,117 37,571 Other non-reportable segments and contractually obligated reimbursements by our clients 402,150 360,711 328,168 Rental (including reimbursable) 1,639,533 1,484,818 1,321,546 Other 12,092 6,773 6,292 Total revenue $ 1,651,625 $ 1,491,591 $ 1,327,838 18. Commitments and Contingencies In the ordinary course of business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated financial position or results of operations. At December 31, 2020, we had commitments of $ 6.8 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements. In addition, as of December 31, 2020, we had committed $ 100.0 million under construction contracts, which is expected to be paid in the next twelve months. We have certain properties that are subject to ground leases, which are accounted for as operating leases. -93- Table of Contents At December 31, 2020, minimum future rental payments for the next five years and thereafter are as follows (dollars in millions): Ground Leases Paid by Realty Income (1) Ground Leases Paid by Our Clients (2) Total 2021 $ 1.6 $ 13.7 $ 15.3 2022 1.6 13.6 15.2 2023 1.6 13.7 15.3 2024 1.6 13.8 15.4 2025 1.4 13.5 14.9 Thereafter 18.8 55.9 74.7 Total $ 26.6 $ 124.2 $ 150.8 Present value adjustment for remaining lease payments (3) ( 36.2 ) Lease liability - operating leases, net $ 114.6 (1) Realty Income currently pays the ground lessors directly for the rent under the ground leases. (2) Our clients, who are generally sub-tenants under the ground leases, are responsible for paying the rent under these ground leases. In the event a client fails to pay the ground lease rent, we are primarily responsible. (3 ) The range of discount rates used to calculate the present value of the lease payments is 2.42 % to 5.50 %. At December 31, 2020, the weighted average discount rate is 4.29 % and the weighted average remaining lease term is 11.5 years. The discount rates are derived using a hypothetical corporate credit curve for the ground leases based on our outstanding senior notes and relevant market data. The discount rates are specific for individual leases primarily based on the lease term. 19. Subsequent Events • In January and February 2021, we declared a dividend of $ 0.2345 , which will be paid in February 2021 and March 2021, respectively. • In January 2021, we completed the early redemption of our outstanding 3.250 % notes due October 2022, for a redemption price of approximately $ 1.004 billion, consisting of the principal of $ 950.0 million, call premium of $ 47.2 million and accrued and unpaid interest of $ 7.1 million. • In January 2021, we raised $ 669.6 million from the issuance of 12,075,000 shares of common stock in an underwritten public offering, which included the underwriters' options to purchase 1,575,000 additional shares. -94- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED QUARTERLY FINANCIAL DATA (dollars in thousands, except per share data) (unaudited) (not covered by Report of Independent Registered Public Accounting Firm) First Quarter Second Quarter Third Quarter Fourth Quarter Year 2020 Total revenue (1) $ 414,341 $ 414,636 $ 404,572 $ 418,076 $ 1,651,625 Depreciation and amortization expense 164,585 168,328 169,084 175,041 677,038 Interest expense 75,925 77,841 76,806 78,764 309,336 Other expenses (2) 53,811 62,222 151,611 72,099 339,743 Net income 147,143 108,070 23,143 118,150 396,506 Net income available to common stockholders 146,827 107,824 22,904 117,931 395,486 Net income per common share Basic 0.44 0.31 0.07 0.33 1.15 Diluted 0.44 0.31 0.07 0.33 1.14 Dividends paid per common share 0.6925 0.6990 0.7005 0.7020 2.7940 2019 Total revenue $ 354,365 $ 365,450 $ 374,247 $ 397,529 $ 1,491,591 Depreciation and amortization expense 137,517 150,426 149,424 156,594 593,961 Interest expense 70,020 72,488 73,410 75,073 290,991 Other expenses (2) 42,861 54,143 52,139 52,269 201,412 Net income 111,230 95,420 101,275 129,553 437,478 Net income available to common stockholders 110,942 95,194 101,049 129,297 436,482 Net income per common share Basic and diluted 0.37 0.31 0.32 0.39 1.38 Dividends paid per common share 0.6720 0.6780 0.6795 0.6810 2.7105 (1) Total revenue for the second half of 2020 was negatively impacted by rent reserves recorded as reductions of rental revenue. (2) Other expenses can vary among quarters, primarily due to provisions for impairment, gains on sales of real estate, and foreign currency gains and losses. Item 9: Changes In and Disagreements With Accountants on Accounting and Financial Disclosure We have had no disagreements with our independent registered public accounting firm on accounting matters or financial disclosure, nor have we changed accountants in the two most recent fiscal years.