What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2020-11-03 · 246 added, 342 removed, 597 unchanged (50% of the section changed)

3 unchanged sentences

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

ASSETS (unaudited)

7 unchanged sentences

Cash and cash equivalents 183,984 824,476

Accounts receivable 261,752 181,969

Accounts receivable, net 307,017 285,701

Lease intangible assets, net 1,820,146 1,710,655

7 unchanged sentences

Line of credit payable and commercial paper 675,000 —

Term loans, net 249,308 499,044

Term loan, net 249,407 249,358

Mortgages payable, net 282,037 300,360

3 unchanged sentences

Stockholders’ equity:

Common stock and paid in capital, par value $ 0.01 per share, 740,200,000 shares authorized, 350,595,869 and 333,619,106 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

Common stock and paid in capital, par value $ 0.01 per share, 740,200,000 shares authorized, 373,509,822 and 361,303,445 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

15,371,016 14,700,050

10 unchanged sentences

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

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Rental (including reimbursable) $ 439,365 $ 412,157

9 unchanged sentences

Gain on sales of real estate 8,401 38,506

Foreign currency and derivative gains, net 2,336 327 1,274 463

Foreign currency and derivative gains (losses), net 804 ( 1,564 )

Loss on extinguishment of debt ( 46,473 ) ( 9,819 )

3 unchanged sentences

Amounts available to common stockholders per common share:

Basic $ 0.07 $ 0.32 $ 0.81 $ 0.99

Diluted $ 0.07 $ 0.32 $ 0.81 $ 0.98

Basic and diluted $ 0.26 $ 0.44

Weighted average common shares outstanding:

10 unchanged sentences

(dollars in thousands) (unaudited)

Three Months Ended September 30, 2020 and 2019

capital Distributions

net income Accumulated

comprehensive

stockholders’

equity Noncontrolling

interests Total

Balance, June 30, 2020

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

Net Income — — 22,904 — 22,904 239 23,143

Other comprehensive income — — — 638 638 — 638

Distributions paid and payable — — ( 243,837 ) — ( 243,837 ) ( 401 ) ( 244,238 )

Share issuances, net of costs 5,571,223 343,335 — — 343,335 — 343,335

Reallocation of equity — 47 — — 47 ( 47 ) —

Share-based compensation, net

1,225 2,991 — — 2,991 — 2,991

Balance, September 30, 2020

350,595,869 $ 14,050,494 $ ( 3,527,521 ) $ ( 52,446 ) $ 10,470,527 $ 29,261 $ 10,499,788

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

Net income — — 101,049 — 101,049 226 101,275

Other comprehensive income — — — 998 998 — 998

Distributions paid and payable — — ( 218,232 ) — ( 218,232 ) ( 392 ) ( 218,624 )

Share issuances, net of costs 7,693,184 569,617 — — 569,617 — 569,617

Redemption of common units — 3 — — 3 ( 901 ) ( 898 )

Reallocation of equity — ( 653 ) — — ( 653 ) 653 —

Share-based compensation, net ( 1,616 ) 3,135 — — 3,135 — 3,135

Balance, September 30, 2019

325,910,281 $ 12,294,138 $ ( 2,987,120 ) $ ( 13,599 ) $ 9,293,419 $ 24,678 $ 9,318,097

Nine Months Ended September 30, 2020 and 2019

Three Months Ended March 31, 2021 and 2020

capital Distributions

5 unchanged sentences

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 — — 146,827 — 146,827 316 147,143

2 unchanged sentences

Share issuances, net of costs 9,724,500 730,776 — — 730,776 — 730,776

Reallocation of equity — 47 — — 47 ( 47 ) —

Share-based compensation, net

58,424 ( 570 ) — — ( 570 ) — ( 570 )

Balance, September 30, 2020

Balance, March 31, 2020

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

Balance, December 31, 2020

361,303,445 $ 14,700,050 $ ( 3,659,933 ) $ ( 54,634 ) $ 10,985,483 $ 32,247 $ 11,017,730

Net income — — 95,940 — 95,940 296 96,236

Other comprehensive loss — — — ( 5,501 ) ( 5,501 ) — ( 5,501 )

Other comprehensive income — — — 46,150 46,150 — 46,150

Distributions paid and payable — — ( 263,667 ) — ( 263,667 ) ( 402 ) ( 264,069 )

Share issuances, net of costs 12,118,394 672,221 — — 672,221 — 672,221

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

Redemption of common units — ( 6,866 ) — — ( 6,866 ) ( 14,257 ) ( 21,123 )

Reallocation of equity — ( 653 ) — — ( 653 ) 653 —

Share-based compensation, net 87,983 ( 1,255 ) — — ( 1,255 ) — ( 1,255 )

Balance, September 30, 2019

Balance, March 31, 2021

373,509,822 $ 15,371,016 $ ( 3,827,660 ) $ ( 8,484 ) $ 11,534,872 $ 32,141 $ 11,567,013

3 unchanged sentences

(dollars in thousands) (unaudited)

Nine months ended September 30,

Three months ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

4 unchanged sentences

Amortization of share-based compensation

13,420 10,478

Non-cash revenue adjustments

5 unchanged sentences

Loss on interest rate swaps

Foreign currency and derivative gains, net ( 1,274 ) ( 463 )

Foreign currency and derivative (gains) losses, net ( 804 ) 1,564

Gain on sales of real estate

1 unchanged sentence

Provisions for impairment on real estate

123,442 31,236

Change in assets and liabilities

21 unchanged sentences

Payments on line of credit and commercial paper program ( 735,489 ) ( 921,859 )

Principal payment on term loan

( 250,000 ) ( 70,000 )

Proceeds from notes and bonds payable issued 972,766 895,774

Principal payment on notes payable

3 unchanged sentences

Payments upon extinguishment of debt

( 47,235 ) ( 9,445 )

Proceeds from common stock offerings, net

1 unchanged sentence

Proceeds from dividend reinvestment and stock purchase plan

Proceeds from At-the-Market (ATM) program, net 442,157 689,641

Redemption of common units

Distributions to noncontrolling interests

1 unchanged sentence

Net receipts on derivative settlements

Debt issuance costs ( 8,870 ) ( 7,996 )

Other items, including shares withheld upon vesting

3 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

1,265 ( 607 )

Net increase in cash, cash equivalents and restricted cash

668,006 238,218

Net (decrease) increase in cash, cash equivalents and restricted cash ( 657,349 ) 66,152

Cash, cash equivalents and restricted cash, beginning of period

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

March 31, 2021

Basis of Presentation

2 unchanged sentences

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

At September 30, 2020 we owned 6,588 properties, located in 49 U.S.

At March 31, 2021 we owned 6,662 properties, located in all U.S.

states, Puerto Rico and the United Kingdom (U.K.), consisting of approximately 114.2 million leasable square feet.

Summary of Significant Accounting Policies and Procedures

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.

2 unchanged sentences

We have no unconsolidated investments.

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.

5 unchanged sentences

income taxes.

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 tenants operate.

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

As a result, we have evaluated certain key assumptions involving fair value estimates of our real estate and collectability of our accounts receivable (see note 14 for our discussion of impairments).

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

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

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

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 and existing operating lease receivables must be written off as an adjustment to rental revenue.

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

Lease Revenue Recognition and Accounts Receivable.

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 as the duration and severity 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.

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, Leases .

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 probable.

The majority of concessions granted to our clients during 2020 and the three months ended March 31, 2021 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 the first nine months of 2020 increased significantly from original lease terms, which required us to account for these as lease modifications, and resulted in an insignificant impact to rental revenue for the three and nine months ended September 30, 2020.

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

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

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

In accordance with the guidance provided by the Financial Accounting Standards Board (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 increased significantly from original lease terms, which required us to account for these as lease modifications, and resulted in an insignificant impact to rental revenue for the three months ended March 31, 2021.

Similarly, rent abatements granted, which are also accounted for as lease modifications, impacted our rental revenue by an insignificant amount for the three

months ended March 31, 2021.

As our rent collections were unaffected by the COVID-19 pandemic for the three months ended March 31, 2020, there was no impact for that period.

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):

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Rental revenue reserves $ 8.3 $ 1.1

1 unchanged sentence

Total rental revenue reserves $ 8.8 $ 1.8

As of September 30, 2020, other than the information related to the reserves recorded to date, we do not have any further tenant specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable.

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

We also evaluated certain properties impacted by the COVID-19 pandemic for impairment (see note 14).

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

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

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.

As of March 31, 2021, 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.

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, 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.

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

Accounts Receivable consist of the following at:

September 30, 2020 December 31, 2019

Straight-line rent receivables $ 167,470 $ 147,047

Other receivables 94,282 34,922

Accounts Receivable, net, consist of the following at:

March 31, 2021 December 31, 2020

Straight-line rent receivables, net $ 184,743 $ 174,074

Client receivables, net 122,274 111,627

$ 307,017 $ 285,701

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

In-place leases

8 unchanged sentences

Other assets, net, consist of the following at:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Financing receivables $ 148,258 $ 131,291

Right of use asset - financing leases 117,063 118,585

Right of use asset - operating leases, net 109,341 112,049

Financing receivables 98,896 81,892

Derivative assets and receivables - at fair value 33,750 10

Goodwill 14,282 14,430

Prepaid expenses 18,100 11,795

Goodwill 14,114 14,180

Corporate assets, net 8,314 8,598

Restricted escrow deposits 7,776 21,220

Credit facility origination costs, net 6,849 7,705

Corporate assets, net 7,485 5,251

Impounds related to mortgages payable 5,429 12,465

Non-refundable escrow deposits 2,623 1,000

Impounds related to mortgages payable 1,570 4,983

Value-added tax receivable 220 1,130

1 unchanged sentence

$ 470,237 $ 434,297

Distributions payable consist of the following declared distributions at:

September 30, 2020 December 31, 2019

Common stock distributions

$ 82,872 $ 76,622

Noncontrolling interests distributions

$ 82,980 $ 76,728

Accounts payable and accrued expenses consist of the following at:

September 30, 2020 December 31, 2019

Notes payable - interest payable $ 69,383 $ 75,114

March 31, 2021 December 31, 2020

Derivative liabilities and payables - at fair value $ 67,131 $ 73,356

Notes payable - interest payable 58,467 83,219

Property taxes payable 20,054 23,413

Value-added tax payable 5,739 13,434

Accrued income taxes 5,550 4,450

Accrued costs on properties under development 13,151 12,685

Accrued income taxes 7,122 5,182

Value-added tax payable 5,514 8,077

Mortgages, term loans, credit line - interest payable and interest rate swaps 1,027 1,044

2 unchanged sentences

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Below-market leases

4 unchanged sentences

Other liabilities consist of the following at:

September 30, 2020 December 31, 2019

Lease liability - operating leases, net $ 117,148 $ 122,285

March 31, 2021 December 31, 2020

Rent received in advance and other deferred revenue $ 153,183 $ 130,231

Lease liability - operating leases, net 111,953 114,559

Lease liability - financing leases 6,333 6,256

2 unchanged sentences

Investments in Real Estate

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

Acquisitions During the First Nine Months of 2020 and 2019

Below is a summary of our acquisitions for the nine months ended September 30, 2020:

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

Acquisitions During the Three Months ended March 31, 2021 and 2020

Below is a summary of our acquisitions for the three months ended March 31, 2021:

Properties Leasable

(in millions) Investment

($ in millions) Weighted

Square Feet Investment

($ in thousands) Weighted

(Years) Initial

Nine months ended September 30, 2020 (1)

Three months ended March 31, 2021 (1)

Acquisitions - U.S.

7 unchanged sentences

110 4,828,738 $ 1,027,802 12.6 5.3 %

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

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

(2) Represents investments of £ 356.7 million Sterling during the nine months ended September 30, 2020, converted at the applicable exchange rate on the date of acquisition.

(3) The tenants occupying the new properties operate in 23 industries, and are 96.9 % retail and 3.1 % industrial, based on rental revenue.

Approximately 56 % of the rental revenue generated from acquisitions during the first nine months of 2020 is from investment grade rated tenants, their subsidiaries or affiliated companies.

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

(1) None of our investments during the three months ended March 31, 2021 caused any one client to be 10% or more of our total assets at March 31, 2021.

All of our investments in acquired properties during the three months ended March 31, 2021 are 100 % leased at the acquisition date.

(2) Represents investments of £ 290.2 million Sterling during the three months ended March 31, 2021, converted at the applicable exchange rate on the date of acquisition.

(3) Our clients occupying the new properties operate in 23 industries, and are 65.1 % retail and 34.9 % industrial, based on rental revenue.

Approximately 39 % of the rental revenue generated from acquisitions during the three months ended March 31, 2021 is from investment grade rated clients, their subsidiaries or affiliated companies.

The acquisitions during the three months ended March 31, 2021, which had no associated contingent consideration, were allocated as follows (amounts in millions):

Acquisitions - U.S.

Acquisitions - U.K.

Nine months ended September 30, 2020

Three months ended March 31, 2021

(USD) (£ Sterling)

4 unchanged sentences

Lease intangible liabilities (4)

( 1.7 ) ( 0.9 )

Other liabilities (5)

$ 592.0 £ 290.2

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

land includes £ 570,000 of right of use assets under long-term ground leases.

(2) The weighted average amortization period for acquired lease intangible assets is 16.4 years.

other assets consists of $ 18.8 million financing receivables with above-market terms and $ 689,000 of right of use assets under ground leases.

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

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

(4) The weighted average amortization period for acquired lease intangible liabilities is 11.8 years.

other liabilities consists entirely of lease liabilities under ground leases.

The properties acquired during the first nine months of 2020 generated total revenues of $ 27.5 million and net income of $ 9.4 million during the nine months ended September 30, 2020.

Below is a summary of our acquisitions for the nine months ended September 30, 2019:

Properties Square Feet

(in millions) Investment

($ in millions) Weighted

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

The properties acquired during the three months ended March 31, 2021 generated total revenues of $ 5.1 million and net income of $ 2.0 million during the three months ended March 31, 2021.

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

Properties Leasable Square Feet Investment

($ in thousands) Weighted

(Years) Initial

Nine months ended September 30, 2019 (1)

Three months ended March 31, 2020 (1)

Acquisitions - U.S.

7 unchanged sentences

65 1,990,915 $ 486,015 14.1 6.0 %

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

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

(2) Represents investments of £ 456.1 million Sterling during the nine months ended September 30, 2019, converted at the applicable exchange rate on the date of the acquisition.

(3) The tenants occupying the new properties operated in 19 industries, and are 89.6 % retail and 10.4 % industrial, based on rental revenue.

Approximately 25 % of the rental revenue generated from acquisitions during the first nine months of 2019 was from investment grade rated tenants, their subsidiaries or affiliated companies.

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

(1) None of our investments during the three months ended March 31, 2020 caused any one client to be 10% or more of our total assets at March 31, 2020.

All of our investments in acquired properties during the three months ended March 31, 2020 were 100 % leased at the acquisition date.

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

(3) Our clients occupying the new properties operated in 17 industries, and are 95.4 % retail and 4.6 % industrial, based on rental revenue.

Approximately 36 % of the rental revenue generated from acquisitions during the three months ended March 31, 2020 was from investment grade rated clients, their subsidiaries or affiliated companies.

The acquisitions during the three months ended March 31, 2020, which had no associated contingent consideration, were allocated as follows (amounts in millions):

Acquisitions - U.S.

Acquisitions - U.K.

Nine months ended September 30, 2019

Three months ended March 31, 2020

(USD) (£ Sterling)

4 unchanged sentences

Lease intangible liabilities (4)

( 28.6 ) ( 3.4 )

Other liabilities (5)

2 unchanged sentences

(2) The weighted average amortization period for acquired lease intangible assets is 12.4 years.

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

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

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

(4) The weighted average amortization period for acquired lease intangible liabilities is 14.8 years.

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

The properties acquired during the first nine months of 2019 generated total revenues of $ 47.1 million and net income of $ 21.9 million during the nine months ended September 30, 2019.

other liabilities consists entirely of lease liabilities under ground leases.

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

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

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

Since it is possible that 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.

2 unchanged sentences

Investments in Existing Properties

During the first nine months of 2020, we capitalized costs of $ 5.1 million on existing properties in our portfolio, consisting of $ 1.0 million for re-leasing costs, $ 126,000 for recurring capital expenditures, and $ 4.0 million for non-recurring building improvements.

In comparison, during the first nine months of 2019, we capitalized costs of $ 11.0 million on existing properties in our portfolio, consisting of $ 1.9 million for re-leasing costs, $ 577,000 for recurring capital expenditures, and $ 8.5 million for non-recurring building improvements.

During the three months ended March 31, 2021, we capitalized costs of $ 1.5 million on existing properties in our portfolio, consisting of $ 706,000 for re-leasing costs, $ 23,000 for recurring capital expenditures, and $ 769,000 for non-recurring building improvements.

In comparison, during the three months ended March 31, 2020, we capitalized costs of $ 2.1 million on existing properties in our portfolio, consisting of $ 138,000 for re-leasing costs, and $ 2.0 million for non-recurring building improvements.

Properties with Existing Leases

Of the $ 1.3 billion we invested during the first nine months of 2020, approximately $ 1.0 billion was used to acquire 96 properties with existing leases.

In comparison, of the $ 2.0 billion we invested during the first nine months of 2019, approximately $ 1.23 billion was used to acquire 100 properties with existing leases.

Of the $ 1.0 billion we invested during the three months ended March 31, 2021, approximately $ 856.8 million was used to acquire 68 properties with existing leases.

In comparison, of the $ 486.0 million we invested during the three months ended March 31, 2020, approximately $ 363.0 million was used to acquire 39 properties with existing leases.

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

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

The amounts amortized to expense for all of our in-place leases, for the first nine months of 2020 and 2019 were $ 99.7 million and $ 84.5 million, respectively.

The amounts amortized to expense for all of our in-place leases, for the three months ended March 31, 2021 and 2020 were $ 35.8 million and $ 32.6 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 the first nine months of 2020 and 2019 were $ 20.4 million and $ 14.3 million, respectively.

The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for the three months ended March 31, 2021 and 2020 were $ 12.4 million and $ 8.2 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 September 30, 2020 (dollars in thousands):

rental revenue

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Totals $ ( 355,688 ) $ 1,150,551

Credit Facility and Commercial Paper Program

Revolving Credit Facility and Commercial Paper Program

Credit Facility

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

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

Under our credit facility, our investment grade credit ratings as of March 31, 2021 provide for financing at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 0.775 % with a facility commitment fee of 0.125 %, for all-in drawn pricing of 0.90 % over LIBOR.

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

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

At September 30, 2020, credit facility origination costs of $ 8.6 million are included in other assets, net, as compared to $ 11.5 million at December 31, 2019, on our consolidated balance sheet.

At March 31, 2021, credit facility origination costs of $ 6.8 million are included in other assets, net, as compared to $ 7.7 million at December 31, 2020, on our consolidated balance sheet.

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

At September 30, 2020, we had a borrowing capacity of $ 2.4 billion available on our revolving credit facility (subject to customary conditions to borrowing) and an outstanding balance of $ 556.1 million, consisting entirely of £ 430.5 million Sterling, as compared to an outstanding balance of $ 704.3 million, including £ 169.2 million Sterling, at December 31, 2019.

The weighted average interest rate on outstanding borrowings under our revolving credit facility was 1.5 % during the first nine months of 2020 and 3.2 % during the first nine months of 2019.

At September 30, 2020 and December 31, 2019, the weighted average interest rate on borrowings outstanding under our revolving credit facility was 0.8 % and 2.2 %, respectively.

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

At March 31, 2021 and 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.

The weighted average interest rate on outstanding borrowings under our revolving credit facility was 0.8 % during the three months ended March 31, 2021 and 2.1 % during the three months ended March 31, 2020.

Our revolving credit facility is subject to various leverage and interest coverage ratio limitations, and at March 31, 2021, we were in compliance with the covenants on our revolving credit facility.

Commercial Paper Program

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Proceeds from commercial paper borrowings will be used for general corporate purposes.

As of September 30, 2020, the balance of borrowings outstanding under our commercial paper program was $ 300.0 million.

The weighted average interest rate on outstanding borrowings under our commercial paper program was 0.3 % from inception of the program through September 30, 2020.

At September 30, 2020, the weighted average interest rate on borrowings outstanding under our commercial paper program was 0.2 %.

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

As of March 31, 2021, the balance of borrowings outstanding under our commercial paper program was $ 675.0 million, as compared to no outstanding commercial paper borrowings at December 31, 2020.

The weighted average interest rate on outstanding borrowings under our commercial paper program for the three months ended March 31, 2021 was 0.3 %.

As of March 31, 2021, the weighted average interest rate on borrowings outstanding under our commercial paper program was 0.2 %.

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.

The commercial paper borrowings outstanding at March 31, 2021 totaled $ 675.0 million

and mature as follows;

$ 50.0 million on April 9, 2021 , $ 240.0 million on April 23, 2021 and $ 385.0 million on May 12, 2021 .

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

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

In June 2015, in conjunction with entering into our previous revolving credit facility, we entered into a $ 250.0 million senior unsecured term loan 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 September 30, 2020 of $ 692,000 relates to the $ 250.0 million term loan maturing March 2024.

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

At March 31, 2021, deferred financing costs of $ 593,000 are included net of the term loan principal balance, as compared to $ 642,000 at December 31, 2020, on our consolidated balance sheet.

These costs are being amortized over the remaining term of the term loan .

Mortgages Payable

During the first nine months of 2020, we made $ 73.7 million in principal payments, including the repayment of five mortgages in full for $ 69.2 million.

During the first nine months of 2019, we made $ 19.5 million in principal payments, including the repayment of one mortgage in full for $ 15.8 million.

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

During the three months ended March 31, 2021, we made $ 18.1 million in principal payments, including the repayment of three mortgages in full for $ 17.2 million.

During the three months ended March 31, 2020, we made $ 1.7 million in principal payments.

No mortgages were assumed during the three months ended March 31, 2021 or 2020.

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 September 30, 2020, we were in compliance with these covenants.

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

At March 31, 2021, we were in compliance with these covenants.

The balance of our deferred financing costs, which are classified as part of mortgages payable, net, on our consolidated balance sheets, was $ 907,000 at March 31, 2021 and $ 973,000 at December 31, 2020.

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

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

The following table summarizes our mortgages payable as of March 31, 2021 and December 31, 2020, respectively (dollars in thousands):

Properties (1)

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12/31/2020 68 4.9 % 4.6 % 2.9 $ 299,631 $ 729 $ 300,360

(1) At September 30, 2020, there were 22 mortgages on 72 properties.

(1) At March 31, 2021, there were 15 mortgages on 64 properties.

At December 31, 2020, there were 18 mortgages on 68 properties.

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

The mortgages were at fixed interest rates, except for one variable rate mortgage on one property, which has been swapped to a fixed interest rate, with a principal balance at September 30, 2020 and December 31, 2019 of $ 6.9 million and $ 7.1 million, respectively.

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

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

The following table summarizes the maturity of mortgages payable, excluding net premiums of $ 1.9 million and deferred financing costs of $ 1.1 million, as of September 30, 2020 (dollars in millions):

At March 31, 2021 and December 31, 2020, all mortgages were at fixed interest rates.

(2) Stated interest rates ranged from 3.8 % to 6.9 % at each of March 31, 2021 and December 31, 2020.

(3) Effective interest rates ranged from 4.0 % to 5.5 % at each of March 31, 2021 and December 31, 2020.

The following table summarizes the maturity of mortgages payable, excluding net premiums of $ 1.4 million and deferred financing costs of $ 907,000 , as of March 31, 2021 (dollars in millions):

Year of Maturity

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

September 30, 2020 December 31, 2019

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

March 31, 2021 December 31, 2020

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

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

0.750 % notes, issued December 2020 and due in March 2026

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

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

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

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

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

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

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$ 7,326 $ 8,268

(1) In January 2021, we completed the early redemption of all $ 950.0 million in principal amount.

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

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

In October 2020, we issued £ 400 million of 1.625 % senior unsecured notes.

See note 21, Subsequent Events.

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

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 rates on March 31, 2021, and December 31, 2020, respectively.

The following table summarizes the maturity of our notes and bonds payable as of March 31, 2021, excluding net unamortized original issuance premiums of $ 11.8 million and deferred financing costs of $ 45.7 million (dollars in millions):

Year of Maturity

Thereafter 5,760

As of September 30, 2020, the weighted average interest rate on our notes and bonds payable was 3.7 % and the weighted average remaining years until maturity was 8.2 years.

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

As of March 31, 2021, the weighted average interest rate on our notes and bonds payable was 3.4 % and the weighted average remaining years until maturity was 8.7 years.

All of our outstanding notes and bonds payable have fixed interest rates and contain various covenants, with which we remained in compliance as of March 31, 2021.

Additionally, with the exception of our £ 400 million of 1.625 % senior unsecured notes issued in October 2020 where interest is paid annually, interest on our remaining senior unsecured note and bond obligations is paid semiannually.

Note Repayment

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

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

Note Issuances

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 public offering price was 108.241 % of the principal amount, for an effective yield to maturity of 2.341 % and gross proceeds of $ 378.8 million.

In May 2020, we issued $ 600.0 million of 2031 Notes.

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

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

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

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

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

In January 2021, we redeemed all $ 950.0 million in principal amount of our outstanding 3.250 % notes due October 2022, plus accrued and unpaid interest.

As a result of the early redemption, we recognized a $ 46.5 million loss on extinguishment of debt on our consolidated statement of income for the three months ended March 31, 2021.

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

As a result of the early redemption, we recognized a $ 9.8 million loss on extinguishment of debt on our consolidated statement of income for the three months ended March 31, 2020.

Issuances of Common Stock

Issuance of Common Stock in an Underwritten Public Offering

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.

After deducting underwriting discounts of $ 19.3 million, the net proceeds of $ 669.6 million were used to fund property acquisitions and for general corporate purposes and working capital.

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

After deducting underwriting discounts and other offering costs of $ 21.2 million, the net proceeds of $ 728.9 million were 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.

After deducting underwriting discounts and other offering costs of $ 31.0 million, the net proceeds of $ 845.1 million were used to repay borrowings under our credit facility, to fund investment opportunities, and for other general corporate purposes.

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

At-the-Market (ATM) Program

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

At September 30, 2020, we had 26,354,637 shares remaining for future issuance under our ATM program.

At March 31, 2021, 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):

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Shares of common stock issued under the ATM program 5,536,619 7,663,383 7,047,768 9,370,078

Gross proceeds $ 346.5 $ 570.3 $ 442.2 $ 694.4

We did no t issue any shares under the ATM program during the three months ended March 31, 2021 or 2020.

Dividend Reinvestment and Stock Purchase Plan

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

At September 30, 2020, we had 11,539,247 shares remaining for future issuance under our DRSPP program.

At March 31, 2021, we had 11,459,985 shares remaining for future issuance under our DRSPP program.

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

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Shares of common stock issued under the DRSPP program 43,394 34,000

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

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

We did not issue shares under the waiver approval process during the three months ended March 31, 2021 or 2020.

Noncontrolling Interests

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

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

There are three entities with noncontrolling interests that we consolidate including an operating partnership, Realty Income, L.P., a joint venture acquired in 2019 and a development joint venture acquired in 2020.

The following table represents the change in the carrying value of all noncontrolling interests through March 31, 2021 (dollars in thousands):

Realty Income, L.P.

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$ 24,100 $ 8,147 $ 32,247

Reallocation of equity ( 47 ) — ( 47 )

Distributions

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Allocation of net income

Carrying value at September 30, 2020

Carrying value at March 31, 2021

$ 24,026 $ 8,114 $ 32,141

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

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

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

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

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

September 30, 2020 December 31, 2019

463,119 remained outstanding at each of March 31, 2021 and December 31, 2020 .

At March 31, 2021 and December 31, 2020, Realty Income, L.P., the joint venture acquired during 2019 and the development joint venture acquired in 2020 were considered variable interest entities, or VIEs, in which we were deemed the primary beneficiary based on our controlling financial interests.

Below is a summary of selected financial data of consolidated VIEs included in the consolidated balance sheets at March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021 December 31, 2020

Net real estate

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Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

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

September 30, 2020 Carrying value

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 loan and all other liabilities, due to their short-term nature or interest rates and terms that are consistent with market, except for our mortgages payable assumed in connection with acquisitions and our senior notes and bonds payable, which are disclosed as follows (dollars in millions):

March 31, 2021 Carrying value

Estimated fair value

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

The unamortized balance of these net premiums was $ 1.9 million at September 30, 2020, and $ 3.0 million at December 31, 2019.

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

The unamortized balance of these net premiums was $ 1.4 million at March 31, 2021, and $ 1.7 million at December 31, 2020.

Also excludes deferred financing costs of $ 907,000 at March 31, 2021 and $ 973,000 at December 31, 2020.

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

The unamortized balance of the net original issuance premiums was approximately $ 28.2 million at September 30, 2020, and $ 6.3 million at December 31, 2019.

Also excludes deferred financing costs of $ 40.3 million at September 30, 2020 and $ 35.9 million at December 31, 2019.

The unamortized balance of the net original issuance premiums was approximately $ 11.8 million at March 31, 2021, and $ 14.6 million at December 31, 2020.

Also excludes deferred financing costs of $ 45.7 million at March 31, 2021 and $ 49.2 million at December 31, 2020.

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

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The 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.

During September 2020, we entered into a currency exchange swap to exchange £ 224.9 million for $ 300.1 million, which matured in October 2020.

The currency exchange swap was entered into to hedge our exposure to foreign currency risk associated with Sterling-denominated liabilities, with the proceeds used to pay a portion of the credit facility.

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.

During March 2021, we entered into a currency exchange swap to exchange £ 810.0 million for $ 1.11 billion, which matured in April 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.

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 accumulated other comprehensive income, or AOCI.

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

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

The forward starting swaps were entered into to hedge our exposure to the changes in the 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 is being 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 .

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

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

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

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

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.

We record interest rate swaps on the consolidated balances sheet at fair value.

Changes to fair value are recorded to AOCI.

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

The net loss from derivatives not designated in hedging relationships for the three months ended March 31, 2021 totaled $ 5.7 million.

We did not enter into or settle any currency exchange swaps during the three months ended March 31, 2020.

The following table summarizes the terms and fair values of our derivative financial instruments at March 31, 2021 and December 31, 2020 (dollars in millions):

Derivative Type (1)

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Fair Value - asset (liability)

September 30, December 31, September 30, December 31,

2020 2019 2020 2019

Interest rate swap

Derivative Cash flow

$ 6.8 $ 7.0 6.03 % 09/25/2012 09/03/2021 $ ( 0.2 ) $ ( 0.2 )

Interest rate swap

Derivative Cash flow

March 31, December 31, March 31, December 31,

2021 2020 2021 2020

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— 625.0 (7) 12/23/2020 01/29/2021 — ( 8.2 )

Currency exchange swap (2)

Derivative N/A

1,112.1 — (8) 03/25/2021 04/29/2021 ( 3.7 ) —

Forward-starting swap Derivative Cash flow

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$ 2,028.5 $ 1,541.4 $ ( 33.2 ) $ ( 81.5 )

(1) There have been no changes to hedging arrangements in-place at December 31, 2020.

All hedges remained effective through March 31, 2021.

For full discussion of the hedging arrangements, please refer to note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.

(2) Represents British Pound Sterling, or GBP, United States Dollar, or USD, currency instrument.

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

(6) The forward GBP-USD exchange rate is 1.33 .

Upon maturity on October 1, 2020, we paid £ 224.9 million and received $ 300.1 million.

(7) 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.

(7) Forward GBP-USD exchange rate of 1.35 .

(8) Forward GBP-USD exchange rate of 1.37 .

(9) There were five treasury rate locks entered into during February 2020 that were terminated in June 2020 and converted into six forward starting interest rate swaps through a cashless settlement.

For full discussion of the hedging arrangements for these six forward starting swaps, please refer to Note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.

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

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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.

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.

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 September 30, 2020 and December 31, 2019, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.

However, at March 31, 2021 and December 31, 2020, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.

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

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

During the three and nine months ended September 30, 2020, we reclassified $ 3.0 million and $ 8.3 million , respectively, from AOCI as an increase to interest expense and a $ 6.3 million loss and a $ 5.9 million gain, respectively, for cross-currency swaps into foreign exchange gains.

During the three and nine months ended September 30, 2019, we reclassified $ 890,000 and $ 2.0 million, respectively, from AOCI as an increase to interest expense for our interest rate swaps and $ 5.7 million and $ 7.1 million, respectively, for the three and nine months ended September 30, 2019 for cross-currency swaps into foreign exchange gains.

We expect to reclassify $ 12.1 million from AOCI as an increase to interest expense relating to interest rate swaps and treasury rate locks and $ 1.7 million from AOCI to foreign currency gain relating to cross-currency swaps within the next twelve months.

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

During the three months ended March 31, 2021, we reclassified $ 2.5 million from AOCI as an increase to interest expense and a $ 1.2 million loss for cross-currency swaps into foreign exchange gains.

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

We expect to reclassify $ 10.2 million from AOCI as an increase to interest expense relating to interest rate swaps and $ 908,000 from AOCI to foreign currency gain relating to cross-currency swaps within the next twelve months.

Operating Leases

At September 30, 2020, we owned 6,588 properties in 49 U.S.

At March 31, 2021, we owned 6,662 properties in all U.S.

states, Puerto Rico, and the U.K.

Of the 6,588 properties, 6,554 , or 99.5 %, are single-tenant properties, and the remaining are multi-tenant properties.

At September 30, 2020, 92 properties were available for lease or sale.

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

Rent based on a percentage of a tenants’ gross sales, or percentage rents, for the third quarter of 2020 and 2019 was $ 532,000 and $ 407,000 , respectively.

Percentage rents for the first nine months of 2020 and 2019 were $ 2.3 million and $ 4.5 million, respectively.

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

Of the 6,662 properties, 6,621 , or 99.4 %, are single-client properties, and the remaining are multi-client properties.

At March 31, 2021, 131 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, for the three months ended March 31, 2021 and 2020 was $ 1.0 million and $ 1.2 million, respectively.

Major Clients - No individual client’s rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the three months ended March 31, 2021 and 2020.

Gain on Sales of Real Estate

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

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Number of properties 27 17

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Gain on sales of real estate $ 8.4 $ 38.5

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.

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

During 2020, we identified the impact of the COVID-19 pandemic as an impairment triggering event for properties occupied by certain tenants 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 17 properties classified as held for investment for the three months ended September 30, 2020, and 25 properties classified as held for investment for the nine months ended September 30, 2020 were not recoverable.

As a result, we recorded provisions for impairment of $ 81.6 million for the three months ended September 30, 2020, and $ 89.8 million for the nine months ended September 30, 2020, on the applicable properties impacted by the COVID-19 pandemic.

Of the provisions for impairment recorded during the third quarter of 2020 for properties impacted by the COVID-19 pandemic, a total of 12 assets occupied by certain of our tenants in the theater industry were impaired for $ 79.0 million.

Impairments recorded on other properties during the three and nine months ended September 30, 2020 totaled $ 23.5 million and $ 33.6 million respectively.

There were 29 properties classified as held for sale at March 31, 2021.

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 (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.

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

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Total provisions for impairment $ 2.7 $ 4.5

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Classified as held for investment 4 1

Sold 17 24 31 36

Distributions Paid and Payable

We pay monthly distributions to our common stockholders.

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

The following is a summary of monthly distributions paid per common share for the three months ended March 31, 2021 and 2020:

January $ 0.2345 $ 0.2275

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March 0.2345 0.2325

April 0.2330 0.2260

May 0.2330 0.2260

June 0.2330 0.2260

July 0.2335 0.2265

August 0.2335 0.2265

September 0.2335 0.2265

$ 0.7035 $ 0.6925

At September 30, 2020, a distribution of $ 0.2340 per common share was payable and was paid in October 2020.

At March 31, 2021, a distribution of $ 0.235 per common share was payable and was paid in April 2021.

Net Income per Common Share

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

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

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

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Supplemental Disclosures of Cash Flow Information

Cash paid for interest was $ 224.7 million in the first nine months of 2020 and $ 214.2 million in the first nine months of 2019.

Cash paid for income taxes was $ 8.1 million in the first nine months of 2020 and $ 3.6 million in the first nine months of 2019.

Cash paid for interest was $ 94.8 million in the three months ended March 31, 2021 and $ 84.1 million in the three months ended March 31, 2020.

Cash paid for income taxes was $ 3.4 million in the three months ended March 31, 2021 and $ 2.5 million in the three months ended March 31, 2020.

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

During the first nine months of 2020, the fair value of net derivative liabilities increased by $ 26.0 million.

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

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

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

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

During the three months ended March 31, 2021 and 2020, the fair value of net derivative liabilities decreased by $ 48.3 million and $ 16.4 million, respectively.

Non-refundable deposits from 2019 of $ 13.8 million were applied to acquisitions during the three months ended March 31, 2020.

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

September 30, 2020 September 30, 2019

March 31, 2021 March 31, 2020

Cash and cash equivalents shown in the consolidated balance sheets

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We evaluate performance and make resource allocation decisions on an industry by industry basis.

For financial reporting purposes, we have grouped our tenants into 51 activity segments.

For financial reporting purposes, we have grouped our clients into 56 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 almost all of our leases require the tenant to pay operating expenses, rental revenue is the only component of segment profit and loss we measure.

Because almost 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.

The following tables set forth certain information regarding the properties owned by us, classified according to the business of the respective tenants (dollars in thousands):

The following tables set forth certain information regarding the properties owned by us, classified according to the business of the respective clients (dollars in thousands):

Assets, as of:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Segment net real estate:

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$ 344,606 $ 328,340

Automotive tire services

364,648 347,366

215,211 216,718

214,718 208,326

Convenience stores

17 unchanged sentences

506,989 515,226

Restaurants-quick service

Restaurants-quick service - U.S.

1,065,871 1,062,918

11 unchanged sentences

Automotive service 57,485 55,018

Automotive tire services 6,154 7,322

Beverages 17,467 9,401

13 unchanged sentences

Restaurants-casual dining 19,997 20,553

Restaurants-quick service 48,759 52,353

Restaurants-quick service - U.S.

46,210 47,517

Theaters - U.S.

5 unchanged sentences

$ 20,979,570 $ 20,740,285

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

Revenue 2021 2020

1 unchanged sentence

Automotive service $ 9,918 $ 8,670

Automotive tire services 7,847 7,766 23,795 23,517

Beverages 8,952 7,996

13 unchanged sentences

Restaurants-casual dining 11,748 12,538

Restaurants-quick service 23,047 21,880 65,224 65,124

Restaurants-quick service - U.S.

23,465 23,308

Theaters - U.S.

2 unchanged sentences

Wholesale club 9,941 9,588

Other non-reportable segments and

tenant reimbursements

Other non-reportable segments and contractually obligated reimbursements

by our clients

107,930 98,039

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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 $ 3.0 million during the third quarter of 2020, $ 3.2 million during the third quarter of 2019, $ 13.4 million during the first nine months of 2020 (including $ 1.8 million of accelerated share-based compensation costs for our former Chief Financial Officer ("CFO") upon his departure from the Company) and $ 10.5 million during the first nine months of 2019.

In March 2021, our Board of Directors adopted the Realty Income 2021 Incentive Award Plan, or 2021 Plan.

This 2021 Plan will replace the 2012 Plan, pending approval by stockholders at our May 2021 Annual Meeting.

The amount of share-based compensation costs recognized in general and administrative expense on our consolidated statements of income and comprehensive income was $ 3.7 million during the three months ended March 31, 2021 and $ 5.5 million during the three months ended March 31, 2020 (including $ 1.8 million of accelerated share-based compensation costs for our former Chief Financial Officer ("CFO").

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

Restricted Stock

During the first nine months of 2020, we granted 102,473 shares of common stock under the 2012 Plan.

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

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

As of September 30, 2020, the remaining unamortized share-based compensation expense related to restricted stock totaled $ 10.0 million, which is being amortized on a straight-line basis over the service period of each

applicable award.

During the three months ended March 31, 2021, we granted 74,183 shares of common stock under the 2012 Plan.

These restricted stock awards vest over a four-year service period.

As of March 31, 2021, the remaining unamortized share-based compensation expense related to restricted stock totaled $ 11.9 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.

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Performance Shares and Restricted Stock Units

During the first nine months of 2020, we granted 83,379 performance shares, as well as dividend equivalent rights, to our executive officers.

During the three months ended March 31, 2021, we granted 157,341 performance shares, as well as dividend equivalent rights, to our executive officers.

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

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

During the three months ended March 31, 2021, we also granted 13,837 restricted stock units, all of which vest over a four-year service period.

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

As of September 30, 2020, the remaining share-based compensation expense related to the performance shares and restricted stock units totaled $ 10.9 million.

As of March 31, 2021, the remaining share-based compensation expense related to the performance shares and restricted stock units totaled $ 18.6 million.

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

1 unchanged sentence

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 restricted stock units are being recognized on a straight-line basis over the service period.

The expense amortization period for restricted stock units 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.

Commitments and Contingencies

1 unchanged sentence

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 September 30, 2020, we had commitments of $ 10.3 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements.

In addition, as of September 30, 2020, we had committed $ 96.1 million under construction contracts related to development projects, which is expected to be paid in the next twelve months.

At March 31, 2021, we had commitments of $ 6.9 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements.

In addition, as of March 31, 2021, we had committed $ 90.1 million under construction contracts related to development projects, which is expected to be paid in the next twelve months.

Subsequent Events

• In October 2020, our Board of Directors appointed Christie Kelly as Executive Vice President, Chief Financial Officer and Treasurer, effective January 19, 2021.

Kelly joined our Board of Directors in November 2019 and currently serves as a member of the Audit Committee.

Effective upon the appointment of Ms.

Kelly to Chief Financial Officer on January 19, 2021, she will resign from our Board of Directors.

• In October 2020, we declared a dividend of $ 0.234 per share to our common stockholders, which will be paid in November 2020.

• In October 2020, we issued £ 400 million of 1.625 % senior unsecured notes due December 2030.

The public offering price for these notes was 99.191 % of the principal amount, for an effective annual yield to maturity of 1.712 %.

The proceeds of approximately £ 396.8 million from this offering 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 potential investment opportunities and for other general corporate purposes.

In April 2021, we declared a dividend of $ 0.235 per share to our common stockholders, which will be paid in May 2021.

Agreement and Plan of Merger

On April 29, 2021, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with VEREIT, Inc., or VEREIT, its operating partnership, VEREIT Operating Partnership, L.P., or VEREIT OP, and two newly formed wholly owned subsidiaries of us.

Pursuant to the terms of the Merger Agreement, (i) one of the newly formed subsidiaries of us will merge with and into VEREIT OP, with VEREIT OP as the surviving entity, and (ii) immediately thereafter, VEREIT will merge with and into the other newly formed subsidiary of us, with our subsidiary as the surviving corporation.

We refer to these transactions, collectively, as the Mergers.

Pursuant to the terms of the Merger Agreement, upon the consummation of the Mergers, (i) each outstanding share of VEREIT common stock, and each outstanding common unit of VEREIT OP owned by a partner other than VEREIT, will automatically be converted into 0.705 of a newly issued share of our common stock, (ii) each outstanding Series F preferred unit of VEREIT OP owned by a partner other than VEREIT shall be converted into the right to receive $ 25.00 , plus the accumulated and unpaid distributions described in Merger Agreement, in each case, subject to certain adjustments, and (iii) each outstanding partnership unit of VEREIT OP owned by VEREIT will remain outstanding as a partnership unit in the surviving entity of VEREIT OP.

Immediately prior to the Mergers, VEREIT will issue a redemption notice to redeem each share of issued and outstanding VEREIT Series F preferred stock at its redemption price in accordance with its terms.

In connection with the Mergers, we and VEREIT intend to contribute some or all of our office real properties to a newly formed, wholly owned subsidiary, which we refer to as OfficeCo, and, following the Mergers, distribute the outstanding voting shares of common stock in OfficeCo to our combined shareholders on a pro rata basis, which we refer to as the Spin-Off.

Following the consummation of the Spin-Off, we and VEREIT intend for OfficeCo to operate as a separate, publicly-traded REIT.

Subject to the terms and conditions of the Merger Agreement, we and VEREIT may also seek to sell some or all of the OfficeCo business in connection with the closing of the Mergers.

The Merger Agreement contains customary covenants, representations, and warranties, as well as certain termination rights for VEREIT and us, in each case, as more fully described in the Merger Agreement.

The consummation of the Mergers is also subject to certain customary closing conditions, including receipt of the approval by our stockholders and the stockholders of VEREIT.

In addition, we will not be obligated to consummate the Mergers before January 29, 2022 unless the Spin-Off is ready, in all respects, to be consummated contemporaneously with the closing of the Mergers.

If this condition is not satisfied or waived by us by January 29, 2022, and all other conditions to closing have been satisfied, the parties will be obligated to close the Mergers, regardless of whether the Spin-Off is ready to be consummated.

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

What changed 10-Q

Item 1. Financial Statements