What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-04 compared with 2020-11-03 · 389 added, 518 removed, 713 unchanged (56% of the section changed)

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• Our intention to re-lease vacant properties;

• Anticipated trends in our business, including trends in the market for long-term, net leases of freestanding, single-tenant properties;

• Anticipated trends in our business, including trends in the market for long-term net leases of freestanding, single-client properties;

• Future expenditures for development projects;

• The impact of the COVID-19 pandemic, or future pandemics, on us, our business, our tenants, or the economy generally.

Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements.

• The impact of the COVID-19 pandemic, or future pandemics, on us, our business, our clients, or the economy generally;

• The structure, timing and completion of the announced mergers between us and VEREIT, Inc.

(the "Merger"s).

Future events and actual results, financial and otherwise, may differ materially from the results discussed or implied by the forward-looking statements.

In particular, forward-looking statements regarding estimated or future results of operations are based upon numerous assumptions and estimates and are inherently subject to substantial uncertainties and actual results of operations may differ materially from those expressed or implied in the forward-looking statements, particularly if actual events differ from those reflected in the estimates and assumptions upon which such forward-looking statements are based.

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• Continued volatility and uncertainty in the credit markets and broader financial markets;

• Other risks inherent in the real estate business including tenant defaults, potential liability relating to environmental matters, illiquidity of real estate investments, and potential damages from natural disasters;

• Other risks inherent in the real estate business including our clients' defaults under leases, potential liability relating to environmental matters, illiquidity of real estate investments, and potential damages from natural disasters;

• Impairments in the value of our real estate assets;

• Changes in income tax laws and rates;

• The continued evolution of the COVID-19 pandemic and the measures taken to limit its spread, and its impacts on us, our business, our tenants, or the economy generally;

• The timing and pace of reopening efforts at the local, state and national level in response to the COVID-19 pandemic;

• The continued evolution of the COVID-19 pandemic and the measures taken to limit its spread, and its impacts on us, our business, our clients, or the economy generally;

• The timing and pace of reopening efforts at the local, state and national level in response to the COVID-19 pandemic and developments, such as the unexpected surges in COVID-19 cases, that cause a delay in or postponement of reopenings;

• The outcome of any legal proceedings to which we are a party or which may occur in the future;

• Acts of terrorism and war;

Additional factors that may cause risks and uncertainties include those discussed in the sections entitled “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K , for the fiscal year ended December 31, 2019, those discussed in this section and in "Item 1.A.- Risk Factors" in Part II of this report.

• Any effects of the announcement, pendency or completion of the Mergers on us.

Additional factors that may cause risks and uncertainties include those discussed in the sections entitled “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K , for the fiscal year ended December 31, 2020 and those risks described in "Item 1A- Risk Factors" in Part II of this Quarterly Report on Form 10-Q, for the quarter ended March 31, 2021.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that this quarterly report was filed with the Securities and Exchange Commission, or SEC.

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

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

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

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

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

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

At September 30, 2020, we owned a diversified portfolio:

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

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

At March 31, 2021, we owned a diversified portfolio:

• Of 6,662 properties;

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• Doing business in 56 separate industries;

• Located in 49 U.S.

• Located in all U.S.

states, Puerto Rico and the United Kingdom (U.K.);

• With approximately 114.2 million square feet of leasable space;

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

• With a weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of approximately 8.9 years;

• With an average leasable space per property of approximately 17,150 square feet;

approximately 12,420 square feet per retail property and 250,670 square feet per industrial property.

Of the 6,588 properties in the portfolio at September 30, 2020, 6,554, or 99.5%, are single-tenant properties, of which 6,465 were leased, and the remaining are multi–tenant properties.

Unless otherwise specified, references to rental revenue in the Management's Discussion and Analysis of Financial Condition and Results of Operations are exclusive of reimbursements from tenants for recoverable real estate taxes and operating expenses totaling $18.0 million and $15.5 million for the third quarters of 2020 and 2019, respectively, and $59.4 million and $49.3 million for the first nine months of 2020 and 2019, respectively.

Of the 6,662 properties in the portfolio at March 31, 2021, 6,621, or 99.4%, are single-client properties, of which 6,494 were leased, and the remaining are multi–client properties.

Unless otherwise specified, references to rental revenue in the Management's Discussion and Analysis of Financial Condition and Results of Operations are exclusive of reimbursements from clients for recoverable real estate taxes and operating expenses totaling $21.7 million and $20.4 million for the three months ended March 31, 2021 and 2020, respectively.

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

Investment Philosophy

We believe that owning an actively managed, diversified portfolio of commercial properties under long-term, net lease agreements produces consistent and predictable income over time.

A net lease typically requires the tenant to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance.

In addition, tenants of our properties typically pay rent increases based on:

(1) fixed increases, (2) increases in the consumer price index (typically subject to ceilings), or (3) additional rent calculated as a percentage of the tenants’ gross sales above a specified level.

We believe that a portfolio of properties under long-term lease agreements with commercial tenants generally produces a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income.

We believe that owning an actively managed, diversified portfolio of commercial properties under long-term, net lease agreements produces consistent and predictable income.

A net lease typically requires the client to be

responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance.

In addition, clients of our properties typically pay rent increases based on:

(1) fixed increases, (2) increases in the consumer price index (typically subject to ceilings), or (3) additional rent calculated as a percentage of the clients’ gross sales above a specified level.

We believe that a portfolio of properties under long-term net lease agreements with our commercial clients generally produces a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income.

Diversification is also a key component of our investment philosophy.

We believe that diversification of the portfolio by tenant, industry, geography, and property type leads to more consistent and predictable income for our stockholders by reducing vulnerability that can come with any single concentration.

Our investment activities have led to a diversified property portfolio that, as of September 30, 2020, consisted of 6,588 properties located in 49 U.S.

We believe that diversification of the portfolio by client, industry, geography, and property type leads to more consistent and predictable income for our stockholders by reducing vulnerability that can come with any single concentration.

Our investment activities have led to a diversified property portfolio that, as of March 31, 2021, consisted of 6,662 properties located in all U.S.

states, Puerto Rico and the U.K., and doing business in 56 industries.

None of the 51 industries represented in our property portfolio accounted for more than 12.1% of our annualized contractual rental revenue as of September 30, 2020.

None of the 56 industries represented in our property portfolio accounted for more than 12.0% of our annualized contractual rental revenue as of March 31, 2021.

Investment Strategy

When identifying new properties for investment, we generally focus on acquiring high-quality real estate that tenants consider important to the successful operation of their business.

When identifying new properties for investment, we generally focus on acquiring high-quality real estate that our clients consider important to the successful operation of their businesses.

We generally seek to acquire real estate that has the following characteristics:

• Properties that are freestanding, commercially-zoned with a single tenant;

• Properties that are in significant markets or strategic locations critical to generating revenue for our tenants (i.e.

• Properties that are freestanding, commercially-zoned with a single client;

• Properties that are in significant markets or strategic locations critical to generating revenue for our clients (i.e.

they need the property in which they operate in order to conduct their business);

• Properties that we deem to be profitable for the tenants and/or can generally be characterized as important to the successful operations of the Company’s business;

• Properties that are located within attractive demographic areas relative to the business of our tenants;

• Properties that we deem to be profitable for the clients and/or can generally be characterized as important to the successful operations of our business;

• Properties that are located within attractive demographic areas relative to the business of our clients;

• Properties with real estate valuations that approximate replacement costs;

• Properties with rental or lease payments that approximate market rents for similar properties;

• Properties that can be purchased with the simultaneous execution or assumption of long-term lease agreements with commercial tenants, offering both current income and the potential for future rent increases.

We seek to invest in properties owned by tenants that are already or could become leaders in their respective businesses supported by mechanisms including (but not limited to) occupancy of prime real estate locations, pricing, merchandise assortment, service, quality, economies of scale, consumer branding, and advertising.

In addition, we frequently acquire large portfolios of single-tenant properties net leased to different tenants operating in a variety of industries.

We have an internal team dedicated to sourcing such opportunities, often using our relationships with various tenants, owners/developers, brokers and advisers to uncover and secure transactions.

We also undertake thorough research and analysis to identify what we consider to be appropriate property locations, tenants, and industries for investment.

• Properties that can be purchased with the simultaneous execution or assumption of long-term net lease agreements, offering both current income and the potential for future rent increases.

We seek to invest in properties owned or leased by clients that are already or could become leaders in their respective businesses supported by mechanisms including (but not limited to) occupancy of prime real estate locations, pricing, merchandise assortment, service, quality, economies of scale, consumer branding, e-commerce, and advertising.

In addition, we frequently acquire large portfolios of single-client properties net leased to different clients operating in a variety of industries.

We have an internal team dedicated to sourcing such opportunities, often using our relationships with various clients, owners/developers, brokers and advisers to uncover and secure transactions.

We also undertake thorough research and analysis to identify what we consider to be appropriate property locations, clients, and industries for investment.

This research expertise is instrumental to uncovering net lease opportunities in markets where we believe we can add value.

In selecting potential investments, we look for tenants with the following attributes:

• Tenants with reliable and sustainable cash flow;

• Tenants with revenue and cash flow from multiple sources;

• Tenants that are willing to sign a long-term lease (10 or more years);

• Tenants that are large owners and users of real estate.

From a retail perspective, our investment strategy is to target tenants that have a service, non-discretionary, and/or low-price-point component to their business.

We believe these characteristics better position tenants to operate in a variety of economic conditions and to compete more effectively with internet retailers.

As a result of the execution of this strategy, approximately 95% of our annualized retail contractual rental revenue at September 30, 2020 is derived from tenants with a service, non-discretionary, and/or low price point component to their business.

In selecting potential investments, we look for clients with the following attributes:

• Reliable and sustainable cash flow;

• Revenue and cash flow from multiple sources;

• Are willing to sign a long-term lease (10 or more years);

• Are large owners and users of real estate.

From a retail perspective, our investment strategy is to target clients that have a service, non-discretionary, and/or low-price-point component to their business.

We believe these characteristics better position clients to operate in a variety of economic conditions and to compete more effectively with internet retailers.

As a result of the execution of this strategy, approximately 95% of our annualized retail contractual rental revenue at March 31, 2021 is derived from our clients with a service, non-discretionary, and/or low price point component to their business.

From a non-retail perspective, we target industrial properties leased to industry leaders that are primarily investment grade rated companies.

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• The aforementioned overall real estate characteristics, including demographics, replacement cost, and comparative rental rates;

• Industry, tenant (including credit profile), and market conditions;

• Industry, client (including credit profile), and market conditions;

• Store profitability for retail locations if profitability data is available;

• The importance of the real estate location to the operations of the tenants’ business.

We believe the principal financial obligations for most of our tenants typically include their bank and other debt, payment obligations to suppliers, and real estate lease obligations.

Because we typically own the land and building in which a tenant conducts its business or which are critical to the tenant’s ability to generate revenue, we believe the risk of default on a tenant’s lease obligation is less than the tenant’s unsecured general obligations.

It has been our experience that tenants must retain their profitable and critical locations in order to survive.

• The importance of the real estate location to the operations of the clients’ business.

We believe the principal financial obligations for most of our clients typically include their bank and other debt, payment obligations to employees, suppliers, and real estate lease obligations.

Because we typically own the land and building in which a client conducts its business or which are critical to the client’s ability to generate revenue, we believe the risk of default on a client’s lease obligation is less than the client’s unsecured general obligations.

It has been our experience that clients must retain their profitable and critical locations in order to survive.

Therefore, in the event of reorganization, we believe they are less likely to reject a lease of a profitable or critical location because this would terminate their right to use the property.

Thus, as the property owner, we believe that we will fare better than unsecured creditors of the same tenant in the event of reorganization.

If a property is rejected by the tenant during reorganization, we own the property and can either lease it to a new tenant or sell the property.

In addition, we believe that the risk of default on real estate

leases can be further mitigated by monitoring the performance of the tenants’ individual locations and considering whether to proactively sell locations that meet our criteria for disposition.

Prior to entering into any transaction, our research department conducts a review of a tenant’s credit quality.

Thus, as the property owner, we believe that we will fare better than unsecured creditors of the same client in the event of reorganization.

If a property is rejected by our client during reorganization, we own the property and can either lease it to a new client or sell the property.

In addition, we believe that the risk of default on real estate leases can be further mitigated by monitoring the performance of our clients’ individual locations and considering whether to proactively sell locations that meet our criteria for disposition.

We conduct comprehensive reviews of the business segments and industries in which our clients’ operate.

Prior to entering into any transaction, our research department conducts a review of a client’s credit quality.

The information reviewed may include reports and filings, including any public credit ratings, financial statements, debt and equity analyst reports, and reviews of corporate credit spreads, stock prices, market capitalization, and other financial metrics.

We conduct additional due diligence, including additional financial reviews of the tenant and a more comprehensive review of the business segment and industry in which the tenant operates.

We continue to monitor our tenants’ credit quality on an ongoing basis by reviewing the available information previously discussed, and providing summaries of these findings to management.

At September 30, 2020, approximately 49% of our total annualized contractual rental revenue comes from properties leased to investment grade rated companies, their subsidiaries or affiliated companies.

At September 30, 2020, our top 20 tenants (based on percentage of total portfolio annualized contractual rental revenue) represented approximately 53% of our annualized revenue and 12 of these tenants have investment grade credit ratings or are subsidiaries or affiliates of investment grade companies.

We conduct additional due diligence, including additional financial reviews of the client, and continue to monitor our clients’ credit quality on an ongoing basis by reviewing the available information previously discussed, and providing summaries of these findings to management.

At March 31, 2021, approximately 50% of our total portfolio annualized contractual rent comes from properties leased to our investment grade clients, their subsidiaries or affiliated companies.

At March 31, 2021, our top 20 clients (based on percentage of total portfolio annualized contractual rent) represented approximately 51% of our annualized rent and 13 of these clients have investment grade credit ratings or are subsidiaries or affiliates of investment grade companies.

Asset Management Strategy

In addition to pursuing new properties for investment, we seek to increase earnings and distributions to stockholders through active asset management.

In addition to pursuing new properties for investment, we seek to increase earnings and dividends through active asset management.

Generally, our asset management efforts seek to achieve:

• Rent increases at the expiration of existing leases, when market conditions permit;

• Optimum exposure to certain tenants, industries, and markets through re-leasing vacant properties and selectively selling properties;

• Optimum exposure to certain clients, industries, and markets through re-leasing vacant properties and selectively selling properties;

• Maximum asset-level returns on properties that are re-leased or sold;

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• Investment opportunities in new asset classes for the portfolio.

We continually monitor our portfolio for any changes that could affect the performance of our tenants, our tenants’ industries, and the real estate locations in which we have invested.

We continually monitor our portfolio for any changes that could affect the performance of our clients, our clients’ industries, and the real estate locations in which we have invested.

We also regularly analyze our portfolio with a view towards optimizing its returns and enhancing its overall credit quality.

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• Extend our average remaining lease term;

• Strategically decrease tenant, industry, or geographic concentration.

• Strategically decrease client, industry, or geographic concentration.

The active management of the portfolio is an essential component of our long-term strategy of maintaining high occupancy.

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RECENT DEVELOPMENTS

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.

Theater Industry Update

As of September 30, 2020, the theater industry represented 5.7% of annualized contractual rental revenue.

Given the ongoing disruption to the industry due to the COVID-19 pandemic, we performed a property-level analysis on the collectability of rent for our 78 theater properties, including the gross receivables outstanding as of September 30, 2020, totaling $44.9 million.

Our analysis involved the assignment of quartile rankings for each asset’s pre-pandemic EBITDAR relative to each operator’s overall footprint.

Other criteria utilized included an analysis of the property’s pre-pandemic annual EBITDA generation before corporate overhead, and real estate fundamentals.

As a result of this analysis, we determined that for 31 of the 78 theater properties it was no longer probable that we would collect substantially all of contractual rents due.

As a conservative measure, we fully reserved for six additional theater properties for which we do not possess unit level financial informatio n.

Consequently, we reserved for 100% of the outstanding receivables for 37 theater properties and will account prospectively for these leases on a cash accounting basis.

The aggregate reserve associated with outstanding receivables for these properties totaled $17.2 million, approximately $1.6 million of which was a reserve for straight-line rent receivables.

The dilution for the third quarter of 2020 as a result of establishing these reserves for our theater portfolio is $0.05 per share to our net income and FFO and $0.04 per share to our AFFO.

The monthly contractual rent associated with these properties totals approximately $2.8 million.

Additionally, during the third quarter, we recorded provisions for impairment on 12 of the 37 theater properties for $79.0 million.

Impairment charges are not included in Nareit-defined FFO or in our calculation of AFFO.

See "Item 1A--Risk Factors" in Part II of this Quarterly Report on Form 10-Q for more information regarding the actual and potential future impacts of the COVID-19 pandemic and the measures taken to limit its spread on our tenants and our business, results of operations, financial condition and liquidity.

As of March 31, 2021, the theater industry represented 5.6% of annualized contractual rental revenue.

As of March 31, 2021, and December 31, 2020, we were fully reserved for 37 theater properties.

At March 31, 2021, the receivables outstanding for our 79 theater properties totaled $66.7 million, net of $33.2 million of reserves, and includes $8.5 million of straight-line rent receivables, net of $1.9 million of reserves.

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

Three Months Ended

March 31, 2021

Rental revenue reserves $ 7.3

Straight-line rent reserves 0.1

Total rental revenue reserves $ 7.4

See "Item 1A—Risk Factors" in Part I of our Annual Report on Form 10-K for year ended December 31, 2020 for more information regarding the actual and potential future impacts of the COVID-19 pandemic and the measures taken to limit its spread on our clients and our business, results of operations, financial condition and liquidity.

Increases in Monthly Dividends to Common Stockholders

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

In addition, we increased the dividend five times during 2020.

As of October 2020, we have paid 92 consecutive quarterly dividend increases and increased the dividend 108 times since our listing on the NYSE in 1994.

In addition, we increased the dividend two times during 2021.

As of April 2021, we have paid 94 consecutive quarterly dividend increases and increased the dividend 110 times since our listing on the NYSE in 1994.

The following table summarizes our dividend increases in 2021:

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1st increase Dec 2020 Jan 2021 $ 0.2345 $ 0.0005

2nd increase Jan 2020 Feb 2020 $ 0.2325 $ 0.0050

3rd increase Mar 2020 Apr 2020 $ 0.2330 $ 0.0005

4th increase Jun 2020 Jul 2020 $ 0.2335 $ 0.0005

5th increase Sep 2020 Oct 2020 $ 0.2340 $ 0.0005

The dividends paid per share during the first nine months of 2020 totaled approximately $2.092, as compared to approximately $2.030 during the first nine months of 2019, an increase of $0.062, or 3.1%.

The monthly dividend of $0.234 per share represents a current annualized dividend of $2.808 per share, and an annualized dividend yield of approximately 4.6% based on the last reported sale price of our common stock on the NYSE of $60.75 on September 30, 2020.

2nd increase Mar 2021 Apr 2021 $ 0.2350 $ 0.0005

The dividends paid per share during the three months ended March 31, 2021 totaled approximately $0.7035, as compared to approximately $0.6925 during the three months ended March 31, 2020, an increase of $0.011, or 1.6%.

The monthly dividend of $0.235 per share represents a current annualized dividend of $2.82 per share, and an annualized dividend yield of approximately 4.4% based on the last reported sale price of our common stock on the NYSE of $63.50 on March 31, 2021.

Although we expect to continue our policy of paying monthly dividends, we cannot guarantee that we will maintain our current level of dividends, that we will continue our pattern of increasing dividends per share, or what our actual dividend yield will be in any future period.

Acquisitions During the Third Quarter and First Nine Months of 2020

Acquisitions During the Three Months Ended March 31, 2021

Below is a listing of our acquisitions in the U.S.

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Properties Leasable

(in millions) Investment

($ in millions) Weighted

Square Feet Investment

($ in thousands) Weighted

(Years) Initial

Three months ended September 30, 2020 (1)

Acquisitions - U.S.

(in 21 states)

74 1.2 $ 409.2 15.2 5.9 %

Acquisitions - U.K.

7 0.7 230.0 8.9 7.5 %

Total acquisitions 81 1.9 639.2 12.6 6.4 %

Properties under development - U.S.

8 0.7 19.4 18.0 5.9 %

89 2.6 $ 658.6 12.7 6.4 %

Nine months ended September 30, 2020 (1)

Three months ended March 31, 2021 (2)

Acquisitions - U.S.

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

(1) None of our investments during the three and nine months ended September 30, 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 three and nine months ended September 30, 2020 are 100% leased at the acquisition date.

(2) Represents investments of £176.6 million Sterling during the three months ended September 30, 2020 and £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 15 industries, and are 97.2% retail and 2.8% industrial, based on rental revenue.

Approximately 73% of the rental revenue generated from acquisitions during the third quarter of 2020 is from investment grade rated tenants, their subsidiaries or affiliated companies.

(4) 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.

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

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

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

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

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

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

(2) None of our investments during 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 were 100% leased at the acquisition date.

(3) During the three months ended March 31, 2021, we completed our expansion into all U.S.

states with approximately a $116 million acquisition in Hawaii.

(4) 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.

(5) The 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 first quarter of 2021 is from investment grade rated clients, their subsidiaries, or affiliated companies, which we define as clients with a credit rating, as of March 31, 2021, of Baa3/BBB- or higher from one of the three major rating agencies (Moody's/S&P/Fitch).

Portfolio Discussion

Leasing Results

At September 30, 2020, we had 92 properties available for lease or sale out of 6,588 properties in our portfolio, which represents a 98.6% occupancy rate based on the number of properties in our portfolio.

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

Properties available for lease at June 30, 2020

Lease expirations 98

Re-leases to same tenant (1)

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

Vacant dispositions (27)

Properties available for lease at September 30, 2020

(1) The annual new rent on these re-leases was $12.3 million, as compared to the previous annual rent of $12.4 million on the same properties, representing a rent recapture rate of 99.2% on the properties re-leased during the quarter ended September 30, 2020.

(2) Re-leased two properties to new tenants without a period of vacancy, and three properties to new tenants after a period of vacancy.

At March 31, 2021, we had 131 properties available for lease or sale out of 6,662 properties in our portfolio, which represents a 98.0% occupancy rate based on the number of properties in our portfolio.

The following table summarizes our portfolio activity for the three months ended March 31, 2021 :

Properties available for lease at December 31, 2020

Lease expirations (1)

Re-leases to same tenant (1)

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

Re-leases to same client (37)

Re-leases to new client (13)

Vacant dispositions (19)

Properties available for lease at September 30, 2020

(1) The annual new rent on these re-leases was $45.5 million, as compared to the previous annual rent of $45.6 million on the same properties, representing a rent recapture rate of 99.8% on the properties re-leased during the first nine months of 2020.

(2) Re-leased five properties to new tenants without a period of vacancy, and eight properties to new tenants after a period of vacancy.

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

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

At September 30, 2020, our average annualized rental revenue was approximately $15.26 per square foot on the 6,496 leased properties in our portfolio.

At September 30, 2020, we classified 32 properties, with a carrying amount of $41.1 million, as real estate and lease intangibles held for sale, net on our balance sheet.

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

Properties available for lease at March 31, 2021

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

The annual new rent on re-leases was $11.54 million, as compared to the previous annual rent of $11.15 million on the same units, representing a rent recapture rate of 103.5% on the units re-leased during the quarter ended March 31, 2021.

We re-leased two units to new clients without a period of vacancy, and 15 units to new clients after a period of vacancy.

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

At March 31, 2021, our average annualized rental revenue was approximately $15.40 per square foot on the 6,531 leased properties in our portfolio.

At March 31, 2021, we classified 29 properties, with a carrying amount of $22.5 million, as real estate and lease intangibles held for sale, net on our balance sheet.

The expected sale of

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

Investments in Existing Properties

In the third quarter of 2020, we capitalized costs of $727,000 on existing properties in our portfolio, which primarily relates to non-recurring building improvements.

In 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.

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.

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.

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

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

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

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

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Equity Capital Raising

During the third quarter of 2020, we raised $348.6 million from the sale of common stock at a weighted average price of $62.57, primarily through our At-The-Market ("ATM") Program.

During the first nine months of 2020, we raised $1.2 billion from the sale of common stock at a weighted average price of $71.16 , primarily from 9,690,500 shares issued in an overnight underwritten public offering during the first quarter of 2020, including 690,500 shares purchased by the underwriters upon the exercise of their option to purchase additional shares, and 7,047,768 shares from the sale of common stock under our ATM Program.

Chief Financial Officer (CFO) and Treasurer Transition

In March 2020 and as previously announced, Paul Meurer, our former EVP, Chief Financial Officer, departed from the Company.

As a result of Mr.

Meurer's departure, we recognized an executive severance charge of $3.5 million during the first quarter of 2020, consisting of $1.6 million of cash, $1.8 million related to share–based compensation expense and $58,000 of professional fees.

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.

Commercial Paper Program

In August 2020, we established a U.S.

dollar-denominated unsecured commercial paper program.

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

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.

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.

Note Issuances

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% and gross proceeds of £396.8 million.

The proceeds 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 July 2020, we issued $350 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 approximately $593.9 million.

The proceeds from each of the offerings of 2031 Notes were used to repay borrowings outstanding under our credit facility, and, to the extent not used for these purposes, to fund potential investment opportunities, and for other general corporate purposes.

Term Loan Redemption

In June 2020, we repaid the $250.0 million term loan in full upon maturity.

Early Redemption of 5.75% Notes Due January 2021

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 during the first quarter of 2020.

During the three months ended March 31, 2021, we raised $691.5 million from the sale of common stock at a weighted average price of $57.06, primarily from our January 2021 issuance of 12,075,000 shares of common stock in an overnight underwritten public offering, where we raised $669.6 million, inclusive of 1,575,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares.

Early Redemption of Notes

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

As a result of the early redemption, we recognized a loss on extinguishment of debt of $46.5 million, or $0.13 per diluted common share, to net income available to common stockholders and Nareit-defined FFO in the three months ended March 31, 2021.

Loss on extinguishment of debt is excluded in our calculation of AFFO.

Impact of COVID-19

The COVID-19 pandemic and the measures taken to limit its spread are negatively impacting global, national and regional economies across many industries, including the industries in which some of our tenants operate, and have disrupted the businesses and operations of some of our tenants, each of which has had and may continue to have an adverse impact on our business, results of operations, financial condition, and liquidity.

These impacts may increase in severity as the duration of the pandemic lengthens.

See "Item 1A--Risk Factors" in Part II of this report for more information regarding the actual and potential future impacts of the COVID-19 pandemic and the measures taken to limit its spread on our tenants and our business, results of operations, financial condition and liquidity.

As a result of this challenging environment, we continue to work diligently with our tenants most affected by the pandemic to understand their business operations and financial liquidity and their ability to satisfy their contractual

obligations to us.

As we carefully navigate this difficult economic period with our tenants, our focus is on finding resolutions that preserve the long-term relationships we have built with many of our tenants.

The majority of lease 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.

We continue to work diligently with our clients most affected by the pandemic to understand their business operations and financial liquidity and their ability to satisfy their contractual obligations to us.

As we carefully navigate this difficult economic period with our clients, our focus is on finding resolutions that preserve the long-term relationships we have built with many of our clients.

The majority of lease 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.

In these cases, we have determined that the collection of deferred rent is probable (within the meaning applicable under GAAP), although we cannot assure you that this determination will not change in the future.

In addition, as we believe to be the case with many retail landlords, we have received many short-term rent relief requests, most often in the form of rent deferral requests, or requests for further discussion from tenants.

We believe that not all tenant requests will ultimately result in lease modification agreements, nor have we relinquished our contractual rights under our lease agreements where rent concessions have not yet been granted.

We believe that not all client requests will ultimately result in lease modification agreements, nor have we relinquished our contractual rights under our lease agreements where rent concessions have not yet been granted.

Our rent collections for the periods below and rent relief requests to-date may not be indicative of collections, concessions or requests in any future period.

Percentages of Contractual Rent Collected as of October 31, 2020

July 31, 2020 Month Ended

August 31, 2020 Month Ended

September 30, 2020 Quarter Ended

September 30, 2020 Month Ended

October 31, 2020

Contractual rent collected (1)

across total portfolio

91.8% 93.3% 94.1% 93.1% 92.9%

Contractual rent collected (1)

from top 20 tenants (2)

90.0% 91.6% 91.8% 91.1% 89.9%

Contractual rent collected (1)

from investment grade

Percentages of Contractual Rent Collected as of March 31, 2021

January 31, 2021 Month Ended

February 28, 2021 Month Ended

March 31, 2021 Quarter Ended

March 31, 2021

Contractual rent collected (1) across total portfolio

93.9% 94.0% 94.3% 94.1%

(1) Collection rates are calculated as the aggregate cash rent collected for the applicable period from the beginning of that applicable period through October 31, 2020, divided by the contractual cash rent charged for the applicable period.

Cash rent collected is defined as amounts received including amounts in transit, where the tenant has confirmed payment is in process.

Rent collection percentages are calculated based on contractual base rents (excluding percentage rents and tenant reimbursements).

Charged amounts have not been adjusted for any COVID-19 related rent relief granted and include contractual base rents from any tenants in bankruptcy.

Due to differences in applicable foreign currency conversion rates and rent conventions, the percentages above may differ from percentages calculated utilizing total portfolio annualized contractual revenue.

(2) We define top 20 tenants as our 20 largest tenants based on percentage of total portfolio annualized contractual rental revenue as of the most recent reported period.

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

The following table provides information relating to percentage of total contractual rent due and collected for the indicated periods :

Percentage of Total Contractual Rent Due By Month (1)

Percentage of Total Contractual Rent Collected By Month (1)

2020 September

Aerospace 0.6% 0.7% 0.7% 0.7% 0.6% 0.7% 0.7% 0.7%

Apparel stores 1.3 1.3 1.3 1.4 1.3 1.3 1.3 1.4

Automotive collision services 1.1 1.2 1.2 1.1 1.1 1.2 1.2 1.1

Automotive parts 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6

Automotive service 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5

Automotive tire services 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Beverages 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Child care 2.1 2.1 2.1 2.2 2.1 2.1 2.1 1.9

Consumer electronics 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Consumer goods 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6

Convenience stores 12.1 12.3 12.4 12.2 12.0 12.2 12.3 12.2

Crafts and novelties 0.9 0.9 0.8 0.8 0.9 0.9 0.8 0.8

Diversified industrial 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7

Dollar stores 7.8 7.8 7.9 7.9 7.8 7.8 7.8 7.9

Drug stores 8.4 8.5 8.6 8.6 8.4 8.5 8.6 8.6

Education 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.1

Electric utilities 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Entertainment 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.1

Equipment services 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4

Financial services 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9

Food processing 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7

General merchandise 3.0 2.9 2.9 2.8 3.0 2.9 2.9 2.8

Government services 0.6 0.7 0.7 0.7 0.6 0.6 0.7 0.7

Grocery stores 5.0 5.1 5.0 5.1 5.0 5.1 5.0 5.1

Health and beauty 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Health and fitness 7.0 7.2 7.2 7.2 5.8 5.4 6.0 6.1

Health care 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6

Home furnishings 0.7 0.8 0.8 0.8 0.6 0.7 0.7 0.7

Home improvement 3.0 2.9 2.9 2.9 3.0 2.9 2.9 2.9

Machinery 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Motor vehicle dealerships 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6

Office supplies 0.2 0.2 0.2 0.2 0.1 0.2 0.1 0.1

Other manufacturing 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6

Packaging 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9

Paper 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Pet supplies and services 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7

Restaurants - casual dining 3.0 3.0 3.0 3.1 2.7 2.8 2.8 2.8

Restaurants - quick service 5.6 5.7 5.7 5.8 5.6 5.6 5.0 5.0

Shoe stores 0.2 0.2 0.2 0.2 0.2 0.2 0.2 *

Sporting goods 0.7 0.8 0.8 0.8 0.7 0.8 0.8 0.8

Telecommunications 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5

Theaters 5.6 5.8 5.8 5.8 0.4 2.3 1.6 0.9

Transportation services 4.1 4.2 4.2 4.2 4.1 4.2 4.2 4.2

Wholesale clubs 2.5 2.4 2.4 2.4 2.5 2.4 2.4 2.4

Other 0.2 0.1 0.1 0.2 0.1 0.1 0.1 0.1

Contractual rent collected (1) from our top 20 clients (2)

89.4% 89.8% 90.3% 89.8%

Grocery stores 3.7 3.2 3.3 3.2 3.7 3.2 3.3 3.2

Health care 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Home improvement 0.9 0.3 0.1 — 0.9 0.3 0.1 —

Theaters * * * * — — — —

Contractual rent collected (1) from our investment grade clients (3)

100.0% 100.0% 100.0% 100.0%

Totals 100.0% 100.0% 100.0% 100.0% 92.9% 94.1% 93.3% 91.8%

* Less than 0.1%

Cash rent collected is defined as amounts received including amounts in transit, where the tenant has confirmed payment is in process.

Rent collection percentages are calculated based on contractual base rents (excluding percentage rents and tenant reimbursements).

Charged amounts have not been adjusted for any COVID-19 related rent relief granted and include contractual base rents from any tenants in bankruptcy.

Due to differences in applicable foreign currency conversion rates and rent conventions, the industry percentages above may differ from industry percentages calculated utilizing total portfolio annualized contractual revenue.

As the adverse impacts of the COVID-19 pandemic and the measures taken to limit its spread continue to evolve, the ability of our tenants to continue to pay rent to us may further diminish, and therefore we cannot assure you that our historical rental collections are indicative of our rental collections in November or in the future.

As a result of the impacts of the COVID-19 pandemic and the measures taken to limit its spread, our revenues in the foreseeable future may decline relative to the first nine months of 2020, and that decline may continue or increase in subsequent periods as long as such impacts continue to exist.

Summarized Financial Results

Contractual rent collected from our theater clients 13.3% 13.1% 15.5% 14.0%

Contractual rent collected from our health and fitness clients 89.1% 92.3% 94.1% 91.8%

(1) Collection rates are calculated as the aggregate contractual rent collected for the applicable period from the beginning of that applicable period through March 31, 2021, divided by the contractual rent charged for the applicable period.

Rent collection percentages are calculated based on contractual rents (excluding percentage rents and contractually obligated reimbursements by our clients).

Charged amounts have not been adjusted for any COVID-19 related rent relief granted and include contractual rents from any clients in bankruptcy.

Due to differences in applicable foreign currency conversion rates and rent conventions, the percentages above may differ from percentages calculated utilizing our total portfolio annualized contractual rent.

(2) We define our top 20 clients as our 20 largest clients based on percentage of total portfolio annualized contractual rent as of March 31, 2021 for all periods.

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

As the adverse impacts of the COVID-19 pandemic and the measures taken to limit its spread continue to evolve, the ability of our clients to continue to pay rent to us may further diminish, and therefore we cannot assure you that our historical rental collections are indicative of our rental collections in the future.

As a result of the impacts of the COVID-19 pandemic and the measures taken to limit its spread, our revenues in the foreseeable future may decline relative to corresponding periods in 2020, and that decline may continue or increase in subsequent periods as long as such impacts continue to exist.

Select Financial Results

The following summarizes our select financial results (dollars in millions, except per share data):

Three months ended September 30, Nine months ended September 30, % Increase (Decrease)

Three months Nine months

2020 2019 2020 2019

Three months ended March 31,

% Increase (Decrease)

Total revenue

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

Our financial results in the first nine months of 2020 were impacted by the following transactions:(i) $123.4 million of provisions for impairment in first nine months of 2020, of which $105.1 million related to the third quarter, (ii) $34.4 million in reserves recorded as a reduction of rental revenue in the first nine months of 2020, of which $24.1 million related to the third quarter, (iii) a $9.8 million loss on extinguishment of debt due to the January 2020 early redemption of the 5.750% notes due 2021 recorded in the first quarter of 2020, and (iv) a $3.5 million executive severance charge for our former CFO also recorded in the first quarter of 2020.

Our financial results in the three months ended March 31, 2021 were impacted by a $46.5 million loss on extinguishment of debt due to the January 2021 early redemption of our 3.250% notes due October 2022.

See our discussion of FFO and AFFO (which are not financial measures under generally accepted accounting principles, or GAAP), later in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this quarterly report, which includes a reconciliation of net income available to common stockholders to FFO and AFFO.

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Capital Philosophy

Historically, we have met our long-term capital needs by issuing common stock, preferred stock and long-term unsecured notes and bonds.

Historically, we have met our long-term capital needs by issuing common stock, long-term unsecured notes and bonds, and preferred stock.

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

however, we may issue preferred stock or debt securities.

however, we may also raise funds from debt or other equity securities.

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

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

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

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

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

We may choose to mitigate our financial exposure to exchange rate risk for properties acquired outside the U.S.

through the issuance of debt securities denominated in the same local currency and through currency derivatives.

We may leave a portion of our foreign cash flow unhedged to reinvest in additional properties in the same local currency.

Conservative Capital Structure

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

At September 30, 2020, our total outstanding borrowings of senior unsecured notes and bonds, term loans, mortgages payable, credit facility borrowings and commercial paper were $8.45 billion, or approximately 28.4% of our total market capitalization of $29.77 billion.

We define our total market capitalization at September 30, 2020 as the sum of:

• Shares of our common stock outstanding of 350,595,869, plus total common units outstanding of 463,119, multiplied by the last reported sales price of our common stock on the NYSE of $60.75 per share on September 30, 2020, or $21.33 billion;

• Outstanding borrowings of $556.1 million on our revolving credit facility, consisting entirely of Sterling-denominated borrowings of £430.5 million, and $300.0 million on our commercial paper program;

• Outstanding mortgages payable of $334.7 million, excluding net mortgage premiums of $1.9 million and deferred financing costs of $1.1 million;

At March 31, 2021, our total outstanding borrowings of senior unsecured notes and bonds, term loan, mortgages payable, and commercial paper were $8.57 billion, or approximately 26.5% of our total market capitalization of $32.31 billion.

As of March 31, 2021, we had no borrowings outstanding on our revolving credit facility.

Therefore, we define our total market capitalization at March 31, 2021 as the sum of:

• Shares of our common stock outstanding of 373,509,822, plus total common units outstanding of 463,119, multiplied by the last reported sales price of our common stock on the NYSE of $63.50 per share on March 31, 2021, or $23.75 billion;

• Outstanding borrowings of $675.0 million on our commercial paper program;

• Outstanding mortgages payable of $281.5 million, excluding net mortgage premiums of $1.4 million and deferred financing costs of $907,000;

• Outstanding borrowings of $250.0 million on our term loan, excluding deferred financing costs of $593,000;

• Outstanding senior unsecured notes and bonds of $7.01 billion, including a Sterling-denominated private placement of £315.0 million, and excluding unamortized net original issuance premiums of $28.2 million and deferred financing costs of $40.3 million.

• Outstanding senior unsecured notes and bonds of $7.36 billion, including Sterling-denominated notes of £715.0 million, and excluding unamortized net original issuance premiums of $11.8 million and deferred financing costs of $45.7 million.

Universal Shelf Registration

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At-the-Market (ATM) Program

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

During the third quarter of 2020, we issued 5,536,619 shares and raised approximately $346.5 million of gross proceeds under the ATM program.

During the first nine months of 2020, we issued 7,047,768 shares and raised approximately $442.2 million of gross proceeds under the ATM program.

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

each case by means of ordinary brokers' transactions on the NYSE at prevailing market prices or at negotiated prices.

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.

We did not issue any shares under the ATM program during the three months ended March 31, 2021.

Issuance of Common Stock

In March 2020, we issued 9,690,500 shares of common stock in an overnight underwritten public offering, including 690,500 shares purchased by the underwriters upon 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 primarily used to repay borrowings under our revolving credit facility.

In January 2021, we issued 12,075,000 shares of common stock in an overnight underwritten public offering, inclusive of 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.

Dividend Reinvestment and Stock Purchase Plan

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

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

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

During the third quarter of 2020, we issued 34,604 shares

and raised approximately $2.1 million under our DRSPP.

During the first nine months of 2020, we issued 113,421 shares and raised approximately $6.9 million under our DRSPP.

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

During the three months ended March 31, 2021, we issued 43,394 shares and raised approximately $2.7 million under our DRSPP.

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

Revolving Credit Facility and Commercial Paper Program

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

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

At September 30, 2020, we had a borrowing capacity of $2.4 billion available on our revolving credit facility and an outstanding balance of $556.1 million, consisting entirely of £430.5 million Sterling.

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

At March 31, 2021, we had no outstanding borrowings on our revolving credit facility and available borrowing capacity of $3.0 billion.

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

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

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

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

We expect to use our credit facility to acquire additional properties and for other general corporate purposes.

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

At September 30, 2020, we had an outstanding balance of $300.0 million.

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

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.

At March 31, 2021, we had an outstanding balance of $675.0 million.

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

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.

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

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

Thereafter, we generally seek to refinance those borrowings with the net proceeds of long-term or more permanent financing, including the issuance of equity or debt securities.

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

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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.

Mortgage Debt

As of September 30, 2020, we had $334.7 million of mortgages payable, all of which were assumed in connection with our property acquisitions.

Additionally, at September 30, 2020, we had net premiums totaling $1.9 million on these mortgages and deferred financing costs of $1.1 million.

As of March 31, 2021, we had $281.5 million of mortgages payable, all of which were assumed in connection with our property acquisitions.

Additionally, at March 31, 2021, we had net premiums totaling $1.4 million on these mortgages and deferred financing costs of $907,000.

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

During 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 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.

Notes Outstanding

Our senior unsecured note and bond obligations consist of the following as of September 30, 2020, sorted by maturity date (dollars in millions):

3.250% notes, $450 issued in October 2012 and $500 issued in December 2017, both due in October 2022 $ 950

Our senior unsecured note and bond obligations consist of the following as of March 31, 2021, sorted by maturity date (dollars in millions):

4.650% notes, issued in July 2013 and due in August 2023 $ 750

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

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

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

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

1.625% notes, issued in October 2020 and due December 2030 (1)

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

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

2.730% notes, issued in May 2019 and due in May 2034 (1)

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

dollars) of the Sterling-denominated private placement of £315.0 million converted at the applicable exchange rate on September 30, 2020.

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

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

The gross 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.

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

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

dollars) of the October 2020 Sterling-denominated note offering and May 2019 Sterling-denominated private placement of £400.0 million £315.0 million, respectively, converted at the applicable exchange rate on March 31, 2021 .

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

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

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

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GAAP measurements, are presented to investors to show our ability to incur additional debt under the terms of our senior notes and bonds as well as to disclose our current compliance with such covenants, and are not measures of our liquidity or performance.

The actual amounts as of September 30, 2020 are:

The actual amounts as of March 31, 2021 are:

Note Covenants

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

(i) the incurrence of any debt (as defined in the covenants) incurred by us since the first day of such four-quarter period and the application of the proceeds therefrom (including to refinance other debt since the first day of such four-quarter period), (ii) the repayment or retirement of any of our debt since the first day of such four-quarter period, and (iii) any acquisition or disposition by us of any asset or group since the first day of such four quarters had in each case occurred on October 1, 2019 and subject to certain additional adjustments.

Such pro forma ratio has been prepared on the basis required by that debt service covenant, reflects various estimates and assumptions and is subject to other uncertainties, and therefore does not purport to reflect what our actual debt service coverage ratio would have been had transactions referred to in clauses (i), (ii) and (iii) of the preceding sentence occurred as of October 1, 2019, nor does it purport to reflect our debt service coverage ratio for any future period.

The following is our calculation of debt service and fixed charge coverage at September 30, 2020 (in thousands, for trailing twelve months):

our debt since the first day of such four-quarter period, and (iii) any acquisition or disposition by us of any asset or group since the first day of such four quarters had in each case occurred on April 1, 2020 and subject to certain additional adjustments.

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

The following is our calculation of debt service and fixed charge coverage at March 31, 2021 (in thousands, for trailing twelve months):

Net income available to common stockholders

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We intend to retain an appropriate amount of cash as working capital.

At September 30, 2020, we had cash and cash equivalents totaling $724.8 million, inclusive of £172.9 million Sterling.

At March 31, 2021, we had cash and cash equivalents totaling $184.0 million, inclusive of £102.6 million Sterling.

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

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The borrowing interest rates under our revolving credit facility are based upon our ratings assigned by credit rating agencies.

As of September 30, 2020, we were assigned the following investment grade corporate credit ratings on our senior unsecured notes and bonds:

As of March 31, 2021, we were assigned the following investment grade corporate credit ratings on our senior unsecured notes and bonds:

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

In addition, we were assigned the following ratings on our commercial paper at September 30, 2020:

In addition, we were assigned the following ratings on our commercial paper at March 31, 2021:

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

Based on our ratings as of September 30, 2020, the facility interest rate was LIBOR, plus 0.775% with a facility commitment fee of 0.125%, for all-in drawn pricing of 0.90% over LIBOR.

Based on our ratings as of March 31, 2021, the facility interest rate was LIBOR, plus 0.775% with a facility commitment fee of 0.125%, for all-in drawn pricing of 0.90% over LIBOR.

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

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

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

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

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Table of Obligations

The following table summarizes the maturity of each of our obligations as of September 30, 2020 (dollars in millions):

The following table summarizes the maturity of each of our obligations as of March 31, 2021 (dollars in millions):

Maturity Credit Facility and Commercial Paper Program (1)

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Leases Paid by

Our Tenants (7)

Our Clients (7)

2021 $ 675.0 $ — $ — $ 26.1 $ 183.9 $ 1.2 $ 10.3 $ 94.7 $ 991.2

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Totals $ 675.0 $ 7,360.0 $ 250.0 $ 281.5 $ 2,361.6 $ 26.2 $ 120.8 $ 97.0 $ 11,172.1

(1) The initial term of the credit facility, representing $556.1 million of the outstanding borrowings at September 30, 2020, expires in March 2023 and includes, at our option, two six-month extensions.

The commercial paper borrowings outstanding at September 30, 2020 totaled $300.0 million and matured on October 1, 2020.

Upon settlement of a GBP/ USD currency exchange swap arrangement on October 1, 2020, we received $300.1 million upon our payment of £224.9 million, which was used to repay the outstanding borrowings under our commercial paper program.

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

At March 31, 2021, there were no borrowings under our revolving credit facility.

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.

(2) Excludes non-cash original issuance discounts and premiums recorded on notes payable of $11.8 million and deferred financing costs of $45.7 million.

The table of obligations also excludes the October 2020 issuance of £400 million of senior unsecured notes due December 2030.

(3) Excludes deferred financing costs of $593,000.

(4) Excludes both non-cash net premiums recorded on the mortgages payable of $1.9 million and deferred financing costs of $1.1 million.

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

(4) Excludes both non-cash net premiums recorded on the mortgages payable of $1.4 million and deferred financing costs of $907,000.

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

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

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

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

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

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

(8) “Other” consists of $90.1 million of commitments under construction contracts and $6.9 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements.

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

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

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

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In order to maintain our status as a REIT for federal income tax purposes, we generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our taxable income (excluding net capital gains), and we are subject to income tax to the extent we distribute less than 100% of our taxable income (including net capital gains).

In 2019, our cash distributions to common stockholders totaled $852.1 million, or approximately 128.9% of our taxable income of $661.0 million.

Our taxable income reflects non-cash deductions for depreciation and amortization.

Our taxable income is presented to show our compliance with REIT dividend requirements and is not a measure of our liquidity or operating performance.

In 2020, our cash distributions to common stockholders totaled $964.2 million, or approximately 119.8% of our estimated taxable income of $804.9 million.

Our estimated taxable income reflects non-cash deductions for depreciation and amortization.

Our estimated taxable income is presented to show our compliance with REIT dividend requirements and is not a measure of our liquidity or operating performance.

We intend to continue to make distributions to our stockholders that are sufficient to meet this dividend requirement and that will reduce or eliminate our exposure to income taxes.

Furthermore, we believe our funds from operations and cash on hand are sufficient to support our current level of cash distributions to our stockholders.

Our cash distributions to common stockholders in the first nine months of 2020 totaled $716.5 million, representing 81.9% of our adjusted funds from operations available to common stockholders of $875.0 million.

Furthermore, we believe our cash on hand and funds from operations are sufficient to support our current level of cash distributions to our stockholders.

Our cash distributions to common stockholders in the three months ended March 31, 2021 totaled $260.7 million, representing 81.9% of our adjusted funds from operations available to common stockholders of $318.2 million.

In comparison, our 2020 cash distributions to common stockholders totaled $964.2 million, representing 82.2% of our adjusted funds from operations available to common stockholders of $1.173 billion.

Future distributions will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, FFO, AFFO, cash flow from operations, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, or the Code, our debt service requirements, and any other factors the Board of Directors may deem relevant.

In addition, our credit facility contains financial covenants that could limit the amount of distributions payable by us in the event of a default, and which prohibit the payment of distributions on the common or preferred stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facility.

our credit facility contains financial covenants that could limit the amount of distributions payable by us in the event of a default, and which prohibit the payment of distributions on our common stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facility.

Distributions of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income, except to the extent that we recognize capital gains and declare a capital gains dividend, or that such amounts constitute “qualified dividend income” subject to a reduced rate of tax.

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Distributions in excess of that basis generally will be taxable as a capital gain to stockholders who hold their shares as a capital asset.

Approximately 17.6% of the distributions to our common stockholders, made or deemed to have been made in 2020, were classified as a return of capital for federal income tax purposes.

RESULTS OF OPERATIONS

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

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

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

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

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

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

to the extent the estimated fair value is less than the current book value, a provision for impairment is recorded to reduce the book value to estimated fair value.

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

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

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

We generally assess collectability based on an analysis of creditworthiness, economic trends, and other facts and circumstances related to the applicable tenants.

When assessing the collectability of future lease payments, one of the key factors we have considered during 2020 and three months ended March 31, 2021 has been the COVID-19 pandemic.

We generally assess collectability based on an analysis of creditworthiness, economic trends, and other facts and circumstances related to our applicable clients.

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

As of September 30, 2020, other than the information related to the reserves we have 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.

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

As of March 31, 2021, other than the information related to the reserves we have recorded to such date, we do not have any further client specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable.

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

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

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

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

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

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

The following is a comparison of our results of operations for the three and nine months ended September 30, 2020, to the three and nine months ended September 30, 2019.

The following is a comparison of our results of operations for the three months ended March 31, 2021, to the three months ended March 31, 2020.

Total Revenue

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

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

2020 2019 2020 2019 Three months Nine months

Three months ended March 31,

2021 2020 Increase

Rental (excluding reimbursable)

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Rental Revenue (excluding reimbursable)

The increase in rental revenue (excluding reimbursable) in the third quarter of 2020 compared to the third quarter of 2019 is primarily attributable to:

• The 171 properties (5.0 million square feet) we acquired in 2020, which generated $12.6 million of rent in the third quarter of 2020;

• The 779 properties (13.4 million square feet) we acquired in 2019, which generated $57.1 million of rent in the third quarter of 2020, compared to $26.1 million in the third quarter of 2019, an increase of $31.0 million;

• A net increase in straight-line rent and other non-cash adjustments to rent of $1.9 million in the third quarter of 2020 as compared to the third quarter of 2019;

partially offset by

• Same store rents generated on 5,511 properties (86.2 million square feet) during the third quarter of 2020 and 2019, decreased by $13.9 million, or (4.4)%, to $303.0 million from $316.9 million;

• A net decrease of $2.8 million relating to properties sold in the third quarter of 2020 and throughout 2019 that were reported in continuing operations;

• A net decrease of $1.7 million relating to the aggregate of (i) rental revenue from properties (124 properties comprising 2.9 million square feet) that were available for lease during part of 2020 or 2019, (ii) rental revenue for eight properties under development, and (iii) lease termination settlements.

In aggregate, the revenues for these items totaled $5.9 million in the third quarter of 2020, compared to $7.6 million in the third quarter of 2019.

The increase in rental revenue (excluding reimbursable) in the first nine months of 2020 compared to the first nine months of 2019 is primarily attributable to:

• The 171 properties (5.0 million square feet) we acquired in the first nine months of 2020, which generated $24.5 million of rent in the first nine months of 2020;

• The 779 properties (13.4 million square feet) we acquired in 2019, which generated $174.5 million of rent in the first nine months of 2020, compared to $44.9 million in the first nine months of 2019, an increase of $129.6 million;

partially offset by

• Same store rents generated on 5,511 properties (86.2 million square feet) during the first nine months of 2020 and 2019, decreased by $14.6 million or (1.5)%, to $937.2 million from $951.8 million;

• A net decrease in straight-line rent and other non-cash adjustments to rent of $3.0 million in the first nine months of 2020 as compared to the first nine months of 2019;

• A net decrease of $9.6 million relating to properties sold in the first nine months of 2020 and during 2019 that were reported in continuing operations;

• A net decrease of $3.4 million relating to the aggregate of (i) rental revenue from properties (124 properties comprising 2.9 million square feet) that were available for lease during part of 2020 or 2019, (ii) rental revenue for eight properties under development, and (iii) lease termination settlements.

In aggregate, the revenues for these items totaled $18.4 million in the first nine months of 2020 compared to $21.8 million in the first nine months of 2019.

The table below summarizes the increase in rental revenue (excluding reimbursable) in the three months ended March 31, 2021 compared to the three months ended March 31, 2020:

Three Months Ended March 31, Increase/(Decrease)

Number of Properties Square Footage (1)

2021 2020 $ Change % Change

Properties acquired subsequent to December 31, 2019 332 10,942,961 $ 37,961 $ 3,209 $ 34,752 1083.0 %

Same store rental revenue 6,127 97,064,405 372,862 375,809 (2,947) (0.8) %

Constant currency adjustment (2)

N/A N/A 26 (819) 845 (103.2) %

Properties sold subsequent to December 31, 2019 154 3,965,732 171 4,159 (3,988) (95.9) %

Straight-line rent and other non-cash adjustments N/A N/A 1,646 2,378 (732) (30.8) %

Vacant rents, development and other (3)

203 3,309,527 5,022 7,055 (2,033) (28.8) %

Totals $ 417,688 $ 391,791 $ 25,897 6.6 %

(1) Excludes 2,924,920 square feet from properties ground leased to clients.

(2) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as of March 31, 2021 of 1.38 GBP/USD.

(3) Relates to the aggregate of (i) rental revenue from properties (197 properties comprising 2,973,971 square feet) that were available for lease during part of 2021 or 2020, (ii) rental revenue for properties (six properties comprising 335,556 square feet) under development, and (iii) lease termination settlements.

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

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

Same store rental income was negatively impacted by reserves recorded as reductions of rental revenue of $19.9 million for the three months ended September 30, 2020 compared to $241,000 for the three months ended September 30, 2019, and $26.5 million for the nine months ended September 30, 2020 compared to $1.2 million for the nine months ended September 30, 2019.

Same store rental income was negatively impacted by reserves recorded as reductions of rental revenue of $7.4 million for the three months ended March 31, 2021 compared to $819,000 for the three months ended March 31, 2020.

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

If these applicable amounts of rent deferrals and uncollected rent were excluded from our calculation of same store rental revenue, the decreases for the three and nine months ended September 30, 2020 relative to the comparable periods for 2019 would have been (4.6)% and (5.9)%, respectively.

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

If these applicable amounts of rent deferrals and uncollected rent were excluded from our calculation of same store rental revenue, the decreases for the three months ended March 31, 2021 relative to the comparable period for 2020 would have been (8.6)%.

Rental revenue was negatively impacted by rent reserves for the three months ended March 31, 2021, primarily due to the COVID-19 pandemic, particularly with respect to the ongoing disruption to the theater industry.

As the COVID-19 pandemic did not affect our rent collections until April 2020, there was no related impact for the three months ended March 31, 2020.

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

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Total rental revenue reserves $ 8.8 $ 1.8

Of the 6,588 properties in the portfolio at September 30, 2020, 6,554, or 99.5%, are single-tenant properties and the remaining are multi-tenant properties.

Of the 6,554 single-tenant properties, 6,465, or 98.6%, were net leased at September 30, 2020.

Of our 6,465 leased single-tenant properties, 5,527 or 85.5% were under leases that provide for increases in rents through:

Of the 6,662 properties in the portfolio at March 31, 2021, 6,621, or 99.4%, are single-client properties and the remaining are multi-client properties.

Of the 6,621 single-client properties, 6,494, or 98.1%, were net leased at March 31, 2021.

Of our 6,494 leased single-client properties, 5,544 or 85.4% were under leases that provide for increases in rents through:

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

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

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

• Fixed increases;

• A combination of two or more of the above rent provisions.

Percentage rent, which is included in rental revenue, was $532,000 in the third quarter of 2020, $407,000 in the third quarter of 2019, $2.3 million in the first nine months of 2020, and $4.5 million in the first nine months of 2019.

Percentage rent, which is included in rental revenue, was $1.0 million in the three months ended March 31, 2021 and $1.2 million in the three months ended March 31, 2020.

We anticipate percentage rent to be less than 1% of rental revenue for 2021.

At September 30, 2020, our portfolio of 6,588 properties was 98.6% leased with 92 properties available for lease, as compared to 98.6% leased, with 94 properties available for lease at December 31, 2019, and 98.3% leased with 102 properties available for lease at September 30, 2019.

At March 31, 2021, our portfolio of 6,662 properties was 98.0% leased with 131 properties available for lease, as compared to 97.9% leased, with 140 properties available for lease at December 31, 2020, and 98.5% leased with 97 properties available for lease at March 31, 2020.

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

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Rental Revenue (reimbursable)

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

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

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

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

Other Revenue

The increase in other revenue in the third quarter of 2020 and first nine months of 2020 compared to the same periods of 2019 was primarily related to interest income recognized on financing receivables for certain leases with above-market terms as compared to the first nine months of 2019.

In addition, interest income from our money market accounts was higher during the first nine months of 2020 than the comparative period in 2019, which is primarily due to higher average investment balances.

The increase in other revenue in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, was primarily related to interest income recognized on financing receivables for certain leases with above-market terms.

Total Expenses

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

Three months ended September 30, Nine months ended September 30, $ Increase

2020 2019 2020 2019 Three months Nine months

Three months ended March 31,

2021 2020 $ Increase/ (Decrease)

Depreciation and amortization

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

4.3 % 4.6 % 4.5 % 4.8 %

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

1.9 % 1.3 % 1.5 % 1.3 %

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

The total value of cash, stock compensation and professional fees incurred as a result of this severance was $3,463 and was recorded to general and administrative expense (see our discussion of Adjusted Funds from Operations Available to Common Stockholders, or AFFO, which is not a financial measure under generally accepted accounting principles).

In order to present a normalized calculation of our general and administrative expenses as a percentage of total revenue for the first nine months of 2020, we have excluded this executive severance charge to arrive at a normalized general and administrative amount of $53,078, which was used for our calculation.

(1) General and administrative expenses for the three months ended March 31, 2020 included an executive severance charge related to the departure of our former CFO in March 2020.

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

In order to present a normalized calculation of our general and administrative expenses as a percentage of total revenue for the three months ended March 31, 2020, we have excluded this executive severance charge to arrive at a normalized general and administrative amount of $17,501, which was used for our calculation.

(2) Excludes rental revenue (reimbursable).

Depreciation and Amortization

The increase in depreciation and amortization in the third quarter and first nine months of 2020 was primarily due to the acquisition of properties during the fourth quarter of 2019 and the first nine months of 2020, which was partially offset by property sales in those same periods.

As discussed in the sections entitled “Funds from Operations Available to Common Stockholders (FFO)” and “Adjusted Funds from Operations Available to Common Stockholders (AFFO),” depreciation and amortization is a non-cash item that is added back to net income available to common stockholders for our calculation of FFO and AFFO.

The increase in depreciation and amortization for the three months ended March 31, 2021 was primarily due to the acquisition of properties in 2020 and for the three months ended March 31, 2021, which was partially offset by property sales in those same periods.

As discussed in the sections entitled “Funds from Operations Available to Common Stockholders (FFO)” and “Adjusted Funds from Operations Available to Common Stockholders (AFFO),”

depreciation and amortization is a non-cash item that is added back to net income available to common stockholders for our calculation of FFO and AFFO.

Interest Expense

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

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

2020 2019 2020 2019

Interest on our credit facility, commercial paper, term loans, notes, mortgages and interest rate swaps $ 73,174 $ 69,889 $ 218,991 $ 206,247

Three months ended March 31,

Interest on our credit facility, commercial paper, term loan, notes, mortgages and interest rate swaps $ 69,528 $ 72,196

Credit facility commitment fees

958 958 2,854 2,844

Amortization of debt origination and deferred financing costs

2,584 2,552 7,752 6,930

Loss on interest rate swaps

1,123 694 3,116 2,058

Amortization of net mortgage premiums

(311) (354) (1,021) (1,061)

Amortization of net note premiums

(690) (211) (1,096) (784)

(32) (118) (24) (316)

Interest capitalized (486) (132)

Capital lease obligation 77 77

Interest expense

$ 73,075 $ 75,925

Credit facility, term loans, mortgages and notes

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

Average outstanding balances (dollars in thousands)

2 unchanged sentences

3.27 % 3.61 %

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

During the first nine months of 2020, the weighted average interest rate on our:

• Revolving credit facility outstanding borrowings of $556.1 million was 1.5%;

The decrease in interest expense for the three months ended March 31, 2021 is primarily due to lower average interest rates on our credit facility, the June 2020 repayment of our previous $250.0 million term loan, repayments of outstanding mortgages and higher capitalized interest related to our development projects, partially offset by our 2020 issuances of notes.

During the three months ended March 31, 2021, the weighted average interest rate on our:

• Commercial paper outstanding borrowings of $675.0 million was 0.3%;

• Term loan outstanding of $250.0 million (excluding deferred financing costs of $692,000 and considering that one of our $250.0 million term loans was paid off in June 2020) was 1.8%;

• Mortgages payable of $334.7 million (excluding net premiums totaling $1.9 million and deferred financing costs of $1.1 million on these mortgages) was 4.9%;

• Term loan outstanding of $250.0 million (excluding deferred financing costs of $593,000) was swapped to fixed at 3.9%;

• Mortgages payable of $281.5 million (excluding net premiums totaling $1.4 million and deferred financing costs of $907,000 on these mortgages) was 4.8%;

• Notes and bonds payable of $7.36 billion (excluding net unamortized original issue premiums of $11.8 million and deferred financing costs of $45.7 million) was 3.4%;

• Combined outstanding notes, bonds, mortgages, term loan and $3.0 billion revolving credit facility and commercial paper borrowings of $8.45 billion (excluding all net premiums and deferred financing costs) was 3.5%.

• Combined outstanding notes, bonds, mortgages, term loan and commercial paper borrowings of $8.57 billion (excluding all net premiums and deferred financing costs) was 3.3%.

Property Expenses (excluding reimbursable)

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

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

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

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

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

At September 30, 2020, 92 properties were available for lease or sale, as compared to 94 at December 31, 2019, and 102 at September 30, 2019.

The increase in property expenses (excluding reimbursable) for the third quarter and first nine months of 2020 is primarily due to reserves for tenant reimbursements and an increase in repairs and maintenance expense.

At March 31, 2021, 131 properties were available for lease or sale, as compared to 140 at December 31, 2020, and 97 at March 31, 2020.

The increase in property expenses (excluding reimbursable) for the three months ended March 31, 2021 is primarily due to an increase in property taxes, an increase in reserves for contractually obligated reimbursements by our clients, and an increase in portfolio size at March 31, 2021.

Property Expenses (reimbursable)

The increase in property expenses (reimbursable) in the third quarter and first nine months of 2020 was primarily attributable to the increased portfolio size, which contributed to higher contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses primarily due to our acquisitions in each period.

The increase in property expenses (reimbursable) for the three months ended March 31, 2021 was primarily attributable to the increased portfolio size, which contributed to higher operating expenses primarily due to our acquisitions in in 2020 and the three months ended March 31, 2021.

General and Administrative Expenses

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

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

General and administrative expenses for the three months ended March 31, 2020 included a severance charge of $3.5 million for our former CFO.

Excluding this severance charge, general administrative expenses for the three months ended March 31, 2021 increased by $3.3 million, primarily due to higher payroll-related costs and higher corporate-level professional fees, partially offset by lower costs for travel.

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

income taxes accrued or paid by us and our subsidiaries.

The increase in income taxes in the third quarter and first nine months of 2020 was primarily attributable to our U.K.

The increase in income taxes for the three months ended March 31, 2021 was primarily attributable to our increased volume of U.K.

investments, which contributed to higher U.K.

income taxes as compared to the third quarter and first nine months of 2019.

income taxes as compared to the three months ended March 31, 2020.

Provisions for Impairment

The following table summarizes 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

2 unchanged sentences

Classified as held for investment 4 1

Sold 17 24 31 36

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.

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 sold 27 17

1 unchanged sentence

Gain on sales of real estate $ 8.4 $ 38.5

Foreign Currency and Derivative Losses/Gains, Net

Foreign Currency and Derivative Gains/Losses, Net

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

1 unchanged sentence

Loss on Extinguishment of Debt

In January 2021, we completed the early redemption on all $950.0 million in principal amount of 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 for the three months ended March 31, 2021.

In January 2020, we completed the early redemption on all $250.0 million in principal amount of 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 during the first nine months of 2020.

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

Net Income Available to Common Stockholders

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

Three months ended September 30, Nine months ended September 30, % Decrease

Three months Nine

2020 2019 2020 2019

Three months ended March 31,

Net income available to common stockholders

4 unchanged sentences

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

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

(i) $123.4 million of provisions for impairment in first nine months of 2020, of which $105.1 million related to the third quarter, (ii) $34.4 million in reserves recorded as a reduction of rental revenue in the first nine months of 2020, of which $24.1 million related to the third quarter, (iii) a $9.8 million loss on extinguishment of debt due to the January 2020 early redemption of the 5.750% notes due 2021 recorded in the first quarter of 2020, and (iv) a $3.5 million executive severance charge for our former CFO also recorded in the first quarter of 2020.

Net income available to common stockholders for the for the three months ended March 31, 2021 and March 31, 2020 were impacted by a $46.5 million loss on extinguishment of debt due to the January 2021 early redemption of the 3.250% notes due October 2022 and a $9.8 million loss on extinguishment of debt due to the January 2020 early redemption of the 5.750% Notes due January 2021, respectively.

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

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

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

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

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

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

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

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

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

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

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

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

The following table summarizes our Adjusted EBITDA re and Pro Forma Adjusted EBITDA re calculation for the periods indicated below (dollars in thousands):

Three months ended September 30,

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

Annualized Adjusted EBITDA re and Annualized Pro Forma Adjusted EBITDA re , as defined below, are also used to determine the vesting of performance share awards granted to executive officers.

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

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

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

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

The following table summarizes our Annualized Adjusted EBITDA re and Annualized Pro Forma Adjusted EBITDA re calculations for the periods indicated below (dollars in thousands):

Three months ended March 31,

Net income (1)

1 unchanged sentence

73,075 75,925

Loss on extinguishment of debt 46,473 9,819

Depreciation and amortization

177,985 164,585

Executive severance charge (2)

Provisions for impairment

105,095 13,503

Gain on sales of real estate

(8,401) (38,506)

Foreign currency and derivative gains, net (2,336) (327)

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

Quarterly Adjusted EBITDA re

6 unchanged sentences

$ 8,348,511 $ 7,493,810

Net Debt/Adjusted EBITDA re

Net Debt/Pro forma Adjusted EBITDA re

(1) Net income for the three months ended September 30, 2020 was negatively impacted by $24.1 million of rent reserves recorded as reductions of rental revenue, of which $2.3 million relates to straight-line rent receivables.

Net Debt/Annualized Adjusted EBITDA re

Net Debt/Annualized Pro forma Adjusted EBITDA re

(1) Net income for the three months ended March 31, 2021 was negatively impacted by $8.8 million of rent reserves recorded as reductions of rental revenue, of which $451,000 relates to straight-line rent receivables.

Net income for the three months ended March 31, 2020 was negatively impacted by $1.8 million of rent reserves recorded as reductions of rental revenue, of which $671,000 relates to straight-line rent receivables.

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

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

The Annualized Pro forma Adjustments for the three months ended September 30, 2020 consists of $25.2 million from properties we acquired or stabilized during the quarter and removes $614,000 of operating income from properties we disposed of during the quarter, assuming all transactions occurred at the beginning of the quarter.

The Annualized Pro forma Adjustments for the three months ended September 30, 2019 consists of $15.6 million from properties we acquired or stabilized during the quarter and removes $552,000 of operating losses from properties we disposed of during the quarter, assuming all transactions occurred at the beginning of the quarter.

The pro forma adjustments are consistent with the debt service coverage ratio calculated under financial covenants for our senior unsecured notes and bonds.

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

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

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

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

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

Three months ended March 31,

Dollars in thousands 2021 2020

Annualized pro forma adjustments from properties acquired or stabilized $ 31,232 $ 14,681

Annualized pro forma adjustments from properties disposed (148) (3,808)

Annualized Pro forma Adjustments $ 31,084 $ 10,873

FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (FFO)

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

Three months ended September 30, Nine months ended September 30, % Increase

Three months Nine

2020 2019 2020 2019

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

Three months ended March 31,

2021 2020 % Decrease

FFO available to common stockholders

3 unchanged sentences

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

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

FFO in the three months ended March 31, 2021 was impacted by reserves recorded as a reduction of rental revenue related to the COVID-19 pandemic and a loss on extinguishment of debt due to the early redemption of the 3.250% notes due 2022 in January 2021.

FFO in the three months ended March 31, 2020 was impacted by a loss on extinguishment of debt due to the early redemption of the 5.750% notes due 2021 in January 2020 and an executive severance charge for our former CFO in March 2020

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

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

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

2020 2019 2020 2019

Three months ended March 31,

Net income available to common stockholders

3 unchanged sentences

Depreciation of furniture, fixtures and equipment

(157) (136) (435) (438)

Provisions for impairment

105,095 13,503 123,442 31,236

Gain on sales of real estate

1 unchanged sentence

FFO adjustments allocable to noncontrolling interests

(212) (135) (575) (327)

FFO available to common stockholders

2 unchanged sentences

$ 267,707 $ 277,473

$ 283,323 $ 262,393 $ 849,482 $ 760,227

FFO per common share:

Basic $ 0.82 $ 0.82 $ 2.48 $ 2.44

Diluted $ 0.82 $ 0.82 $ 2.48 $ 2.43

Basic and diluted $ 0.72 $ 0.82

Distributions paid to common stockholders

10 unchanged sentences

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

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

ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (AFFO)

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

Three months ended September 30, Nine months ended September 30, % Increase (Decrease)

Three months Nine

2020 2019 2020 2019

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

Three months ended March 31,

% Increase/ (Decrease)

AFFO available to common stockholders

3 unchanged sentences

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

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

AFFO in the three months ended March 31, 2021 was impacted by reserves recorded as a reduction of rental revenue related to the COVID-19 pandemic.

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

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

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

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

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

2020 2019 2020 2019

Three months ended March 31,

Net income available to common stockholders (1)

7 unchanged sentences

Amortization of share-based compensation

3,020 3,187 11,644 10,478

Amortization of deferred financing costs (4)

956 1,299 3,792 3,471

Amortization of net mortgage premiums

(310) (354) (1,020) (1,061)

Loss on interest rate swaps

1,123 694 3,115 2,058

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

614 1,754 1,960 2,553

Leasing costs and commissions (706) (138)

Recurring capital expenditures

(105) (406) (126) (577)

Straight-line rent

2 unchanged sentences

Other adjustments (6)

(1,828) 157 463 297

AFFO available to common stockholders

2 unchanged sentences

$ 318,573 $ 297,599

$ 282,856 $ 265,723 $ 876,051 $ 769,090

AFFO per common share:

Basic $ 0.82 $ 0.83 $ 2.56 $ 2.47

Diluted $ 0.81 $ 0.83 $ 2.55 $ 2.46

Basic and diluted $ 0.86 $ 0.88

Distributions paid to common stockholders

5 unchanged sentences

372,065,020 337,439,634

(1) As of September 30, 2020, there was $26.5 million of uncollected rent deferred as a result of lease concessions we granted in response to the COVID-19 pandemic and recognized under the practical expedient provided by the FASB and $36.4 million of uncollected rent for which we have not granted a lease concession.

The collection of the $62.9 million of unpaid rent is probable.

Deferrals accounted for as modifications totaling $63,000 and $224,000 for the three and nine months ended September 30, 2020, respectively, have not been added back to AFFO.

(1) As of March 31, 2021, there was $22.3 million of uncollected rent deferred as a result of lease concessions we granted in response to the COVID-19 pandemic and recognized under the practical expedient provided by the FASB and $69.8 million of uncollected rent for which we have not granted a lease concession.

As the COVID-19 pandemic did not affect our rent collections until April 2020, there was no related impact for the three months ended March 31, 2020.

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

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

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

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

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

The deferred financing costs are being amortized over the lives of the respective notes

payable, mortgages and term loan.

No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included.

11 unchanged sentences

PROPERTY PORTFOLIO INFORMATION

At September 30, 2020, we owned a diversified portfolio:

At March 31, 2021, we owned a diversified portfolio:

• Of 6,662 properties;

1 unchanged sentence

• Doing business in 56 separate industries;

• Located in 49 U.S.

• Located in all U.S.

states, Puerto Rico and the U.K.;

• With approximately 114.2 million square feet of leasable space;

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

• With a weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of approximately 8.9 years;

• With an average leasable space per property of approximately 17,150 square feet;

approximately 12,420 square feet per retail property and 250,670 square feet per industrial property.

At September 30, 2020, 6,496 properties were leased under net lease agreements.

A net lease typically requires the tenant to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance.

In addition, our tenants are typically subject to future rent increases based on increases in the consumer price index (typically subject to ceilings), additional rent calculated as a percentage of the tenants’ gross sales above a specified level, or fixed increases.

We define total portfolio annualized contractual rental revenue as the monthly aggregate cash amount charged to tenants, inclusive of monthly base rent receivables, as of the balance sheet date, multiplied by 12, excluding percentage rent.

At March 31, 2021, 6,531 properties were leased under net lease agreements.

A net lease typically requires the client to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance.

In addition, our clients are typically subject to future rent increases based on increases in the consumer price index (typically subject to ceilings), additional rent calculated as a percentage of the client's gross sales above a specified level, or fixed increases.

We define total portfolio annualized contractual rent as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables, but excluding percentage rent and reimbursements from clients, as of the balance sheet date, multiplied by 12, excluding percentage rent.

We believe total portfolio annualized contractual revenue is a useful supplemental operating measure, as it excludes properties that were no longer owned at the balance sheet date and includes the annualized rent from properties acquired during the quarter.

Total portfolio annualized contractual rental revenue has not been reduced to reflect reserves recorded as reductions to GAAP rental revenue in the periods presented.

Total portfolio annualized contractual rent has not been reduced to reflect reserves recorded as reductions to GAAP rental revenue in the periods presented.

Industry Diversification

The following table sets forth certain information regarding our property portfolio classified according to the business of the respective tenants, expressed as a percentage of our total portfolio annualized contractual rental revenue:

Percentage of Total Portfolio Annualized Contractual Rental Revenue by Industry

September 30, 2020

The following table sets forth certain information regarding our property portfolio classified according to the business of the respective clients, expressed as a percentage of our total portfolio annualized contractual rent:

Percentage of Total Portfolio Annualized Contractual Rent by Industry

0.6% 0.6% 0.8% 0.9% 1.0% 1.1%

78 unchanged sentences

Grocery stores 5.3 4.9 2.7 — — —

3.4 2.7 — — — —

0.1 — — — — —

Health care 0.1 0.1 — — — —

Home improvement 1.4 1.2 — — — —

Theaters * * — — — —

Warehousing and storage 0.3 — — — — —

0.1 * * — — —

7.2% 6.2% 2.7% — — —

Totals 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

1 unchanged sentence

Property Type Composition

The following table sets forth certain property type information regarding our property portfolio as of September 30, 2020 (dollars in thousands):

The following table sets forth certain property type information regarding our property portfolio as of March 31, 2021 (dollars in thousands):

Property Type

Square Feet (1)

Total Portfolio Annualized Contractual Rental Revenue as of

September 30, 2020

Percentage of Total Portfolio Annualized Contractual

Rental Revenue

Total Portfolio Annualized Contractual Rent as of

March 31, 2021

Percentage of Total Portfolio Annualized Contractual Rent

6,483 80,550,800 $ 1,452,509 83.9 %

4 unchanged sentences

(1) Includes leasable building square footage.

Excludes 3,300 acres of leased land categorized as agriculture at September 30, 2020.

Tenant Diversification

The following table sets forth the 20 largest tenants in our property portfolio, expressed as a percentage of total portfolio annualized contractual rental revenue, which does not give effect to deferred rent, at September 30, 2020:

Percentage of Total Portfolio Annualized Contractual

Rental Revenue (1)

Excludes 3,300 acres of leased land categorized as agriculture at March 31, 2021.

Client Diversification

The following table sets forth the 20 largest clients in our property portfolio, expressed as a percentage of total portfolio annualized contractual rent, which does not give effect to deferred rent, at March 31, 2021:

Client Number of

Percentage of Total Portfolio Annualized Contractual Rent (1)

Walgreens 248 5.5 %

3 unchanged sentences

Dollar Tree / Family Dollar 552 3.2 %

Sainsbury's 21 3.1 %

LA Fitness 56 3.0 %

Regal Cinemas (Cineworld) 42 2.8 %

AMC Theaters 34 2.8 %

Sainsbury's 17 2.6 %

Regal Cinemas (Cineworld) 41 2.6 %

Walmart/ Sam's Club 57 2.6 %

2 unchanged sentences

BJ's Wholesale Clubs 15 1.6 %

Speedway (Marathon) 161 1.6 %

Treasury Wine Estates 17 1.5 %

CVS Pharmacy 88 1.5 %

Super America (Marathon) 161 1.6 %

Kroger 22 1.5 %

Home Depot 23 1.4 %

GPM Investments / Fas Mart 203 1.4 %

TBC Corp 159 1.2 %

Kroger 22 1.4 %

B&Q (Kingfisher) 11 1.4 %

Tesco 10 1.4 %

Total 2,921 51.2 %

(1) Amounts for each tenant are calculated independently;

(1) Amounts for each client are calculated independently;

therefore, the individual percentages may not sum to the total.

Lease Expirations

The following table sets forth certain information regarding the timing of the lease term expirations in our portfolio (excluding rights to extend a lease at the option of the tenant) and their contribution to total portfolio annualized contractual rental revenue as of September 30, 2020 (dollars in thousands):

The following table sets forth certain information regarding the timing of the lease term expirations in our portfolio (excluding rights to extend a lease at the option of the client) and their contribution to total portfolio annualized contractual rent as of March 31, 2021 (dollars in thousands):

Total Portfolio (1)

Total Portfolio Annualized Contractual Rental Revenue as of

September 30, 2020

Percentage of Total Portfolio Annualized Contractual

Rental Revenue

Total Portfolio Annualized Contractual Rent as of March 31, 2021

Percentage of Total Portfolio Annualized Contractual Rent

2021 128 10 1,103,900 22,633 1.3 %

15 unchanged sentences

6,441 187 112,403,100 $ 1,730,449 100.0 %

(1) The table sets forth the timing of remaining lease terms expirations in our portfolio and their contributions to contractual rental revenue as of September 30, 2020.

Leases on our multi-tenant properties are counted separately in the table above.

(1) Leases on our multi-client properties are counted separately in the table above.

This table excludes 154 vacant units.

Geographic Diversification

The following table sets forth certain state-by-state information regarding our property portfolio as of September 30, 2020 (dollars in thousands):

The following table sets forth certain state-by-state information regarding our property portfolio as of March 31, 2021 (dollars in thousands):

Percent Leased

Total Portfolio Annualized Contractual Rental as of

September 30, 2020

Percentage of Total Portfolio Annualized Contractual

Rental Revenue

Total Portfolio Annualized Contractual Rent as of

March 31, 2021

Percentage of Total Portfolio Annualized Contractual Rent

225 95 % 2,127,700 $ 30,882 1.8 %

8 unchanged sentences

299 99 4,562,800 60,064 3.5

Hawaii 22 100 47,800 6,926 0.4

14 93 103,200 1,766 0.1

48 unchanged sentences

IMPACT OF INFLATION

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

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

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

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

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

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

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

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

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

For the period ended September 30, 2020 there were no recently adopted accounting pronouncements that had a material impact on our business.

For information on the impact of newly adopted accounting standards on our business, see note 2 of the Notes to the Consolidated Financial Statements.

OTHER INFORMATION

3 unchanged sentences

We maintain a corporate website at www.realtyincome.com.

On our website we make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, Form 3s, Form 4s, Form 5s, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file these reports with the Securities and Exchange Commission, or SEC.

On our website we make available, free of charge, copies of our annual report on Form 10-K , quarterly reports on Form 10-Q, Form 3s, Form 4s, Form 5s, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file these reports with the SEC.

None of the information on our website is deemed to be part of this report.

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 2. Management’s Discussion and Analysis