REALTY INCOME CORP 10-Q

Item 1. Financial Statements REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share and share count data) March 31, 2021 December 31, 2020 ASSETS (unaudited) Real estate held for investment, at cost: Land $ 6,672,885 $ 6,318,926 Buildings and improvements 15,171,070 14,696,712 Total real estate held for investment, at cost 21,843,955 21,015,638 Less accumulated depreciation and amortization ( 3,668,269 ) ( 3,549,486 ) Real estate held for investment, net 18,175,686 17,466,152 Real estate and lease intangibles held for sale, net 22,500 19,004 Cash and cash equivalents 183,984 824,476 Accounts receivable, net 307,017 285,701 Lease intangible assets, net 1,820,146 1,710,655 Other assets, net 470,237 434,297 Total assets $ 20,979,570 $ 20,740,285 LIABILITIES AND EQUITY Distributions payable $ 88,662 $ 85,691 Accounts payable and accrued expenses 200,168 241,336 Lease intangible liabilities, net 313,907 321,198 Other liabilities 277,325 256,863 Line of credit payable and commercial paper 675,000 — Term loan, net 249,407 249,358 Mortgages payable, net 282,037 300,360 Notes payable, net 7,326,051 8,267,749 Total liabilities 9,412,557 9,722,555 Commitments and contingencies Stockholders’ equity: Common stock and paid in capital, par value $ 0.01 per share, 740,200,000 shares authorized, 373,509,822 and 361,303,445 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively 15,371,016 14,700,050 Distributions in excess of net income ( 3,827,660 ) ( 3,659,933 ) Accumulated other comprehensive loss ( 8,484 ) ( 54,634 ) Total stockholders’ equity 11,534,872 10,985,483 Noncontrolling interests 32,141 32,247 Total equity 11,567,013 11,017,730 Total liabilities and equity $ 20,979,570 $ 20,740,285 The accompanying notes to consolidated financial statements are an integral part of these statements. -2- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (dollars in thousands, except per share data) (unaudited) Three months ended March 31, 2021 2020 REVENUE Rental (including reimbursable) $ 439,365 $ 412,157 Other 3,439 2,184 Total revenue 442,804 414,341 EXPENSES Depreciation and amortization 177,985 164,585 Interest 73,075 75,925 Property (including reimbursable) 28,499 25,606 General and administrative 20,796 20,964 Income taxes 6,225 2,763 Provisions for impairment 2,720 4,478 Total expenses 309,300 294,321 Gain on sales of real estate 8,401 38,506 Foreign currency and derivative gains (losses), net 804 ( 1,564 ) Loss on extinguishment of debt ( 46,473 ) ( 9,819 ) Net income 96,236 147,143 Net income attributable to noncontrolling interests ( 296 ) ( 316 ) Net income available to common stockholders $ 95,940 $ 146,827 Amounts available to common stockholders per common share: Net Income: Basic and diluted $ 0.26 $ 0.44 Weighted average common shares outstanding: Basic 371,522,607 336,624,567 Diluted 371,601,901 336,976,515 Other comprehensive income: Net income available to common stockholders $ 95,940 $ 146,827 Foreign currency translation adjustment ( 259 ) 392 Unrealized gain (loss) on derivatives, net 46,409 ( 25,862 ) Comprehensive income available to common stockholders $ 142,090 $ 121,357 The accompanying notes to consolidated financial statements are an integral part of these statements. -3- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (dollars in thousands) (unaudited) Three Months Ended March 31, 2021 and 2020 Shares of common stock Common stock and paid in capital Distributions in excess of net income Accumulated other comprehensive loss Total stockholders’ equity Noncontrolling interests Total equity Balance, December 31, 2019 333,619,106 $ 12,873,849 $ ( 3,082,291 ) $ ( 17,102 ) $ 9,774,456 $ 29,702 $ 9,804,158 Net Income — — 146,827 — 146,827 316 147,143 Other comprehensive loss — — — ( 25,470 ) ( 25,470 ) — ( 25,470 ) Distributions paid and payable — — ( 238,004 ) — ( 238,004 ) ( 394 ) ( 238,398 ) Share issuances, net of costs 9,724,500 730,776 — — 730,776 — 730,776 Share-based compensation, net 58,424 ( 570 ) — — ( 570 ) — ( 570 ) Balance, March 31, 2020 343,402,030 $ 13,604,055 $ ( 3,173,468 ) $ ( 42,572 ) $ 10,388,015 $ 29,624 $ 10,417,639 Balance, December 31, 2020 361,303,445 $ 14,700,050 $ ( 3,659,933 ) $ ( 54,634 ) $ 10,985,483 $ 32,247 $ 11,017,730 Net income — — 95,940 — 95,940 296 96,236 Other comprehensive income — — — 46,150 46,150 — 46,150 Distributions paid and payable — — ( 263,667 ) — ( 263,667 ) ( 402 ) ( 264,069 ) Share issuances, net of costs 12,118,394 672,221 — — 672,221 — 672,221 Share-based compensation, net 87,983 ( 1,255 ) — — ( 1,255 ) — ( 1,255 ) Balance, March 31, 2021 373,509,822 $ 15,371,016 $ ( 3,827,660 ) $ ( 8,484 ) $ 11,534,872 $ 32,141 $ 11,567,013 The accompanying notes to consolidated financial statements are an integral part of these statements. -4- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Three months ended March 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 96,236 $ 147,143 Adjustments to net income: Depreciation and amortization 177,985 164,585 Amortization of share-based compensation 3,697 5,518 Non-cash revenue adjustments ( 1,163 ) ( 1,352 ) Loss on extinguishment of debt 46,473 9,819 Amortization of net premiums on mortgages payable ( 280 ) ( 354 ) Amortization of deferred financing costs 2,654 2,581 Loss on interest rate swaps 722 686 Foreign currency and derivative (gains) losses, net ( 804 ) 1,564 Gain on sales of real estate ( 8,401 ) ( 38,506 ) Provisions for impairment on real estate 2,720 4,478 Change in assets and liabilities Accounts receivable and other assets ( 21,367 ) 3,005 Accounts payable, accrued expenses and other liabilities ( 32,019 ) ( 33,951 ) Net cash provided by operating activities 266,453 265,216 CASH FLOWS FROM INVESTING ACTIVITIES Investment in real estate ( 1,026,690 ) ( 473,245 ) Improvements to real estate, including leasing costs ( 1,741 ) ( 3,658 ) Proceeds from sales of real estate 34,705 126,233 Insurance and other proceeds received — 539 Non-refundable escrow deposits — ( 1,280 ) Net cash used in investing activities ( 993,726 ) ( 351,411 ) CASH FLOWS FROM FINANCING ACTIVITIES Cash distributions to common stockholders ( 260,697 ) ( 233,824 ) Borrowings on line of credit and commercial paper program 1,413,694 846,532 Payments on line of credit and commercial paper program ( 735,489 ) ( 921,859 ) Principal payment on notes payable ( 950,000 ) ( 250,000 ) Principal payments on mortgages payable ( 18,110 ) ( 1,673 ) Payments upon extinguishment of debt ( 47,235 ) ( 9,445 ) Proceeds from common stock offerings, net 669,590 728,883 Proceeds from dividend reinvestment and stock purchase plan 2,654 2,366 Distributions to noncontrolling interests ( 402 ) ( 394 ) Net receipts on derivative settlements 845 1,251 Other items, including shares withheld upon vesting ( 4,974 ) ( 6,561 ) Net cash provided by financing activities 69,876 155,276 Effect of exchange rate changes on cash and cash equivalents 48 ( 2,929 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 657,349 ) 66,152 Cash, cash equivalents and restricted cash, beginning of period 850,679 71,005 Cash, cash equivalents and restricted cash, end of period $ 193,330 $ 137,157 For supplemental disclosures, see note 17. The accompanying notes to consolidated financial statements are an integral part of these statements. -5- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (unaudited) 1. Basis of Presentation The consolidated financial statements of Realty Income Corporation (“Realty Income”, the “Company”, “we”, “our” or “us”) were prepared from our books and records without audit and include all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented. Readers of this quarterly report should refer to our audited consolidated financial statements for the year ended December 31, 2020, which are included in our 2020 Annual Report on Form 10-K , as certain disclosures that would substantially duplicate those contained in the audited financial statements have not been included in this report. Unless otherwise indicated, all dollar amounts are expressed in United States (U.S.) dollars. At March 31, 2021 we owned 6,662 properties, located in all U.S. states, Puerto Rico and the United Kingdom (U.K.), consisting of approximately 114.2 million leasable square feet. 2. Summary of Significant Accounting Policies and Procedures Principles of Consolidation. The accompanying consolidated financial statements include the accounts of Realty Income and other subsidiaries for which we make operating and financial decisions (i.e., control), after elimination of all material intercompany balances and transactions. We consolidate entities that we control and record a noncontrolling interest for the portion that we do not own. Noncontrolling interest that was created or assumed as part of a business combination or asset acquisition was recognized at fair value as of the date of the transaction (see note 10). We have no unconsolidated investments. Federal Income Taxes. We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended. We believe we have qualified and continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income. Assuming our dividends equal or exceed our taxable net income, we generally will not be required to pay federal corporate income taxes on such income. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of our taxable REIT subsidiaries. The income taxes recorded on our consolidated statements of income and comprehensive income represent amounts accrued or paid by Realty Income and its subsidiaries for city and state income and franchise taxes and for U.K. income taxes. Lease Revenue Recognition and Accounts Receivable. The COVID-19 pandemic and the measures taken to limit its spread are negatively impacting the economy across many industries, including the industries in which some of our clients operate. These impacts may continue as the duration and severity of the pandemic increases. As a result, we have closely monitored the collectability of our accounts receivable and continue to evaluate the potential impacts of the COVID-19 pandemic and the measures taken to limit its spread on our business and industry segments as the situation continues to evolve and more information becomes available. We must continue to assess the probability of collecting substantially all of the lease payments to which we are entitled under the original lease contract as required under Topic 842, Leases . If a company concludes collection of substantially all lease payments under a lease is less than probable, rental revenue recognized for that lease is limited to cash received going forward, existing operating lease receivables must be written off as an adjustment to rental revenue, and no further operating lease receivables are recorded for that lease until such future determination is made that substantially all lease payments under that lease are now considered probable. The majority of concessions granted to our clients during 2020 and the three months ended March 31, 2021 as a result of the COVID-19 pandemic have been rent deferrals with the original lease term unchanged. We currently anticipate future concessions to be similar. In accordance with the guidance provided by the Financial Accounting Standards Board (FASB) staff, we have elected to account for these leases as if the right of deferral existed in the lease contract and therefore continue to recognize lease revenue in accordance with the lease contract in effect. In limited circumstances, the undiscounted cash flows resulting from deferrals granted increased significantly from original lease terms, which required us to account for these as lease modifications, and resulted in an insignificant impact to rental revenue for the three months ended March 31, 2021. Similarly, rent abatements granted, which are also accounted for as lease modifications, impacted our rental revenue by an insignificant amount for the three -6- Table of Contents months ended March 31, 2021. As our rent collections were unaffected by the COVID-19 pandemic for the three months ended March 31, 2020, there was no impact for that period. Unless otherwise specified, references to reserves recorded as a reduction of rental revenue include amounts reserved for in the current period, as well as unrecognized contractual rental revenue and unrecognized straight-line rental revenue for leases accounted for on a cash basis. The following table summarizes reserves recorded as a reduction of rental revenue (dollars in millions): Three months ended March 31, 2021 2020 Rental revenue reserves $ 8.3 $ 1.1 Straight-line rent reserves 0.5 0.7 Total rental revenue reserves $ 8.8 $ 1.8 As of March 31, 2021, other than the information related to the reserves recorded to date, we do not have any further client specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable. However, since the conversations regarding rent collections for our clients affected by the COVID-19 pandemic are ongoing and we do not currently know the types of future concessions, if any, that will ultimately be granted, there may be impacts in future periods that could change this assessment as the situation continues to evolve and as more information becomes available. Newly Issued Accounting Standards. In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform . ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, 2020 and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. We are currently evaluating the impact that the expected market transition from LIBOR to alternative references rates will have on our financial statements as well as the applicability of the aforementioned expedients and exceptions provided in ASU 2020-04. 3. Supplemental Detail for Certain Components of Consolidated Balance Sheets (dollars in thousands): A. Accounts Receivable, net, consist of the following at: March 31, 2021 December 31, 2020 Straight-line rent receivables, net $ 184,743 $ 174,074 Client receivables, net 122,274 111,627 $ 307,017 $ 285,701 B. Lease intangible assets, net, consist of the following at: March 31, 2021 December 31, 2020 In-place leases $ 1,812,057 $ 1,840,704 Accumulated amortization of in-place leases ( 661,506 ) ( 744,375 ) Above-market leases 918,807 866,567 Accumulated amortization of above-market leases ( 249,212 ) ( 252,241 ) $ 1,820,146 $ 1,710,655 -7- Table of Contents C. Other assets, net, consist of the following at: March 31, 2021 December 31, 2020 Financing receivables $ 148,258 $ 131,291 Right of use asset - financing leases 117,063 118,585 Right of use asset - operating leases, net 109,341 112,049 Derivative assets and receivables - at fair value 33,750 10 Prepaid expenses 18,100 11,795 Goodwill 14,114 14,180 Corporate assets, net 8,314 8,598 Restricted escrow deposits 7,776 21,220 Credit facility origination costs, net 6,849 7,705 Non-refundable escrow deposits 2,623 1,000 Impounds related to mortgages payable 1,570 4,983 Value-added tax receivable 220 1,130 Other items 2,259 1,751 $ 470,237 $ 434,297 D. Accounts payable and accrued expenses consist of the following at: March 31, 2021 December 31, 2020 Derivative liabilities and payables - at fair value $ 67,131 $ 73,356 Notes payable - interest payable 58,467 83,219 Property taxes payable 20,054 23,413 Accrued costs on properties under development 13,151 12,685 Accrued income taxes 7,122 5,182 Value-added tax payable 5,514 8,077 Mortgages, term loans, credit line - interest payable and interest rate swaps 1,027 1,044 Other items 27,702 34,360 $ 200,168 $ 241,336 E. Lease intangible liabilities, net, consist of the following at: March 31, 2021 December 31, 2020 Below-market leases $ 452,602 $ 460,895 Accumulated amortization of below-market leases ( 138,695 ) ( 139,697 ) $ 313,907 $ 321,198 F. Other liabilities consist of the following at: March 31, 2021 December 31, 2020 Rent received in advance and other deferred revenue $ 153,183 $ 130,231 Lease liability - operating leases, net 111,953 114,559 Lease liability - financing leases 6,333 6,256 Security deposits 5,856 5,817 $ 277,325 $ 256,863 4. Investments in Real Estate We acquire land, buildings and improvements necessary for the successful operations of commercial clients. A. Acquisitions During the Three Months ended March 31, 2021 and 2020 Below is a summary of our acquisitions for the three months ended March 31, 2021: Number of Properties Leasable Square Feet Investment ($ in thousands) Weighted Average Lease Term (Years) Initial Average Cash Lease Yield Three months ended March 31, 2021 (1) Acquisitions - U.S. (in 25 states) 77 2,298,606 $ 566,909 13.5 5.6 % Acquisitions - U.K. (2) 12 932,967 402,962 10.6 4.9 % Total acquisitions 89 3,231,573 $ 969,871 12.4 5.3 % Properties under development - U.S. 21 1,597,165 57,931 15.5 5.6 % Total (3) 110 4,828,738 $ 1,027,802 12.6 5.3 % -8- Table of Contents (1) None of our investments during the three months ended March 31, 2021 caused any one client to be 10% or more of our total assets at March 31, 2021. All of our investments in acquired properties during the three months ended March 31, 2021 are 100 % leased at the acquisition date. (2) Represents investments of £ 290.2 million Sterling during the three months ended March 31, 2021, converted at the applicable exchange rate on the date of acquisition. (3) Our clients occupying the new properties operate in 23 industries, and are 65.1 % retail and 34.9 % industrial, based on rental revenue. Approximately 39 % of the rental revenue generated from acquisitions during the three months ended March 31, 2021 is from investment grade rated clients, their subsidiaries or affiliated companies. The acquisitions during the three months ended March 31, 2021, which had no associated contingent consideration, were allocated as follows (amounts in millions): Acquisitions - U.S. Acquisitions - U.K. Three months ended March 31, 2021 (USD) (£ Sterling) Land (1) $ 205.1 £ 120.2 Buildings and improvements 297.5 132.1 Lease intangible assets (2) 95.3 38.8 Other assets (3) 17.3 — Lease intangible liabilities (4) ( 1.7 ) ( 0.9 ) Other liabilities (5) ( 21.5 ) — $ 592.0 £ 290.2 (1) U.K. land includes £ 570,000 of right of use assets under long-term ground leases. (2) The weighted average amortization period for acquired lease intangible assets is 16.4 years. (3) U.S. other assets consists entirely of financing receivables with above-market terms. U.K. other assets consists entirely of right of use assets under ground leases. (4) The weighted average amortization period for acquired lease intangible liabilities is 11.8 years. (5) U.S. other liabilities consists entirely of deferred rent on certain below-market leases. The properties acquired during the three months ended March 31, 2021 generated total revenues of $ 5.1 million and net income of $ 2.0 million during the three months ended March 31, 2021. Below is a summary of our acquisitions for the three months ended March 31, 2020: Number of Properties Leasable Square Feet Investment ($ in thousands) Weighted Average Lease Term (Years) Initial Average Cash Lease Yield Three months ended March 31, 2020 (1) Acquisitions - U.S. (in 22 states) 54 1,423,690 $ 318,300 14.8 6.5 % Acquisitions - U.K. (2) 4 389,680 165,573 12.5 5.1 % Total acquisitions 58 1,813,370 $ 483,873 14.2 6.0 % Properties under development - U.S. 7 177,545 2,142 10.6 7.5 % Total (3) 65 1,990,915 $ 486,015 14.1 6.0 % (1) None of our investments during the three months ended March 31, 2020 caused any one client to be 10% or more of our total assets at March 31, 2020. All of our investments in acquired properties during the three months ended March 31, 2020 were 100 % leased at the acquisition date. (2) Represents investments of £ 133.3 million Sterling during the three months ended March 31, 2020, converted at the applicable exchange rate on the date of the acquisition. (3) Our clients occupying the new properties operated in 17 industries, and are 95.4 % retail and 4.6 % industrial, based on rental revenue. Approximately 36 % of the rental revenue generated from acquisitions during the three months ended March 31, 2020 was from investment grade rated clients, their subsidiaries or affiliated companies. -9- Table of Contents The acquisitions during the three months ended March 31, 2020, which had no associated contingent consideration, were allocated as follows (amounts in millions): Acquisitions - U.S. Acquisitions - U.K. Three months ended March 31, 2020 (USD) (£ Sterling) Land (1) $ 62.1 £ 21.2 Buildings and improvements 222.8 48.3 Lease intangible assets (2) 36.0 29.8 Other assets (3) 1.5 34.0 Lease intangible liabilities (4) ( 1.7 ) — Other liabilities (5) ( 0.9 ) — $ 319.8 £ 133.3 (1) U.K. land includes £ 6.5 million of right of use assets under long-term ground leases. (2) The weighted average amortization period for acquired lease intangible assets is 12.4 years. (3) U.S. other assets consists of $ 810,000 of financing receivables with above-market terms and $ 689,000 of right of use assets under ground leases. U.K. other assets consists entirely of right of use assets under ground leases. (4) The weighted average amortization period for acquired lease intangible liabilities is 14.8 years. (5) U.S. other liabilities consists entirely of lease liabilities under ground leases. The properties acquired during the three months ended March 31, 2020 generated total revenues of $ 3.9 million and net income of $ 1.2 million during the three months ended March 31, 2020. The initial average cash lease yield for a property is generally computed as estimated contractual first year cash net operating income, which, in the case of a net leased property, is equal to the aggregate cash base rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a client could default on the payment of contractual rent, we cannot provide assurance that the actual return on the funds invested will remain at the percentages listed above. In the case of a property under development or expansion, the contractual lease rate is generally fixed such that rent varies based on the actual total investment in order to provide a fixed rate of return. When the lease does not provide for a fixed rate of return on a property under development or expansion, the initial average cash lease yield is computed as follows: estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs. B. Investments in Existing Properties During the three months ended March 31, 2021, we capitalized costs of $ 1.5 million on existing properties in our portfolio, consisting of $ 706,000 for re-leasing costs, $ 23,000 for recurring capital expenditures, and $ 769,000 for non-recurring building improvements. In comparison, during the three months ended March 31, 2020, we capitalized costs of $ 2.1 million on existing properties in our portfolio, consisting of $ 138,000 for re-leasing costs, and $ 2.0 million for non-recurring building improvements. C. Properties with Existing Leases Of the $ 1.0 billion we invested during the three months ended March 31, 2021, approximately $ 856.8 million was used to acquire 68 properties with existing leases. In comparison, of the $ 486.0 million we invested during the three months ended March 31, 2020, approximately $ 363.0 million was used to acquire 39 properties with existing leases. The value of the in-place and above-market leases is recorded to lease intangible assets, net on our consolidated balance sheets, and the value of the below-market leases is recorded to lease intangible liabilities, net on our consolidated balance sheets. The values of the in-place leases are amortized as depreciation and amortization expense. The amounts amortized to expense for all of our in-place leases, for the three months ended March 31, 2021 and 2020 were $ 35.8 million and $ 32.6 million, respectively. -10- Table of Contents The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of income and comprehensive income. The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for the three months ended March 31, 2021 and 2020 were $ 12.4 million and $ 8.2 million, respectively. If a lease was to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense, as appropriate. The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at March 31, 2021 (dollars in thousands): Net decrease to rental revenue Increase to amortization expense 2021 $ ( 27,863 ) $ 108,990 2022 ( 35,809 ) 134,681 2023 ( 34,204 ) 122,422 2024 ( 32,622 ) 113,625 2025 ( 32,068 ) 104,241 Thereafter ( 193,122 ) 566,592 Totals $ ( 355,688 ) $ 1,150,551 5. Revolving Credit Facility and Commercial Paper Program A. Credit Facility We have a $ 3.0 billion unsecured revolving credit facility with an initial term that expires in March 2023 and includes, at our option, two six -month extensions. The revolving credit facility allows us to borrow in up to 14 currencies, including U.S. dollars, and has a $ 1.0 billion expansion option, which is subject to obtaining lender commitments. Under our credit facility, our investment grade credit ratings as of 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. We also have other interest rate options available to us under our revolving credit facility. Our revolving credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation. At March 31, 2021, credit facility origination costs of $ 6.8 million are included in other assets, net, as compared to $ 7.7 million at December 31, 2020, on our consolidated balance sheet. These costs are being amortized over the remaining term of our revolving credit facility. At March 31, 2021 and December 31, 2020, we had a borrowing capacity of $ 3.0 billion available on our revolving credit facility (subject to customary conditions to borrowing) and no outstanding balance. The weighted average interest rate on outstanding borrowings under our revolving credit facility was 0.8 % during the three months ended March 31, 2021 and 2.1 % during the three months ended March 31, 2020. Our revolving credit facility is subject to various leverage and interest coverage ratio limitations, and at March 31, 2021, we were in compliance with the covenants on our revolving credit facility. B. Commercial Paper Program In August 2020, we established a U.S. dollar-denominated unsecured commercial paper program. Under the terms of the program, we may issue from time to time unsecured commercial paper notes up to a maximum aggregate amount outstanding of $ 1.0 billion. The commercial paper will rank on a parity in right of payment with all of our other unsecured senior indebtedness outstanding from time to time, including borrowings under our revolving credit facility and our term loan facility and our outstanding senior unsecured notes. Proceeds from commercial paper borrowings will be used for general corporate purposes. As of March 31, 2021, the balance of borrowings outstanding under our commercial paper program was $ 675.0 million, as compared to no outstanding commercial paper borrowings at December 31, 2020. The weighted average interest rate on outstanding borrowings under our commercial paper program for the three months ended March 31, 2021 was 0.3 %. As of March 31, 2021, the weighted average interest rate on borrowings outstanding under our commercial paper program was 0.2 %. We use our $ 3.0 billion revolving credit facility as a liquidity backstop for the repayment of the notes issued under the commercial paper program. The commercial paper borrowings outstanding at March 31, 2021 totaled $ 675.0 million -11- Table of Contents 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 . 6. Term Loans In October 2018, in conjunction with entering into our current revolving credit facility, we entered into a $ 250.0 million senior unsecured term loan, which matures in March 2024. Borrowing under this term loan bears interest at the current one-month LIBOR, plus 0.85 %. In conjunction with this term loan, we also entered into an interest rate swap, which effectively fixes our per annum interest on this term loan at 3.89 %. At March 31, 2021, deferred financing costs of $ 593,000 are included net of the term loan principal balance, as compared to $ 642,000 at December 31, 2020, on our consolidated balance sheet. These costs are being amortized over the remaining term of the term loan . 7. Mortgages Payable During the three months ended March 31, 2021, we made $ 18.1 million in principal payments, including the repayment of three mortgages in full for $ 17.2 million. During the three months ended March 31, 2020, we made $ 1.7 million in principal payments. No mortgages were assumed during the three months ended March 31, 2021 or 2020. Assumed mortgages are secured by the properties on which the debt was placed and are considered non-recourse debt with limited customary exceptions for items such as solvency, bankruptcy, misrepresentation, fraud, misapplication of payments, environmental liabilities, failure to pay taxes, insurance premiums, liens on the property, violations of the single purpose entity requirements, and uninsured losses. Our mortgages contain customary covenants, such as limiting our ability to further mortgage each applicable property or to discontinue insurance coverage without the prior consent of the lender. At March 31, 2021, we were in compliance with these covenants. The balance of our deferred financing costs, which are classified as part of mortgages payable, net, on our consolidated balance sheets, was $ 907,000 at March 31, 2021 and $ 973,000 at December 31, 2020. These costs are being amortized over the remaining term of each mortgage. The following table summarizes our mortgages payable as of March 31, 2021 and December 31, 2020, respectively (dollars in thousands): As Of Number of Properties (1) Weighted Average Stated Interest Rate (2) Weighted Average Effective Interest Rate (3) Weighted Average Remaining Years Until Maturity Remaining Principal Balance Unamortized Premium and Deferred Financing Costs Balance, net Mortgage Payable Balance 3/31/2021 64 4.8 % 4.6 % 2.8 $ 281,521 $ 516 $ 282,037 12/31/2020 68 4.9 % 4.6 % 2.9 $ 299,631 $ 729 $ 300,360 (1) At March 31, 2021, there were 15 mortgages on 64 properties. At December 31, 2020, there were 18 mortgages on 68 properties. The mortgages require monthly payments with principal payments due at maturity. At March 31, 2021 and December 31, 2020, all mortgages were at fixed interest rates. (2) Stated interest rates ranged from 3.8 % to 6.9 % at each of March 31, 2021 and December 31, 2020. (3) Effective interest rates ranged from 4.0 % to 5.5 % at each of March 31, 2021 and December 31, 2020. The following table summarizes the maturity of mortgages payable, excluding net premiums of $ 1.4 million and deferred financing costs of $ 907,000 , as of March 31, 2021 (dollars in millions): Year of Maturity Principal 2021 $ 26.1 2022 111.8 2023 20.6 2024 112.2 2025 0.7 Thereafter 10.1 Totals $ 281.5 -12- Table of Contents 8. Notes Payable A. General Our senior unsecured notes and bonds consist of the following, sorted by maturity date (dollars in millions): March 31, 2021 December 31, 2020 3.250 % notes, $ 450 issued in October 2012 and $ 500 issued in December 2017, both due in October 2022 (1) $ — $ 950 4.650 % notes, issued in July 2013 and due in August 2023 750 750 3.875 % notes, issued in June 2014 and due in July 2024 350 350 3.875 % notes, issued in April 2018 and due in April 2025 500 500 0.750 % notes, issued December 2020 and due in March 2026 325 325 4.125 % notes, $ 250 issued in September 2014 and $ 400 issued in March 2017, both due in October 2026 650 650 3.000 % notes, issued in October 2016 and due in January 2027 600 600 3.650 % notes, issued in December 2017 and due in January 2028 550 550 3.250 % notes, issued in June 2019 and due in June 2029 500 500 1.625 % notes, issued in October 2020 and due December 2030 (2) 551 547 3.250 % notes, $ 600 issued in May 2020 and $ 350 issued in July 2020, both due in January 2031 950 950 1.800 % notes, issued in December 2020 and due in March 2033 400 400 2.730 % notes, issued in May 2019 and due in May 2034 (2) 434 431 5.875 % bonds, $ 100 issued in March 2005 and $ 150 issued in June 2011, both due in March 2035 250 250 4.650 % notes, $ 300 issued in March 2017 and $ 250 issued in December 2017, both due in March 2047 550 550 Total principal amount 7,360 8,303 Unamortized net original issuance premiums and deferred financing costs ( 34 ) ( 35 ) $ 7,326 $ 8,268 (1) In January 2021, we completed the early redemption of all $ 950.0 million in principal amount. (2) Represents the principal balance (in U.S. dollars) of the October 2020 Sterling-denominated note offering and May 2019 Sterling-denominated private placement of £ 400.0 million and £ 315.0 million, respectively, converted at the applicable exchange rates on March 31, 2021, and December 31, 2020, respectively. The following table summarizes the maturity of our notes and bonds payable as of March 31, 2021, excluding net unamortized original issuance premiums of $ 11.8 million and deferred financing costs of $ 45.7 million (dollars in millions): Year of Maturity Principal 2023 $ 750 2024 350 2025 500 Thereafter 5,760 Totals $ 7,360 As of March 31, 2021, the weighted average interest rate on our notes and bonds payable was 3.4 % and the weighted average remaining years until maturity was 8.7 years. All of our outstanding notes and bonds payable have fixed interest rates and contain various covenants, with which we remained in compliance as of March 31, 2021. Additionally, with the exception of our £ 400 million of 1.625 % senior unsecured notes issued in October 2020 where interest is paid annually, interest on our remaining senior unsecured note and bond obligations is paid semiannually. B. Note Repayment In January 2021, we redeemed all $ 950.0 million in principal amount of our outstanding 3.250 % notes due October 2022, plus accrued and unpaid interest. As a result of the early redemption, we recognized a $ 46.5 million loss on extinguishment of debt on our consolidated statement of income for the three months ended March 31, 2021. -13- Table of Contents In January 2020, we redeemed all $ 250.0 million in principal amount of our outstanding 5.750 % notes due January 2021, plus accrued and unpaid interest. As a result of the early redemption, we recognized a $ 9.8 million loss on extinguishment of debt on our consolidated statement of income for the three months ended March 31, 2020. 9. Issuances of Common Stock A. Issuance of Common Stock in an Underwritten Public Offering In January 2021, we issued 12,075,000 shares of common stock in an underwritten public offering, including 1,575,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After deducting underwriting discounts of $ 19.3 million, the net proceeds of $ 669.6 million were used to fund property acquisitions and for general corporate purposes and working capital. In March 2020, we issued 9,690,500 shares of common stock in an underwritten public offering, including 690,500 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After deducting underwriting discounts of $ 21.2 million, the net proceeds of $ 728.9 million were used to repay borrowings under our credit facility, to fund investment opportunities, and for other general corporate purposes. B. At-the-Market (ATM) Program Under our "at-the-market" equity distribution plan, or our ATM program, up to 33,402,405 shares of common stock may be offered and sold (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers' transactions on the New York Stock Exchange ("NYSE: O") at prevailing market prices or at negotiated prices. At 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 no t issue any shares under the ATM program during the three months ended March 31, 2021 or 2020. C. Dividend Reinvestment and Stock Purchase Plan Our Dividend Reinvestment and Stock Purchase Plan, or our DRSPP, provides our common stockholders, as well as new investors, with a convenient and economical method of purchasing our common stock and reinvesting their distributions. Our DRSPP also allows our current stockholders to buy additional shares of common stock by reinvesting all or a portion of their distributions. Our DRSPP authorizes up to 26,000,000 common shares to be issued. At March 31, 2021, we had 11,459,985 shares remaining for future issuance under our DRSPP program. The following table outlines common stock issuances pursuant to our DRSPP program (dollars in millions): Three months ended March 31, 2021 2020 Shares of common stock issued under the DRSPP program 43,394 34,000 Gross proceeds $ 2.7 $ 2.4 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 three months ended March 31, 2021 or 2020. 10. Noncontrolling Interests There are three entities with noncontrolling interests that we consolidate including an operating partnership, Realty Income, L.P., a joint venture acquired in 2019 and a development joint venture acquired in 2020. The following table represents the change in the carrying value of all noncontrolling interests through March 31, 2021 (dollars in thousands): -14- Table of Contents Realty Income, L.P. units (1) Other Noncontrolling Interests Total Carrying value at December 31, 2020 $ 24,100 $ 8,147 $ 32,247 Distributions ( 326 ) ( 76 ) ( 402 ) Allocation of net income 252 43 296 Carrying value at March 31, 2021 $ 24,026 $ 8,114 $ 32,141 (1) 242,007 units were issued on March 30, 2018, 131,790 units were issued on April 30, 2018, and 89,322 units were issued on March 28, 2019. 463,119 remained outstanding at each of March 31, 2021 and December 31, 2020 . At March 31, 2021 and December 31, 2020, Realty Income, L.P., the joint venture acquired during 2019 and the development joint venture acquired in 2020 were considered variable interest entities, or VIEs, in which we were deemed the primary beneficiary based on our controlling financial interests. Below is a summary of selected financial data of consolidated VIEs included in the consolidated balance sheets at March 31, 2021 and December 31, 2020 (in thousands): March 31, 2021 December 31, 2020 Net real estate $ 635,261 $ 635,963 Total assets 720,646 723,668 Total liabilities 51,896 47,962 11. Financial Instruments and Fair Value Measurements Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure for assets and liabilities measured at fair value requires allocation to a three-level valuation hierarchy. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. We believe that the carrying values reflected in our consolidated balance sheets reasonably approximate the fair values for cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, line of credit payable and commercial paper borrowings, term loan and all other liabilities, due to their short-term nature or interest rates and terms that are consistent with market, except for our mortgages payable assumed in connection with acquisitions and our senior notes and bonds payable, which are disclosed as follows (dollars in millions): March 31, 2021 Carrying value Estimated fair value Mortgages payable assumed in connection with acquisitions (1) $ 281.5 $ 292.7 Notes and bonds payable (2) 7,360.0 7,896.2 December 31, 2020 Carrying value Estimated fair value Mortgages payable assumed in connection with acquisitions (1) $ 299.6 $ 309.4 Notes and bonds payable (2) 8,302.4 9,324.0 (1) Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums was $ 1.4 million at March 31, 2021, and $ 1.7 million at December 31, 2020. Also excludes deferred financing costs of $ 907,000 at March 31, 2021 and $ 973,000 at December 31, 2020. (2) Excludes non-cash original issuance premiums and discounts recorded on notes payable. The unamortized balance of the net original issuance premiums was approximately $ 11.8 million at March 31, 2021, and $ 14.6 million at December 31, 2020. Also excludes deferred financing costs of $ 45.7 million at March 31, 2021 and $ 49.2 million at December 31, 2020. The estimated fair values of our mortgages payable assumed in connection with acquisitions and private senior notes payable have been calculated by discounting the future cash flows using an interest rate based upon the relevant forward interest rate curve, plus an applicable credit-adjusted spread. Because this methodology includes unobservable inputs that reflect our own internal assumptions and calculations, the measurement of estimated fair values related to our mortgages payable is categorized as level three on the three-level valuation hierarchy. The estimated fair values of our publicly-traded senior notes and bonds payable are based upon indicative market prices and recent trading activity of our senior notes and bonds payable. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the -15- Table of Contents estimated fair values related to our notes and bonds payable is categorized as level two on the three-level valuation hierarchy. During March 2021, we entered into a currency exchange swap to exchange £ 810.0 million for $ 1.11 billion, which matured in April 2021. The currency exchange swap was entered into to hedge our exposure to foreign currency risk associated with Sterling-denominated liabilities. As the currency exchange swap is not accounted for as a hedging instrument, the change in fair value is recorded in earnings through the caption entitled 'Foreign currency and derivative gains, net' in the consolidated statements of income and comprehensive income. The net loss from derivatives not designated in hedging relationships for the three months ended March 31, 2021 totaled $ 5.7 million. We did not enter into or settle any currency exchange swaps during the three months ended March 31, 2020. The following table summarizes the terms and fair values of our derivative financial instruments at March 31, 2021 and December 31, 2020 (dollars in millions): Derivative Type (1) Accounting Classification Hedge Designation Notional Amount Strike Effective Date Maturity Date Fair Value - asset (liability) March 31, December 31, March 31, December 31, 2021 2020 2021 2020 Interest rate swap Derivative Cash flow 250.0 250.0 3.04 % 10/24/2018 03/24/2024 ( 19.4 ) ( 22.6 ) Cross-currency swap (2) Derivative Cash flow 41.6 41.6 (3) 05/20/2019 05/22/2034 ( 6.0 ) ( 5.2 ) Cross-currency swap (2) Derivative Cash flow 41.6 41.6 (4) 05/20/2019 05/22/2034 ( 6.1 ) ( 5.1 ) Cross-currency swap (2) Derivative Cash flow 41.6 41.6 (5) 05/20/2019 05/22/2034 ( 6.3 ) ( 5.4 ) Cross-currency swap (2) Derivative Cash flow 41.6 41.6 (6) 05/20/2019 05/22/2034 ( 6.6 ) ( 5.7 ) Currency exchange swap (2) Derivative N/A — 625.0 (7) 12/23/2020 01/29/2021 — ( 8.2 ) Currency exchange swap (2) Derivative N/A 1,112.1 — (8) 03/25/2021 04/29/2021 ( 3.7 ) — Forward-starting swap Derivative Cash flow 75.0 75.0 2.02 % (9) 06/30/2033 2.0 ( 5.0 ) Forward-starting swap Derivative Cash flow 75.0 75.0 1.94 % (9) 11/30/2032 1.7 ( 5.2 ) Forward-starting swap Derivative Cash flow 25.0 25.0 1.67 % (9) 11/30/2032 1.2 ( 1.1 ) Forward-starting swap Derivative Cash flow 125.0 125.0 1.75 % (9) 06/30/2033 6.4 ( 5.2 ) Forward-starting swap Hybrid debt Cash flow 125.0 125.0 1.88 % (9) 11/30/2032 2.3 ( 7.9 ) Forward-starting swap Hybrid debt Cash flow 75.0 75.0 2.00 % (9) 06/30/2033 1.3 ( 4.9 ) $ 2,028.5 $ 1,541.4 $ ( 33.2 ) $ ( 81.5 ) (1) There have been no changes to hedging arrangements in-place at December 31, 2020. All hedges remained effective through March 31, 2021. For full discussion of the hedging arrangements, please refer to note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020. (2) Represents British Pound Sterling, or GBP, United States Dollar, or USD, currency instrument. (3) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.800 %. (4) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.803 %. (5) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.745 %. (6) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.755 %. (7) Forward GBP-USD exchange rate of 1.35 . (8) Forward GBP-USD exchange rate of 1.37 . (9) There were five treasury rate locks entered into during February 2020 that were terminated in June 2020 and converted into six forward starting interest rate swaps through a cashless settlement. For full discussion of the hedging arrangements for these six forward starting swaps, please refer to Note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020. We measure our derivatives at fair value and include the balances within other assets and accounts payable and accrued expenses on our consolidated balance sheets. We have agreements with each of our derivative counterparties containing provisions under which we could be declared in default on our derivative obligations if repayment of our indebtedness is accelerated by the lender due to our default. We utilize interest rate swap agreements to manage interest rate risk and cross-currency swaps to manage foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the -16- Table of Contents contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, spot and forward rates, as well as option volatility. To comply with the provisions of ASC 820, Fair Value Measurement , we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although we have determined that the majority of the inputs used to value our derivatives fall within level two on the three-level valuation hierarchy, the credit valuation adjustments associated with our derivatives utilize level three inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by ourselves and our counterparties. However, at March 31, 2021 and December 31, 2020, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety are classified as level two on the three-level valuation hierarchy. Unrealized gains and losses in accumulated other comprehensive income, or AOCI, are reclassified to interest expense in the case of interest rate swaps and to foreign currency gains and losses, net in the case of cross-currency swaps, when the related hedged items are recognized. During the three months ended March 31, 2021, we reclassified $ 2.5 million from AOCI as an increase to interest expense and a $ 1.2 million loss for cross-currency swaps into foreign exchange gains. During the three months ended March 31, 2020, we reclassified $ 1.6 million from AOCI as an increase to interest expense for our interest rate swaps and $ 11.4 million in cross-currency swap losses into foreign currency and derivative gains, net. We expect to reclassify $ 10.2 million from AOCI as an increase to interest expense relating to interest rate swaps and $ 908,000 from AOCI to foreign currency gain relating to cross-currency swaps within the next twelve months. 12. Operating Leases A. At March 31, 2021, we owned 6,662 properties in all U.S. states, Puerto Rico, and the U.K. Of the 6,662 properties, 6,621 , or 99.4 %, are single-client properties, and the remaining are multi-client properties. At March 31, 2021, 131 properties were available for lease or sale. Substantially all of our leases are net leases where our client pays or reimburses us for property taxes and assessments, maintains the interior and exterior of the building and leased premises, and carries insurance coverage for public liability, property damage, fire and extended coverage. Rent based on a percentage of our client's gross sales, or percentage rents, for the three months ended March 31, 2021 and 2020 was $ 1.0 million and $ 1.2 million, respectively. B. Major Clients - No individual client’s rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the three months ended March 31, 2021 and 2020. 13. Gain on Sales of Real Estate The following table summarizes our properties sold during the periods indicated below (dollars in millions): Three months ended March 31, 2021 2020 Number of properties 27 17 Net sales proceeds $ 34.7 $ 126.2 Gain on sales of real estate $ 8.4 $ 38.5 -17- Table of Contents 14. Provisions for Impairment We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property, a fair value analysis is performed and, to the extent the estimated fair value is less than the current book value, a provision for impairment is recorded to reduce the book value to estimated fair value. Key assumptions that we utilize in this analysis include projected rental rates, estimated holding periods, capital expenditures and property sales capitalization rates. If a property is classified as held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell, and depreciation of the property ceases. There were 29 properties classified as held for sale at March 31, 2021. If a property was previously reclassified as held for sale but the applicable criteria for this classification are no longer met, the property is reclassified to real estate held for investment. A property that is reclassified to held for investment is measured and recorded at the lower (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held for investment, or (ii) the fair value at the date of the subsequent decision not to sell. The following table summarizes our provisions for impairment during the periods indicated below (dollars in millions): Three months ended March 31, 2021 2020 Total provisions for impairment $ 2.7 $ 4.5 Number of properties: Classified as held for sale 7 — Classified as held for investment 4 1 Sold 10 15 15. Distributions Paid and Payable We pay monthly distributions to our common stockholders. The following is a summary of monthly distributions paid per common share for the three months ended March 31, 2021 and 2020: Month 2021 2020 January $ 0.2345 $ 0.2275 February 0.2345 0.2325 March 0.2345 0.2325 Total $ 0.7035 $ 0.6925 At March 31, 2021, a distribution of $ 0.235 per common share was payable and was paid in April 2021. -18- Table of Contents 16. Net Income per Common Share Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted net income per common share is computed by dividing net income available to common stockholders, plus income attributable to dilutive shares and convertible common units for the period, by the weighted average number of common shares that would have been outstanding assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation: Three months ended March 31, 2021 2020 Weighted average shares used for the basic net income per share computation 371,522,607 336,624,567 Incremental shares from share-based compensation 79,294 351,948 Weighted average shares used for diluted net income per share computation 371,601,901 336,976,515 Unvested shares from share based compensation that were anti-dilutive 220,946 31,001 Weighted average partnership common units convertible to common shares that were anti-dilutive 463,119 463,119 17. Supplemental Disclosures of Cash Flow Information Cash paid for interest was $ 94.8 million in the three months ended March 31, 2021 and $ 84.1 million in the three months ended March 31, 2020. Cash paid for income taxes was $ 3.4 million in the three months ended March 31, 2021 and $ 2.5 million in the three months ended March 31, 2020. The following non-cash activities are included in the accompanying consolidated financial statements: A. During the three months ended March 31, 2021 and 2020, the fair value of net derivative liabilities decreased by $ 48.3 million and $ 16.4 million, respectively. B. Non-refundable deposits from 2019 of $ 13.8 million were applied to acquisitions during the three months ended March 31, 2020. Per the requirements of ASU 2016-18 (Topic 230, Statement of Cash Flows ), the following table provides a reconciliation of cash and cash equivalents reported within the consolidated balance sheets to the total of the cash, cash equivalents and restricted cash reported within the consolidated statements of cash flows (dollars in thousands): March 31, 2021 March 31, 2020 Cash and cash equivalents shown in the consolidated balance sheets $ 183,984 $ 41,804 Restricted escrow deposits (1) 7,776 82,391 Impounds related to mortgages payable (1) 1,570 12,962 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 193,330 $ 137,157 (1) Included within other assets, net on the consolidated balance sheets (see note 3). These amounts consist of cash that we are legally entitled to, but that is not immediately available to us. As a result, these amounts were considered restricted as of the dates presented. -19- Table of Contents 18. Segment Information We evaluate performance and make resource allocation decisions on an industry by industry basis. For financial reporting purposes, we have grouped our clients into 56 activity segments. All of the properties are incorporated into one of the applicable segments. Unless otherwise specified, all segments listed below are located within the U.S. Because almost all of our leases require our clients to pay or reimburse us for operating expenses, rental revenue is the only component of segment profit and loss we measure. Our investments in industries outside of the U.S. are managed as separate operating segments. The following tables set forth certain information regarding the properties owned by us, classified according to the business of the respective clients (dollars in thousands): Assets, as of: March 31, 2021 December 31, 2020 Segment net real estate: Automotive service $ 344,606 $ 328,340 Beverages 364,648 347,366 Child care 215,211 216,718 Convenience stores 2,206,298 2,101,005 Dollar stores 1,429,296 1,420,210 Drug stores 1,537,245 1,555,106 Financial services 370,908 374,508 General merchandise 783,771 730,806 Grocery stores - U.S. 891,794 907,634 Grocery stores - U.K. 1,277,721 1,131,760 Health and fitness 1,037,741 1,050,791 Home improvement - U.S. 661,124 608,222 Restaurants-casual dining 506,989 515,226 Restaurants-quick service - U.S. 1,065,871 1,062,918 Theaters - U.S. 759,516 767,117 Transportation services 784,493 729,640 Wholesale club 400,175 407,584 Other non-reportable segments 3,559,695 3,230,205 Total net real estate 18,197,102 17,485,156 Intangible assets: Automotive service 57,485 55,018 Beverages 17,467 9,401 Child care 19,350 19,848 Convenience stores 118,475 121,151 Dollar stores 81,324 77,176 Drug stores 164,316 167,975 Financial services 13,922 14,611 General merchandise 119,686 108,646 Grocery stores - U.S. 176,727 181,764 Grocery stores - U.K. 305,624 282,211 Health and fitness 65,409 67,537 Home improvement - U.S. 103,351 97,228 Restaurants-casual dining 19,997 20,553 Restaurants-quick service - U.S. 46,210 47,517 Theaters - U.S. 27,460 28,292 Transportation services 59,989 53,902 Wholesale club 35,102 36,165 Other non-reportable segments 389,315 321,660 Other corporate assets 961,259 1,544,474 Total assets $ 20,979,570 $ 20,740,285 -20- Table of Contents Three months ended March 31, Revenue 2021 2020 Segment rental revenue: Automotive service $ 9,918 $ 8,670 Beverages 8,952 7,996 Child care 8,502 9,481 Convenience stores 50,128 46,733 Dollar stores 32,506 31,391 Drug stores 35,048 35,299 Financial services 7,718 7,543 General merchandise 15,234 11,316 Grocery stores - U.S. 19,681 19,509 Grocery stores - U.K. 20,858 10,405 Health and fitness 28,610 28,278 Home improvement - U.S. 13,038 11,309 Restaurants-casual dining 11,748 12,538 Restaurants-quick service - U.S. 23,465 23,308 Theaters - U.S. 19,656 24,567 Transportation services 16,432 16,187 Wholesale club 9,941 9,588 Other non-reportable segments and contractually obligated reimbursements by our clients 107,930 98,039 Rental (including reimbursable) 439,365 412,157 Other 3,439 2,184 Total revenue $ 442,804 $ 414,341 19. Common Stock Incentive Plan In 2012, our Board of Directors adopted and stockholders approved the Realty Income Corporation 2012 Incentive Award Plan, or the 2012 Plan, to enable us to motivate, attract and retain the services of directors and employees considered essential to our long-term success. The 2012 Plan offers our directors and employees an opportunity to own our stock or rights that will reflect our growth, development and financial success. Under the terms of the 2012 plan, the aggregate number of shares of our common stock subject to options, restricted stock, stock appreciation rights, restricted stock units, performance shares and other awards, will be no more than 3,985,734 shares. The 2012 Plan has a term of ten years from the date it was adopted by our Board of Directors. In March 2021, our Board of Directors adopted the Realty Income 2021 Incentive Award Plan, or 2021 Plan. This 2021 Plan will replace the 2012 Plan, pending approval by stockholders at our May 2021 Annual Meeting. The amount of share-based compensation costs recognized in general and administrative expense on our consolidated statements of income and comprehensive income was $ 3.7 million during the three months ended March 31, 2021 and $ 5.5 million during the three months ended March 31, 2020 (including $ 1.8 million of accelerated share-based compensation costs for our former Chief Financial Officer ("CFO"). Upon the departure of our former CFO in the first quarter of 2020, we incurred a severance charge of $ 3.5 million, consisting of $ 1.6 million of cash, $ 1.8 million related to share-based compensation expense and $ 58,000 of professional fees. A. Restricted Stock During the three months ended March 31, 2021, we granted 74,183 shares of common stock under the 2012 Plan. These restricted stock awards vest over a four-year service period. -21- Table of Contents As of March 31, 2021, the remaining unamortized share-based compensation expense related to restricted stock totaled $ 11.9 million, which is being amortized on a straight-line basis over the service period of each applicable award. The amount of share-based compensation is based on the fair value of the stock at the grant date. We define the grant date as the date the recipient and Realty Income have a mutual understanding of the key terms and conditions of the award, and the recipient of the grant begins to benefit from, or be adversely affected by, subsequent changes in the price of the shares. B. Performance Shares and Restricted Stock Units During the three months ended March 31, 2021, we granted 157,341 performance shares, as well as dividend equivalent rights, to our executive officers. The performance shares are earned based on our Total Shareholder Return (TSR) performance relative to select industry indices and peer groups as well as achievement of certain operating metrics, and vest 50 % on the first and second January 1 after the end of the three-year performance period, subject to continued service. During the three months ended March 31, 2021, we also granted 13,837 restricted stock units, all of which vest over a four-year service period. These restricted stock units have the same economic rights as shares of restricted stock. As of March 31, 2021, the remaining share-based compensation expense related to the performance shares and restricted stock units totaled $ 18.6 million. The fair value of the performance shares were estimated on the date of grant using a Monte Carlo Simulation model. The performance shares are being recognized on a tranche-by-tranche basis over the service period. The amount of share-based compensation for the restricted stock units is based on the fair value of our common stock at the grant date. The expense amortization period for restricted stock units is the lesser of the four-year service period or the period over which the awardee reaches the qualifying retirement age. For employees who have already met the qualifying retirement age, restricted stock units are fully expensed at the grant date. 20. Commitments and Contingencies In the ordinary course of business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated financial position or results of operations. At March 31, 2021, we had commitments of $ 6.9 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements. In addition, as of March 31, 2021, we had committed $ 90.1 million under construction contracts related to development projects, which is expected to be paid in the next twelve months. 21. Subsequent Events A. Dividends In April 2021, we declared a dividend of $ 0.235 per share to our common stockholders, which will be paid in May 2021. B. 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. -22- Table of Contents 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.