What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-03 compared with 2021-05-04 · 343 added, 235 removed, 867 unchanged (40% of the section changed)

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

(the "Merger"s).

(the "Mergers") and uncertainties regarding whether the anticipated benefits or results of the proposed Mergers, if consummated, will be achieved.

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.

In particular, forward-looking statements regarding estimated or future results of operations or financial condition, estimated or future acquisitions of properties, or the estimated or potential impact of the proposed Mergers are based upon numerous assumptions and estimates and are inherently subject to substantial uncertainties and actual results of operations, financial condition, property acquisitions and the impacts of the Mergers (if consummated) 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.

Some of the factors that could cause actual results to differ materially are:

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• Acts of terrorism and war;

• 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.

• Any effects of the announcement, pendency or potential completion of the proposed Mergers on us and uncertainties regarding whether the anticipated benefits or results of the proposed Mergers, if consummated, will be achieved.

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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In light of these risks and uncertainties, the forward-looking events discussed in this quarterly report might not occur.

Realty Income, The Monthly Dividend Company ® , is an S&P 500 company dedicated to providing stockholders with dependable monthly dividends that increase over time.

Realty Income, The Monthly Dividend Company ® , is an S&P 500 company and member of the S&P 500 Dividend Aristocrats ® index for having increased its dividend every year for over 25 consecutive years.

We invest in people and places to deliver dependable monthly dividends that increase over time.

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.

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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:

At June 30, 2021, we owned a diversified portfolio:

• Of 6,761 properties;

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approximately 12,600 square feet per retail property and 258,400 square feet per industrial property.

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.

Of the 6,761 properties in the portfolio at June 30, 2021, 6,715, or 99.3%, are single-client properties, of which 6,616 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 $23.5 million and $21.0 million for the three months ended June 30, 2021 and 2020, respectively, and $45.2 million and $41.3 million for the six months ended June 30, 2021 and 2020, respectively.

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

Investment Philosophy

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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.

Our investment activities have led to a diversified property portfolio that, as of June 30, 2021, consisted of 6,761 properties located in all 50 U.S.

states, Puerto Rico and the U.K., and doing business in 58 industries.

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.

None of the 58 industries represented in our property portfolio accounted for more than 11.6% of our annualized contractual rental revenue as of June 30, 2021.

Investment Strategy

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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.

As a result of the execution of this strategy, approximately 95% of our annualized retail contractual rental revenue at June 30, 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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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.

At June 30, 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 June 30, 2021, our top 20 clients (based on percentage of total portfolio annualized contractual rent) represented approximately 52% of our annualized rent and 12 of these clients have investment grade credit ratings or are subsidiaries or affiliates of investment grade companies.

Asset Management Strategy

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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.

On April 29, 2021, we entered into an Agreement and Plan of Merger, as amended, 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, which we refer to as the Partnership Merger, and (ii) immediately thereafter, VEREIT will merge with and into the other newly formed subsidiary of us, with our subsidiary as the surviving corporation, which we refer to as the Merger and, together with the Partnership Merger, the Mergers.

Pursuant to the terms of the Merger Agreement and subject to the terms thereof, upon the consummation of the Mergers, (i) each outstanding share of VEREIT common stock, and each outstanding common partnership unit of VEREIT OP owned by any of its partners other than VEREIT, Realty Income or their respective affiliates, will automatically be converted into 0.705 of a newly issued share of our common stock, subject to possible adjustment as provided in the Merger Agreement, (ii) each outstanding Series F preferred partnership 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 the Merger Agreement, and (iii) each outstanding Series F preferred partnership unit of VEREIT OP owned by VEREIT will remain outstanding as a preferred partnership unit and each outstanding common partnership unit of VEREIT OP owned by VEREIT, Realty Income or their respective affiliates will remain outstanding as a common 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.

In connection with the Mergers, we and VEREIT intend to contribute some or all of our office real estate properties to a newly formed, wholly owned subsidiary, which we refer to as OfficeCo, and, following the Mergers, for us to distribute the outstanding voting shares of common stock of OfficeCo to our stockholders (including former VEREIT stockholders who receive shares of our common stock in the Mergers) 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.

Subject to the terms and conditions of the Merger Agreement, we and VEREIT may also or alternatively seek to sell some or all of the office real estate properties in connection with the closing of the Mergers or choose to retain some or all of the OfficeCo properties.

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.

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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.

Likewise, the Spin-Off is subject to various conditions and uncertainties and we and VEREIT may elect to sell some or all of the applicable office properties before the Spin-Off and we may elect not to proceed with the Spin-Off at all.

In connection with the Merger, we have filed a registration statement on Form S-4 (File No.

333-256772), declared effective by the SEC on June 29, 2021, that includes a joint proxy statement of Realty Income and VEREIT.

Realty Income and VEREIT have each scheduled special meetings of their respective stockholders to be held on August 12, 2021 in connection with the Mergers and related transactions.

Realty Income stockholders will be asked to

consider and vote on a proposal to approve the issuance of Realty Income common stock in the Mergers pursuant to the Merger Agreement.

VEREIT stockholders will be asked to consider and vote on a proposal to approve the Merger, on the terms and subject to the conditions of the Merger Agreement and a proposal to approve, by advisory (non-binding) vote, the compensation that may be paid or become payable to the named executive officers of VEREIT in connection with the Merger.

Merger-related Costs

In conjunction with our proposed acquisition of VEREIT, we incurred approximately $13.3 million of merger-related transaction costs during the three and six months ended June 30, 2021.

The merger-related costs incurred to date primarily consist of advisory fees, attorney fees, accountant fees and SEC filing fees.

In addition, we have engaged service providers, including investment banks and advisors, to help us negotiate the terms of the Merger and to advise us on other merger-related matters.

In connection with these services, we expect to be required to pay success-based fees to the extent that certain conditions, including the closing of the Merger and consummation of the Spin-Off and/or sale of OfficeCo business, are met.

As of June 30, 2021, we expect to incur approximately $18.0 million of such success fees.

As closing of the Merger has not occurred, no such amounts have been paid or accrued through June 30, 2021.

If closing of the Merger does not occur, we would not expect to be required to pay these fees.

Litigation Related to the Mergers

To date, purported stockholders of VEREIT filed 12 lawsuits challenging disclosures related to the Merger, and purported stockholders of Realty Income filed one lawsuit challenging the disclosures related to the Merger.

Each lawsuit seeks, among other things, injunction relief enjoining the consummation of the Merger, if the Merger is consummated, rescission or rescissory damages and an award of the plaintiff's costs, including attorneys' and experts' fees.

The defendants believe that all of the claims asserted are without merit and intend to defend against them vigorously.

However, litigation is inherently uncertain and there can be no assurance regarding the likelihood that the defendants' defense of the actions will be successful.

The outcome of these lawsuits can't be predicted and could have a significant impact on the timing or our ability to close the Merger.

Additional lawsuits arising out of the Mergers may also be filed in the future.

Theater Industry Update

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.

As of June 30, 2021, the theater industry represented 5.4% of annualized contractual rental revenue.

As of June 30, 2021, we were fully reserved for the outstanding receivable balances for 37 theater properties.

At June 30, 2021, the receivables outstanding for our 79 theater properties totaled $77.9 million, inclusive of $9.1 million of straight-line rent receivables, and net of $40.0 million of reserves, inclusive of $2.0 million of straight-line rent 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

Three Months Ended Six Months Ended

June 30, 2021 June 30, 2021

Rental revenue reserves $ 6.5 $ 13.8

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Total rental revenue reserves $ 6.6 $ 14.0

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.

Additionally, we did not record any provisions for impairment on theater properties for the six months ended June 30, 2021.

See "Item 1A—Risk Factors" in Part I of our Annual Report on Form 10-K for the 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 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.

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

As of July 2021, we have paid 95 consecutive quarterly dividend increases and increased the dividend 111 times since our listing on the NYSE in 1994.

The following table summarizes our dividend increases in 2021:

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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.

3rd increase Jun 2021 Jul 2021 $ 0.2355 $ 0.0005

The dividends paid per share during the six months ended June 30, 2021 totaled approximately $1.4085, as compared to approximately $1.3915 during the six months ended June 30, 2020, an increase of $0.0170, or 0.9%.

The monthly dividend of $0.2355 per share represents a current annualized dividend of $2.826 per share, and an annualized dividend yield of approximately 4.2% based on the last reported sale price of our common stock on the NYSE of $66.74 on June 30, 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 Three Months Ended March 31, 2021

Acquisitions During the Three and Six Months Ended June 30, 2021

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

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(Years) Initial

Three months ended March 31, 2021 (2)

Three months ended June 30, 2021 (2)

Acquisitions - U.S.

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156 6,285,495 $ 1,134,112 11.5 5.7 %

Six months ended June 30, 2021 (2)

Acquisitions - U.S.

(in 29 states)

173 4,484,715 $ 1,052,333 13.7 5.5 %

Acquisitions - U.K.

41 3,133,460 994,783 9.8 5.6 %

Total acquisitions 214 7,618,175 $ 2,047,116 11.8 5.5 %

Properties under development - U.S.

40 2,015,992 114,798 15.6 5.7 %

254 9,634,167 $ 2,161,914 12.0 5.5 %

(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 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.

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.

Contractual net operating income used in the calculation of initial average cash yield for the three and six months ended June 30, 2021 includes approximately $850,000 received as settlement credits for four properties acquired as reimbursement of free rent periods.

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.

(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).

(2) None of our investments during the three and six months ended June 30, 2021 caused any one client to be 10% or more of our total assets at June 30, 2021.

All of our investments in acquired properties during the three and six months ended June 30, 2021 were 100% leased at the acquisition date.

(3) Represents investments of £424.9 million Sterling during the three months ended June 30, 2021 and £715.1 million Sterling during the six months ended June 30, 2021 converted at the applicable exchange rate on the date of acquisition.

(4) Our clients occupying the new properties operate in 19 industries and are 85.1% retail and 14.9% industrial, based on rental revenue.

Approximately 54% of the rental revenue generated from acquisitions during the three months ended June 30, 2021 is from our investment grade rated clients, their subsidiaries or affiliated companies.

(5) Our clients occupying the new properties operate in 28 industries and are 75.8% retail and 24.2% industrial, based on rental revenue.

Approximately 47% of the rental revenue generated from acquisitions during the six months ended June 30, 2021 is from our investment grade rated clients, their subsidiaries or affiliated companies.

Portfolio Discussion

Leasing Results

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 :

At June 30, 2021, we had 103 properties available for lease or sale out of 6,761 properties in our portfolio, which represents a 98.5% occupancy rate based on the number of properties in our portfolio.

Below is a summary of our portfolio activity for the periods indicated below:

Three months ended June 30, 2021

Properties available for lease at March 31, 2021

Lease expirations (1)

Re-leases to same client (54)

Re-leases to new client (2)

Vacant dispositions (38)

Properties available for lease at June 30, 2021

Six months ended June 30, 2021

Properties available for lease at December 31, 2020

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Vacant dispositions (57)

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.

Properties available for lease at June 30, 2021

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

During the three months ended June 30, 2021, the annual new rent on re-leases was $10.44 million, as compared to the previous annual rent of $9.97 million on the same units, representing a rent recapture rate of 104.7% on the units re-leased.

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

During the six months ended June 30, 2021, the annual new rent on re-leases was $21.97 million, as compared to the previous annual rent of $21.12 million on the same units, representing a rent recapture rate of 104.0% on the units re-leased.

We re-leased three units to new clients without a period of vacancy, and 17 units to new clients 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 rent concessions to our clients.

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.

At June 30, 2021, our average annualized contractual rent was approximately $15.37 per square foot on the 6,658 leased properties in our portfolio.

At June 30, 2021, we classified 33 properties, with a carrying amount of $39.5 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

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.

During the three months ended June 30, 2021, we capitalized costs of $2.8 million on existing properties in our portfolio, consisting of $121,000 for re-leasing costs, $28,000 for recurring capital expenditures, and $2.6 million for non-recurring building improvements.

During the six months ended June 30, 2021, we capitalized costs of $4.3 million on existing properties in our portfolio, consisting of $827,000 for re-leasing costs, $51,000 for recurring capital expenditures, and $3.4 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, credit worthiness of our clients, the lease term and the willingness of our clients 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.

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

Equity Capital Raising

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

Capital Raising

During the three months ended June 30, 2021, we raised $457.5 million from the sale of common stock at a weighted average price of $69.01 per share, primarily through our At-The-Market-Program.

During the six months ended June 30, 2021, we raised $1.15 billion from the sale of common stock at a weighted average price of $61.29, primarily from 12,075,000 shares issued in an overnight underwritten public offering during the three months ended March 31, 2021, where we raised $669.6 million, including 1,575,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares, and from the sale of common stock through our At-The-Market-Program.

In July 2021, we raised $594.1 million from the issuance of 9,200,000 shares of common stock in an underwritten public offering, inclusive of 1,200,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares.

In July 2021, we issued £400 million through the issuance of 1.125% senior unsecured notes due 2027 (the "2027 Notes") and £350 million through the issuance of 1.750% senior unsecured notes due 2033 (the "2033 Notes").

The public offering price for the 2027 Notes was 99.305% of the principal amount for an effective semi-annual yield to maturity of 1.242% and the public offering price for the 2033 Notes was 99.842% of the principal amount for an effective semi-annual yield to maturity of 1.757%.

Combined, the new issues of the 2027 Notes and 2033 Notes have a weighted average term of 8.8 years and a weighted average effective semi-annual yield to maturity of 1.48%.

The issuances represented our debut green bond offering of Sterling-denominated notes.

Early Redemption of 3.250% Notes Due October 2022

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.

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

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

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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.

The majority of lease concessions granted to our clients during 2020 and the six months ended June 30, 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.

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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 March 31, 2021

January 31, 2021 Month Ended

February 28, 2021 Month Ended

March 31, 2021 Quarter Ended

March 31, 2021

Percentages of Contractual Rent Collected as of June 30, 2021

April 30, 2021 Month Ended

May 31, 2021 Month Ended

June 30, 2021

Quarter Ended

June 30, 2021

Contractual rent collected (1) across total portfolio

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Contractual rent collected from our health and fitness clients 94.8% 94.5% 93.9% 94.4%

(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.

(1) Collection rates are calculated as the aggregate contractual rent collected for the applicable period from the beginning of that applicable period through June 30, 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).

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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.

(2) We define our top 20 clients as our 20 largest clients based on percentage of total portfolio annualized contractual rent as of June 30, 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.

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, 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 March 31,

% Increase (Decrease)

Total revenue

Three months ended June 30, Six months ended June 30, % Increase (Decrease)

2021 2020 2021 2020

Total revenue $ 464.3 $ 414.6 $ 907.1 $ 829.0 12.0 % 9.4 %

Net income available to common stockholders (1)

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$ 0.33 $ 0.31 $ 0.59 $ 0.75 6.5 % (21.3) %

Funds from operations (FFO) available to common stockholders

$ 267.7 $ 277.1 (3.4) %

Funds from operations available to common stockholders (FFO) $ 314.4 $ 288.3 $ 582.1 $ 565.4 9.1 % 3.0 %

FFO per share (2)

$ 0.84 $ 0.84 $ 1.56 $ 1.66 — % (6.0) %

Adjusted funds from operations (AFFO) available to common stockholders

Normalized funds from operations available to common stockholders (Normalized FFO) $ 327.7 $ 288.3 $ 595.4 $ 565.4 13.7 % 5.3 %

Normalized FFO per share (2)

$ 0.88 $ 0.84 $ 1.60 $ 1.66 4.8 % (3.6) %

Adjusted funds from operations available to common stockholders (AFFO) $ 327.6 $ 295.2 $ 645.9 $ 592.5 11.0 % 9.0 %

AFFO per share (2)

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

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.

Our financial results in the six months ended June 30, 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 and $13.3 million of merger-related costs related to our proposed merger with VEREIT.

Our financial results in the six months ended June 30, 2020 were impacted by a $9.8 million loss on extinguishment of debt due to the January

2020 early redemption of the 5.750% notes due 2021, and a $3.5 million executive severance charge for our former chief financial officer.

See our discussion of FFO, Normalized 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 Normalized FFO, and AFFO.

LIQUIDITY AND CAPITAL RESOURCES

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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 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;

At June 30, 2021, our total outstanding borrowings of senior unsecured notes and bonds, term loan, mortgages payable, credit facility borrowings and commercial paper were $9.2 billion, or approximately 26.6% of our total market capitalization of $34.6 billion.

We define our total market capitalization at June 30, 2021 as the sum of:

• Shares of our common stock outstanding of 380,174,042, plus total common units outstanding of 463,119, multiplied by the last reported sales price of our common stock on the NYSE of $66.74 per share on June 30, 2021, or $25.4 billion;

• Outstanding borrowings of $635.3 million on our revolving credit facility, consisting entirely of Sterling-denominated borrowings of £460.0 million;

• Outstanding borrowings of $650.0 million on our commercial paper program;

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Universal Shelf Registration

In November 2018, we filed a shelf registration statement with the SEC, which is effective for a term of three years and will expire in November 2021.

In June 2021, we filed a shelf registration statement with the SEC, which is effective for a term of three years and will expire in June 2024.

In accordance with SEC rules, the amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit.

The securities covered by this registration statement include (1) common stock, (2) preferred stock, (3) debt securities, (4) depositary shares representing fractional interests in shares of preferred stock, (5) warrants to purchase debt securities, common stock, preferred stock, or depositary shares, and (6) any combination of these securities.

common stock, preferred stock, or depositary shares, and (6) any combination of these securities.

We may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered.

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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.

At March 31, 2021, we had 15,678,031 shares remaining for future issuance under our ATM program.

During the three and six months ended June 30, 2021, we issued 6,589,598 shares and raised approximately $454.8 million under the ATM program.

At June 30, 2021, we had 9,088,433 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

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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 July 2021, we issued 9,200,000 shares of common stock in an overnight underwritten public offering, inclusive of 1,200,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares.

After deducting underwriting discounts of $2.9 million, the company intends to use the net proceeds of $594.1 million to repay borrowings under our $1.0 billion commercial paper program, to fund potential investment opportunities and/or for other general corporate purposes.

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 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.

We did not issue shares under the waiver approval process during the six months ended June 30, 2021.

During the three months ended June 30, 2021, we issued 39,423 shares and raised approximately $2.7 million under our DRSPP.

During the six months ended June 30, 2021, we issued 82,817 shares and raised approximately $5.3 million under our DRSPP.

At June 30, 2021, we had 11,420,562 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 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.

Under our revolving credit facility, our investment grade credit ratings as of June 30, 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 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.

As of June 30, 2021, we had a borrowing capacity of $2.4 billion available on our revolving credit facility and an outstanding balance of $635.3 million, consisting entirely of Sterling-denominated borrowings of £460.0 million.

The weighted average interest rate on borrowings under our revolving credit facility during the six months ended June 30, 2021 was 0.9% per annum.

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

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

At June 30, 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 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%.

At June 30, 2021, we had an outstanding balance of $650.0 million.

The weighted average interest rate on borrowings under our commercial paper program was 0.3% for the six months ended June 30, 2021.

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.

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Mortgage Debt

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.

As of June 30, 2021, we had $299.9 million of mortgages payable, all of which were assumed in connection with our property acquisitions, including a Sterling-denominated mortgage payable of £31.0 million assumed during the three months ended June 30, 2021.

Additionally, at June 30, 2021, we had net premiums totaling $1.6 million on these mortgages and deferred financing costs of $942,000.

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 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 six months ended June 30, 2021, we made $42.6 million in principal payments, including the repayment of five mortgages in full for $40.9 million.

Notes Outstanding

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

Our senior unsecured note and bond obligations consist of the following as of June 30, 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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(1) 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 £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.

dollars) of the October 2020 Sterling-denominated note offering and May 2019 Sterling-denominated private placement of £400.0 million and £315.0 million, respectively, converted at the applicable exchange rate on June 30, 2021 .

In July 2021, we issued £400 million of 1.125% senior unsecured notes due July 2027 (the "2027" Notes) and £350 million of 1.750% senior unsecured notes due July 2033 (the "2033" Notes).

The public offering price for the 2027 Notes was 99.305% of the principal amount for an effective semi-annual yield to maturity of 1.242% and the public

offering price for the 2033 Notes was 99.842% of the principal amount for an effective semi-annual yield to maturity of 1.757%.

Combined, the new issues of the 2027 Notes and 2033 Notes have a weighted average term of 8.8 years and a weighted average effective semi-annual yield to maturity of 1.48%.

The issuances represented our debut green bond offering.

All of our outstanding notes and bonds have fixed interest rates and contain various covenants, with which we remained in compliance as of June 30, 2021.

Additionally, with the exception of our £400 million of 1.625% senior unsecured notes issued in October 2020, our 2027 Notes, and our 2033 Notes, in each case where interest is paid annually, interest on our remaining senior unsecured note and bond obligations is paid semiannually.

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

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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 March 31, 2021 are:

The actual amounts as of June 30, 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:

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):

(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 July 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 July 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 June 30, 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 March 31, 2021, we had cash and cash equivalents totaling $184.0 million, inclusive of £102.6 million Sterling.

At June 30, 2021, we had cash and cash equivalents totaling $231.2 million, inclusive of £49.8 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 March 31, 2021, we were assigned the following investment grade corporate credit ratings on our senior unsecured notes and bonds:

As of June 30, 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 March 31, 2021:

In addition, we were assigned the following ratings on our commercial paper at June 30, 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 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.

Based on our ratings as of June 30, 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:

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Table of Obligations

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

The following table summarizes the maturity of each of our obligations as of June 30, 2021 (dollars in millions):

Maturity Credit Facility and Commercial Paper Program (1)

Senior Unsecured Notes and

Leases Paid by

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(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.

Borrowings of $650.0 million under the commercial paper program were due in July 2021.

(2) Excludes non-cash original issuance discounts and premiums recorded on notes payable of $11.7 million and deferred financing costs of $44.1 million.

The table of obligations also excludes the July 2021 issuances of £400 million of senior unsecured notes due July 2027 and £350 million of senior unsecured notes due July 2033.

(3) Excludes deferred financing costs of $543,000.

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(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.

Excludes interest from the July 2021 issuances of £400 million of 1.125% senior unsecured notes due July 2027 and £350 million of 1.750% senior unsecured notes due July 2033.

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

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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.

(8) “Other” consists of $218.6 million of commitments under construction contracts, $9.4 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements and $18.0 million of success fees related to our proposed merger with VEREIT.

If closing of the Merger does not occur, we would not expect to be required to pay these success fees.

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

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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.

Our cash distributions to common stockholders in the six months ended June 30, 2021 totaled $524.1 million, representing 81.1% of our adjusted funds from operations available to common stockholders of $645.9 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.

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.

Future distributions will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, FFO, Normalized 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 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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However, actual results may differ from these estimates and assumptions.

This summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.

This summary should be read in conjunction with the more complete discussion of our

accounting policies and procedures included in note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.

In order to prepare our consolidated financial statements according to the rules and guidelines set forth by GAAP, many subjective judgments must be made with regard to critical accounting policies.

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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.

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.

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

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

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

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

When assessing the collectability of future lease payments, one of the key factors we have considered during 2020 and the six months ended June 30, 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.

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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.

As of June 30, 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.

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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 months ended March 31, 2021, to the three months ended March 31, 2020.

The following is a comparison of our results of operations for the three and six months ended June 30, 2021, to the three and six months ended June 30, 2020.

Total Revenue

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

Three months ended March 31,

2021 2020 Increase

Three months ended June 30, Six months ended June 30, Increase/ (Decrease)

2021 2020 2021 2020 Three Months Six Months

Rental (excluding reimbursable)

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Rental Revenue (excluding reimbursable)

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)

The table below summarizes the increase in rental revenue (excluding reimbursable) in the three months ended June 30, 2021 compared to the three months ended June 30, 2020 (dollars in thousands):

Three Months Ended June 30, Increase/(Decrease)

Number of Properties Square Footage (1)

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(1) Excludes 3,231,790 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.

(2) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as of June 30, 2021 of 1.38 GBP/USD.

(3) Relates to the aggregate of (i) rental revenue from properties (166 properties comprising 2,802,043 square feet) that were available for lease during part of 2021 or 2020, (ii) rental revenue for properties (eight properties comprising 335,456 square feet) under development, and (iii) rental revenue that is not contractual base rent such as lease termination settlements.

The table below summarizes the increase in rental revenue (excluding reimbursable) in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 (dollars in thousands):

Six Months Ended June 30, Increase/(Decrease)

Number of Properties Square Footage (1)

2021 2020 $ Change % Change

Properties acquired subsequent to December 31, 2019 473 15,360,676 $ 90,797 $ 12,575 $ 78,222 622.0 %

Same store rental revenue 6,114 96,554,182 747,698 747,045 653 0.1 %

Constant currency adjustment (2)

N/A N/A 380 (2,232) 2,612 (117.0) %

Properties sold subsequent to December 31, 2019 197 4,407,860 1,214 8,600 (7,386) (85.9) %

Straight-line rent and other non-cash adjustments N/A N/A 2,883 (1,782) 4,665 (261.8) %

Vacant rents, development and other (3)

174 3,157,499 11,450 16,822 (5,372) (31.9) %

Totals $ 854,422 $ 781,028 $ 73,394 9.4 %

(1) Excludes 3,231,790 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 June 30, 2021 of 1.38 GBP/USD.

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 $7.4 million for the three months ended March 31, 2021 compared to $819,000 for the three months ended March 31, 2020.

Same store rental income was negatively impacted by reserves recorded as reductions of rental revenue of $5.7 million for the three months ended June 30, 2021 compared to $3.7 million for the three months ended June 30, 2020, and $13.0 million for the six months ended June 30, 2021 compared to $3.8 million for the six months ended June 30, 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 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.

If these applicable amounts of rent deferrals and uncollected rent were excluded from our calculation of same store rental revenue, the increases for the three and six months ended June 30, 2021 relative to the comparable periods for 2020 would have been 16.3% and 4.9%, respectively.

Rental revenue was negatively impacted by rent reserves for the three and six months ended June 30, 2021 and 2020, 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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Rental revenue reserves $ 7.5 $ 6.4 $ 15.8 $ 7.4

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Total rental revenue reserves $ 8.2 $ 8.5 $ 17.0 $ 10.2

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:

Of the 6,761 properties in the portfolio at June 30, 2021, 6,715, or 99.3%, are single-client properties and the remaining are multi-client properties.

Of the 6,715 single-client properties, 6,616, or 98.5%, were net leased at June 30, 2021.

Of the 6,779 in-place leases in the portfolio, which excludes 127 vacant units, 5,773 or 85.2% were under leases that provide for increases in rents through:

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

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

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.

Percentage rent, which is included in rental revenue, was $596,000 in the three months ended June 30, 2021, $547,000 in the three months ended June 30, 2020, $1.6 million in the six months ended June 30, 2021 and $1.8 million in the six months ended June 30, 2020.

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

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.

At June 30, 2021, our portfolio of 6,761 properties was 98.5% leased with 103 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 101 properties available for lease at June 30, 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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Other Revenue

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.

Other revenue primarily relates to interest income recognized on financing receivables for certain leases with above-market terms and interest earned on cash and cash equivalents.

Total Expenses

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

Three months ended March 31,

2021 2020 $ Increase/ (Decrease)

Three months ended June 30, Six months ended June 30, $ Increase/ (Decrease)

2021 2020 2021 2020 Three months

Depreciation and amortization

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21,849 19,063 42,645 40,027 2,786 2,618

6,225 2,763 3,462

Provisions for impairment

17,246 13,869 19,966 18,347 3,377 1,619

Merger-related costs 13,298 — 13,298 — 13,298 13,298

Total expenses

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

5.0 % 4.8 % 4.9 % 4.6 %

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

(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.

1.9 % 1.4 % 1.7 % 1.4 %

(1) General and administrative expenses for the six months ended June 30, 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.

In order to present a normalized calculation of our general and administrative expenses as a percentage of total revenue for the six months ended June 30, 2020, we have excluded this executive severance charge to arrive at a normalized general and administrative amount of $36,564, which was used for our calculation.

(2) Excludes rental revenue (reimbursable).

Depreciation and Amortization

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.

The increase in depreciation and amortization for the three and six months ended June 30, 2021 was primarily due to the acquisition of properties in 2020 and for the six months ended June 30, 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 Normalized Funds from Operations Available to Common Stockholders (Normalized 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, Normalized FFO, and AFFO.

Interest Expense

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

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Interest on our credit facility, commercial paper, term loan, notes, mortgages and interest rate swaps $ 70,203 $ 73,622 $ 139,731 $ 145,817

Credit facility commitment fees

948 948 1,885 1,896

Amortization of debt origination and deferred financing costs

2,675 2,420 5,336 5,168

Loss on interest rate swaps

724 1,306 1,447 1,993

Amortization of net mortgage premiums

(205) (356) (485) (710)

Amortization of net note premiums

(53) (162) (138) (406)

Interest capitalized (696) (15) (1,181) (148)

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3.02 % 3.33 % 3.14 % 3.46 %

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:

The decrease in interest expense for the three and six months ended June 30, 2021 is primarily due to lower average balances and interest rates on our credit facility, the January 2021 early redemption on all $950.0 million in principal of the 3.250% notes due October 2022, 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 six months ended June 30, 2021, the weighted average interest rate on our:

• Revolving credit facility outstanding borrowings of $635.3 million, consisting entirely of Sterling-denominated borrowings of £460.0 million, was 0.9%

• Commercial paper outstanding borrowings of $650.0 million was 0.3%;

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• Notes and bonds payable of $7.36 billion (excluding net unamortized original issue premiums of $11.7 million and deferred financing costs of $44.1 million) was 3.4%;

• 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%.

• Combined outstanding notes, bonds, mortgages, term loan, revolving credit facility borrowings, and commercial paper borrowings of $9.20 billion (excluding all net premiums and deferred financing costs) was 3.1%.

Property Expenses (excluding reimbursable)

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

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.

At June 30, 2021, 103 properties were available for lease or sale, as compared to 140 at December 31, 2020, and 101 at June 30, 2020.

The increase in property expenses (excluding reimbursable) for the three and six months ended June 30, 2021 is primarily due to the increase in portfolio size, resulting in higher utilities, property-related legal expenses, property taxes, and reserves for contractually obligated reimbursements by our clients.

Property Expenses (reimbursable)

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.

The increase in property expenses (reimbursable) for the three and six months ended June 30, 2021 was primarily attributable to decreased vacancies, increase in property taxes paid on behalf of clients, and the increased portfolio size, which contributed to higher operating expenses primarily due to our acquisitions in 2020 and the six months ended June 30, 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 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 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 three months ended March 31, 2020.

General and administrative expenses for the six months ended June 30, 2020 included a severance charge of $3.5 million for our former CFO.

Excluding this severance charge, general administrative expenses for the six months ended June 30, 2021 increased by $6.1 million.

The increase in general and administrative expenses for the three and six months ended June 30, 2021 is primarily due to higher payroll-related costs and higher corporate-level professional fees, partially offset by lower costs for travel.

Provisions for Impairment

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

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Total provisions for impairment $ 17.2 $ 13.9 $ 20.0 $ 18.3

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Classified as held for investment 5 7 9 7

Sold 18 17 28 28

Merger-related Costs

In conjunction with our proposed merger with VEREIT, we incurred approximately $13.3 million of merger-related transaction costs during the six months ended June 30, 2021.

The merger-related costs incurred to date primarily consist of advisory fees, attorney fees, accountant fees and SEC filing fees.

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,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Number of properties sold 42 12 69 29

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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.

As a result of the early redemption, we recognized a $46.5 million loss on extinguishment of debt for the six months ended June 30, 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 for the three months ended March 31, 2020.

As a result of the early redemption, we recognized a $9.8 million loss on extinguishment of debt for the six months ended June 30, 2020.

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 for the three and six months ended June 30, 2021 was primarily attributable to our increased volume of U.K.

investments, which contributed to higher U.K.

income taxes as compared to the same periods in 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 March 31,

Three months ended June 30, Six months ended June 30, % Increase / (Decrease)

2021 2020 2021 2020 Three months

Net income available to common stockholders

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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 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.

Net income available to common stockholders for the six months ended June 30, 2021 was negatively 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 $13.3 million of merger-related costs related to our proposed merger with VEREIT.

Net income available to common stockholders for the six months ended June 30, 2020 was negatively impacted by a $9.8 million loss on extinguishment of debt due to the January 2020 early redemption of the 5.750% Notes due January 2021.

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

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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).

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) merger-related costs, (vi) gain on sales of real estate, and (vii) foreign currency and derivative gains and losses, net (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.

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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.

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.

1 unchanged sentence

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,

Three months ended June 30,

Net income (1)

1 unchanged sentence

73,674 77,841

Loss on extinguishment of debt 46,473 9,819

Depreciation and amortization

187,789 168,328

Executive severance charge (2)

Provisions for impairment

17,246 13,869

Merger-related costs 13,298 —

Gain on sales of real estate

11 unchanged sentences

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.

(1) Net income for the three months ended June 30, 2021 was negatively impacted by $8.2 million of rent reserves recorded as reductions of rental revenue, of which $723,000 relates to straight-line rent receivables.

Net income for the three months ended June 30, 2020 was negatively impacted by $8.5 million of rent reserves recorded as reductions of rental revenue, of which $2.1 million relates to straight-line rent receivables.

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

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

Three months ended March 31,

Three months ended June 30,

Dollars in thousands 2021 2020

2 unchanged sentences

Annualized Pro forma Adjustments $ 42,118 $ 1,396

FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (FFO)

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

Three months ended March 31,

2021 2020 % Decrease

FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (FFO) AND NORMALIZED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (Normalized FFO)

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

Three months ended June 30, Six months ended June 30, % Increase / (Decrease)

2021 2020 2021 2020 Three months

FFO available to common stockholders

2 unchanged sentences

$ 0.84 $ 0.84 $ 1.56 $ 1.66 — % (6.0) %

Normalized FFO available to common stockholders

$ 327.7 $ 288.3 $ 595.4 $ 565.4 13.7 % 5.3 %

Normalized FFO per share (1)

$ 0.88 $ 0.84 $ 1.60 $ 1.66 4.8 % (3.6) %

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

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.

FFO and Normalized FFO in the six months ended June 30, 2021 were 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 3.250% notes due 2022 in January 2021, and $13.3 million of merger-related costs related to our proposed merger with VEREIT.

FFO and Normalized FFO in the six months ended June 30, 2020 were 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 and Normalized 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 March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Net income available to common stockholders

3 unchanged sentences

Depreciation of furniture, fixtures and equipment

(73) (152) (444) (278)

Provisions for impairment

17,246 13,869 19,966 18,347

Gain on sales of real estate

1 unchanged sentence

FFO adjustments allocable to noncontrolling interests

(165) (208) (331) (363)

FFO available to common stockholders

2 unchanged sentences

348 348 705 717

FFO per common share:

Basic and diluted $ 0.72 $ 0.82

Diluted FFO $ 314,723 $ 288,686 $ 582,787 $ 566,158

FFO available to common stockholders

$ 314,375 $ 288,338 $ 582,082 $ 565,441

Merger-related costs 13,298 — 13,298 —

Normalized FFO available to common stockholders $ 327,673 $ 288,338 $ 595,380 $ 565,441

Normalized FFO allocable to dilutive noncontrolling interests 348 348 705 717

Diluted Normalized FFO $ 328,021 $ 288,686 $ 596,085 $ 566,158

FFO per common share, basic and diluted $ 0.84 $ 0.84 $ 1.56 $ 1.66

Normalized FFO per common share, basic and diluted $ 0.88 $ 0.84 $ 1.60 $ 1.66

Distributions paid to common stockholders

2 unchanged sentences

$ 51,017 $ 47,868 $ 58,026 $ 91,147

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

Normalized FFO available to common stockholders in excess of distributions paid to common stockholders $ 64,315 $ 47,868 $ 71,324 $ 91,147

Weighted average number of common shares used for FFO and normalized FFO:

374,236,424 343,515,406 372,879,165 340,061,487

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

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

We define Normalized FFO, a non-GAAP financial measure, is FFO excluding merger-related costs related to our proposed merger with VEREIT.

We consider FFO and Normalized FFO to be appropriate supplemental measures of a REIT’s operating performance as they are based on a net income analysis of property portfolio performance that adds back items such as depreciation and impairments for FFO, and adds back merger-related costs, for Normalized FFO.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time.

Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative.

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

ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (AFFO)

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

Three months ended March 31,

% Increase/ (Decrease)

Three months ended June 30, Six months ended June 30, % Increase / (Decrease)

2021 2020 2021 2020 Three months

AFFO available to common stockholders

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

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.

AFFO in the three and six months ended June 30, 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.

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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.

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

Three months ended March 31,

Net income available to common stockholders (1)

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Cumulative adjustments to calculate FFO (2)

Net income available to common stockholders (1)

$ 124,479 $ 107,824 $ 220,419 $ 254,651

FFO available to common stockholders

Cumulative adjustments to calculate Normalized FFO (2)

203,194 180,514 374,961 310,790

Normalized FFO available to common stockholders 327,673 288,338 595,380 565,441

Executive severance charge (3)

2 unchanged sentences

Amortization of deferred financing costs (4)

1,710 1,476 3,375 2,836

Amortization of net mortgage premiums (205) (356) (485) (710)

1 unchanged sentence

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

584 623 1,202 1,346

Leasing costs and commissions (121) (973) (827) (1,111)

1 unchanged sentence

Straight-line rent (11,004) (6,242) (21,467) (14,024)

(10,463) (7,782)

Amortization of above and below-market leases, net 3,934 6,087 13,234 12,517

Other adjustments (6)

AFFO available to common stockholders

(93) 121 (581) 2,291

AFFO available to common stockholders $ 327,647 $ 295,241 $ 645,869 $ 592,463

AFFO allocable to dilutive noncontrolling interests 344 356 695 732

$ 318,573 $ 297,599

AFFO per common share:

Basic and diluted $ 0.86 $ 0.88

Diluted AFFO $ 327,991 $ 295,597 $ 646,564 $ 593,195

AFFO per common share, basic and diluted $ 0.88 $ 0.86 $ 1.73 $ 1.74

Distributions paid to common stockholders $ 263,358 $ 240,470 $ 524,056 $ 474,294

$ 260,697 $ 233,824

AFFO available to common stockholders in excess of distributions paid to common stockholders $ 64,289 $ 54,771 $ 121,813 $ 118,169

$ 57,525 $ 63,399

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

371,522,607 336,624,567

372,065,020 337,439,634

(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)."

Basic 374,236,424 343,515,406 372,879,165 340,061,487

Diluted 374,804,142 344,148,378 373,434,863 340,744,384

(1) As of June 30, 2021, there was $40.5 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 Financial Accounting Standards Board (FASB) and $61.2 million of uncollected rent for which we have not granted a lease concession.

(2) See reconciling items for Normalized FFO presented under “Funds from Operations Available to Common Stockholders (FFO) and Normalized Funds from Operations Available to Common Stockholders (Normalized 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 current and previous term loans.

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

payable, mortgages and term loan.

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.

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Therefore, we believe that AFFO is an appropriate supplemental performance metric, and that the most appropriate GAAP performance metric to which AFFO should be reconciled is net income available to common stockholders.

Presentation of the information regarding FFO and AFFO is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and AFFO in the same way, so comparisons with other REITs may not be meaningful.

Furthermore, FFO and AFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as alternatives to net income as an indication of our performance.

FFO and AFFO should not be considered as alternatives to reviewing our cash flows from operating, investing, and financing activities.

In addition, FFO and AFFO should not be considered as measures of liquidity, our ability to make cash distributions, or our ability to pay interest payments.

Presentation of the information regarding FFO, Normalized FFO, and AFFO is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO, Normalized FFO, and AFFO in the same way, so comparisons with other REITs may not be meaningful.

Furthermore, FFO, Normalized FFO, and AFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as alternatives to net income as an indication of our performance.

FFO, Normalized FFO, and AFFO should not be considered as alternatives to reviewing our cash flows from operating, investing, and financing activities.

In addition, FFO, Normalized FFO, and AFFO should not be considered as measures of liquidity, our ability to make cash distributions, or our ability to pay interest payments.

PROPERTY PORTFOLIO INFORMATION

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

At June 30, 2021, we owned a diversified portfolio:

• Of 6,761 properties;

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approximately 12,600 square feet per retail property and 258,400 square feet per industrial property.

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

At June 30, 2021, 6,658 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.

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Property Type Composition

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

The following table sets forth certain property type information regarding our property portfolio as of June 30, 2021 (dollars in thousands):

Property Type

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Total Portfolio Annualized Contractual Rent as of

March 31, 2021

June 30, 2021

Percentage of Total Portfolio Annualized Contractual Rent

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(1) Includes leasable building square footage.

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

Excludes 3,600 acres of leased land categorized as agriculture at June 30, 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 %

7-Eleven 592 6.0 %

Walgreens 245 5.2 %

Dollar General 831 4.3 %

FedEx 41 3.5 %

Dollar Tree / Family Dollar 552 3.2 %

Sainsbury's 23 3.4 %

Dollar Tree/ Family Dollar 552 3.1 %

LA Fitness 56 2.9 %

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Walmart / Sam's Club 57 2.5 %

Lifetime Fitness 16 2.3 %

Circle K (Couche-Tard) 273 1.7 %

Life Time Fitness 16 2.3 %

B&Q (Kingfisher) 15 1.8 %

BJ's Wholesale Clubs 17 1.8 %

Speedway (Marathon) 161 1.6 %

Tesco 12 1.8 %

Circle K (Couche-Tard) 237 1.5 %

Treasury Wine Estates 17 1.5 %

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Kroger 22 1.4 %

B&Q (Kingfisher) 11 1.4 %

Tesco 10 1.4 %

Fas Mart (GPM Investments) 199 1.2 %

Total 3,118 52.1 %

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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 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 Rent as of March 31, 2021

Total Portfolio Annualized Contractual Rent as of

June 30, 2021

Percentage of Total Portfolio Annualized Contractual Rent

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Geographic Diversification

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

The following table sets forth certain state-by-state information regarding our property portfolio as of June 30, 2021 (dollars in thousands):

Percent Leased

Total Portfolio Annualized Contractual Rent as of

March 31, 2021

June 30, 2021

Percentage of Total Portfolio Annualized Contractual Rent

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Our 1.625% notes due December 2030 are listed on the NYSE under the ticker symbol "O30" with a CUSIP number of 756109-AY0.

Our 1.125% notes due July 2027 are listed on the NYSE under the ticker symbol "O27A" with a CUSIP number of 756109-BB9 .

Our 1.750% notes due July 2033 are listed on the NYSE under the ticker symbol "O33A" with a CUSIP number of 756109-BC7.

Our central index key number is 726728.

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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