REALTY INCOME CORP 10-Q

Item 1. Financial Statements REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share and share count data) September 30, 2021 December 31, 2020 ASSETS (unaudited) Real estate held for investment, at cost: Land $ 7,308,046 $ 6,318,926 Buildings and improvements 16,374,061 14,696,712 Total real estate held for investment, at cost 23,682,107 21,015,638 Less accumulated depreciation and amortization ( 3,904,327 ) ( 3,549,486 ) Real estate held for investment, net 19,777,780 17,466,152 Real estate and lease intangibles held for sale, net 44,939 19,004 Cash and cash equivalents 516,983 824,476 Accounts receivable, net 341,729 285,701 Lease intangible assets, net 2,156,008 1,710,655 Other assets, net 873,655 434,297 Total assets $ 23,711,094 $ 20,740,285 LIABILITIES AND EQUITY Distributions payable $ 96,280 $ 85,691 Accounts payable and accrued expenses 269,587 241,336 Lease intangible liabilities, net 341,675 321,198 Other liabilities 385,077 256,863 Line of credit payable and commercial paper 405,000 — Term loan, net 249,507 249,358 Mortgages payable, net 285,617 300,360 Notes payable, net 8,309,238 8,267,749 Total liabilities 10,341,981 9,722,555 Commitments and contingencies Stockholders’ equity: Common stock and paid in capital, par value $ 0.01 per share, 740,200,000 shares authorized, 404,206,076 and 361,303,445 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 17,449,122 14,700,050 Distributions in excess of net income ( 4,112,953 ) ( 3,659,933 ) Accumulated other comprehensive loss ( 1,076 ) ( 54,634 ) Total stockholders’ equity 13,335,093 10,985,483 Noncontrolling interests 34,020 32,247 Total equity 13,369,113 11,017,730 Total liabilities and equity $ 23,711,094 $ 20,740,285 The accompanying notes to consolidated financial statements are an integral part of these statements. -2- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (dollars in thousands, except per share data) (unaudited) Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 REVENUE Rental (including reimbursable) $ 486,337 $ 401,869 $ 1,385,958 $ 1,224,227 Other 5,538 2,703 13,003 9,322 Total revenue 491,875 404,572 1,398,961 1,233,549 EXPENSES Depreciation and amortization 198,832 169,084 564,606 501,997 Interest 76,156 76,806 222,905 230,572 Property (including reimbursable) 29,662 25,410 89,895 77,468 General and administrative 23,813 16,514 66,458 56,541 Provisions for impairment 11,011 105,095 30,977 123,442 Merger-related costs 16,783 — 30,081 — Total expenses 356,257 392,909 1,004,922 990,020 Gain on sales of real estate 12,094 13,736 35,396 53,565 Foreign currency and derivative gains (losses), net ( 2,374 ) 2,336 ( 1,170 ) 1,274 Loss on extinguishment of debt ( 3,983 ) — ( 50,456 ) ( 9,819 ) Income before income taxes 141,355 27,735 377,809 288,549 Income taxes ( 6,079 ) ( 4,592 ) ( 21,529 ) ( 10,193 ) Net income 135,276 23,143 356,280 278,356 Net income attributable to noncontrolling interests ( 280 ) ( 239 ) ( 865 ) ( 801 ) Net income available to common stockholders $ 134,996 $ 22,904 $ 355,415 $ 277,555 Amounts available to common stockholders per common share: Net Income, basic and diluted $ 0.34 $ 0.07 $ 0.94 $ 0.81 Weighted average common shares outstanding: Basic 391,913,478 346,476,217 379,291,782 342,214,164 Diluted 392,050,401 346,749,474 379,409,427 342,483,218 Other comprehensive income: Net income available to common stockholders $ 134,996 $ 22,904 $ 355,415 $ 277,555 Foreign currency translation adjustment 1,438 ( 964 ) 1,130 ( 550 ) Unrealized gain (loss) on derivatives, net 16,852 1,602 52,428 ( 34,794 ) Comprehensive income available to common stockholders $ 153,286 $ 23,542 $ 408,973 $ 242,211 The accompanying notes to consolidated financial statements are an integral part of these statements. -3- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (dollars in thousands) (unaudited) Three Months Ended September 30, 2021 and 2020 Shares of common stock Common stock and paid in capital Distributions in excess of net income Accumulated other comprehensive income (loss) Total stockholders’ equity Noncontrolling interests Total equity Balance, June 30, 2021 380,174,042 $ 15,827,231 $ ( 3,968,333 ) $ ( 19,366 ) $ 11,839,532 $ 34,147 $ 11,873,679 Net income — — 134,996 — 134,996 280 135,276 Other comprehensive income — — — 18,290 18,290 — 18,290 Distributions paid and payable — — ( 279,616 ) — ( 279,616 ) ( 407 ) ( 280,023 ) Share issuances, net of costs 24,030,435 1,618,463 — — 1,618,463 — 1,618,463 Share-based compensation, net 1,599 3,428 — — 3,428 — 3,428 Balance, September 30, 2021 404,206,076 $ 17,449,122 $ ( 4,112,953 ) $ ( 1,076 ) $ 13,335,093 $ 34,020 $ 13,369,113 Balance, June 30, 2020 345,023,421 $ 13,704,121 $ ( 3,306,588 ) $ ( 53,084 ) $ 10,344,449 $ 29,470 $ 10,373,919 Net income — — 22,904 — 22,904 239 23,143 Other comprehensive income — — — 638 638 — 638 Distributions paid and payable — — ( 243,837 ) — ( 243,837 ) ( 401 ) ( 244,238 ) Share issuances, net of costs 5,571,223 343,335 — — 343,335 — 343,335 Reallocation of equity — 47 — — 47 ( 47 ) — Share-based compensation, net 1,225 2,991 — — 2,991 — 2,991 Balance, September 30, 2020 350,595,869 $ 14,050,494 $ ( 3,527,521 ) $ ( 52,446 ) $ 10,470,527 $ 29,261 $ 10,499,788 Nine Months Ended September 30, 2021 and 2020 Shares of common stock Common stock and paid in capital Distributions in excess of net income Accumulated other comprehensive income (loss) Total stockholders’ equity Noncontrolling interests Total equity Balance, December 31, 2020 361,303,445 $ 14,700,050 $ ( 3,659,933 ) $ ( 54,634 ) $ 10,985,483 $ 32,247 $ 11,017,730 Net income — — 355,415 — 355,415 865 356,280 Other comprehensive income — — — 53,558 53,558 — 53,558 Distributions paid and payable — — ( 808,435 ) — ( 808,435 ) ( 1,198 ) ( 809,633 ) Share issuances, net of costs 42,777,850 2,743,039 — — 2,743,039 — 2,743,039 Contributions by noncontrolling interests — — — — — 2,106 2,106 Share-based compensation, net 124,781 6,033 — — 6,033 — 6,033 Balance, September 30, 2021 404,206,076 $ 17,449,122 $ ( 4,112,953 ) $ ( 1,076 ) $ 13,335,093 $ 34,020 $ 13,369,113 Balance, December 31, 2019 333,619,106 $ 12,873,849 $ ( 3,082,291 ) $ ( 17,102 ) $ 9,774,456 $ 29,702 $ 9,804,158 Net income — — 277,555 — 277,555 801 278,356 Other comprehensive loss — — — ( 35,344 ) ( 35,344 ) — ( 35,344 ) Distributions paid and payable — — ( 722,785 ) — ( 722,785 ) ( 1,195 ) ( 723,980 ) Share issuances, net of costs 16,851,689 1,171,107 — — 1,171,107 — 1,171,107 Reallocation of equity — 47 — — 47 ( 47 ) — Share-based compensation, net 125,074 5,491 — — 5,491 — 5,491 Balance, September 30, 2020 350,595,869 $ 14,050,494 $ ( 3,527,521 ) $ ( 52,446 ) $ 10,470,527 $ 29,261 $ 10,499,788 The accompanying notes to consolidated financial statements are an integral part of these statements. -4- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Nine months ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 356,280 $ 278,356 Adjustments to net income: Depreciation and amortization 564,606 501,997 Amortization of share-based compensation 12,484 13,420 Non-cash revenue adjustments ( 12,722 ) ( 5,544 ) Loss on extinguishment of debt 50,456 9,819 Amortization of net premiums on mortgages payable ( 1,158 ) ( 1,020 ) Amortization of deferred financing costs 8,612 6,888 Loss on interest rate swaps 2,179 3,115 Foreign currency and derivative (gains) losses, net 1,170 ( 1,274 ) Gain on sales of real estate ( 35,396 ) ( 53,565 ) Provisions for impairment on real estate 30,977 123,442 Change in assets and liabilities Accounts receivable and other assets ( 46,670 ) ( 59,747 ) Accounts payable, accrued expenses and other liabilities 39,248 ( 6,082 ) Net cash provided by operating activities 970,066 809,805 CASH FLOWS FROM INVESTING ACTIVITIES Investment in real estate ( 3,709,894 ) ( 1,286,289 ) Improvements to real estate, including leasing costs ( 11,159 ) ( 10,336 ) Proceeds from sales of real estate 123,533 181,925 Insurance and other proceeds received — 2,874 Non-refundable escrow deposits ( 5,432 ) — Net cash used in investing activities ( 3,602,952 ) ( 1,111,826 ) CASH FLOWS FROM FINANCING ACTIVITIES Cash distributions to common stockholders ( 797,847 ) ( 716,535 ) Borrowings on line of credit and commercial paper program 6,277,918 3,141,828 Payments on line of credit and commercial paper program ( 5,853,423 ) ( 3,002,717 ) Principal payment on term loan — ( 250,000 ) Proceeds from notes and bonds payable issued 1,033,387 972,766 Principal payment on notes payable ( 950,000 ) ( 250,000 ) Principal payments on mortgages payable ( 55,983 ) ( 73,711 ) Payments upon extinguishment of debt ( 51,218 ) ( 9,445 ) Proceeds from common stock offerings, net 1,263,235 728,883 Proceeds from dividend reinvestment and stock purchase plan 8,208 6,922 Proceeds from At-the-Market (ATM) program, net 1,471,595 442,157 Distributions to noncontrolling interests ( 1,198 ) ( 1,195 ) Net receipts on derivative settlements 2,463 3,462 Debt issuance costs ( 8,670 ) ( 8,870 ) Other items, including shares withheld upon vesting ( 6,451 ) ( 14,783 ) Net cash provided by financing activities 2,332,016 968,762 Effect of exchange rate changes on cash and cash equivalents ( 3,711 ) 1,265 Net (decrease) increase in cash, cash equivalents and restricted cash ( 304,581 ) 668,006 Cash, cash equivalents and restricted cash, beginning of period 850,679 71,005 Cash, cash equivalents and restricted cash, end of period $ 546,098 $ 739,011 For supplemental disclosures, see note 18. The accompanying notes to consolidated financial statements are an integral part of these statements. -5- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021 (unaudited) 1. Basis of Presentation The consolidated financial statements of Realty Income Corporation (“Realty Income”, the “Company”, “we”, “our” or “us”) were prepared from our books and records without audit and include all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented. Readers of this quarterly report should refer to our audited consolidated financial statements for the year ended December 31, 2020, which are included in our 2020 Annual Report on Form 10-K , as certain disclosures that would substantially duplicate those contained in the audited financial statements have not been included in this report. Unless otherwise indicated, all dollar amounts are expressed in United States (U.S.) dollars. At September 30, 2021 we owned 7,018 properties, located in all 50 U.S. states, Puerto Rico, the United Kingdom (U.K.) and Spain, consisting of approximately 125.0 million leasable square feet. 2. Summary of Significant Accounting Policies and Procedures Principles of Consolidation. The accompanying consolidated financial statements include the accounts of Realty Income and other subsidiaries for which we make operating and financial decisions (i.e., control), after elimination of all material intercompany balances and transactions. We consolidate entities that we control and record a noncontrolling interest for the portion that we do not own. Noncontrolling interest that was created or assumed as part of a business combination or asset acquisition was recognized at fair value as of the date of the transaction (see note 11). We have no unconsolidated investments. Federal Income Taxes. We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended. We believe we have qualified and continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income. Assuming our dividends equal or exceed our taxable net income, we generally will not be required to pay federal corporate income taxes on such income. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of our taxable REIT subsidiaries. The income taxes recorded on our consolidated statements of income and comprehensive income represent amounts accrued or paid by Realty Income and its subsidiaries for city and state income and franchise taxes and for U.K. income taxes. Lease Revenue Recognition and Accounts Receivable. The COVID-19 pandemic and the measures taken to limit its spread are negatively impacting the economy across many industries, including the industries in which some of our clients operate. These impacts may continue as the duration and severity of the pandemic increases. As a result, we have closely monitored the collectability of our accounts receivable and continue to evaluate the potential impacts of the COVID-19 pandemic and the measures taken to limit its spread on our business and industry segments as the situation continues to evolve and more information becomes available. We must continue to assess the probability of collecting substantially all of the lease payments to which we are entitled under the original lease contract as required under Topic 842, Leases . If a company concludes collection of substantially all lease payments under a lease is less than probable, rental revenue recognized for that lease is limited to cash received going forward, existing operating lease receivables must be written off as an adjustment to rental revenue, and no further operating lease receivables are recorded for that lease until such future determination is made that substantially all lease payments under that lease are now considered probable. If a company subsequently concludes collection of substantially all lease payments under a lease is probable, a reversal of lease receivables previously written off is recognized. The majority of concessions granted to our clients during 2020 and the nine months ended September 30, 2021 as a result of the COVID-19 pandemic have been rent deferrals with the original lease term unchanged. We currently anticipate future concessions to be similar. In accordance with the guidance provided by the Financial Accounting Standards Board (FASB) staff, we have elected to account for these leases as if the right of deferral existed in the lease contract and therefore continue to recognize lease revenue in accordance with the lease contract in effect. In limited circumstances, the undiscounted cash flows resulting from deferrals granted increased significantly from original lease terms, which required us to account for these as lease modifications, and resulted in an insignificant -6- Table of Contents impact to rental revenue for nine months ended September 30, 2021. Similarly, rent abatements granted, which are also accounted for as lease modifications, impacted our rental revenue by an insignificant amount for the nine months ended September 30, 2021. 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. References to reserve reversals recorded as increases to rental revenue include amounts where the accounting for recognition of rental revenue and straight-line rental revenue has been moved from the cash to the accrual basis. The following table summarizes reserves and reserve reversals to rental revenue (dollars in millions): Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Rental revenue reserves (reserve reversals) $ ( 0.8 ) $ 21.8 $ 15.0 $ 29.3 Straight-line rent reserves (reserve reversals) ( 2.3 ) 2.3 ( 1.1 ) 5.1 Total rental revenue reserves (reserve reversals) $ ( 3.1 ) $ 24.1 $ 13.9 $ 34.4 As of September 30, 2021, other than the information related to the reserves recorded to date, we do not have any further client specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable. However, since the conversations regarding rent collections for our clients affected by the COVID-19 pandemic are ongoing and we do not currently know the types of future concessions, if any, that will ultimately be granted, there may be impacts in future periods that could change this assessment as the situation continues to evolve and as more information becomes available. Newly Issued Accounting Standards. In July 2021, the FASB issued ASU 2021-05 establishing Topic 842, Lessors - Certain Leases with Variable Lease Payments . ASU 2021-05 improves ASC 842 classification guidance as it relates to a lessor's accounting for certain leases with variable lease payments. This guidance requires a lessor to classify a lease with variable payments that do not depend on an index or rate as an operating lease if either a sales-type lease or direct financing lease classification would trigger a day-one loss. This guidance is effective for reporting periods beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2021-05 on our consolidated financial statements. In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform . ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, 2020 and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. We are currently evaluating the impact that the expected market transition from LIBOR to alternative references rates will have on our financial statements as well as the applicability of the aforementioned expedients and exceptions provided in ASU 2020-04. Reclassification. Starting with the three and six months ended June 30, 2021, we began presenting 'Income taxes,' which was previously presented in 'Expenses,' below a newly captioned subtotal for 'Income before income taxes' within our consolidated statements of income and comprehensive income. Prior year amounts have been reclassified to conform to the current year presentation. 3. Agreement and Plan of Merger 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 agreed to 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 agreed to 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. On November 1, 2021, we completed our acquisition of VEREIT, and the Mergers were consummated. 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, was automatically -7- Table of Contents converted into 0.705 of newly issued shares of our common stock, and (ii) each VEREIT OP outstanding common unit owned by VEREIT, Realty Income or their respective affiliates remained outstanding as partnership interests in the surviving entity. For more information, see Note 22, Subsequent Events . Following the Mergers, we intend to contribute certain of our office real estate properties to a newly formed, wholly owned subsidiary, Orion Office REIT, Inc., or Orion, and distribute all of the outstanding shares of Orion common stock to our stockholders (including legacy VEREIT stockholders who received shares of our common stock in the Mergers) on a pro rata basis at a rate of one share of Orion common stock for every ten shares of Realty Income common stock held on the applicable record date, which we refer to as the Orion Divestiture. We have currently set a record date for the distribution of shares in the Orion Divestiture for November 2, 2021 and expect the distribution to occur on November 12, 2021. Following the consummation of the Orion Divestiture, Orion will operate as a separate, independent public company. A. Merger-related Costs In conjunction with our acquisition of VEREIT, we incurred approximately $ 16.8 million and $ 30.1 million of merger-related transaction costs during the three and nine months ended September 30, 2021, respectively. 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 Orion Divestiture, are met. As of September 30, 2021, we expect to incur approximately $ 19.0 million of such success fees. B. Litigation Relating to the Mergers To date, purported stockholders of VEREIT filed 12 lawsuits challenging disclosures related to the Merger ( Stein v. VEREIT, Inc., et. al. , Case No. 1:21-cv-01409 (D. Ct. Md., June 7, 2021) (the “Stein Complaint”); Bowles v. VEREIT, Inc., et. al. , Case No. 1:21-cv-00845 (D. Ct. Del., June 10, 2021) (the “Bowles Complaint”); Leach v. VEREIT, Inc., et. al. , Case No. 1:21-cv-05270 (D. Ct. S.D.N.Y., June 14, 2021) (the “Leach Complaint”); Jenkins v. VEREIT, Inc., et. al. , Case No. 1:21-cv-05286 (D. Ct. S.D.N.Y., June 15, 2021) (the “Jenkins Complaint”); Tacka v. VEREIT, Inc., et. al. , Case No. 1:21-cv-05357 (D. Ct. S.D.N.Y., June 17, 2021) (the “Tacka Complaint”); Congregation Zichron Moishe v. VEREIT, Inc., et. al. , Case No. 1:21-cv-01729 (D. Ct. Colo., June 24, 2021) (the “Congregation Zichron Moishe Complaint”); Mishra v. VEREIT, Inc., et al. , Case No. 1:21-cv-01758 (D. Colo. June 28, 2021) (the “Mishra Complaint”) ; Walker v. VEREIT, Inc., et. al. , Case No. 1:21-cv-01791 (D. Ct. Colo. July 1, 2021) (the “Walker Complaint”); Ciccotelli v. VEREIT, Inc., et. al. , Case No. 2:21-cv-02983 (D. Ct. E.D. Pa. July 2, 2021) (the “Ciccotelli Complaint”); Upton v. VEREIT, Inc., et. al. , Case No. 1:21-cv-06129 (D. Ct. S.D.N.Y July 16, 2021) (the “Upton Complaint”); Matten v. VEREIT, Inc., et al. , Case No. 1:21-cv-06212 (S.D.N.Y. July 21, 2021) (the “Matten Complaint”); and Halberstam v. VEREIT, Inc., et al. , Case No. 1:21-cv-02000 (D. Colo. July 23, 2021 (the “Halberstam Complaint”)). Purported stockholders of Realty Income filed one lawsuit challenging the disclosures related to the Merger ( Boyko v. Realty Income Corp., et. al. , Case No. 1:21-cv-01653 (D. Ct. Colo., June 16, 2021) (the “Boyko Complaint,” and collectively, the “Complaints”)). A stockholder of Realty Income also sent the Company a demand disclosure letter on June 30, 2021 (the “Demand Letter”). The Stein, Leach, Tacka, Matten and Halberstam Complaints name VEREIT and the members of the VEREIT board of directors as defendants. The Congregation Zichron Moishe, Mishra, Walker and Upton Complaints name VEREIT, VEREIT OP, and the members of the VEREIT board of directors as defendants. The Bowles and Ciccotelli Complaints name VEREIT, the members of the VEREIT board of directors, VEREIT OP, Realty Income, Merger Sub 1 and Merger Sub 2 as defendants. The Jenkins Complaint names VEREIT, the members of the VEREIT board of directors, Realty Income, Merger Sub 1 and Merger Sub 2 as defendants. The Boyko Complaint names Realty Income and the members of the Realty Income board of directors as defendants. The Demand Letter is addressed to Realty Income and the members of the Realty Income board of directors. The Complaints each allege generally that the entities and individual defendants named in such Complaint violated Section 14(a) and Rule 14a-9 promulgated thereunder and that the individual defendants violated Section 20(a) of the Exchange Act by preparing and disseminating a registration statement that misstates or omits certain allegedly material information. The Demand Letter includes similar allegations. Furthermore, the Jenkins Complaint also alleges that: (1) members of the VEREIT board of directors breached their fiduciary duties by entering into the transactions contemplated by the Merger Agreement through a flawed and unfair process and by failing to disclose -8- Table of Contents all material information to VEREIT’s stockholders; and (2) VEREIT, Realty Income, Merger Sub 1 and Merger Sub 2 each aided and abetted such breach of fiduciary duty by the VEREIT board of directors. Each Complaint seeks, among other things, injunctive 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 in the Complaints are without merit and intend to defend against them vigorously. On July 30, 2021, VEREIT filed a Form 8-K containing supplemental disclosures regarding the Mergers and related transactions in response to allegations set forth in the Complaints and the Demand letter. We have determined that there is a reasonable possibility that we and/or VEREIT will incur losses associated with the Complaints and Demand letter, though the amount of the reasonably possible loss or range of losses is not expected to be material. Accordingly, no accrual for merger-related litigation matters has been recorded as of September 30, 2021. 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 additional lawsuits arising out of the Mergers may also be filed in the future. 4. Supplemental Detail for Certain Components of Consolidated Balance Sheets (dollars in thousands): A. Accounts Receivable, net, consist of the following at: September 30, 2021 December 31, 2020 Straight-line rent receivables, net $ 211,522 $ 174,074 Client receivables, net 130,207 111,627 $ 341,729 $ 285,701 B. Lease intangible assets, net, consist of the following at: September 30, 2021 December 31, 2020 In-place leases $ 2,183,199 $ 1,840,704 Accumulated amortization of in-place leases ( 739,276 ) ( 744,375 ) Above-market leases 993,608 866,567 Accumulated amortization of above-market leases ( 281,523 ) ( 252,241 ) $ 2,156,008 $ 1,710,655 C. Other assets, net, consist of the following at: September 30, 2021 December 31, 2020 Right of use asset - operating leases, net $ 375,685 $ 112,049 Financing receivables 200,041 131,291 Right of use asset - financing leases 162,919 118,585 Derivative assets and receivables - at fair value 43,941 10 Restricted escrow deposits 28,141 21,220 Prepaid expenses 16,112 11,795 Goodwill 13,947 14,180 Corporate assets, net 8,203 8,598 Non-refundable escrow deposits 5,432 1,000 Credit facility origination costs, net 5,137 7,705 Impounds related to mortgages payable 974 4,983 Other items 13,123 2,881 $ 873,655 $ 434,297 -9- Table of Contents D. Accounts payable and accrued expenses consist of the following at: September 30, 2021 December 31, 2020 Notes payable - interest payable $ 65,873 $ 83,219 Derivative liabilities and payables - at fair value 50,216 73,356 Property taxes payable 32,013 23,413 Accrued costs on properties under development 27,110 12,685 Accrued income taxes 16,939 5,182 Merger-related costs 14,591 — Value-added tax payable 7,796 8,077 Mortgages, term loans, credit line - interest payable and interest rate swaps 1,064 1,044 Other items 53,985 34,360 $ 269,587 $ 241,336 E. Lease intangible liabilities, net, consist of the following at: September 30, 2021 December 31, 2020 Below-market leases $ 492,331 $ 460,895 Accumulated amortization of below-market leases ( 150,656 ) ( 139,697 ) $ 341,675 $ 321,198 F. Other liabilities consist of the following at: September 30, 2021 December 31, 2020 Lease liability - operating leases, net $ 185,659 $ 114,559 Rent received in advance and other deferred revenue 156,471 130,231 Lease liability - financing leases 35,677 6,256 Security deposits 7,270 5,817 $ 385,077 $ 256,863 5. Investments in Real Estate We acquire land, buildings and improvements necessary for the successful operations of commercial clients. A. Acquisitions During the Nine Months Ended September 30, 2021 and 2020 Below is a summary of our acquisitions for the nine months ended September 30, 2021: Number of Properties Leasable Square Feet Investment ($ in thousands) Weighted Average Lease Term (Years) Initial Average Cash Lease Yield (1) Nine months ended September 30, 2021 (2) Acquisitions - U.S. (in 38 states) 415 9,226,363 $ 2,073,101 13.8 5.5 % Acquisitions - Europe (U.K. and Spain) 71 5,217,192 1,520,816 10.5 5.5 % Total acquisitions 486 14,443,555 $ 3,593,917 12.4 5.5 % Properties under development (3) 50 2,126,955 181,957 15.8 5.9 % Total (4) 536 16,570,510 $ 3,775,874 12.6 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 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 includes approximately $ 3.2 million received as settlement credits for 35 properties as reimbursement of free rent periods for the nine months ended September 30, 2021. In the case of a property under development or expansion, the contractual lease rate is generally fixed such that rent varies based on the actual total investment in order to provide a fixed rate of return. When the lease does not provide for a fixed rate of return on a property under development or expansion, the initial average cash lease yield is computed as follows: estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs. -10- Table of Contents (2) None of our investments during the nine months ended September 30, 2021 caused any one client to be 10% or more of our total assets at September 30, 2021. (3) Includes one U.K. development property that represents an investment of £ 4.7 million Sterling during the nine months ended September 30, 2021, converted at the applicable exchange rate on the funding date. (4) Our clients occupying the new properties are 80.2 % retail and 19.8 % industrial, based on rental revenue. Approximately 43 % of the rental revenue generated from acquisitions during the nine months ended September 30, 2021 is from investment grade rated clients, their subsidiaries or affiliated companies. The acquisitions during the nine months ended September 30, 2021, which had no associated contingent consideration, were allocated as follows (amounts in millions): Acquisitions - U.S. Acquisitions - U.K. Acquisitions - Spain Nine months ended September 30, 2021 (USD) (£ Sterling) (€ Euro) Land (1) $ 621.0 £ 283.9 € 36.6 Buildings and improvements 955.0 549.9 36.3 Lease intangible assets (2) 350.4 173.5 23.3 Other assets (3) 379.3 20.2 — Lease intangible liabilities (4) ( 42.3 ) ( 6.4 ) — Other liabilities (5) ( 122.2 ) ( 0.3 ) — $ 2,141.2 £ 1,020.8 € 96.2 (1) U.K. land includes £ 1.3 million of right of use assets under long-term ground leases. (2) The weighted average amortization period for acquired lease intangible assets is 13.0 years. (3) U.S. other assets consists of $ 66.9 million of financing receivables with above-market terms, $ 41.7 million of right-of-use assets accounted for as finance leases, $ 5.5 million in investments in sales-type leases, and $ 265.2 million of right of use assets under ground leases. U.K. other assets consists of £ 2.7 million of financing receivables with above-market terms and £ 17.5 million of right-of-use assets accounted for as finance leases. (4) The weighted average amortization period for acquired lease intangible liabilities is 18.5 years. (5) U.S. other liabilities consists of $ 21.5 million of deferred rent on certain below-market leases and $ 100.7 million of lease liabilities under ground leases. U.K. other liabilities consists entirely of a GBP mortgage premium. The properties acquired during the nine months ended September 30, 2021 generated total revenues of $ 67.4 million and net income of $ 12.9 million during the nine months ended September 30, 2021. Below is a summary of our acquisitions for the nine months ended September 30, 2020: Number of Properties Leasable Square Feet Investment ($ in thousands) Weighted Average Lease Term (Years) Initial Average Cash Lease Yield Nine months ended September 30, 2020 (1) Acquisitions - U.S. (in 28 states) 154 3,002,461 $ 821,830 14.8 6.2 % Acquisitions - U.K. (2) 13 1,212,831 453,722 10.0 6.4 % Total acquisitions 167 4,215,292 $ 1,275,552 13.1 6.3 % Properties under development - U.S. 13 836,587 23,301 16.3 6.4 % Total (3) 180 5,051,879 $ 1,298,853 13.1 6.3 % (1) None of our investments during the nine months ended September 30, 2020 caused any one client to be 10% or more of our total assets at September 30, 2020. (2) Represents investments of £ 356.7 million Sterling during the nine months ended September 30, 2020 converted at the applicable exchange rate on the date of the acquisition. (3) Our clients occupying the new properties are 96.9 % retail and 3.1 % industrial, based on rental revenue. Approximately 56 % of the rental revenue generated from acquisitions during the nine months ended September 30, 2020 was from investment grade rated clients, their subsidiaries or affiliated companies. -11- Table of Contents The acquisitions during the nine months ended September 30, 2020, which had no associated contingent consideration, were allocated as follows (amounts in millions): Acquisitions - U.S. Acquisitions - U.K. Nine months ended September 30, 2020 (USD) (£ Sterling) Land (1) $ 226.6 £ 97.5 Buildings and improvements 457.6 124.8 Lease intangible assets (2) 137.0 83.8 Other assets (3) 19.8 50.6 Lease intangible liabilities (4) ( 5.4 ) — Other liabilities (5) ( 0.9 ) — $ 834.7 £ 356.7 (1) U.K. land includes £ 6.5 million of right of use assets under long-term ground leases. (2) The weighted average amortization period for acquired lease intangible assets is 17.5 years. (3) U.S. other assets consists of $ 19.1 million of financing receivables with above-market terms and $ 689,000 of right of use assets under ground leases. U.K. other assets consists entirely of right of use assets under ground leases. (4) The weighted average amortization period for acquired lease intangible liabilities is 14.8 years. (5) U.S. other liabilities consists entirely of lease liabilities under ground leases. The properties acquired during the nine months ended September 30, 2020 generated total revenues of $ 27.5 million and net income of $ 9.4 million during the nine months ended September 30, 2020. B. Investments in Existing Properties During the nine months ended September 30, 2021, we capitalized costs of $ 11.1 million on existing properties in our portfolio, consisting of $ 2.0 million for re-leasing costs, $ 416,000 for recurring capital expenditures, and $ 8.7 million for non-recurring building improvements. In comparison, during the nine months ended September 30, 2020, we capitalized costs of $ 5.1 million on existing properties in our portfolio, consisting of $ 1.0 million for re-leasing costs, $ 126,000 for recurring capital expenditures, and $ 4.0 million for non-recurring building improvements. C. Properties with Existing Leases Of the $ 3.78 billion we invested during the nine months ended September 30, 2021, approximately $ 3.17 billion was used to acquire 339 properties with existing leases. In comparison, of the $ 1.3 billion we invested during the nine months ended September 30, 2020, approximately $ 1.0 billion was used to acquire 96 properties with existing leases. The value of the in-place and above-market leases is recorded to lease intangible assets, net on our consolidated balance sheets, and the value of the below-market leases is recorded to lease intangible liabilities, net on our consolidated balance sheets. The values of the in-place leases are amortized as depreciation and amortization expense. The amounts amortized to expense for all of our in-place leases, for the nine months ended September 30, 2021 and 2020 were $ 123.7 million and $ 99.7 million, respectively. The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of income and comprehensive income. The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for the nine months ended September 30, 2021 and 2020 were $ 34.0 million and $ 20.4 million, respectively. If a lease was to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense, as appropriate. -12- Table of Contents The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at September 30, 2021 (dollars in thousands): Net decrease to rental revenue Increase to amortization expense 2021 $ ( 9,932 ) $ 48,623 2022 ( 39,158 ) 182,918 2023 ( 37,857 ) 165,335 2024 ( 36,247 ) 149,595 2025 ( 36,604 ) 135,666 Thereafter ( 210,612 ) 761,786 Totals $ ( 370,410 ) $ 1,443,923 6. Revolving Credit Facility and Commercial Paper Program A. Credit Facility We have a $ 3.0 billion unsecured revolving credit facility with an initial term that expires in March 2023 and includes, at our option, two six -month extensions. The revolving credit facility allows us to borrow in up to 14 currencies, including U.S. dollars, and has a $ 1.0 billion expansion option, which is subject to obtaining lender commitments. Under our credit facility, our investment grade credit ratings as of September 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. We also have other interest rate options available to us under our revolving credit facility. Our revolving credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation. At September 30, 2021, credit facility origination costs of $ 5.1 million are included in other assets, net, as compared to $ 7.7 million at December 31, 2020, on our consolidated balance sheet. These costs are being amortized over the remaining term of our revolving credit facility. At September 30, 2021 and December 31, 2020, we had a borrowing capacity of $ 3.0 billion available on our revolving credit facility (subject to customary conditions to borrowing) and no outstanding balance. The weighted average interest rate on outstanding borrowings under our revolving credit facility was 0.8 % during the nine months ended September 30, 2021 and 1.5 % during the nine months ended September 30, 2020. Our revolving credit facility is subject to various leverage and interest coverage ratio limitations, and at September 30, 2021, we were in compliance with the covenants on our revolving credit facility. B. Commercial Paper Program In August 2020, we established a U.S. dollar-denominated unsecured commercial paper program. Under the terms of the program, we may issue from time to time unsecured commercial paper notes up to a maximum aggregate amount outstanding of $ 1.0 billion. The commercial paper ranks on a parity in right of payment with all of our other unsecured senior indebtedness outstanding from time to time, including borrowings under our revolving credit facility, our term loan and our outstanding senior unsecured notes. Proceeds from commercial paper borrowings will be used for general corporate purposes. As of September 30, 2021, the balance of borrowings outstanding under our commercial paper program was $ 405.0 million as compared to no outstanding commercial paper borrowings at December 31, 2020. The weighted average interest rate on outstanding borrowings under our commercial paper program was 0.2 % for the nine months ended September 30, 2021 and 0.3 % from the inception of the program through September 30, 2020. We use our $ 3.0 billion revolving credit facility as a liquidity backstop for the repayment of the notes issued under the commercial paper program. The commercial paper borrowings outstanding at September 30, 2021 totaled $ 405.0 million and matured as follows; $ 80.0 million on October 14, 2021, $ 290.0 million on November 1, 2021 and $ 35.0 million on November 2, 2021. -13- Table of Contents 7. Term Loans In October 2018, in conjunction with entering into our current revolving credit facility, we entered into a $ 250.0 million senior unsecured term loan, which matures in March 2024. Borrowing under this term loan bears interest at the current one-month LIBOR, plus 0.85 %. In conjunction with this term loan, we also entered into an interest rate swap, which effectively fixes our per annum interest on this term loan at 3.89 %. At September 30, 2021, deferred financing costs of $ 493,000 are included net of the term loan principal balance, as compared to $ 642,000 at December 31, 2020, on our consolidated balance sheet. These costs are being amortized over the remaining term of the term loan . 8. Mortgages Payable During the nine months ended September 30, 2021, we made $ 56.0 million in principal payments, including the repayment of six mortgages in full for $ 53.3 million. During the nine months ended September 30, 2020, we made $ 73.7 million in principal payments, including the repayment of five mortgages in full for $ 69.2 million. During the nine months ended September 30, 2021, we assumed a Sterling-denominated mortgage on one property totaling £ 31.0 million. No mortgages were assumed during the nine months ended September 30, 2020. Assumed mortgages are secured by the properties on which the debt was placed and are considered non-recourse debt with limited customary exceptions which vary from loan to loan. In September 2021, we completed the early redemption on $ 12.5 million in principal of a mortgage due June 2032, plus accrued and unpaid interest. As a result of the early redemption, we recognized a $ 4.0 million loss on extinguishment of debt for the nine months ended September 30, 2021. Our mortgages contain customary covenants, such as limiting our ability to further mortgage each applicable property or to discontinue insurance coverage without the prior consent of the lender. At September 30, 2021, we were in compliance with these covenants. The balance of our deferred financing costs, which are classified as part of mortgages payable, net, on our consolidated balance sheets, was $ 865,000 at September 30, 2021 and $ 973,000 at December 31, 2020. These costs are being amortized over the remaining term of each mortgage. The following table summarizes our mortgages payable as of September 30, 2021 and December 31, 2020, respectively (dollars in thousands): As Of Number of Properties (1) Weighted Average Stated Interest Rate (2) Weighted Average Effective Interest Rate (3) Weighted Average Remaining Years Until Maturity Remaining Principal Balance Unamortized Premium and Deferred Financing Costs Balance, net Mortgage Payable Balance 9/30/2021 61 4.4 % 4.3 % 2.2 $ 285,549 $ 68 $ 285,617 12/31/2020 68 4.9 % 4.6 % 2.9 $ 299,631 $ 729 $ 300,360 (1) At September 30, 2021, there were 13 mortgages on 61 properties. At December 31, 2020, there were 18 mortgages on 68 properties. With the exception of one Sterling-denominated mortgage which is paid quarterly, the mortgages require monthly payments with principal payments due at maturity. At September 30, 2021 and December 31, 2020, all mortgages were at fixed interest rates. (2) Stated interest rates ranged from 3.0 % to 6.9 % and 3.8 % to 6.9 % at each of September 30, 2021 and December 31, 2020, respectively. (3) Effective interest rates ranged from 2.8 % to 4.9 % and 4.0 % to 5.5 % at each of September 30, 2021 and December 31, 2020, respectively. The following table summarizes the maturity of mortgages payable, excluding net premiums of $ 933,000 and deferred financing costs of $ 865,000 , as of September 30, 2021 (dollars in millions): Year of Maturity Principal 2021 $ 0.9 2022 111.6 2023 20.4 2024 111.9 2025 40.8 Totals $ 285.6 -14- Table of Contents 9. Notes Payable A. General Our senior unsecured notes and bonds consist of the following, sorted by maturity date (dollars in millions): Principal Amount (Currency Denomination) as of Carrying Value (USD) as of September 30, 2021 September 30, 2021 December 31, 2020 3.250 % notes, $ 450 issued in October 2012 and $ 500 issued in December 2017, both due in October 2022 (1) $ — $ — $ 950 4.650 % notes, issued in July 2013 and due in August 2023 $ 750 750 750 3.875 % notes, issued in June 2014 and due in July 2024 $ 350 350 350 3.875 % notes, issued in April 2018 and due in April 2025 $ 500 500 500 0.750 % notes, issued December 2020 and due in March 2026 $ 325 325 325 4.125 % notes, $ 250 issued in September 2014 and $ 400 issued in March 2017, both due in October 2026 $ 650 650 650 3.000 % notes, issued in October 2016 and due in January 2027 $ 600 600 600 1.125 % notes, issued in July 2021 and due in July 2027 £ 400 540 — 3.650 % notes, issued in December 2017 and due in January 2028 $ 550 550 550 3.250 % notes, issued in June 2019 and due in June 2029 $ 500 500 500 1.625 % notes, issued in October 2020 and due December 2030 £ 400 540 547 3.250 % notes, $ 600 issued in May 2020 and $ 350 issued in July 2020, both due in January 2031 $ 950 950 950 1.800 % notes, issued in December 2020 and due in March 2033 $ 400 400 400 1.750 % notes, issued in July 2021 and due in July 2033 £ 350 473 — 2.730 % notes, issued in May 2019 and due in May 2034 £ 315 425 431 5.875 % bonds, $ 100 issued in March 2005 and $ 150 issued in June 2011, both due in March 2035 $ 250 250 250 4.650 % notes, $ 300 issued in March 2017 and $ 250 issued in December 2017, both due in March 2047 $ 550 550 550 Total principal amount 8,353 8,303 Unamortized net original issuance premiums and deferred financing costs ( 44 ) ( 35 ) $ 8,309 $ 8,268 (1) In January 2021, we completed the early redemption of all $ 950.0 million in principal amount. The following table summarizes the maturity of our notes and bonds payable as of September 30, 2021, excluding net unamortized original issuance premiums of $ 7.2 million and deferred financing costs of $ 51.0 million (dollars in millions): Year of Maturity Principal 2023 $ 750 2024 350 2025 500 Thereafter 6,753 Totals $ 8,353 As of September 30, 2021, the weighted average interest rate on our notes and bonds payable was 3.2 % and the weighted average remaining years until maturity was 8.3 years. All of our outstanding notes and bonds payable have fixed interest rates and contain various covenants, with which we remained in compliance as of September 30, 2021. Additionally, with the exception of our £ 400 million of 1.625 % senior unsecured notes issued in October 2020, our £ 400 million of 1.125 % senior unsecured notes issued in July 2021, and £ 350 million of 1.750 % senior -15- Table of Contents unsecured notes also issued in July 2021, in each case where interest is paid annually, interest on our remaining senior unsecured note and bond obligations is paid semiannually. B. Note Repayment In January 2021, we redeemed all $ 950.0 million in principal amount of our outstanding 3.250 % notes due October 2022, plus accrued and unpaid interest. As a result of the early redemption, we recognized a $ 46.5 million loss on extinguishment of debt on our consolidated statement of income and comprehensive income during the nine months ended September 30, 2021. In January 2020, we redeemed all $ 250.0 million in principal amount of our outstanding 5.750 % notes due January 2021, plus accrued and unpaid interest. As a result of the early redemption, we recognized a $ 9.8 million loss on extinguishment of debt on our consolidated statement of income and comprehensive income during the nine months ended September 30, 2020. C. Note Issuances During the nine months ended September 30, 2021 and 2020, we issued the following notes and bonds (in millions): 2021 Issuances Date of Issuance Maturity Date Principal amount used Price of par value Effective yield to maturity 1.125 % notes July 2021 July 2027 £ 400 99.31 % 1.24 % 1.750 % notes July 2021 July 2033 £ 350 99.84 % 1.76 % 2020 Issuances Date of Issuance Maturity Date Principal amount used Price of par value Effective yield to maturity 3.250 % notes (1) May 2020 January 2031 $ 600 98.99 % 3.36 % 3.250 % notes (1) July 2020 January 2031 $ 350 108.24 % 2.34 % (1) In July 2020, we issued $ 350.0 million of 3.250 % senior unsecured notes due January 2031 (the "2031 Notes"), which constituted a further issuance of, and formed a single series with, the $ 600.0 million of 2031 Notes issued in May 2020. We intend to allocate an equal amount of the net proceeds from the July 2021 Sterling-denominated offering of 1.125 % notes due 2027 of £ 400.0 million, which approximated $ 546.3 million, and the July 2021 Sterling-denominated offering of 1.750 % notes due 2033 of £ 350.0 million, which approximated $ 480.6 million, as converted at the applicable exchange rate on the closing of the offerings, to finance or refinance, in whole or in part, new or existing eligible green projects in the categories outlined in our Green Financing Framework, which is designed to align with the International Capital Markets Association ("ICMA") Green Bond Principles 2021. Pending the allocation of an amount equal to the net proceeds from the offering of the notes to eligible green projects, we may temporarily use all or a portion of the net proceeds to repay any outstanding indebtedness or for liability management activities, or invest such net proceeds in accordance with our cash investment policy. The net proceeds of $ 376.6 million from the July 2020 note offering and the net proceeds of $ 590.0 million from the May 2020 note offering were used to repay borrowings under our credit facility, to fund potential investment opportunities and for other general corporate purposes. 10. Issuances of Common Stock A. Issuances of Common Stock in Underwritten Public Offerings In July 2021, we issued 9,200,000 shares of common stock in an underwritten public offering, including 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 net proceeds of $ 594.1 million were primarily used to repay borrowings under our $ 1.0 billion commercial paper program, to fund potential investment opportunities and for other general corporate purposes. In January 2021, we issued 12,075,000 shares of common stock in an underwritten public offering, including 1,575,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After deducting underwriting discounts of $ 19.3 million, the net proceeds of $ 669.6 million were used to fund property acquisitions and for general corporate purposes, and working capital. In March 2020, we issued 9,690,500 shares of common stock in an underwritten public offering, including 690,500 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After deducting underwriting discounts and other offering costs of $ 21.2 million, the net proceeds of $ 728.9 million were -16- Table of Contents used to repay borrowings under our credit facility, to fund investment opportunities, and for other general corporate purposes. B. At-the-Market (ATM) Program Under our "at-the-market" equity distribution plan, or our ATM program, up to 69,088,433 shares of common stock may be offered and sold (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers' transactions on the New York Stock Exchange ("NYSE: O") at prevailing market prices or at negotiated prices. At September 30, 2021, we had 54,299,611 shares remaining for future issuance under our ATM program. We anticipate maintaining the availability of our ATM program in the future, including the replenishment of authorized shares issuable thereunder. The following table outlines common stock issuances pursuant to our ATM program (dollars in millions): Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Shares of common stock issued under the ATM program 14,788,822 5,536,619 21,378,420 7,047,768 Gross proceeds $ 1,032.3 $ 346.5 $ 1,487.1 $ 442.2 C. Dividend Reinvestment and Stock Purchase Plan Our Dividend Reinvestment and Stock Purchase Plan, or our DRSPP, provides our common stockholders, as well as new investors, with a convenient and economical method of purchasing our common stock and reinvesting their distributions. Our DRSPP also allows our current stockholders to buy additional shares of common stock by reinvesting all or a portion of their distributions. Our DRSPP authorizes up to 26,000,000 common shares to be issued. At September 30, 2021, we had 11,378,949 shares remaining for future issuance under our DRSPP program. The following table outlines common stock issuances pursuant to our DRSPP program (dollars in millions): Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Shares of common stock issued under the DRSPP program 41,613 34,604 124,430 113,421 Gross proceeds $ 2.9 $ 2.1 $ 8.2 $ 6.9 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 nine months ended September 30, 2021 or 2020. 11. Noncontrolling Interests There are four entities with noncontrolling interests that we consolidate including an operating partnership, Realty Income, L.P., a joint venture acquired in 2019, and two development joint ventures, one acquired in 2020 and one acquired in May 2021. The following table represents the change in the carrying value of all noncontrolling interests through September 30, 2021 (dollars in thousands): -17- Table of Contents Realty Income, L.P. units (1) Other Noncontrolling Interests Total Carrying value at December 31, 2020 $ 24,100 $ 8,147 $ 32,247 Contributions — 2,106 2,106 Distributions ( 980 ) ( 218 ) ( 1,198 ) Allocation of net income 749 116 865 Carrying value at September 30, 2021 $ 23,869 $ 10,151 $ 34,020 (1) 242,007 units were issued on March 30, 2018, 131,790 units were issued on April 30, 2018, and 89,322 units were issued on March 28, 2019. 463,119 remained outstanding at each of September 30, 2021 and December 31, 2020 . In May 2021, we completed the acquisition of a development property by acquiring a controlling interest in a joint venture. We are the managing member of this joint venture, and possess the ability to control the business and manage the affairs of this entity. At September 30, 2021, we and our subsidiaries held an 85.2 % interest, and consolidated this entity in our consolidated financial statements. At September 30, 2021, Realty Income, L.P. and certain of our joint venture investments are considered variable interest entities, or VIEs, in which we were deemed the primary beneficiary based on our controlling financial interests. Below is a summary of selected financial data of consolidated VIEs included in the consolidated balance sheets at September 30, 2021 and December 31, 2020 (in thousands): September 30, 2021 December 31, 2020 Net real estate $ 658,425 $ 635,963 Total assets $ 744,403 $ 723,668 Total liabilities $ 53,665 $ 47,962 12. Financial Instruments and Fair Value Measurements Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure for assets and liabilities measured at fair value requires allocation to a three-level valuation hierarchy. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. We believe that the carrying values reflected in our consolidated balance sheets reasonably approximate the fair values for cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, line of credit payable and commercial paper borrowings, term loan and all other liabilities, due to their short-term nature or interest rates and terms that are consistent with market, except for our mortgages payable assumed in connection with acquisitions and our senior notes and bonds payable, which are disclosed as follows (dollars in millions): September 30, 2021 Carrying value Estimated fair value Mortgages payable assumed in connection with acquisitions (1) $ 285.6 $ 297.9 Notes and bonds payable (2) $ 8,353.0 $ 9,000.5 December 31, 2020 Carrying value Estimated fair value Mortgages payable assumed in connection with acquisitions (1) $ 299.6 $ 309.4 Notes and bonds payable (2) $ 8,302.4 $ 9,324.0 (1) Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums was $ 933,000 at September 30, 2021, and $ 1.7 million at December 31, 2020. Also excludes deferred financing costs of $ 865,000 at September 30, 2021 and $ 973,000 at December 31, 2020. (2) Excludes non-cash original issuance premiums and discounts recorded on notes payable. The unamortized balance of the net original issuance premiums was approximately $ 7.2 million at September 30, 2021, and $ 14.6 million at December 31, 2020. Also excludes deferred financing costs of $ 51.0 million at September 30, 2021 and $ 49.2 million at December 31, 2020. The estimated fair values of our mortgages payable assumed in connection with acquisitions and private senior notes payable have been calculated by discounting the future cash flows using an interest rate based upon the relevant forward interest rate curve, plus an applicable credit-adjusted spread. Because this methodology includes -18- Table of Contents unobservable inputs that reflect our own internal assumptions and calculations, the measurement of estimated fair values related to our mortgages payable is categorized as level three on the three-level valuation hierarchy. The estimated fair values of our publicly-traded senior notes and bonds payable are based upon indicative market prices and recent trading activity of our senior notes and bonds payable. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values related to our notes and bonds payable is categorized as level two on the three-level valuation hierarchy. Foreign Currency Forward Contracts Designated as Hedging Instruments In order to hedge the foreign currency risk associated with interest payments on intercompany loans denominated in British Pound Sterling, or GBP, during the second quarter of 2021, we initiated a hedging strategy to enter into foreign currency forward contracts to sell GBP and buy U.S. Dollars, or USD. These foreign currency forwards are designated as cash flow hedges. Forward points on the forward contracts are included in the assessment of hedge effectiveness. We did not enter into any new derivative contracts designated as hedging instruments during the three months ended September 30, 2021. Derivatives Not Designated as Hedging Instruments Based on our potential exposure to changes in foreign currency exchange rate, primarily in British Pound Sterling and, to a lesser extent, the Euro, we initiated a program in the third quarter of 2021 to enter into foreign currency collars. A foreign currency collar consists of a written call option and a purchased put option to sell the foreign currency at a range of predetermined exchange rates. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. Our foreign currency collars have maturities of five months or less and are not designated as hedge instruments for accounting purposes. The gains or loss on these derivative contracts are recognized in other income or expense based on the changes in fair value. In addition, we enter into currency exchange swap agreements to reduce the effects of currency exchange rate fluctuations between the British Pound Sterling and Euro. These derivative contracts generally mature within one to three months and are not designated as hedge instruments for accounting purposes. As the currency exchange swap is not accounted for as a hedging instrument, the change in fair value is recorded in earnings through the caption entitled 'Foreign currency and derivative gains, net' in the consolidated statements of income and comprehensive income. The net gain from derivatives not designated in hedging relationships for the three and nine months ended September 30, 2021 totaled $ 24.6 million and $ 2.9 million, respectively, and resulted from foreign currency collars and short term currency exchange swaps. The net gain from derivatives not designated in hedging relationships for the three and nine months ended September 30, 2020 totaled $ 9.5 million and resulted from a short term currency exchange swap. -19- Table of Contents The following table summarizes the terms and fair values of our derivative financial instruments at September 30, 2021 and December 31, 2020 (dollars in millions): Derivative Type (1) Number of Instruments (2) Accounting Classification Hedge Designation Notional Amount Weighted Average Strike Rate (3) Maturity Date (4) Fair Value - asset (liability) September 30, December 31, September 30, December 31, 2021 2020 2021 2020 Interest rate swap 1 Derivative Cash flow $ 250.0 $ 250.0 3.04 % 03/2024 $ ( 16.1 ) $ ( 22.6 ) Cross-currency swaps (5) 4 Derivative Cash flow 166.4 166.4 (6) 05/2034 ( 10.4 ) ( 21.4 ) Currency exchange swaps (5) 2 Derivative N/A 1,179.3 625.0 (7) 10/2021 16.4 ( 8.2 ) Forward-starting swaps (8) 4 Derivative Cash flow 300.0 300.0 1.86 % 11/2032 - 06/2033 ( 0.8 ) ( 16.5 ) Forward-starting swaps (8) 2 Hybrid debt Cash flow 200.0 200.0 1.93 % 11/2032 - 06/2033 ( 3.8 ) ( 12.8 ) Foreign currency collars (9) 4 Derivative N/A 100.0 — 1.39 10/2021 - 12/2021 ( 0.1 ) — Foreign currency forwards 35 Derivative Cash flow 184.3 — (10) 10/2021 - 08/2024 8.5 — $ 2,380.0 $ 1,541.4 $ ( 6.3 ) $ ( 81.5 ) (1) There have been no changes to hedging arrangements in-place at December 31, 2020. All hedges remained effective through September 30, 2021. For full discussion of the hedging arrangements, please refer to note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020. (2) This column represents the number of instruments outstanding as of September 30, 2021. (3) Weighted average strike rate is calculated using the current notional value as of September 30, 2021. (4) This column represents maturity dates for instruments outstanding as of September 30, 2021. (5) Represents five British Pound Sterling, or GBP currency instruments with notional amount of $ 1,173.1 million and one Euro, or EUR currency instrument with notional amount of $ 172.6 million. (6) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD weighted average fixed rate at 9.78 %. (7) Forward GBP-USD exchange rate of 1.37 and Forward EUR-USD exchange rate of 1.18 . (8) There were five treasury rate locks entered into during February 2020 that were terminated in June 2020 and converted into six forward starting interest rate swaps through a cashless settlement. For full discussion of the hedging arrangements for these six forward starting swaps, please refer to Note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020. (9) Represents GBP-USD foreign currency collars. (10) Weighted average forward GBP-USD exchange rate of 1.41 . We measure our derivatives at fair value and include the balances within other assets and accounts payable and accrued expenses on our consolidated balance sheets. We have agreements with each of our derivative counterparties containing provisions under which we could be declared in default on our derivative obligations if repayment of our indebtedness is accelerated by the lender due to our default. We utilize interest rate swaps and forward-starting swaps to manage interest rate risk and cross-currency swaps, currency exchange swaps, foreign currency forwards and foreign currency collars to manage foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, spot and forward rates, as well as option volatility. To comply with the provisions of ASC 820, Fair Value Measurement , we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although we have determined that the majority of the inputs used to value our derivatives fall within level two on the three-level valuation hierarchy, the credit valuation adjustments associated with our derivatives utilize level three -20- Table of Contents inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by ourselves and our counterparties. However, at September 30, 2021 and December 31, 2020, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety are classified as level two on the three-level valuation hierarchy. Unrealized gains and losses in accumulated other comprehensive income, or AOCI, are reclassified to interest expense in the case of interest rate swaps and to foreign currency gains and losses, net in the case of cross-currency swaps, when the related hedged items are recognized. During the three and nine months ended September 30, 2021, we reclassified $ 2.6 million and $ 7.7 million, respectively, from AOCI as an increase to interest expense and $ 4.7 million and $ 3.3 million gain for cross-currency swaps into foreign exchange losses. During the three and nine months ended September 30, 2020, we reclassified $ 3.0 million and $ 8.3 million, respectively, from AOCI as an increase to interest expense and a $ 6.3 million loss and a $ 5.9 million gain, respectively, for cross-currency swaps into foreign exchange gains. We expect to reclassify $ 10.3 million from AOCI as an increase to interest expense and $ 3.2 million from AOCI to foreign currency gain related to cash flow hedges within the next twelve months. 13. Operating Leases A. At September 30, 2021, we owned 7,018 properties in all 50 U.S. states, Puerto Rico, the U.K. and Spain. Of the 7,018 properties, 6,961 , or 99.2 %, are single-client properties, and the remaining are multi-client properties. At September 30, 2021, 86 properties were available for lease or sale. Substantially all of our leases are net leases where our client pays or reimburses us for property taxes and assessments, maintains the interior and exterior of the building and leased premises, and carries insurance coverage for public liability, property damage, fire and extended coverage. Rent based on a percentage of our client's gross sales, or percentage rents, for the three months ended September 30, 2021 and 2020 was $ 441,000 and $ 532,000 , respectively. Percentage rents for the nine months ended September 30, 2021 and 2020 were $ 2.0 million and $ 2.3 million, respectively. B. Major Clients - No individual client’s rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the nine months ended September 30, 2021 and 2020. 14. Gain on Sales of Real Estate The following table summarizes our properties sold during the periods indicated below (dollars in millions): Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Number of properties 27 37 96 66 Net sales proceeds $ 31.9 $ 51.3 $ 123.5 $ 184.9 Gain on sales of real estate $ 12.1 $ 13.7 $ 35.4 $ 53.6 15. Provisions for Impairment We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property, a fair value analysis is performed and, to the extent the estimated fair value is less than the current book value, a provision for impairment is recorded to reduce the book value to estimated fair value. Key assumptions that we utilize in this analysis include projected rental rates, estimated holding periods, capital expenditures and property sales capitalization rates. If a property is classified as held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell, and depreciation of the property ceases. There were 36 properties classified as held for sale at September 30, 2021. If a property was previously reclassified as held for sale but the applicable criteria for this classification are no longer met, the property is reclassified to real estate held for investment. A property that is -21- Table of Contents reclassified to held for investment is measured and recorded at the lower (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held for investment, or (ii) the fair value at the date of the subsequent decision not to sell. The following table summarizes our provisions for impairment during the periods indicated below (dollars in millions): Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Total provisions for impairment $ 11.0 $ 105.1 $ 31.0 $ 123.4 Number of properties: Classified as held for sale 11 1 12 2 Classified as held for investment — 16 12 23 Sold 12 26 40 43 16. Distributions Paid and Payable We pay monthly distributions to our common stockholders. The following is a summary of monthly distributions paid per common share for the nine months ended September 30, 2021 and 2020: Month 2021 2020 January $ 0.2345 $ 0.2275 February 0.2345 0.2325 March 0.2345 0.2325 April 0.2350 0.2330 May 0.2350 0.2330 June 0.2350 0.2330 July 0.2355 0.2335 August 0.2355 0.2335 September 0.2355 0.2335 Total $ 2.1150 $ 2.0920 At September 30, 2021, a distribution of $ 0.2360 per common share was payable and was paid in October 2021. 17. Net Income per Common Share Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted net income per common share is computed by dividing net income available to common stockholders, plus income attributable to dilutive shares and convertible common units for the period, by the weighted average number of common shares that would have been outstanding assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. -22- Table of Contents The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Weighted average shares used for the basic net income per share computation 391,913,478 346,476,217 379,291,782 342,214,164 Incremental shares from share-based compensation 136,923 273,257 117,645 269,054 Weighted average shares used for diluted net income per share computation 392,050,401 346,749,474 379,409,427 342,483,218 Unvested shares from share based compensation that were anti-dilutive 91,221 59,042 119,981 57,192 Weighted average partnership common units convertible to common shares that were anti-dilutive 463,119 463,119 463,119 463,119 18. Supplemental Disclosures of Cash Flow Information The following table summarizes our supplemental cash flow information during the periods indicated below (dollars in thousands): Nine months ended September 30, 2021 2020 Supplemental disclosures: Cash paid for interest $ 229,465 $ 224,679 Cash paid for income taxes $ 9,776 $ 8,148 Cash paid for merger-related costs $ 15,490 $ — Non-cash activities: Increase in fair value of net derivative liabilities $ 75,279 $ 25,991 Sterling-denominated mortgage (1) $ 43,779 $ — Non-refundable deposits $ — $ 13,803 (1) Represents £ 31.0 million Sterling, converted at the applicable exchange rate on the date of transaction. Per the requirements of ASU 2016-18 (Topic 230, Statement of Cash Flows ), the following table provides a reconciliation of cash and cash equivalents reported within the consolidated balance sheets to the total of the cash, cash equivalents and restricted cash reported within the consolidated statements of cash flows (dollars in thousands): September 30, 2021 September 30, 2020 Cash and cash equivalents shown in the consolidated balance sheets $ 516,983 $ 724,750 Restricted escrow deposits (1) 28,141 8,832 Impounds related to mortgages payable (1) 974 5,429 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 546,098 $ 739,011 (1) Included within other assets, net on the consolidated balance sheets (see note 4). These amounts consist of cash that we are legally entitled to, but that is not immediately available to us. As a result, these amounts were considered restricted as of the dates presented. 19. Segment Information We evaluate performance and make resource allocation decisions on an industry by industry basis. For financial reporting purposes, we have grouped our clients into 60 activity segments. All of the properties are incorporated into one of the applicable segments. Unless otherwise specified, all segments listed below are located within the U.S. Because almost all of our leases require our clients to pay or reimburse us for operating expenses, rental revenue is the only component of segment profit and loss we measure. Our investments in industries outside of the U.S. are managed as separate operating segments. -23- Table of Contents The following tables set forth certain information regarding the properties owned by us, classified according to the business of the respective clients (dollars in thousands): Assets, as of: September 30, 2021 December 31, 2020 Segment net real estate: Automotive service $ 434,668 $ 328,340 Beverages 361,274 347,366 Child care 221,946 216,718 Convenience stores 2,319,783 2,101,005 Dollar stores 1,550,889 1,420,210 Drug stores 1,502,930 1,555,106 Financial services 361,002 374,508 General merchandise 887,969 730,806 Grocery stores - U.S. (1) 899,193 907,634 Grocery stores - U.K. (1) 1,608,133 1,131,760 Health and fitness 1,004,119 1,050,791 Home improvement - U.S. 669,911 608,222 Home improvement - U.K. 593,360 187,289 Restaurants-casual dining 486,625 515,226 Restaurants-quick service - U.S. 1,160,271 1,062,918 Theaters - U.S. 745,180 767,117 Transportation services 782,170 729,640 Wholesale club 455,390 407,584 Other non-reportable segments 3,777,716 3,042,916 Total net real estate 19,822,529 17,485,156 Intangible assets: Automotive service 55,313 55,018 Beverages 16,791 9,401 Child care 19,419 19,848 Convenience stores 152,875 121,151 Dollar stores 116,556 77,176 Drug stores 157,073 167,975 Financial services 12,611 14,611 General merchandise 136,367 108,646 Grocery stores - U.S. (1) 177,635 181,764 Grocery stores - U.K. (1) 374,515 282,211 Health and fitness 61,172 67,537 Home improvement - U.S. 99,152 97,228 Home improvement - U.K. 132,761 57,369 Restaurants-casual dining 18,194 20,553 Restaurants-quick service - U.S. 44,037 47,517 Theaters - U.S. 25,925 28,292 Transportation services 56,521 53,902 Wholesale club 61,943 36,165 Other non-reportable segments 437,332 264,291 Other corporate assets 1,732,373 1,544,474 Total assets $ 23,711,094 $ 20,740,285 (1) During the three months ended September 30, 2021, we invested in seven properties in Spain. As of September 30, 2021, grocery stores - Spain was not a reportable segment. -24- Table of Contents Three months ended September 30, Nine months ended September 30, Revenue 2021 2020 2021 2020 Segment rental revenue: Automotive service $ 10,992 $ 8,763 $ 31,144 $ 26,094 Beverages 9,453 8,071 27,784 24,062 Child care 8,872 8,710 26,186 26,959 Convenience stores 53,649 47,807 154,865 141,310 Dollar stores 35,085 31,710 100,439 94,696 Drug stores 34,790 35,043 106,194 105,959 Financial services 7,588 7,583 22,905 22,700 General merchandise 17,539 12,937 49,625 36,341 Grocery stores - U.S. (1) 20,018 19,451 59,279 58,444 Grocery stores - U.K. (1) 26,764 12,858 71,404 35,001 Health and fitness 27,741 25,905 83,459 82,145 Home improvement - U.S. 14,776 11,373 41,358 34,065 Home improvement - U.K. 10,294 448 21,442 448 Restaurants-casual dining 12,706 11,731 36,432 35,699 Restaurants-quick service - U.S. 26,362 23,047 74,033 65,224 Theaters - U.S. 25,771 12,781 64,966 61,795 Transportation services 17,281 15,981 50,540 47,941 Wholesale club 10,683 9,611 30,773 28,788 Other non-reportable segments and contractually obligated reimbursements by our clients 115,973 98,059 333,130 296,556 Rental (including reimbursable) 486,337 401,869 1,385,958 1,224,227 Other 5,538 2,703 13,003 9,322 Total revenue $ 491,875 $ 404,572 $ 1,398,961 $ 1,233,549 (1) During the three months ended September 30, 2021, we invested in seven properties in Spain. As of September 30, 2021, grocery stores - Spain was not a reportable segment. 20. Common Stock Incentive Plan In March 2021, our Board of Directors adopted, and in May 2021, stockholders approved, the Realty Income 2021 Incentive Award Plan, or 2021 Plan, to enable us to motivate, attract and retain the services of directors, employees and consultants, considered essential to our long-term success. The 2021 Plan offers our directors, employees and consultants an opportunity to own our stock and/or rights that will reflect our growth, development and financial success. Under the terms of the 2021 Plan, the aggregate number of shares of our common stock subject to options, stock purchase rights, or SPR, stock appreciation rights, or SAR, and other awards, will be no more 8,924,231 shares. The maximum number of shares that may be subject to options, SPR, SAR and other awards granted under the plan to any individual in any calendar year may not exceed 3,200,000 , and the maximum aggregate amount of cash that may be paid in cash during any calendar year with respect to one or more shares payable in cash shall be $ 10.0 million. The 2021 Plan replaced the Realty Income Corporation 2012 Incentive Award Plan, or the 2012 Plan, which was set to expire in March 2022. No further awards will be granted under the 2012 Plan. The disclosures below incorporate activity for both the 2012 Plan and the 2021 Plan. The amount of share-based compensation costs recognized in general and administrative expense on our consolidated statements of income and comprehensive income was $ 4.3 million during the three months ended September 30, 2021, $ 3.0 million during the three months ended September 30, 2020, $ 12.5 million during the nine months ended September 30, 2021, and $ 13.4 million during the nine months ended September 30, 2020 (including $ 1.8 million of accelerated share-based compensation costs for our former Chief Financial Officer ("CFO")). Upon the departure of our former CFO in March 2020, we incurred a severance charge of $ 3.5 million, consisting of $ 1.6 million of cash, $ 1.8 million related to share-based compensation expense and $ 58,000 of professional fees. -25- Table of Contents A. Restricted Stock During the nine months ended September 30, 2021, we granted 112,898 shares of common stock under the 2012 and 2021 Plans. This included 36,000 total shares of restricted stock granted to the independent members of our Board of Directors in connection with our annual awards in May 2021, 24,000 shares of which vested immediately and 12,000 shares of which vest in equal parts over a three-year service period. Our restricted stock awards granted to employees vest in equal parts over a four-year service period. As of September 30, 2021, the remaining unamortized share-based compensation expense related to restricted stock totaled $ 9.2 million, which is being amortized on a straight-line basis over the service period of each applicable award. The amount of share-based compensation is based on the fair value of the stock at the grant date. We define the grant date as the date the recipient and Realty Income have a mutual understanding of the key terms and conditions of the award, and the recipient of the grant begins to benefit from, or be adversely affected by, subsequent changes in the price of the shares. B. Performance Shares and Restricted Stock Units During the nine months ended September 30, 2021, we granted 157,341 performance shares, as well as dividend equivalent rights, to our executive officers, of which 9,621 shares were subsequently forfeited, leaving 147,720 of the 2021 grants outstanding at September 30, 2021. The performance shares are earned based on our Total Shareholder Return (TSR) performance relative to select industry indices and peer groups as well as achievement of certain operating metrics, and vest 50 % on the first and second January 1 after the end of the three-year performance period, subject to continued service. During the nine months ended September 30, 2021, we also granted 17,285 restricted stock units, all of which vest over a four-year service period. These restricted stock units have the same economic rights as shares of restricted stock. As of September 30, 2021, the remaining share-based compensation expense related to the performance shares and restricted stock units totaled $ 12.7 million. The fair value of the performance shares were estimated on the date of grant using a Monte Carlo Simulation model. The performance shares are being recognized on a tranche-by-tranche basis over the service period. The amount of share-based compensation for the restricted stock units is based on the fair value of our common stock at the grant date. The expense amortization period for restricted stock units is the lesser of the four-year service period or the period over which the awardee reaches the qualifying retirement age. For employees who have already met the qualifying retirement age, restricted stock units are fully expensed at the grant date. 21. Commitments and Contingencies In the ordinary course of business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated financial position or results of operations. In connection with the Mergers, we have incurred merger-related costs and certain success-based fees and additional merger-related costs. In addition, we have been subject to lawsuits associated with the Merger Agreement. For further details, please refer to Note 3, Agreement and Plan of Merger . At September 30, 2021, we had commitments of $ 10.7 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements. In addition, as of September 30, 2021, we had committed $ 211.9 million under construction contracts related to development projects, which is expected to be paid in the next twelve months. 22. Subsequent Events A. Dividend Increases In October 2021, we declared a dividend of $ 0.2360 per share to our common stockholders, which will be paid in November 2021. B. VEREIT, Inc. Merger Close On November 1, 2021, we completed our acquisition of VEREIT, Inc., or VEREIT. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, each outstanding share of VEREIT common stock and each common unit of VEREIT OP (other than those held by VEREIT, us or our affiliates) was converted into 0.705 shares -26- Table of Contents of Realty common stock. As a result of the Mergers, former VEREIT common stockholders and VEREIT OP common unitholders received approximately 162 million shares of Realty common stock, based on the shares of VEREIT common stock and common units of VEREIT OP outstanding as of October 29, 2021. We will account for the Merger in accordance with ASC 805, Business Combinations , with Realty Income as the acquirer of VEREIT. ASC 805 requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. Due to the limited time since the Merger, the initial accounting for this transaction is incomplete and, as such, the Company is unable to provide purchase price allocation, supplemental pro forma, and other disclosures.