REALTY INCOME CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. When used in this quarterly report, the words “estimated”, “anticipated”, “expect”, “believe”, “intend” and similar expressions are intended to identify forward-looking statements. Forward-looking statements include discussions of strategy, plans, or intentions of management. Forward-looking statements are subject to risks, uncertainties, and assumptions about Realty Income Corporation, including, among other things: • Our access to capital and other sources of funding; • Our anticipated growth strategies; • Our intention to acquire additional properties and the timing of these acquisitions; • Our intention to sell properties and the timing of these property sales; • Our intention to re-lease vacant properties; • Anticipated trends in our business, including trends in the market for long-term net leases of freestanding, single-client properties; • Future expenditures for development projects; • The impact of the COVID-19 pandemic, or future pandemics, on us, our business, our clients, or the economy generally; and • The uncertainties regarding whether the anticipated benefits or results of the mergers between us and VEREIT, Inc. (the "Mergers") 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 or financial condition, estimated or future acquisitions of properties, or the estimated or potential impact of the 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 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: • Our continued qualification as a real estate investment trust; • General domestic and foreign business and economic conditions; • Competition; • Fluctuating interest and currency rates; • Access to debt and equity capital markets; • Continued volatility and uncertainty in the credit markets and broader financial markets; • Other risks inherent in the real estate business including our clients' defaults under leases, potential liability relating to environmental matters, illiquidity of real estate investments, and potential damages from natural disasters; • Impairments in the value of our real estate assets; • Changes in income tax laws and rates; • The continued evolution of the COVID-19 pandemic and the measures taken to limit its spread, and its impacts on us, our business, our clients, or the economy generally; -27- Table of Contents • The timing and pace of reopening efforts at the local, state and national level in response to the COVID-19 pandemic and developments, such as the unexpected surges in COVID-19 cases, that cause a delay in or postponement of reopenings; • The outcome of any legal proceedings to which we are a party or which may occur in the future; • Acts of terrorism and war; and • Any effects of uncertainties regarding whether the anticipated benefits or results of the Mergers will be achieved. 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, those risks described in "Item 1A- Risk Factors" in Part II of this Quarterly Report on Form 10-Q, for the quarter ended September 30, 2021, and those risks described under the caption “Supplemental Risk Factors” in Exhibit 99.4 to the June 4, 2021 Form 8-K . 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. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, the forward-looking events discussed in this quarterly report might not occur. THE COMPANY 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. The monthly dividends are supported by the cash flow generated from real estate owned under long-term lease agreements with our commercial clients. Realty Income was founded in 1969, and listed on the New York Stock Exchange (NYSE: O) in 1994. 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. At September 30, 2021, we owned a diversified portfolio: • Of 7,018 properties; • With an occupancy rate of 98.8%, or 6,932 properties leased and 86 properties available for lease or sale; • Doing business in 60 separate industries; • Located in all 50 U.S. states, Puerto Rico, the United Kingdom (U.K.) and Spain; • With approximately 125.0 million square feet of leasable space; • With a weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of approximately 8.8 years; and • With an average leasable space per property of approximately 17,810 square feet; approximately 12,760 square feet per retail property and approximately 261,790 square feet per industrial property. Of the 7,018 properties in the portfolio at September 30, 2021, 6,961, or 99.2%, are single-client properties, of which 6,878 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 $23.9 million and $18.0 million for the three months ended September 30, 2021 and 2020, respectively, and $69.1 million and $59.4 million for the nine months ended September 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. 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. -28- Table of Contents Investment Philosophy We believe that owning an actively managed, diversified portfolio of commercial properties under long-term, net lease agreements produces consistent and predictable income. A net lease typically requires the client to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance. In addition, clients of our properties typically pay rent increases based on: (1) fixed increases, (2) increases in the consumer price index (typically subject to ceilings), or (3) additional rent calculated as a percentage of the clients’ gross sales above a specified level. We believe that a portfolio of properties under long-term net lease agreements with our commercial clients generally produces a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income. Diversification is also a key component of our investment philosophy. We believe that diversification of the portfolio by 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 September 30, 2021, consisted of 7,018 properties located in all 50 U.S. states, Puerto Rico, the U.K. and Spain, and doing business in 60 industries. None of the 60 industries represented in our property portfolio accounted for more than 11.6% of our annualized contractual rental revenue as of September 30, 2021. Investment Strategy When identifying new properties for investment, we generally focus on acquiring high-quality real estate that our clients consider important to the successful operation of their businesses. We generally seek to acquire real estate that has the following characteristics: • Properties that are freestanding, commercially-zoned with a single client; • Properties that are in significant markets or strategic locations critical to generating revenue for our clients (i.e. they need the property in which they operate in order to conduct their business); • Properties that we deem to be profitable for the clients and/or can generally be characterized as important to the successful operations of our business; • Properties that are located within attractive demographic areas relative to the business of our clients; • Properties with real estate valuations that approximate replacement costs; • Properties with rental or lease payments that approximate market rents for similar properties; and • Properties that can be purchased with the simultaneous execution or assumption of long-term net lease agreements, offering both current income and the potential for future rent increases. We seek to invest in properties owned or leased by clients that are already or could become leaders in their respective businesses supported by mechanisms including (but not limited to) occupancy of prime real estate locations, pricing, merchandise assortment, service, quality, economies of scale, consumer branding, e-commerce, and advertising. In addition, we frequently acquire large portfolios of single-client properties net leased to different clients operating in a variety of industries. We have an internal team dedicated to sourcing such opportunities, often using our relationships with various clients, owners/developers, brokers and advisers to uncover and secure transactions. We also undertake thorough research and analysis to identify what we consider to be appropriate property locations, clients, and industries for investment. This research expertise is instrumental to uncovering net lease opportunities in markets where we believe we can add value. In selecting potential investments, we look for clients with the following attributes: • Reliable and sustainable cash flow; • Revenue and cash flow from multiple sources; • Are willing to sign a long-term lease (10 or more years); and • Are large owners and users of real estate. From a retail perspective, our investment strategy is to target clients that have a service, non-discretionary, and/or low-price-point component to their business. We believe these characteristics better position clients to operate in a variety of economic conditions and to compete more effectively with internet retailers. As a result of the execution of this strategy, approximately 95% of our annualized retail contractual rental revenue at September 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. We believe these characteristics enhance the stability of the rental revenue generated from these properties. -29- Table of Contents After applying this investment strategy, we pursue those transactions where we believe we can achieve an attractive investment spread over our cost of capital and favorable risk-adjusted returns. We will continue to evaluate all investments for consistency with our objective of owning net lease assets. Underwriting Strategy In order to be considered for acquisition, properties must meet stringent underwriting requirements. We have established a four-part analysis that examines each potential investment based on: • The aforementioned overall real estate characteristics, including demographics, replacement cost, and comparative rental rates; • Industry, client (including credit profile), and market conditions; • Store profitability for retail locations if profitability data is available; and • The importance of the real estate location to the operations of the clients’ business. We believe the principal financial obligations for most of our clients typically include their bank and other debt, payment obligations to employees, suppliers, and real estate lease obligations. Because we typically own the land and building in which a client conducts its business or which are critical to the client’s ability to generate revenue, we believe the risk of default on a client’s lease obligation is less than the client’s unsecured general obligations. It has been our experience that clients must retain their profitable and critical locations in order to survive. Therefore, in the event of reorganization, we believe they are less likely to reject a lease of a profitable or critical location because this would terminate their right to use the property. Thus, as the property owner, we believe that we will fare better than unsecured creditors of the same client in the event of reorganization. If a property is rejected by our client during reorganization, we own the property and can either lease it to a new client or sell the property. In addition, we believe that the risk of default on real estate leases can be further mitigated by monitoring the performance of our clients’ individual locations and considering whether to proactively sell locations that meet our criteria for disposition. We conduct comprehensive reviews of the business segments and industries in which our clients’ operate. Prior to entering into any transaction, our research department conducts a review of a client’s credit quality. The information reviewed may include reports and filings, including any public credit ratings, financial statements, debt and equity analyst reports, and reviews of corporate credit spreads, stock prices, market capitalization, and other financial metrics. We conduct additional due diligence, including additional financial reviews of the 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 September 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 September 30, 2021, our top 20 clients (based on percentage of total portfolio annualized contractual rent) represented approximately 51% 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 In addition to pursuing new properties for investment, we seek to increase earnings and dividends through active asset management. Generally, our asset management efforts seek to achieve: • Rent increases at the expiration of existing leases, when market conditions permit; • Optimum exposure to certain clients, industries, and markets through re-leasing vacant properties and selectively selling properties; • Maximum asset-level returns on properties that are re-leased or sold; • Additional value creation from the existing portfolio by enhancing individual properties, pursuing alternative uses, and deriving ancillary revenue; and • Investment opportunities in new asset classes for the portfolio. We continually monitor our portfolio for any changes that could affect the performance of our clients, our clients’ industries, and the real estate locations in which we have invested. We also regularly analyze our portfolio with a view towards optimizing its returns and enhancing its overall credit quality. Our active asset management strategy pursues asset sales when we believe the reinvestment of the sale proceeds will: -30- Table of Contents • Generate higher returns; • Enhance the credit quality of our real estate portfolio; • Extend our average remaining lease term; and/or • Strategically decrease client, industry, or geographic concentration. The active management of the portfolio is an essential component of our long-term strategy of maintaining high occupancy. Impact of Real Estate and Credit Markets In the commercial real estate market, property prices generally continue to fluctuate. Likewise, during certain periods, including the current market, the global credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real estate and global credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly. RECENT DEVELOPMENTS 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, 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 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. 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. 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. -31- Table of Contents 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 additional lawsuits arising out of the Mergers may also be filed in the future. Theater Industry Update As of September 30, 2021, the theater industry represented 5.2% of annualized contractual rental revenue. As of September 30, 2021, we were fully reserved for the outstanding receivable balances for 34 theater properties. At September 30, 2021, the receivables outstanding for our 79 theater properties totaled $72.8 million, inclusive of $9.8 million of straight-line rent receivables, and net of $39.0 million of reserves, inclusive of $2.0 million of straight-line rent reserves. For the nine months ended September 30, 2021 and the year ended 2020, we recorded $11.3 million and $22.1 million, respectively, in reserves on contractual base rent for theater properties. Contractual rents exclude contractually obligated reimbursements by our clients, which was equivalent to $1.5 million and $1.6 million, respectively, and percentage rent. At September 30, 2021, the receivables outstanding across the portfolio totaled $341.7 million, net of $56.7 million of reserves, and includes $211.5 million of straight-line rent receivable, net of $6.2 million of reserves. The following table summarizes reserves and reserve reversals to rental revenue for theater properties (dollars in millions): Three Months Ended Nine Months Ended September 30, 2021 September 30, 2021 Rental revenue reserves (reserve reversals) $ (1.0) $ 12.8 Straight-line rent reserves (reserve reversals) — 0.2 Total rental revenue reserves (reserve reversals) $ (1.0) $ 13.0 We did not record any provisions for impairment on theater properties for the nine months ended September 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 four times during 2021. As of October 2021, we have paid 96 consecutive quarterly dividend increases and increased the dividend 112 times since our listing on the NYSE in 1994. -32- Table of Contents The following table summarizes our dividend increases in 2021: 2021 Dividend increases Month Declared Month Paid Dividend per share Increase per share 1st increase Dec 2020 Jan 2021 $ 0.2345 $ 0.0005 2nd increase Mar 2021 Apr 2021 $ 0.2350 $ 0.0005 3rd increase Jun 2021 Jul 2021 $ 0.2355 $ 0.0005 4th increase Sept 2021 Oct 2021 $ 0.2360 $ 0.0005 The dividends paid per share during the nine months ended September 30, 2021 totaled approximately $2.115, as compared to approximately $2.092 during the nine months ended September 30, 2020, an increase of $0.023, or 1.1%. The monthly dividend of $0.2360 per share represents a current annualized dividend of $2.8320 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 $64.86 on September 30, 2021. Although we expect to continue our policy of paying monthly dividends, we cannot guarantee that we will maintain our current level of dividends, that we will continue our pattern of increasing dividends per share, or what our actual dividend yield will be in any future period. Acquisitions During the Three and Nine Months Ended September 30, 2021 Below is a listing of our acquisitions in the U.S. and Europe for the periods indicated below: Number of Properties Leasable Square Feet Investment ($ in thousands) Weighted Average Lease Term (Years) Initial Average Cash Lease Yield (1) Three months ended September 30, 2021 (2) Acquisitions - U.S. (in 32 states) 242 4,741,648 $ 1,020,768 13.9 5.5 % Acquisitions - Europe (U.K. and Spain) 30 2,083,732 526,033 11.9 5.4 % Total acquisitions 272 6,825,380 $ 1,546,801 13.2 5.5 % Properties under development (3) 36 1,983,960 67,160 16.2 6.1 % Total (4) 308 8,809,340 $ 1,613,961 13.4 5.5 % 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 (5) 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 $2.4 million received as settlement credits for 31 properties as reimbursement of free rent periods for the three months ended September 30, 2021 and 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. (2) None of our investments during the three and 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 three and nine months ended September 30, 2021, converted at the applicable exchange rate on the funding date. (4) Our clients occupying the new properties are 86.2% retail and 13.8% industrial, based on rental revenue. Approximately 38% of the rental revenue generated from acquisitions during the three months ended September 30, 2021 is from our investment grade rated clients, their subsidiaries or affiliated companies. (5) 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 our investment grade rated clients, their subsidiaries or affiliated companies. -33- Table of Contents Portfolio Discussion Leasing Results At September 30, 2021, we had 86 properties available for lease or sale out of 7,018 properties in our portfolio, which represents a 98.8% 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 September 30, 2021 Properties available for lease at June 30, 2021 103 Lease expirations (1) 49 Re-leases to same client (35) Re-leases to new client (8) Vacant dispositions (23) Properties available for lease at September 30, 2021 86 Nine months ended September 30, 2021 Properties available for lease at December 31, 2020 140 Lease expirations (1) 175 Re-leases to same client (126) Re-leases to new client (23) Vacant dispositions (80) Properties available for lease at September 30, 2021 86 (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 September 30, 2021, the annual new rent on re-leases was $18.172 million, as compared to the previous annual rent of $16.948 million on the same units, representing a rent recapture rate of 107.2% on the units re-leased. We re-leased four units to new clients without a period of vacancy, and seven units to new clients after a period of vacancy. During the nine months ended September 30, 2021, the annual new rent on re-leases was $40.145 million, as compared to the previous annual rent of $38.068 million on the same units, representing a rent recapture rate of 105.5% on the units re-leased. We re-leased seven units to new clients without a period of vacancy, and 24 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 September 30, 2021, our average annualized contractual rent was approximately $15.23 per square foot on the 6,932 leased properties in our portfolio. At September 30, 2021, we classified 36 properties, with a carrying amount of $44.9 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 September 30, 2021, we capitalized costs of $6.8 million on existing properties in our portfolio, consisting of $1.2 million for re-leasing costs, $365,000 for recurring capital expenditures, and $5.2 million for non-recurring building improvements. 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. 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. -34- Table of Contents 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. Capital Raising During the three months ended September 30, 2021, we raised $1.63 billion from the sale of common stock at a weighted average price of $67.93 per share, primarily through proceeds from the sale of common stock through our At-The-Market (ATM) program and the July 2021 raising of $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. During the nine months ended September 30, 2021, we raised $2.78 billion from the sale of common stock at a weighted average price of $65.02, of which approximately $1.3 billion related to common stock issued through underwritten overnight public offerings and the majority of the remaining proceeds of approximately $1.5 billion related to the sale of common stock through our ATM Program. ATM Program In August 2021, following the issuance and sale of 74,911,567 shares under our prior ATM equity distribution plans, or our prior ATM programs, we established a new ATM equity distribution plan, or our new ATM program, pursuant to which up to 69,088,433 additional 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. Note Issuances 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, which were intended to finance or refinance, in whole or in part, new or existing eligible green projects in the categories outlined in the Company's green financing framework, which is designed to align with the International Capital Markets Association (the "ICMA") Green Bond Principles 2021. 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 $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. Impact of COVID-19 We continue to work diligently with our clients most affected by the pandemic to understand their business operations and financial liquidity and their ability to satisfy their contractual obligations to us. As we carefully navigate this difficult economic period with our clients, our focus is on finding resolutions that preserve the long-term relationships we have built with many of our clients. 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. The majority of lease 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. In these cases, we have determined that the collection of deferred rent is probable (within the meaning applicable under GAAP), although we cannot assure you that this determination will not change in the future. In addition, as we believe to be the case with many retail landlords, we have received many short-term rent relief requests, most often in the form of rent deferral requests, or requests for further discussion from clients. We believe that not all client requests will ultimately result in lease modification agreements, nor have we relinquished our contractual rights under our lease agreements where rent concessions have not yet been granted. Our rent collections for the periods -35- Table of Contents 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 September 30, 2021 Month Ended July 31, 2021 Month Ended August 31, 2021 Month Ended September 30, 2021 Quarter Ended September 30, 2021 Contractual rent collected (1) across total portfolio 99.4% 99.5% 99.7% 99.5% Contractual rent collected (1) from our top 20 clients (2) 99.6% 99.8% 99.9% 99.8% Contractual rent collected (1) from our investment grade clients (3) 100.0% 100.0% 100.0% 100.0% Contractual rent collected from our theater clients 99.6% 99.6% 99.6% 99.6% Contractual rent collected from our health and fitness clients 92.4% 95.9% 96.6% 95.0% (1) Collection rates are calculated as the aggregate contractual rent collected for the applicable period from the beginning of that applicable period through September 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). Charged amounts have not been adjusted for any COVID-19 related rent relief granted and include contractual rents from any clients in bankruptcy. Due to differences in applicable foreign currency conversion rates and rent conventions, the percentages above may differ from percentages calculated utilizing our total portfolio annualized contractual rent. (2) We define our top 20 clients as our 20 largest clients based on percentage of total portfolio annualized contractual rent as of September 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, and that decline may continue or increase in subsequent periods as long as such impacts continue to exist. Select Financial Results The following summarizes our select financial results (dollars in millions, except per share data): Three months ended September 30, Nine months ended September 30, % Increase (Decrease) Three months Nine months 2021 2020 2021 2020 Total revenue $ 491.9 $ 404.6 $ 1,399.0 $ 1,233.5 21.6 % 13.4 % Net income available to common stockholders (1) $ 135.0 $ 22.9 $ 355.4 $ 277.6 489.5 % 28.0 % Net income per share (2) $ 0.34 $ 0.07 $ 0.94 $ 0.81 385.7 % 16.0 % Funds from operations available to common stockholders (FFO) $ 332.3 $ 283.0 $ 914.4 $ 848.4 17.4 % 7.8 % FFO per share (2) $ 0.85 $ 0.82 $ 2.41 $ 2.48 3.7 % (2.8) % Normalized funds from operations available to common stockholders (Normalized FFO) $ 349.1 $ 283.0 $ 944.5 $ 848.4 23.4 % 11.3 % Normalized FFO per share (2) $ 0.89 $ 0.82 $ 2.49 $ 2.48 8.5 % 0.4 % Adjusted funds from operations available to common stockholders (AFFO) $ 356.8 $ 282.5 $ 1,002.7 $ 875.0 26.3 % 14.6 % AFFO per share (2) $ 0.91 $ 0.81 $ 2.64 $ 2.55 12.3 % 3.5 % (1) The calculation to determine net income available to common stockholders includes provisions for impairment, gains from the sale of real estate, and foreign currency gains and losses. These items can vary from quarter to quarter and can significantly impact net income available to common stockholders and period to period comparisons. (2) All per share amounts are presented on a diluted per common share basis. Our financial results during the nine months ended September 30, 2021 were impacted by the following transactions: (i) a $50.5 million loss on extinguishment of debt, primarily due to the January 2021 early redemption of the 3.250% notes due October 2022 recorded in the three months ended March 31, 2021, (ii) $30.1 million of -36- Table of Contents merger-related costs related to our merger with VEREIT, of which $16.8 million related to the three months ended September 30, 2021, (iii) $31.0 million of provisions for impairment, of which $11.0 million related to the three months ended September 30, 2021, and (iv) $13.9 million in reserves, net of reserve reversals, recorded as a reduction of rental revenue. Our financial results during the nine months ended September 30, 2020 were impacted by the following transactions: (i) $123.4 million of provisions for impairment, of which $105.1 million related to the three months ended September 30, 2020, (ii) $34.4 million in reserves recorded as a reduction of rental revenue, of which $24.1 million related to the three months ended September 30, 2020, (iii) a $9.8 million loss on extinguishment of debt due to the January 2020 early redemption of the 5.750% notes due 2021 recorded in the three months ended March 31, 2020, and (iv) a $3.5 million executive severance charge for our former CFO also recorded in the three months ended March 31, 2020. 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 Capital Philosophy Historically, we have met our long-term capital needs by issuing common stock, long-term unsecured notes and bonds, and preferred stock. Over the long term, we believe that common stock should be the majority of our capital structure; however, we may also raise funds from debt or other equity securities. We may issue common stock when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties. In addition, we may issue common stock to permanently finance properties that were initially financed by our revolving credit facility, commercial paper program, or debt securities. However, we cannot assure you that we will have access to the capital markets at all times and at terms that are acceptable to us. Our primary cash obligations, for the current year and subsequent years, are included in the “Table of Obligations,” which is presented later in this section. We expect to fund our operating expenses and other short-term liquidity requirements, including property acquisitions and development costs, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to common stockholders, primarily through cash provided by operating activities, borrowings on our credit facility and under our commercial paper program and through public securities offerings. We may choose to mitigate our financial exposure to exchange rate risk for properties acquired outside the U.S. through the issuance of debt securities denominated in the same local currency and through currency derivatives. We may leave a portion of our foreign cash flow unhedged to reinvest in additional properties in the same local currency. Conservative Capital Structure We believe that our stockholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. At September 30, 2021, our total outstanding borrowings of senior unsecured notes and bonds, term loan, mortgages payable, and commercial paper were $9.29 billion, or approximately 26.1% of our total market capitalization of $35.54 billion. As of September 30, 2021, we had no borrowings outstanding on our revolving credit facility. Therefore, we define our total market capitalization as the sum of: • Shares of our common stock outstanding of 404,206,076, plus total common units outstanding of 463,119, multiplied by the last reported sales price of our common stock on the NYSE of $64.86 per share on September 30, 2021, or $26.25 billion; • Outstanding borrowings of $405.0 million on our commercial paper program; • Outstanding mortgages payable of $285.6 million, excluding net mortgage premiums of $933,000 and deferred financing costs of $865,000; • Outstanding borrowings of $250.0 million on our term loan, excluding deferred financing costs of $493,000; and • Outstanding senior unsecured notes and bonds of $8.35 billion, including Sterling-denominated notes of £1.47 billion, and excluding unamortized net original issuance premiums of $7.2 million and deferred financing costs of $51.0 million. -37- Table of Contents Universal Shelf Registration 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. 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. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. 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 NYSE at prevailing market prices or at negotiated prices. During the three months ended September 30, 2021, we issued 14,788,822 shares and raised approximately $1.03 billion under the ATM program. During the nine months ended September 30, 2021, we issued 21,378,420 shares and raised approximately $1.49 billion under the ATM program. 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. Issuance of Common Stock 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. In January 2021, we issued 12,075,000 shares of common stock in an overnight underwritten public offering, inclusive of 1,575,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After deducting underwriting discounts of $19.3 million, the net proceeds of $669.6 million were used to fund property acquisitions and for general corporate purposes, and working capital. Dividend Reinvestment and Stock Purchase Plan 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. 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. During the three months ended September 30, 2021, we issued 41,613 shares and raised approximately $2.9 million under our DRSPP. During the nine months ended September 30, 2021, we issued 124,430 shares and raised approximately $8.2 million under our DRSPP. At September 30, 2021, we had 11,378,949 shares remaining for future issuance under our DRSPP program. Revolving Credit Facility and Commercial Paper Program 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 multicurrency revolving facility allows us to borrow in up to 14 currencies, including U.S. dollars. Our revolving credit facility has a $1.0 billion expansion option, which is subject to obtaining lender commitments. Under our revolving credit facility, our investment grade credit ratings as of September 30, 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 credit facility. Our credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation. -38- Table of Contents As of September 30, 2021, we had no outstanding borrowings on our revolving credit facility and an available borrowing capacity of $3.0 billion. The weighted average interest rate on borrowings under our revolving credit facility during the nine months ended September 30, 2021 was 0.8% per annum. We must comply with various financial and other covenants in our credit facility. At September 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. Any additional borrowings will increase our exposure to interest rate risk. 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. Borrowings under this program generally mature in one year or less. At September 30, 2021, we had an outstanding balance of $405.0 million. The weighted average interest rate on borrowings under our commercial paper program was 0.2% for the nine months ended September 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. We generally use our credit facility and commercial paper borrowings for the short-term financing of new property acquisitions. Thereafter, we generally seek to refinance those borrowings with the net proceeds of long-term or more permanent financing, including the issuance of equity or debt securities. We cannot assure you, however, that we will be able to obtain any such refinancing, or that market conditions prevailing at the time of the refinancing will enable us to issue equity or debt securities at acceptable terms. We regularly review our credit facility and commercial paper program and may seek to extend, renew or replace our credit facility, to the extent we deem appropriate. Term Loan In October 2018, in conjunction with entering into our revolving credit facility, we entered into a $250.0 million senior unsecured term loan, which matures in March 2024, and is governed by the credit agreement that governs our revolving credit facility. 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%. Mortgage Debt As of September 30, 2021, we had $285.6 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. Additionally, at September 30, 2021, we had net premiums totaling $933,000 on these mortgages and deferred financing costs of $865,000. 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 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. -39- Table of Contents Notes Outstanding Our senior unsecured note and bond obligations consist of the following as of September 30, 2021, sorted by maturity date (dollars in millions): As of September 30, 2021 Principal Amount (Currency Denomination) Carrying Value (USD) 4.650% notes, issued in July 2013 and due in August 2023 $ 750 $ 750 3.875% notes, issued in June 2014 and due in July 2024 $ 350 350 3.875% notes, issued in April 2018 and due in April 2025 $ 500 500 0.750% notes, issues December 2020 and due in March 2026 $ 325 325 4.125% notes, $250 issued in September 2014 and $400 issued in March 2017, both due in October 2026 $ 650 650 3.000% notes, issued in October 2016 and due in January 2027 $ 600 600 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 3.250% notes, issued in June 2019 and due in June 2029 $ 500 500 1.625% notes, issued in October 2020 and due December 2030 £ 400 540 3.250% notes, $600 issued in May 2020 and $350 issued in July 2020, both due in January 2031 $ 950 950 1.800% notes, issued in December 2020 and due in March 2033 $ 400 400 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 5.875% bonds, $100 issued in March 2005 and $150 issued in June 2011, both due in March 2035 $ 250 250 4.650% notes, $300 issued in March 2017 and $250 issued in December 2017, both due in March 2047 $ 550 550 Total principal amount $ 8,353 Unamortized net original issuance premiums and deferred financing costs (44) $ 8,309 All of our outstanding notes and bonds have fixed interest rates and contain various covenants, with which we remained in compliance as of September 30, 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. These calculations, which are not based on U.S. GAAP measurements, are presented to investors to show our ability to incur additional debt under the terms of our senior notes and bonds as well as to disclose our current compliance with such covenants, and are not measures of our liquidity or performance. The actual amounts as of September 30, 2021 are: Note Covenants Required Actual Limitation on incurrence of total debt < 60% of adjusted assets 37.0 % Limitation on incurrence of secured debt < 40% of adjusted assets 1.3 % Debt service coverage (trailing 12 months) (1) > 1.5x 6.1 Maintenance of total unencumbered assets > 150% of unsecured debt 275.4 % (1) Our debt service coverage ratio is calculated on a pro forma basis for the preceding four-quarter period on the assumptions that: (i) the incurrence of any debt (as defined in the covenants) incurred by us since the first day of such four-quarter period and the application of the proceeds therefrom (including to refinance other debt since the first day of such four-quarter period), (ii) the repayment or retirement of any of our debt since the first day of such four-quarter period, and (iii) any acquisition or disposition by us of any asset or group since the first day of such four quarters had in each case occurred on October 1, 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 October 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 September 30, 2021 (in thousands, for trailing twelve months): -40- Table of Contents Net income available to common stockholders $ 473,346 Plus: interest expense, excluding the amortization of deferred financing costs 292,365 Plus: loss on extinguishment of debt 50,456 Plus: provision for taxes 26,028 Plus: depreciation and amortization 739,646 Plus: provisions for impairment 54,766 Plus: pro forma adjustments 143,215 Less: gain on sales of real estate (58,063) Income available for debt service, as defined $ 1,721,759 Total pro forma debt service charge $ 282,908 Debt service and fixed charge coverage ratio 6.1 Cash Reserves We are organized to operate as an equity REIT that acquires and leases properties and distributes to stockholders, in the form of monthly cash distributions, a substantial portion of our net cash flow generated from leases on our properties. We intend to retain an appropriate amount of cash as working capital. At September 30, 2021, we had cash and cash equivalents totaling $517.0 million, inclusive of £122.1 million Sterling and €133.7 million Euro. 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. We intend, however, to use permanent or long-term capital to fund property acquisitions and to repay future borrowings under our credit facility and commercial paper program. Credit Agency Ratings The borrowing interest rates under our revolving credit facility are based upon our ratings assigned by credit rating agencies. As of September 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 September 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 September 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: (i) LIBOR, plus 1.45% if our credit rating is lower than BBB-/Baa3 or our senior unsecured debt is unrated and (ii) LIBOR, plus 0.75% if our credit rating is A/A2 or higher. In addition, our credit facility provides for a facility commitment fee based on our credit ratings, which range from: (i) 0.30% for a rating lower than BBB-/Baa3 or unrated, and (ii) 0.10% for a credit rating of A/A2 or higher. We also issue senior debt securities from time to time and our credit ratings can impact the interest rates charged in those transactions. If our credit ratings or ratings outlook change, our cost to obtain debt financing could increase or decrease. The credit ratings assigned to us could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies and we cannot assure you that our ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover, a rating is not a recommendation to buy, sell or hold our debt securities, preferred stock or common stock. -41- Table of Contents Table of Obligations The following table summarizes the maturity of each of our obligations as of September 30, 2021 (dollars in millions): Year of Maturity Credit Facility and Commercial Paper Program (1) Senior Unsecured Notes and Bonds (2) Term Loan (3) Mortgages Payable (4) Interest (5) Ground Leases Paid by Realty Income (6) Ground Leases Paid by Our Clients (7) Other (8) Totals 2021 $ 405.0 $ — $ — $ 0.9 $ 51.5 $ 1.3 $ 3.4 $ 139.7 $ 601.8 2022 — — — 111.6 285.3 5.4 13.8 101.9 518.0 2023 — 750.0 — 20.4 281.2 5.5 13.9 — 1,071.0 2024 — 350.0 250.0 111.9 238.0 5.4 14.0 — 969.3 2025 — 500.0 — 40.8 206.6 5.7 13.7 — 766.8 Thereafter — 6,753.0 — — 1,296.2 158.5 56.0 — 8,263.7 Totals $ 405.0 $ 8,353.0 $ 250.0 $ 285.6 $ 2,358.8 $ 181.8 $ 114.8 $ 241.6 $ 12,190.6 (1) The initial term of the credit facility expires in March 2023 and includes, at our option, two six-month extensions. At September 30, 2021, there were no borrowings under our revolving credit facility. 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. (2) Excludes non-cash net original issuance premiums recorded on notes payable of $7.2 million and deferred financing costs of $51.0 million. (3) Excludes deferred financing costs of $493,000. (4) Excludes both non-cash net premiums recorded on the mortgages payable of $933,000 and deferred financing costs of $865,000. (5) Interest on the term loan, notes, bonds, mortgages payable, and commercial paper program has been calculated based on outstanding balances at period end through their respective maturity dates. (6) Realty Income currently pays the ground lessors directly for the rent under the ground leases. (7) Our clients, who are generally sub-clients under ground leases, are responsible for paying the rent under these ground leases. In the event our client fails to pay the ground lease rent, we are primarily responsible. (8) “Other” consists of $211.9 million of commitments under construction contracts, $10.7 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements and $19.0 million of success fees related to our merger with VEREIT. Our credit facility, commercial paper program, term loan, and notes payable obligations are unsecured. Accordingly, we have not pledged any assets as collateral for these obligations. No Unconsolidated Investments We have no unconsolidated investments, nor do we engage in trading activities involving energy or commodity contracts. Dividend Policy Distributions are paid monthly to holders of shares of our common stock. Distributions are paid monthly to the limited partners holding common units of Realty Income, L.P. on a per unit basis that is generally equal to the amount paid per share to our common stockholders. In order to maintain our status as a REIT for federal income tax purposes, we generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our taxable income (excluding net capital gains), and we are subject to income tax to the extent we distribute less than 100% of our taxable income (including net capital gains). In 2020, our cash distributions to common stockholders totaled $964.2 million, or approximately 124.8% of our taxable income of $772.5 million. Our taxable income reflects non-cash deductions for depreciation and amortization. Our taxable income is presented to show our compliance with REIT dividend requirements and is not a measure of our liquidity or operating performance. We intend to continue to make distributions to our stockholders that are sufficient to meet this dividend requirement and that will reduce or eliminate our exposure to income taxes. Furthermore, we believe our 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 nine months ended September 30, 2021 totaled approximately $797.8 million, representing 79.6% of our adjusted funds from operations available to common stockholders of approximately $1.0 billion. 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, 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 -42- Table of Contents 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. The maximum tax rate of non-corporate taxpayers for “qualified dividend income” is generally 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that certain holding requirements have been met with respect to the REIT’s stock and the REIT’s dividends are attributable to dividends received from certain taxable corporations (such as our taxable REIT subsidiaries) or to income that was subject to tax at the corporate or REIT level (for example, if we distribute taxable income that we retained and paid tax on in the prior taxable year). However, non-corporate stockholders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026. Distributions in excess of earnings and profits generally will first be treated as a non-taxable reduction in the stockholders’ basis in their stock, but not below zero. Distributions in excess of that basis generally will be taxable as a capital gain to stockholders who hold their shares as a capital asset. Approximately 17.6% of the distributions to our common stockholders, made or deemed to have been made in 2020, were classified as a return of capital for federal income tax purposes. RESULTS OF OPERATIONS Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with GAAP, and are the basis for our discussion and analysis of financial condition and results of operations. Preparing our consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. We believe that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. 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. 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. Management must make significant assumptions in determining the fair value of assets acquired and liabilities assumed. When acquiring a property for investment purposes, we typically allocate the cost of real estate acquired, inclusive of transaction costs, to: (1) land, (2) building and improvements, and (3) identified intangible assets and liabilities, based in each case on their relative estimated fair values. Intangible assets and liabilities consist of above-market or below-market lease value and the value of in-place leases, as applicable. Additionally, above–market rents on certain leases under which we are a lessor are accounted for as financing receivables amortizing over the lease term, while below–market rents on certain leases under which we are a lessor are accounted for as prepaid rent. In an acquisition of multiple properties, we must also allocate the purchase price among the properties. The allocation of the purchase price is based on our assessment of estimated fair value of the land, building and improvements, and identified intangible assets and liabilities and is often based upon the various characteristics of the market where the property is located. In addition, any assumed mortgages are recorded at their estimated fair values. The estimated fair values of our mortgages payable have been calculated by discounting the future cash flows using applicable interest rates that have been adjusted for factors, such as industry type, client investment grade, maturity date, and comparable borrowings for similar assets. The use of different assumptions in the allocation of the purchase price of the acquired properties and liabilities assumed could affect the timing of recognition of the related revenue and expenses. Another significant judgment must be made as to if, and when, impairment losses should be taken on our properties when events or a change in circumstances indicate that the carrying amount of the asset may not be recoverable. If -43- Table of Contents 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. If a property is held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell. The carrying value of our real estate is the largest component of our consolidated balance sheets. Our strategy of primarily holding properties, long-term, directly decreases the likelihood of their carrying values not being recoverable, thus requiring the recognition of an impairment. However, if our strategy, or one or more of the above assumptions were to change in the future, an impairment may need to be recognized. 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 the nine months ended September 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. If the collection of substantially all of the future lease payments is less than probable, we will write-off the receivable balances associated with the lease and cease to recognize lease income, including straight-line rent, unless cash is received when due. 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. As of September 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. The COVID-19 pandemic and the measures taken to limit its spread are negatively impacting the economy across many industries, including the industries in which some of our clients operate. These impacts may continue and increase in severity as the duration or extent of the pandemic increases, which may, in turn, adversely impact the fair value estimates of our real estate and require the recording of impairments on our properties. As a result, we evaluated certain key assumptions involving fair value estimates of our real estate, recording of impairments on our properties and collectability of our accounts receivable. We continue to evaluate the potential impacts of the COVID-19 pandemic and the measures taken to limit its spread on our business and industry segments, as the situation continues to evolve and more information becomes available. The following is a comparison of our results of operations for the three and nine months ended September 30, 2021, to the three and nine months ended September 30, 2020. Total Revenue The following summarizes our total revenue (dollars in thousands): Three months ended September 30, Nine months ended September 30, Increase 2021 2020 2021 2020 Three Months Nine Months REVENUE Rental (excluding reimbursable) $ 462,416 $ 383,845 $ 1,316,838 $ 1,164,873 $ 78,571 $ 151,965 Rental (reimbursable) 23,921 18,024 69,120 59,354 5,897 9,766 Other 5,538 2,703 13,003 9,322 2,835 3,681 Total revenue $ 491,875 $ 404,572 $ 1,398,961 $ 1,233,549 $ 87,303 $ 165,412 -44- Table of Contents Rental Revenue (excluding reimbursable) The table below summarizes the increase in rental revenue (excluding reimbursable) in the three months ended September 30, 2021 compared to the three months ended September 30, 2020 (dollars in thousands): Three Months Ended September 30, Increase/(Decrease) Number of Properties Square Footage (1) 2021 2020 $ Change Properties acquired subsequent to December 31, 2019 756 20,265,423 $ 72,561 $ 13,203 $ 59,358 Same store rental revenue 6,099 96,727,907 380,341 358,861 21,480 Constant currency adjustment (2) N/A N/A 812 (615) 1,427 Properties sold subsequent to December 31, 2019 224 4,652,875 158 3,362 (3,204) Straight-line rent and other non-cash adjustments N/A N/A 2,100 2,294 (194) Vacant rents, development and other (3) 163 2,944,601 6,444 6,740 (296) Totals $ 462,416 $ 383,845 $ 78,571 (1) Excludes 3,025,649 square feet from properties ground leased to clients and 2,017,013 square feet from properties with no land or building ownership. (2) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as of September 30, 2021 of 1.35 GBP/USD. None of the properties in Spain met our same store pool definition for the periods presented. (3) Relates to the aggregate of (i) rental revenue from properties (154 properties comprising 2,586,996 square feet) that were available for lease during part of 2021 or 2020, (ii) rental revenue for properties (nine properties comprising 357,605 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 nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 (dollars in thousands): Nine Months Ended September 30, Increase/(Decrease) Number of Properties Square Footage (1) 2021 2020 $ Change Properties acquired subsequent to December 31, 2019 756 20,265,423 $ 162,500 $ 25,702 $ 136,798 Same store rental revenue 6,099 96,727,907 1,127,320 1,105,333 21,987 Constant currency adjustment (2) N/A N/A 2,510 (2,287) 4,797 Properties sold subsequent to December 31, 2019 224 4,652,875 2,125 13,609 (11,484) Straight-line rent and other non-cash adjustments N/A N/A 5,033 532 4,501 Vacant rents, development and other (3) 163 2,944,601 17,350 21,984 (4,634) Totals $ 1,316,838 $ 1,164,873 $ 151,965 (1) Excludes 3,025,649 square feet from properties ground leased to clients and 2,017,013 square feet from properties with no land or building ownership. (2) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as of September 30, 2021 of 1.35 GBP/USD. None of the properties in Spain met our same store pool definition for the periods presented. (3) Relates to the aggregate of (i) rental revenue from properties (154 properties comprising 2,586,996 square feet) that were available for lease during part of 2021 or 2020, (ii) rental revenue for properties (nine properties comprising 357,605 square feet) under development, and (iii) lease termination settlements. For purposes of determining the same store rent property pool, we include all properties that were owned for the entire year-to-date period, for both the current and prior year, except for properties during the current or prior year that; (i) were vacant at any time, (ii) were under development or redevelopment, or (iii) were involved in eminent domain and rent was reduced. Each of the exclusions from the same store pool are separately addressed within the applicable sentences above, explaining the changes in rental revenue for the period. -45- Table of Contents 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 impacted by (reserve reversals) and reserves to rental revenue of $(313,000) for the three months ended September 30, 2021 compared to $18.0 million for the three months ended September 30, 2020, and $12.7 million for the nine months ended September 30, 2021 compared to $21.7 million for the nine months ended September 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 increases for the three and nine months ended September 30, 2021 relative to the comparable periods for 2020 would have been 8.5% and 6.1%, respectively. Rental revenue was negatively impacted by rent reserves for the three months ended September 30, 2020 and nine months ended September 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. For the three months ended September 30, 2021, rental revenue was positively impacted by reserve reversals recorded 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 Of the 7,018 properties in the portfolio at September 30, 2021, 6,961, or 99.2%, are single-client properties and the remaining are multi-client properties. Of the 6,961 single-client properties, 6,878, or 98.8%, were net leased at September 30, 2021. Of the 7,064 in-place leases in the portfolio, which excludes 110 vacant units, 6,000 or 84.9% were under leases that provide for increases in rents through: • Base rent increases tied to a consumer price index (typically subject to ceilings); • Percentage rent based on a percentage of the clients’ gross sales; • Fixed increases; or • A combination of two or more of the above rent provisions. Percentage rent, which is included in rental revenue, was $441,000 in the three months ended September 30, 2021, $532,000 in the three months ended September 30, 2020, $2.0 million in the nine months ended September 30, 2021 and $2.3 million in the nine months ended September 30, 2020. We anticipate percentage rent to be less than 1% of rental revenue for 2021. At September 30, 2021, our portfolio of 7,018 properties was 98.8% leased with 86 properties available for lease, as compared to 97.9% leased, with 140 properties available for lease at December 31, 2020, and 98.6% leased with 92 properties available for lease at September 30, 2020. It has been our experience that approximately 1% to 4% of our property portfolio will be unleased at any given time; however, it is possible that the number of properties available for lease or sale could increase in the future, given the nature of economic cycles and other unforeseen global events, such as the ongoing COVID-19 pandemic and the measures taken to limit its spread. Rental Revenue (reimbursable) A number of our leases provide for contractually obligated reimbursements from clients for recoverable real estate taxes and operating expenses. The increase in contractually obligated reimbursements by our clients in the periods presented is primarily due to the growth of our portfolio due to acquisitions. -46- Table of Contents Other Revenue 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. For both the three and nine months ended September 30, 2021, increases to interest income recognized on financing receivables were partially offset by decreases to interest earned on cash and cash equivalents in the same 2020 periods. Total Expenses The following summarizes our total expenses (dollars in thousands): Three months ended September 30, Nine months ended September 30, $ Increase/ (Decrease) 2021 2020 2021 2020 Three months Nine Months EXPENSES Depreciation and amortization $ 198,832 $ 169,084 $ 564,606 $ 501,997 $ 29,748 $ 62,609 Interest 76,156 76,806 222,905 230,572 (650) (7,667) Property (excluding reimbursable) 5,741 7,386 20,775 18,114 (1,645) 2,661 Property (reimbursable) 23,921 18,024 69,120 59,354 5,897 9,766 General and administrative (1) 23,813 16,514 66,458 56,541 7,299 9,917 Provisions for impairment 11,011 105,095 30,977 123,442 (94,084) (92,465) Merger-related costs 16,783 — 30,081 — 16,783 30,081 Total expenses $ 356,257 $ 392,909 $ 1,004,922 $ 990,020 $ (36,652) $ 14,902 Total revenue (2) $ 467,954 $ 386,548 $ 1,329,841 $ 1,174,195 General and administrative expenses as a percentage of total revenue (1)(2) 5.1 % 4.3 % 5.0 % 4.5 % Property expenses (excluding reimbursable) as a percentage of total revenue (2) 1.2 % 1.9 % 1.6 % 1.5 % (1) General and administrative expenses for the nine months ended September 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 $3.5 million 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 nine months ended September 30, 2020, we have excluded this executive severance charge to arrive at a normalized general and administrative amount of $53.1 million which was used for our calculation. (2) Excludes rental revenue (reimbursable). Depreciation and Amortization The increase in depreciation and amortization for the three and nine months ended September 30, 2021 was primarily due to the acquisition of properties in 2020 and for the nine months ended September 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. -47- Table of Contents Interest Expense The following is a summary of the components of our interest expense (dollars in thousands): Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Interest on our credit facility, commercial paper, term loan, notes, mortgages and interest rate swaps $ 72,299 $ 73,174 $ 212,030 $ 218,991 Credit facility commitment fees 958 958 2,844 2,854 Amortization of debt origination and deferred financing costs 3,010 2,584 8,346 7,752 Loss on interest rate swaps 734 1,123 2,180 3,116 Amortization of net mortgage premiums (673) (311) (1,158) (1,021) Amortization of net note (premiums) discounts 102 (690) (37) (1,096) Interest capitalized (423) (109) (1,604) (257) Capital lease obligation 149 77 304 233 Interest expense $ 76,156 $ 76,806 $ 222,905 $ 230,572 Credit facility, commercial paper, term loan, mortgages and notes Average outstanding balances (dollars in thousands) $ 9,282,808 $ 8,098,923 $ 8,857,204 $ 8,179,307 Average interest rates 3.02 % 3.51 % 3.10 % 3.48 % The decrease in interest expense for the three and nine months ended September 30, 2021 is primarily due to lower average 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 issuances of notes in 2020 and 2021, which included $1.68 billion in principal of USD denominated notes and £1.15 billion in principal of Sterling denominated notes. During the nine months ended September 30, 2021, the weighted average interest rate on our: • Commercial paper outstanding borrowings of $405.0 million was 0.2%; • Term loan outstanding of $250.0 million (excluding deferred financing costs of $493,000) was swapped to fixed at 3.9%; • Mortgages payable of $285.6 million (excluding net premiums totaling $933,000 and deferred financing costs of $865,000 on these mortgages) was 4.7%; • Notes and bonds payable of $8.35 billion (excluding net unamortized original issue premiums of $7.2 million and deferred financing costs of $51.0 million) was 3.3%; and • Combined outstanding notes, bonds, mortgages, term loan and commercial paper borrowings of $9.29 billion (excluding all net premiums and deferred financing costs) was 3.1%. Property Expenses (excluding reimbursable) Property expenses (excluding reimbursable) consist of costs associated with properties available for lease, non-net-leased properties and general portfolio expenses. Expenses related to properties available for lease and non-net-leased properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections and legal fees. General portfolio costs include, but are not limited to, insurance, legal, property inspections, and title search fees. At September 30, 2021, 86 properties were available for lease or sale, as compared to 140 at December 31, 2020, and 92 at September 30, 2020. The decrease in property expenses (excluding reimbursable) for the three months ended September 30, 2021 is primarily attributable to decreased vacancies and decreases in reserves for contractually obligated reimbursements by our clients. The increase in property expenses (excluding reimbursable) for the nine months ended September 30, 2021 is primarily due to the increase in portfolio size, resulting in higher utilities, repairs and maintenance, property-related legal expenses, property taxes, and reserves for contractually obligated reimbursements by our clients. -48- Table of Contents Property Expenses (reimbursable) The increase in property expenses (reimbursable) for the three and nine months ended September 30, 2021 was primarily attributable to our increased portfolio size, which contributed to higher operating expenses as a result of our acquisitions in 2020 and the nine months ended September 30, 2021, and an increase in property taxes paid on behalf of our clients. 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. The increase in general and administrative expenses for the three and nine months ended September 30, 2021 is primarily due to higher payroll-related costs and higher corporate-level professional fees. Provisions for Impairment The following table summarizes provisions for impairment during the periods indicated below (dollars in millions): Three months ended September 30, Nine months ended September 30, 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 Merger-related Costs In conjunction with our merger with 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. 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 sold 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 Foreign Currency and Derivative Gains/Losses, Net We borrow in the functional currencies of the countries in which we invest. Foreign currency gains and losses are primarily a result of intercompany debt with certain remeasurement transactions and mark-to-market adjustments on derivatives that do not qualify for hedge accounting. Loss on Extinguishment of Debt 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. 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 nine months ended September 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 nine months ended September 30, 2020. -49- Table of Contents Income Taxes Income taxes are for city and state income and franchise taxes, and for international income taxes accrued or paid by us and our subsidiaries. The increase in income taxes for the three and nine months ended September 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 September 30, Nine months ended September 30, % Increase 2021 2020 2021 2020 Three months Nine months Net income available to common stockholders $ 135.0 $ 22.9 $ 355.4 $ 277.6 489.5 % 28.0 % Net income per share (1) $ 0.34 $ 0.07 $ 0.94 $ 0.81 385.7 % 16.0 % (1) All per share amounts are presented on a diluted per common share basis. 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 nine months ended September 30, 2021 was impacted by the following transactions: (i) a $50.5 million loss on extinguishment of debt, primarily due to the January 2021 early redemption of the 3.250% notes due October 2022 recorded in the three months ended March 31, 2021, (ii) $30.1 million of merger-related costs related to our merger with VEREIT, of which $16.8 million related to the three months ended September 30, 2021, (iii) $31.0 million of provisions for impairment, of which $11.0 million related to the three months ended September 30, 2021, and (iv) $13.9 million in reserves, net of reserve reversals, recorded as a reduction of rental revenue. Net income available to common stockholders for the nine months ended September 30, 2020 was impacted by the following transactions: (i) $123.4 million of provisions for impairment, of which $105.1 million related to the three months ended September 30, 2020, (ii) $34.4 million in reserves recorded as a reduction of rental revenue, of which $24.1 million related to the three months ended September 30, 2020, (iii) a $9.8 million loss on extinguishment of debt due to the January 2020 early redemption of the 5.750% notes due 2021 recorded in the three months ended March 31, 2020, and (iv) a $3.5 million executive severance charge for our former CFO also recorded in the three months ended March 31, 2020. Adjusted Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate (Adjusted EBITDA re ) The National Association of Real Estate Investment Trusts (Nareit) came to the conclusion that a Nareit-defined EBITDA metric for real estate companies (i.e., EBITDA for real estate, or EBITDA re ) would provide investors with a consistent measure to help make investment decisions among REITs. Our definition of “Adjusted EBITDA re ” is generally consistent with the Nareit definition, other than our adjustments to remove foreign currency and derivative gains and losses 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) merger-related costs, (vii) gain on sales of real estate, and (viii) 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. Management believes Adjusted EBITDA re to be a meaningful measure of a REIT’s performance because it is widely followed by industry analysts, lenders and investors. Management also believes the use of an annualized quarterly Adjusted EBITDA re metric, which we refer to as Annualized Adjusted EBITDA re , is meaningful because it represents the Company’s current earnings run rate for the period presented. Annualized Adjusted EBITDA re and Annualized Pro Forma Adjusted EBITDA re , as defined below, are also used to determine the vesting of performance share awards granted to executive officers. Annualized Adjusted EBITDA re should be considered along with, but not as an alternative to net income as a measure of our operating performance. We define Annualized Pro Forma Adjusted EBITDA re as Annualized -50- Table of Contents Adjusted EBITDA re , subject to certain adjustments to incorporate operating income from properties we acquired or stabilized during the applicable quarter and to remove operating income from properties we disposed of during the applicable quarter, giving pro forma effect to all transactions as if they occurred at the beginning of the applicable period. We believe Annualized Pro Forma Adjusted EBITDA re is a useful non-GAAP supplemental measure, as it excludes properties that were no longer owned at the balance sheet date and includes the annualized rent from properties acquired during the quarter. Our ratios of net debt-to-Annualized Adjusted EBITDA re and net debt-to-Annualized Pro Forma Adjusted EBITDA re , which are used by management as a measure of leverage, are calculated as net debt (which we define as total debt per the consolidated balance sheet, less cash and cash equivalents), divided by annualized quarterly Adjusted EBITDA re and annualized Pro Forma Adjusted EBITDA re , respectively. The following table summarizes our Annualized Adjusted EBITDA re and Annualized Pro Forma Adjusted EBITDA re calculations for the periods indicated below (dollars in thousands): Three months ended September 30, 2021 2020 Net income (1) $ 135,276 $ 23,143 Interest 76,156 76,806 Loss on extinguishment of debt 3,983 — Income taxes 6,079 4,592 Depreciation and amortization 198,832 169,084 Provisions for impairment 11,011 105,095 Merger-related costs 16,783 — Gain on sales of real estate (12,094) (13,736) Foreign currency and derivative (gains) losses, net 2,374 (2,336) Quarterly Adjusted EBITDA re $ 438,400 $ 362,648 Annualized Adjusted EBITDA re (2) $ 1,753,600 $ 1,450,592 Annualized Pro forma Adjustments 43,910 24,586 Annualized Pro forma Adjusted EBITDA re $ 1,797,510 $ 1,475,178 Net Debt (3) $ 8,732,379 $ 7,711,111 Net Debt/Annualized Adjusted EBITDA re 5.0 5.3 Net Debt/Annualized Pro forma Adjusted EBITDA re 4.9 5.2 (1) Net income for the three months ended September 30, 2021 was positively impacted by $3.1 million of reserve reversals recorded as increases to rental revenue where the accounting for recognition of rental revenue and straight-line rental revenue has been moved from the cash to the accrual basis, of which $2.3 million relates to straight-line rent receivables. Net income for the three months ended September 30, 2020 was negatively impacted by $24.1 million of rent reserves recorded as reductions of rental revenue, of which $2.3 million relates to straight-line rent receivables. (2) We calculate Annualized Adjusted EBITDA re by multiplying the Quarterly Adjusted EBITDA re by four. (3) Net Debt is total debt per the consolidated balance sheet, less cash and cash equivalents. The Annualized Pro Forma Adjustments consist of adjustments to incorporate operating income from properties we acquired or stabilized during the applicable quarter and to remove operating income from properties we disposed of during the applicable quarter, giving pro forma effect to all transactions as if they occurred at the beginning of the applicable quarter. The Annualized Pro Forma Adjustments are consistent with the debt service coverage ratio calculated under financial covenants for our senior unsecured notes and bonds. The following table summarizes our Annualized Pro forma Adjusted EBITDA re calculation for the periods indicated below: Three months ended September 30, Dollars in thousands 2021 2020 Annualized pro forma adjustments from properties acquired or stabilized $ 45,901 $ 25,200 Annualized pro forma adjustments from properties disposed (1,991) (614) Annualized Pro forma Adjustments $ 43,910 $ 24,586 -51- Table of Contents 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 September 30, Nine months ended September 30, % Increase / (Decrease) 2021 2020 2021 2020 Three months Nine months FFO available to common stockholders $ 332.3 $ 283.0 $ 914.4 $ 848.4 17.4 % 7.8 % FFO per share (1) $ 0.85 $ 0.82 $ 2.41 $ 2.48 3.7 % (2.8) % Normalized FFO available to common stockholders $ 349.1 $ 283.0 $ 944.5 $ 848.4 23.4 % 11.3 % Normalized FFO per share (1) $ 0.89 $ 0.82 $ 2.49 $ 2.48 8.5 % 0.4 % (1) All per share amounts are presented on a diluted per common share basis. FFO and Normalized FFO for the nine months ended September 30, 2021 and 2020 were impacted by the same transactions listed under "Net Income Available To Common Stockholders" on page 50. 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): -52- Table of Contents Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Net income available to common stockholders $ 134,996 $ 22,904 $ 355,415 $ 277,555 Depreciation and amortization 198,832 169,084 564,606 501,997 Depreciation of furniture, fixtures and equipment (230) (157) (674) (435) Provisions for impairment 11,011 105,095 30,977 123,442 Gain on sales of real estate (12,094) (13,736) (35,396) (53,565) FFO adjustments allocable to noncontrolling interests (180) (212) (511) (575) FFO available to common stockholders $ 332,335 $ 282,978 $ 914,417 $ 848,419 FFO allocable to dilutive noncontrolling interests 356 345 1,062 1,063 Diluted FFO $ 332,691 $ 283,323 $ 915,479 $ 849,482 FFO available to common stockholders $ 332,335 $ 282,978 $ 914,417 $ 848,419 Merger-related costs 16,783 — 30,081 — Normalized FFO available to common stockholders $ 349,118 $ 282,978 $ 944,498 $ 848,419 Normalized FFO allocable to dilutive noncontrolling interests 356 345 1,062 1,063 Diluted Normalized FFO $ 349,474 $ 283,323 $ 945,560 $ 849,482 FFO per common share, basic and diluted $ 0.85 $ 0.82 $ 2.41 $ 2.48 Normalized FFO per common share, basic and diluted $ 0.89 $ 0.82 $ 2.49 $ 2.48 Distributions paid to common stockholders $ 273,791 $ 242,241 $ 797,847 $ 716,535 FFO available to common stockholders in excess of distributions paid to common stockholders $ 58,544 $ 40,737 $ 116,570 $ 131,884 Normalized FFO available to common stockholders in excess of distributions paid to common stockholders $ 75,327 $ 40,737 $ 146,651 $ 131,884 Weighted average number of common shares used for FFO and normalized FFO: Basic 391,913,478 346,476,217 379,291,782 342,214,164 Diluted 392,513,520 347,212,593 379,872,546 342,946,337 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 define Normalized FFO, a non-GAAP financial measure, is FFO excluding merger-related costs related to our 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. -53- Table of Contents ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (AFFO) The following summarizes our AFFO (dollars in millions, except per share data): Three months ended September 30, Nine months ended September 30, % Increase 2021 2020 2021 2020 Three months Nine months AFFO available to common stockholders $ 356.8 $ 282.5 $ 1,002.7 $ 875.0 26.3 % 14.6 % AFFO per share (1) $ 0.91 $ 0.81 $ 2.64 $ 2.55 12.3 % 3.5 % (1) All per share amounts are presented on a diluted per common share basis. AFFO in the three months ended September 30, 2020 and nine months ended September 30, 2021 and 2020 was impacted by reserves recorded as a reduction of rental revenue related to the COVID-19 pandemic. AFFO in the three months ended September 30, 2021 was impacted by reserve reversals recorded as an increase to rental revenue where the accounting for recognition of rental revenue and straight-line rental revenue has been moved from the cash to the accrual basis. We consider AFFO to be an appropriate supplemental measure of our performance. Most companies in our industry use a similar measurement, but they may use the term “CAD” (for Cash Available for Distribution), “FAD” (for Funds Available for Distribution) or other terms. Our AFFO calculations may not be comparable to AFFO, CAD or FAD reported by other companies, and other companies may interpret or define such terms differently than we do. The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable GAAP measure) to Normalized FFO and AFFO. 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): -54- Table of Contents Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Net income available to common stockholders (1) $ 134,996 $ 22,904 $ 355,415 $ 277,555 Cumulative adjustments to calculate Normalized FFO (2) 214,122 260,074 589,083 570,864 Normalized FFO available to common stockholders 349,118 282,978 944,498 848,419 Executive severance charge (3) — — — 3,463 Loss on extinguishment of debt 3,983 — 50,456 9,819 Amortization of share-based compensation 4,315 3,020 12,484 11,644 Amortization of deferred financing costs (4) 2,067 956 5,442 3,792 Amortization of net mortgage premiums (673) (310) (1,158) (1,020) Loss on interest rate swaps 733 1,123 2,179 3,115 Straight-line payments from cross-currency swaps (5) 513 614 1,715 1,960 Leasing costs and commissions (1,199) 98 (2,026) (1,013) Recurring capital expenditures (365) (105) (415) (126) Straight-line rent (14,801) (6,445) (36,268) (20,469) Amortization of above and below-market leases, net 10,312 2,408 23,546 14,925 Other adjustments (6) 2,834 (1,828) 2,253 463 AFFO available to common stockholders $ 356,837 $ 282,509 $ 1,002,706 $ 874,972 AFFO allocable to dilutive noncontrolling interests 351 347 1,047 1,079 Diluted AFFO $ 357,188 $ 282,856 $ 1,003,753 $ 876,051 AFFO per common share: Basic $ 0.91 $ 0.82 $ 2.64 $ 2.56 Diluted $ 0.91 $ 0.81 $ 2.64 $ 2.55 Distributions paid to common stockholders $ 273,791 $ 242,241 $ 797,847 $ 716,535 AFFO available to common stockholders in excess of distributions paid to common stockholders $ 83,046 $ 40,268 $ 204,859 $ 158,437 Weighted average number of common shares used for computation per share: Basic 391,913,478 346,476,217 379,291,782 342,214,164 Diluted 392,513,520 347,212,593 379,872,546 342,946,337 (1) As of September 30, 2021, there was $35.2 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 $62.0 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. No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included. (5) Straight-line payments from cross-currency swaps represent quarterly payments in U.S. dollars received by us from counterparties in exchange for associated foreign currency payments. These USD payments are fixed and determinable for the duration of the associated hedging transaction. (6) Includes adjustments allocable to noncontrolling interests, obligations related to financing lease liabilities, mark-to-market adjustments on derivatives that do not qualify for hedge accounting, and foreign currency gains and losses as a result of intercompany debt and remeasurement transactions. -55- Table of Contents We believe the non-GAAP financial measure AFFO provides useful information to investors because it is a widely accepted industry measure of the operating performance of real estate companies that is used by industry analysts and investors who look at and compare those companies. In particular, AFFO provides an additional measure to compare the operating performance of different REITs without having to account for differing depreciation assumptions and other unique revenue and expense items which are not pertinent to measuring a particular company’s on-going operating performance. 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, 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 September 30, 2021, we owned a diversified portfolio: • Of 7,018 properties; • With an occupancy rate of 98.8%, or 6,932 properties leased and 86 properties available for lease or sale; • Doing business in 60 separate industries; • Located in all 50 U.S. states, Puerto Rico, the U.K. and Spain; • With approximately 125.0 million square feet of leasable space; • With a weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of approximately 8.8 years; and • With an average leasable space per property of approximately 17,810 square feet; approximately 12,760 square feet per retail property and approximately 261,790 square feet per industrial property. At September 30, 2021, 6,932 properties were leased under net lease agreements. A net lease typically requires the client to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance. In addition, our clients are typically subject to future rent increases based on increases in the consumer price index (typically subject to ceilings), additional rent calculated as a percentage of the client's gross sales above a specified level, or fixed increases. We define total portfolio annualized contractual rent as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables, but excluding percentage rent and reimbursements from clients, as of the balance sheet date, multiplied by 12, excluding percentage rent. We believe total portfolio annualized contractual revenue is a useful supplemental operating measure, as it excludes properties that were no longer owned at the balance sheet date and includes the annualized rent from properties acquired during the quarter. Total portfolio annualized contractual rent has not been reduced to reflect reserves recorded as reductions to GAAP rental revenue in the periods presented. -56- Table of Contents Industry Diversification The following table sets forth certain information regarding our property portfolio classified according to the business of the respective clients, expressed as a percentage of our total portfolio annualized contractual rent: Percentage of Total Portfolio Annualized Contractual Rent by Industry As of Sept 30, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 U.S. Aerospace 0.6% 0.6% 0.8% 0.9% 1.0% 1.1% Apparel stores 1.2 1.3 1.1 1.2 1.4 1.7 Automotive collision services 1.3 1.1 1.0 0.9 1.0 1.0 Automotive parts 1.5 1.6 1.6 1.7 1.5 1.3 Automotive service 2.9 2.7 2.6 2.3 2.5 2.0 Automotive tire services 1.8 2.0 2.1 2.3 2.5 2.6 Beverages 2.0 2.1 2.0 2.4 2.6 2.8 Child care 1.9 2.1 2.1 2.2 1.7 1.7 Consumer electronics 0.4 0.3 0.3 0.3 0.3 0.3 Consumer goods 0.5 0.6 0.6 0.7 0.7 0.9 Convenience stores 11.6 11.9 12.3 12.6 9.3 10.0 Crafts and novelties 0.9 0.9 0.6 0.6 0.6 0.5 Diversified industrial 1.0 0.8 0.7 0.8 0.8 0.9 Dollar stores 7.5 7.6 7.9 7.3 7.5 8.0 Drug stores 7.2 8.2 8.8 9.4 10.2 10.8 Education 0.2 0.2 0.2 0.3 0.3 0.3 Electric utilities * 0.1 0.1 0.1 0.1 0.1 Entertainment 0.3 0.3 0.3 0.3 0.4 0.4 Equipment services 0.2 0.3 0.4 0.4 0.4 0.5 Financial services 1.6 1.8 2.0 2.4 2.3 2.6 Food processing 0.6 0.7 0.7 0.5 0.6 1.0 General merchandise 3.6 3.4 2.5 2.1 2.3 1.9 Government services 0.5 0.6 0.7 0.9 0.9 1 Grocery stores 4.4 4.9 5.2 5.0 5.3 3.5 Health and beauty 0.2 0.2 0.2 0.2 * * Health and fitness 5.9 6.7 7.0 7.1 7.7 7.6 Health care 1.7 1.5 1.6 1.6 1.4 1.5 Home furnishings 0.8 0.7 0.8 0.8 0.9 0.9 Home improvement 3.2 3.1 2.9 2.8 2.9 2.5 Machinery 0.2 0.1 0.1 0.1 0.1 0.1 Motor vehicle dealerships 1.5 1.6 1.6 1.8 2.0 2.0 Office supplies 0.1 0.1 0.2 0.2 0.2 0.3 Other manufacturing 0.4 0.4 0.6 0.7 0.8 0.8 Packaging 0.8 0.9 0.8 1.0 1.1 0.9 Paper 0.1 0.1 0.1 0.1 0.1 0.1 Pet supplies and services 0.6 0.7 0.7 0.5 0.6 0.6 Restaurants - casual dining 2.4 2.8 3.2 3.3 3.6 3.7 Restaurants - quick service 5.2 5.3 5.8 6.3 5.2 4.8 Shoe stores 0.2 0.2 0.2 0.5 0.6 0.6 Sporting goods 0.8 0.7 0.8 0.9 1.0 1.5 Telecommunications 0.4 0.5 0.5 0.6 0.6 0.7 Theaters 5.2 5.6 6.1 5.3 5.7 4.6 Transportation services 3.8 3.9 4.3 5.0 5.4 5.7 Wholesale clubs 2.4 2.4 2.5 2.9 3.1 3.4 Other 0.5 0.2 0.7 0.7 0.8 0.8 Total U.S. 90.1% 93.8% 97.3% 100.0% 100.0% 100.0% Europe (1) Grocery stores 6.5 4.9 2.7 — — — Health care 0.1 0.1 — — — — Home improvement 2.4 1.2 — — — — Warehousing and storage 0.3 — — — — — Other 0.6 * * — — — Total Europe 9.9% 6.2% 2.7% — — — Totals 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% * Less than 0.1% (1) Europe consists of properties in the U.K., starting in May 2019, and in Spain, starting in September 2021. -57- Table of Contents Property Type Composition The following table sets forth certain property type information regarding our property portfolio as of September 30, 2021 (dollars in thousands): Property Type Number of Properties Approximate Leasable Square Feet (1) Total Portfolio Annualized Contractual Rent as of September 30, 2021 Percentage of Total Portfolio Annualized Contractual Rent Retail 6,828 87,092,000 $ 1,579,991 83.7 % Industrial 132 34,556,300 229,498 12.2 Office 42 3,141,100 49,648 2.6 Agriculture 16 191,200 28,534 1.5 Totals 7,018 124,980,600 $ 1,887,671 100.0 % (1) Includes leasable building square footage. Excludes 3,600 acres of leased land categorized as agriculture at September 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 September 30, 2021: Client Number of Leases Percentage of Total Portfolio Annualized Contractual Rent (1) 7-Eleven 592 5.7 % Walgreens 246 5.0 % Dollar General 859 4.2 % FedEx 42 3.4 % Dollar Tree / Family Dollar 603 3.3 % Sainsbury's 24 3.2 % LA Fitness 56 2.8 % AMC Theaters 34 2.5 % Regal Cinemas (Cineworld) 41 2.4 % Wal-Mart / Sam's Club 57 2.3 % Life Time Fitness 16 2.1 % B&Q (Kingfisher) 18 2.0 % Tesco 14 1.9 % BJ's Wholesale Clubs 18 1.8 % Home Depot 22 1.5 % Treasury Wine Estates 17 1.4 % Circle K (Couche-Tard) 237 1.4 % CVS Pharmacy 89 1.4 % Kroger 22 1.3 % Fas Mart (GPM Investments) 199 1.2 % Total 3,206 51.0 % (1) Amounts for each client are calculated independently; therefore, the individual percentages may not sum to the total. -58- Table of Contents 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 September 30, 2021 (dollars in thousands): Total Portfolio (1) Expiring Leases Approximate Leasable Square Feet Total Portfolio Annualized Contractual Rent as of September 30, 2021 Percentage of Total Portfolio Annualized Contractual Rent Year Retail Non-Retail 2021 61 7 631,300 $ 11,938 0.6 % 2022 337 17 6,933,300 66,690 3.5 2023 544 23 9,539,200 119,618 6.3 2024 421 18 7,526,900 97,148 5.1 2025 515 22 8,777,600 132,707 7.0 2026 440 11 8,029,900 103,266 5.5 2027 475 7 7,872,500 106,658 5.7 2028 608 17 12,582,000 151,031 8.0 2029 567 6 9,778,600 139,168 7.4 2030 303 12 7,910,000 93,685 5.0 2031 301 27 12,167,900 157,788 8.4 2032 348 12 5,794,800 119,288 6.3 2033 315 6 5,372,200 82,691 4.4 2034 328 3 5,656,100 134,111 7.1 2035 281 1 2,873,600 72,675 3.8 2036 - 2059 1,021 10 12,477,500 299,209 15.9 Totals 6,865 199 123,923,400 $ 1,887,671 100.0 % (1) Leases on our multi-client properties are counted separately in the table above. This table excludes 110 vacant units. -59- Table of Contents Geographic Diversification The following table sets forth certain state-by-state information regarding our property portfolio as of September 30, 2021 (dollars in thousands): Location Number of Properties Percent Leased Approximate Leasable Square Feet Percentage of Total Portfolio Annualized Contractual Rent Alabama 231 97 % 2,306,200 1.7 % Alaska 3 100 274,600 0.1 Arizona 148 98 2,075,500 1.6 Arkansas 99 99 1,179,700 0.8 California 257 98 7,973,900 8.2 Colorado 96 97 1,554,100 1.3 Connecticut 18 89 1,274,100 0.7 Delaware 20 100 133,400 0.2 Florida 442 98 5,168,300 4.9 Georgia 305 99 4,571,600 3.2 Hawaii 22 100 47,800 0.4 Idaho 13 100 97,200 0.1 Illinois 311 97 7,741,000 5.3 Indiana 242 100 2,863,700 2.4 Iowa 44 95 2,521,900 1.0 Kansas 117 100 2,212,800 1.3 Kentucky 97 99 1,853,600 1.2 Louisiana 147 99 1,971,800 1.5 Maine 29 100 297,200 0.3 Maryland 47 100 1,633,700 1.4 Massachusetts 59 97 991,200 1.0 Michigan 251 99 3,091,000 2.5 Minnesota 175 100 2,335,000 2.5 Mississippi 197 98 2,157,700 1.3 Missouri 190 96 3,064,600 2.1 Montana 12 100 89,100 0.1 Nebraska 59 100 835,300 0.5 Nevada 26 100 1,701,500 0.9 New Hampshire 15 100 329,000 0.3 New Jersey 107 99 1,543,100 2.1 New Mexico 58 100 495,500 0.5 New York 162 100 3,447,100 4.0 North Carolina 219 100 4,035,600 3.0 North Dakota 8 75 126,900 0.1 Ohio 379 99 6,926,000 4.2 Oklahoma 192 100 2,555,800 1.8 Oregon 31 100 665,100 0.6 Pennsylvania 228 99 2,783,400 2.6 Rhode Island 3 100 158,000 0.1 South Carolina 184 99 1,832,800 2.0 South Dakota 19 95 257,500 0.1 Tennessee 267 98 3,918,600 2.7 Texas 878 100 15,581,600 10.9 Utah 23 100 949,700 0.5 Vermont 2 100 84,600 0.1 Virginia 236 100 3,630,300 2.6 Washington 52 98 1,075,500 1.0 West Virginia 41 100 579,300 0.4 Wisconsin 129 100 2,955,900 1.9 Wyoming 10 100 72,300 0.1 Puerto Rico 4 100 28,300 * Spain 7 100 1,023,700 0.4 U.K. 107 100 7,907,500 9.5 Totals/average 7,018 99 % 124,980,600 100.0 % * Less than 0.1% -60- Table of Contents IMPACT OF INFLATION Leases generally provide for limited increases in rent as a result of fixed increases, increases in the consumer price index (typically subject to ceilings), or increases in the clients’ sales volumes. We expect that inflation will cause these lease provisions to result in rent increases over time. During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation. Moreover, our use of net lease agreements tends to reduce our exposure to rising property expenses due to inflation because the client is responsible for property expenses. Inflation and increased costs may have an adverse impact on our clients if increases in their operating expenses exceed increases in revenue. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS For information on the impact of newly adopted accounting standards on our business, see note 2 of the Notes to the Consolidated Financial Statements. OTHER INFORMATION Our common stock is listed on the NYSE under the ticker symbol “O” with a CUSIP number of 756109-104. 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. We maintain a corporate website at www.realtyincome.com. On our website we make available, free of charge, copies of our annual report on Form 10-K , quarterly reports on Form 10-Q, Form 3s, Form 4s, Form 5s, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file these reports with the SEC. None of the information on our website is deemed to be part of this report.