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Item 1A. Risk Factors

2022-02-23 compared with 2021-02-23 · 109 added, 89 removed, 299 unchanged (40% of the section changed)

This “Risk Factors” section contains references to our “capital stock” and to our “stockholders.” Unless expressly stated otherwise, the references to our “capital stock” represent our common stock and any class or series of outstanding preferred stock, while the references to our “stockholders” represent holders of our common stock and any class or series of outstanding preferred stock.

This “Risk Factors” section contains references to our “capital stock” and to our “stockholders.” Unless expressly stated otherwise, the references to our “capital stock” represent our common stock and any class or series of preferred stock which may be outstanding from time to time, while the references to our “stockholders” represent holders of our common stock and any class or series of outstanding preferred stock.

Risks Related to Our Business and Industry

The COVID-19 pandemic has disrupted our operations and is expected to continue to have an adverse effect on our business, results of operations, financial condition and liquidity.

In late 2019, COVID-19 was first reported in Wuhan, China, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic.

The outbreak has spread globally and has led governments and other authorities around the world, including federal, state and local authorities in the United States and elsewhere, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders.

The COVID-19 pandemic has had, and other pandemics in the future could have, repercussions across global economies and financial markets.

The COVID-19 pandemic, including the continued spread of new variants, has had, and other pandemics in the future could have, repercussions across global economies and financial markets.

The COVID-19 pandemic and the measures taken to limit its spread have adversely impacted regional, national and global economic activity and have contributed to significant volatility and negative pressure in financial markets.

The impact of the COVID-19 pandemic has been rapidly evolving and, as cases of COVID-19 have continued to increase and be identified, many countries, including the United States and United Kingdom, have reacted by, among other things, instituting quarantines and restricting travel.

Many national, state and local governments, including in areas where we own properties, have also reacted by instituting quarantines, restrictions on travel, shelter-in-place orders, restrictions on types of business that may continue to operate, school closures, limitations on attendance at events or other gatherings, and social distancing requirements, and additional national, state and local governments may implement similar restrictions.

The impact of the COVID-19 pandemic has rapidly evolved and, as cases and variants of COVID-19 have continued to increase and be identified, many countries, including the United States, the United Kingdom, and Spain, have reacted by, among other things, instituting quarantines and restricting travel.

Many national, state and local governments, including in areas where we own properties, have also reacted by instituting quarantines, restrictions on travel, shelter-in-place orders, vaccine requirements, restrictions on types of business that may continue to operate, school closures, vaccine and testing requirements, limitations on attendance at events or other gatherings, and social distancing requirements, and additional national, state and local governments may implement similar restrictions.

In that regard, surges in COVID-19 cases have led many state and local governments to increase the scope and severity of some of these restrictions and to institute new restrictions.

As a result, the COVID-19 pandemic and the measures taken to limit its spread are negatively impacting the global, national and regional economies generally and many industries, directly or indirectly, and those impacts are likely to continue and may increase in severity, including potentially triggering a prolonged period of negative or limited economic growth.

As a result, the COVID-19 pandemic and the measures taken to limit its spread have negatively impacted the global, national and regional economies generally and many industries, directly or indirectly, and those impacts may continue and may increase in severity, including potentially triggering prolonged periods of negative or limited economic growth.

Factors that have contributed or may contribute to the adverse impact of the COVID-19 pandemic and the measures taken to limit its spread on the business, results of operations, financial condition and liquidity of us and our clients include, without limitation, the following:

• A complete or partial closure of, or other operational limitations or issues at, properties operated by our clients resulting from government action (including travel bans, border closings, business closures, quarantine, shelter-in-place or similar orders requiring that people remain in their homes) or client action;

• Reduced economic activity, the deterioration in our or our clients’ ability to operate in affected areas and any delays in the supply of products or services to our clients may impact certain of our clients’ businesses, results of operations, financial condition and liquidity and may cause certain of our clients to be unable to meet their obligations to us in full, or at all, and to seek, whether through negotiation, restructuring or bankruptcy, reductions or deferrals in their rent payments and other obligations to us or early termination of their leases;

• We may experience difficulties, some of which may be related to unexpected supply chain disruptions, in leasing, selling or redeveloping vacant properties or renewing expiring or terminated leases on terms we consider acceptable, or at all;

• We may experience difficulty accessing the bank lending, capital markets and other financial markets on attractive terms, or at all, and a severe disruption or instability in the national or global financial markets or deterioration in credit and financing conditions may adversely affect our cost of capital, our access to capital to acquire additional properties necessary to grow our business and to fund our business operations, our ability to pay dividends on our common stock, our ability to pay the principal of and interest on our indebtedness, and our other liabilities on a timely basis, and our clients’ ability to fund their business operations and meet their obligations to us and others;

• The financial impact of the COVID-19 pandemic could negatively impact our credit ratings, the interest rates on our borrowings, and, if the COVID-19 pandemic continues for an extended period of time, our future compliance with financial covenants under our credit facility and other debt instruments, which could result in a default and

potentially an acceleration of indebtedness, any of which could negatively impact our ability to make additional borrowings under our revolving credit facility, to sell commercial paper notes under our commercial paper program or incur other indebtedness, and pay dividends on our common stock and to pay the principal of and interest on our indebtedness, and our other obligations when due;

• A complete or partial closure of, or other operational limitations or issues at, properties operated by our clients resulting from government action (including travel bans, border closings, business closures, quarantine, vaccine and testing requirements, shelter-in-place or similar orders requiring that people remain in their homes) or client action;

• Reduced economic activity, customer traffic, consumer confidence or discretionary spending, the deterioration in our or our clients’ ability to operate in affected areas and any delays in the supply of products or services to our clients may impact certain of our clients’ businesses, results of operations, financial condition and liquidity and may cause certain of our clients to be unable to meet their obligations to us in full, or at all, and to seek, whether through negotiation, restructuring or bankruptcy, reductions or deferrals in their rent payments and other obligations to us or early termination of their leases;

• We may experience difficulties, some of which may be related to supply chain disruptions, in leasing, selling or redeveloping vacant properties or renewing expiring or terminated leases on terms we consider acceptable, or at all;

• We may experience difficulty accessing the bank lending, capital markets and other financial markets on attractive terms, or at all, and a severe disruption or instability in the national or global financial markets or deterioration in credit and financing conditions may adversely affect our cost of capital, our access to capital to grow our business (including through acquisitions, development opportunities and other strategic transactions) and to fund our business operations, our ability to pay dividends on our common stock, our ability to pay the principal of and interest on our indebtedness, and our other liabilities on a timely basis, and our clients’ ability to fund their business operations and meet their obligations to us and others;

• The financial impact of the COVID-19 pandemic could negatively impact our credit ratings, the interest rates on our borrowings, and our future compliance with financial covenants under our credit facility and other debt instruments, which could result in a default and potentially an acceleration of indebtedness, any of which could

negatively impact our ability to make additional borrowings under our revolving credit facility, to sell commercial paper notes under our commercial paper program or incur other indebtedness, and pay dividends on our common stock and to pay the principal of and interest on our indebtedness, and our other obligations when due;

• The impact of the COVID-19 pandemic on the market value of our properties has led to impairment charges and may require that we incur further impairment charges, asset write-downs or similar charges;

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It may also adversely impact our ability to enforce remedies for the failure to pay rent, our occupancy levels, our ability to acquire properties or complete construction projects, and may otherwise negatively affect our business.

Certain industries in which our clients operate appear to have been disproportionately adversely impacted by the COVID-19 pandemic and the measures taken to mitigate its spread.

These adverse impacts have reduced the amount of rent we have been able to collect from our clients in those industries and may further decrease the likelihood of us collecting such rent in the future.

For example, in October 2020, two major theater operators that are clients of ours publicly announced financial difficulties from the COVID-19 pandemic, including sustained operating losses, the depletion of liquidity resources and the closure of locations.

In response to this information, we have recorded reserves as a reduction of rental revenue on certain theater leases related to those clients on an accrual basis and have recorded provisions for impairment on certain of our assets with respect to properties of which those theater operators are clients to reduce the carrying value of those assets to fair value.

Our ability to collect rent from these clients, from other clients in the theater industry, or from other clients who face similar hardships may be further adversely impacted as the COVID-19 pandemic and its adverse impacts on those clients continue.

Most of our clients operate retail businesses, many of which appear to have been disproportionately impacted by the COVID-19 pandemic and the measures taken to mitigate its spread.

These adverse impacts have, at times, reduced the amount of rent we have been able to collect from our clients in those industries and may further decrease the likelihood of us collecting such rent in the future.

In addition, if any of these or other clients declare bankruptcy or enter into similar corporate restructuring arrangements, they may seek to reject or renegotiate our existing leases, which could adversely affect our ability to collect rent that is owed or to collect future rent on those properties at anticipated rates, or at all, or to re-lease those properties on favorable terms.

As of December 31, 2020, our exposure to the theater industry was 5.6% of total portfolio annualized contractual rent.

In addition, most of our clients operate retail businesses that depend on customer traffic.

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As a result of the foregoing, we cannot predict the number of our clients that will not pay rent in the future, nor can we predict whether our clients who have paid rent in the past will continue to do so or whether our clients who have deferred rent will pay such rent in the future.

As the COVID-19 pandemic continues, our clients may cease to pay their rent obligations to us in full or at all, and our clients may elect not to renew their leases, seek to terminate their leases, seek relief from their leases (including through negotiation, restructuring or bankruptcy), or decline to renew expiring leases or enter into new leases, all of which may adversely impact our rental revenue and occupancy rates,

generate additional expenses, result in impairment charges or other write-downs of assets, and adversely impact our results of operations, financial condition and liquidity.

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 our clients.

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

Collections and rent relief requests to-date may not be indicative of collections or requests in any future period.

Likewise, the deterioration of global economic conditions as a result of the pandemic may ultimately lead to a further decrease in occupancy levels and rental rates across our portfolio as our clients reduce or defer their spending, institute restructuring plans or file for bankruptcy.

Some of our major clients have experienced temporary closures of some or all of their properties or have substantially reduced their operations in response to the COVID-19 pandemic, and additional clients may do so in the future.

In addition, the measures taken to prevent the spread of COVID-19 (including quarantine, shelter-in-place or similar orders requiring that people remain in their homes) have led and may lead to further closures, or other operational issues at our properties, or delays in acquisition activities, construction projects, and other corporate actions, all of which may materially adversely impact our operations.

In addition, in light of the uncertain and rapidly evolving situation relating to the COVID-19 pandemic, we have taken certain precautionary measures within our organization intended to help reduce the risk of the virus to our employees, our clients, and the communities in which we operate, including instituting a work-from-home policy for our employees and suspending non-essential travel and in-person attendance at industry events.

Some of our major clients have experienced temporary closures of some or all of their properties or have substantially altered or reduced their operations in response to the COVID-19 pandemic, and additional clients may do so in the future.

In addition, the measures taken to prevent the spread of

COVID-19 (including quarantine, shelter-in-place or similar orders requiring that people remain in their homes) have led and may lead to further closures, or other operational issues or changes at our properties, or delays in acquisition activities, construction projects, and other corporate actions, all of which may materially adversely impact our operations.

In addition, in light of the uncertain and rapidly evolving situation relating to the COVID-19 pandemic, we have taken certain precautionary measures within our organization intended to help reduce the risk of the virus to our employees, our clients, and the communities in which we operate, including instituting a work-from-home policy for our employees and limiting non-essential travel and in-person attendance at industry events.

While we anticipate that these measures are temporary, we cannot predict the specific duration for which these precautionary measures will stay in effect, and we may elect to take additional measures as the information available to us continues to develop.

These actions, and any future actions we may take in response to the COVID-19 pandemic, could further negatively impact our business, financial condition, results of operations and liquidity.

For the foregoing reasons, we expect that the impact of the COVID-19 pandemic and related containment measures, including the impact on regional, national and global economies, will likely adversely affect our business, results of operations, financial condition and liquidity, and, given unpredictability of the scope, severity and duration of the pandemic, such impacts may be material.

To the extent the COVID-19 pandemic and related containment measures continue to adversely affect regional, national and global economic conditions and financial markets, as well as the business, results of operations, financial conditions and liquidity of us and our clients, it may also have the effect of heightening many of the risks described elsewhere in this “Risk Factors” section, including the risks resulting from our significant indebtedness;

For the foregoing reasons, we expect that the impact of the COVID-19 pandemic and related containment measures, including the impact on regional, national and global economies, may adversely affect our business, results of operations, financial condition and liquidity, and, given unpredictability of the scope, severity and duration of the pandemic, such impacts may be material.

To the extent the COVID-19 pandemic and related containment measures continue to adversely affect regional, national and global economic conditions and financial markets, as well as the business, results of operations, financial conditions and liquidity of us and our clients, they may also have the effect of heightening many of the risks described elsewhere in this “Risk Factors” section, including the risks resulting from our significant indebtedness;

our need to generate sufficient cash flows to service our indebtedness, to pay dividends on our common stock, to pay the principal of and interest on our indebtedness, and provide for our other cash needs;

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our ability to comply with the covenants contained in the agreements that govern our indebtedness;

our ability to integrate VEREIT’s business or realize the anticipated synergies and related benefits of the merger;

our dependency on key personnel;

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• Defaults by and bankruptcies of clients, failure of clients to pay rent on a timely basis, or failure of our clients to comply with their contractual obligations;

• Changes in laws, rules or regulations that negatively impact clients or our properties;

• The current COVID-19 pandemic (see “Risk Factors — The COVID-19 pandemic has disrupted our operations and is expected to continue to have an adverse effect on our business, results of operations, financial condition and liquidity” above) or other pandemics or outbreaks of illness, disease or virus that affect countries or regions in which our clients and their parent companies operate or in which our properties or corporate headquarters are located;

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As a result, a client may delay lease commencement, fail to make rental payments when due, decline to extend a lease upon its expiration, become insolvent or declare bankruptcy.

Any client bankruptcy or insolvency, leasing delay or failure to make rental payments when due could result in the termination of the our client’s lease and material losses to us.

Any client bankruptcy or insolvency, leasing delay or failure to make rental payments when due could result in the termination of our client’s lease and material losses to us.

If our clients do not renew their leases as they expire, we may not be able to rent or sell the properties.

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Further, the occurrence of a client bankruptcy or insolvency could diminish the income we receive from our client’s lease or leases.

The occurrence of a client bankruptcy or insolvency could diminish the income we receive from our client’s lease or leases.

In addition, a bankruptcy court might authorize our client to terminate its leases with us.

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As of December 31, 2021 , 164 of our properties were available for lease or sale.

As of December 31, 2020, no single client or group of our clients in the same industry, accounted for more than 10% of our total portfolio annualized contractual rent, except as described in the next paragraph.

As of December 31, 2020, our clients in the “convenience store - U.S.” industry accounted for approximately 11.9% of our annualized contractual rent.

A downturn in this industry could have a material adverse effect on our financial

position, results of operations, our ability to pay the principal of and interest on our debt securities and other indebtedness and to make distributions on our common stock and any outstanding preferred stock.

Individually, each of the other industries in our property portfolio accounted for less than 10% of our total portfolio annualized contractual rent for 2020.

Nevertheless, downturns in these industries could also adversely affect our clients, which in turn could also have a material adverse effect on our financial position, results of operations and our ability to pay the principal of and interest on our debt securities and other indebtedness and to make distributions on our common stock, and any outstanding preferred stock.

As of December 31, 2021, no single client or group of our clients in the same industry accounted for more than 10% of our total portfolio annualized contractual rent.

Downturns in any of our industries could adversely affect our clients, which in turn could also have a material adverse effect on our financial position, results of operations and our ability to pay the principal of and interest on our debt securities and other indebtedness and to make distributions on our common stock, and any outstanding preferred stock.

In addition, some properties are leased to clients that may have limited financial and other resources, and therefore, they are more likely to be adversely affected by a downturn in their respective businesses, including any downturns that have resulted or may result from the COVID-19 pandemic, or in the regional, national, or international economy.

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These facilities, and some other of our properties, use, or may have used in the past, underground lifts or underground tanks for the storage of petroleum-based or waste products, which could create a potential for the release of hazardous substances.

The presence of hazardous substances on a property may adversely affect our ability to lease or sell that property and we may incur substantial remediation costs or third party liability claims.

Although our leases generally require our clients to operate in compliance with all applicable federal, state, and local environmental laws, ordinances and regulations, and to indemnify us against any environmental liabilities arising from the clients’ activities on the property, we could nevertheless be subject to liability, including strict liability, by virtue of our ownership interest.

Certain of our other properties, particularly those leased for industrial-type purposes, may also involve operations or activities that could give rise to environmental liabilities.

The presence of hazardous substances on a property may adversely affect our client's ability to continue to operate that property or our ability to lease or sell that property and we may incur substantial remediation costs or third party liability claims.

Although our leases generally require our clients to operate in compliance with all applicable federal, state, and local environmental laws, ordinances and regulations, and to indemnify us against any environmental liabilities arising from the clients’ activities on the properties, we could nevertheless be subject to liability, including strict liability, by virtue of our ownership interest.

There also can be no assurance that our clients could or would satisfy their indemnification obligations under their leases.

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While we have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to environmental contamination, if environmental contamination should exist on any of our properties, we could be subject to liability, including strict liability, by virtue of our ownership interest.

In addition, while we have environmental insurance policies that provide for a total limit of $15 million per occurrence and $70 million in the aggregate, it is possible that our insurance could be insufficient to address any particular environmental situation and/or that, in the future, we could be unable to obtain insurance for environmental matters at a reasonable cost, or at all.

In addition, while we maintain environmental insurance policies, it is possible that our insurance could be insufficient to address any particular environmental situation and/or that, in the future, we could be unable to obtain insurance for environmental matters at a reasonable cost, or at all.

Our clients are generally responsible for, and indemnify us against, liabilities for environmental matters that arise during the lease terms as a result of clients’ activities on the properties.

For properties that have underground storage tanks, in addition to providing an indemnity in our favor,

the clients generally are required to meet applicable state financial assurance obligations, including maintaining certain minimum net worth requirements, obtaining environmental insurance, or relying upon the state trust funds where available in the states where these properties are located to reimburse responsible parties for costs of environmental remediation.

For properties that have underground storage tanks, in addition to providing an indemnity in our favor, the clients generally are required to meet applicable state financial assurance obligations, including maintaining certain minimum net worth requirements, obtaining environmental insurance, or relying upon the state trust funds where available in the states where these properties are located to reimburse responsible parties for costs of environmental remediation.

However, it is possible that one or more of our clients could fail to have sufficient funds to cover any such indemnification or to meet applicable state financial assurance obligations, and thus we may still be obligated to pay for any such environmental liabilities.

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We are continuing to assess the potential impact of TCJA on us as related regulations are proposed and finalized.

Although a number of regulations related to TCJA became final after 2017, there are still a number of proposed regulations open for comment, and further changes may be made in light of recent changes in the U.S.

The legislation is still unclear in some respects and could be subject to further potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and IRS, any of which could lessen or increase the impact of the legislation.

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While some of the changes made by the tax legislation may adversely affect us in one or more reporting periods and prospectively, other changes may be beneficial on a going forward basis.

We continue to work with our tax advisors and auditors to determine the full impact that the recent tax legislation as a whole will have on us.

We continue to work with our tax advisors and auditors to determine the full impact that the tax legislation as a whole will have on us.

Distribution requirements imposed by law limit our flexibility.

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The credit agreement governing our revolving credit facility also governs our $250.0 million unsecured term loan facility due March 2024.

At December 31, 2020, we had no outstanding borrowings under our revolving credit facility or our commercial paper program, a total of $8.30 billion of outstanding unsecured senior debt securities (excluding unamortized original issuance premiums of $14.6 million and deferred financing costs of $49.2 million), including £715 million of Sterling-denominated unsecured senior debt securities, $250.0 million of borrowings outstanding under our term loan facility (excluding deferred financing costs of $642,000) and approximately $299.6 million of outstanding mortgage debt

(excluding net unamortized premiums totaling $1.7 million and deferred financing costs of $973,000).

Our revolving credit facility grants us the option, subject to obtaining lender commitments and other customary conditions, to expand the borrowing limits thereunder to up to $4.0 billion.

In addition, in August 2020, we established our unsecured commercial paper note program under which we may offer and sell up to $1.0 billion of commercial paper at any time.

In addition, we have an unsecured commercial paper note program under which we may offer and sell up to $1.0 billion of commercial paper at any time.

We use our $3.0 billion revolving credit facility as a liquidity backstop for the repayment of notes issued under the commercial paper program.

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We may also in the future increase the size of our commercial paper program.

In addition, as a result of the merger, all outstanding secured indebtedness of VEREIT and its subsidiaries and all outstanding liabilities and other indebtedness of VEREIT and its subsidiaries (including $4.65 billion of additional senior unsecured notes that were originally issued by VEREIT OP, substantially all of which were subsequently exchanged for senior unsecured notes issued by us) became indebtedness and liabilities of ours or our subsidiaries, as the case may be, which has substantially increased the total secured indebtedness of us and our subsidiaries and the total liabilities and other indebtedness of our subsidiaries.

To the extent that new indebtedness is added to our current debt levels, the related risks that we now face would increase.

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We also face the risk that we may be unable to refinance or repay our debt as it comes due.

Given past disruptions in the financial markets and ongoing global financial uncertainties, including the impact of COVID-19 and of the United Kingdom’s withdrawal from the European Union (referred to as Brexit), we also face the risk that one or more of the participants in our revolving credit facility may not be able to lend us money.

Given past disruptions in the financial markets and ongoing global financial uncertainties, including the impact of COVID-19 and of the United

Kingdom’s withdrawal from the European Union (referred to as Brexit), we also face the risk that one or more of the participants in our revolving credit facility may not be able to lend us money.

In addition, our revolving credit facility, our term loan facility and our mortgage loan documents contain provisions that could limit or, in certain cases, prohibit the payment of dividends and other distributions to holders of our common stock and any outstanding preferred stock.

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• The sum of (a) 95% of our adjusted funds from operations (as defined in the credit agreement) for that period plus (b) the aggregate amount of cash distributions made to holders of our outstanding preferred stock, if any, for that period, and

• The minimum amount of cash distributions required to be made to our stockholders in order to maintain our status as a REIT for federal income tax purposes and to avoid the payment of any income or excise taxes that would otherwise be imposed under specified sections of the Internal Revenue Code of 1986, as amended, or the Code, on income we do not distribute to our stockholders,

• The minimum amount of cash distributions required to be made to our stockholders in order to maintain our status as a REIT for federal income tax purposes and to avoid the payment of any income or excise taxes that would otherwise be imposed under specified sections of the Code on income we do not distribute to our stockholders,

except that we may repurchase or redeem shares of our outstanding preferred stock, if any, with net proceeds from the issuance of shares of our common stock or preferred stock.

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• Competition for our clients;

• Changes in market rental rates;

• Changes in market rents;

• Inability to lease properties upon termination of existing leases;

• Renewal of leases at lower rental rates;

• Inability to collect rents from our clients due to financial hardship, including bankruptcy;

• Inability to collect rental revenue from our clients due to financial hardship, including bankruptcy;

• Changes in tax, real estate, zoning and environmental laws that may have an adverse impact upon the value of real estate;

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• Acts of terrorism and war;

• The impacts of climate change;

• Acts of God and other factors beyond the control of our management.

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Our acquisition of additional properties may have a significant effect on our business, liquidity, financial position and/or results of operations.

Our future success will depend, in part, upon our ability to manage our acquisitions and expansion opportunities.

We are regularly engaged in the process of identifying, analyzing, underwriting, and negotiating possible acquisition transactions.

We cannot provide any assurances that we will be successful in consummating future acquisitions on favorable terms or that we will realize the benefits that we anticipate from such acquisitions.

could have a significant adverse effect on our business, liquidity, financial position and/or results of operations, including as a result of our incurrence of additional indebtedness and related interest expense and our assumption of unforeseen contingent liabilities in connection with completed acquisitions.

We cannot provide any assurances that we will be successful in consummating future acquisitions on favorable terms or that we will realize expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.

Our inability to consummate one or more acquisitions on such terms, our failure to adequately underwrite and identify risks and obligations when acquiring properties, or our failure to realize the intended benefits from one or more acquisitions, could have a significant adverse effect on our business, liquidity, financial position and/or results of operations, including as a result of our incurrence of additional indebtedness and related interest expense and our assumption of unforeseen contingent liabilities in connection with completed acquisitions.

Furthermore, we have made and may continue to make selected acquisitions of properties that fall outside our historical focus on freestanding, single-client, net lease retail locations in the United States.

We may be exposed to a variety of new risks by expanding into new property types and/or new jurisdictions outside the United States and properties leased to our clients engaged in non-retail businesses.

We may be exposed to a variety of new risks by expanding into new property types and/or new jurisdictions outside the United States, including in the United Kingdom and Spain, and properties leased to our clients engaged in non-retail businesses.

These risks may include limited experience in managing certain types of new properties, new types of real estate locations and lease structures, and the laws and culture of non-United States jurisdictions.

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dollar, and exchange controls;

• Limited experience with local business and cultural factors that differ from our usual standards and practices;

• As we may not have or have only a limited number of properties within a jurisdiction, our experience in that market and with local business may be limited;

• Cultural factors and business practices that differ from our United States standards and practices including as they relate to rent adjustments, ground leases and property ownership requirements and limitations;

• Challenges in establishing effective controls and procedures to regulate operations in different regions and to monitor and ensure compliance with applicable regulations, such as applicable laws related to corrupt practices, employment, licensing, construction, climate change or environmental compliance;

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We may engage in development or expansion projects or invest in new assets, which would subject us to additional risks that could negatively impact our operations.

We may engage in development or other expansion projects, which would require us to raise additional capital and oversee state and local permitting.

We may engage in development or other expansion projects, which could require us to raise additional capital and oversee state and local permitting.

A decision by any governmental agency not to issue a required permit or substantial delays in the permitting process could prevent us from pursuing the development or expansion project.

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Additionally, we have obtained blanket liability, flood and earthquake (subject to substantial deductibles) and property damage insurance policies to protect us and our properties against loss should the indemnities and insurance policies provided by the clients fail to restore the properties to their condition prior to a loss.

results of operations or financial condition and on our ability to pay the principal of and interest on our debt securities and other indebtedness and to make distributions to our stockholders.

We also face the risk that our insurance carriers may not be able to provide payment under any potential claims that might arise under the terms of our insurance policies, and we may not have the ability to purchase insurance policies we desire.

In addition, although we obtain title insurance policies of our properties to protect us and our properties against unknown title defects (such as claims of ownership, liens or other encumbrances), there may be certain title defects that our title insurance will not cover.

We do not carry insurance for certain losses and certain types of losses may be either uninsurable or not economically insurable.

However, should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the policies noted above, or in the event of a loss that is subject to a substantial deductible under an insurance policy, we could lose all or part of our capital invested in, and anticipated revenue from, one or more of the properties, which could have a material adverse effect on our results of operations or financial condition and on our ability to pay the principal of and interest on our debt securities and other indebtedness and to make distributions to our stockholders.

We also face the risk that our insurance carriers

may not be able to provide payment under any potential claims that might arise under the terms of our insurance policies, and we may not have the ability to purchase insurance policies we desire.

In addition, although we obtain title insurance policies on our properties to help protect us and our properties against title defects (such as adverse claims of ownership, liens or other encumbrances), there may be certain title defects that our title insurance will not cover.

If a material title defect related to any of our properties is not adequately covered by a title insurance policy, we could lose some or all of our capital invested in and our anticipated profits from such property, cause a financial misstatement or damage our reputation.

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Our business is subject to risks associated with climate change and our sustainability strategies.

Climate change could trigger extreme weather and changes in precipitation, temperature, and air quality, all of which may result in physical damage to, or a decrease in demand for, our properties located in the areas affected by these conditions.

Should the impact of climate change be severe or occur for lengthy periods of time, connectivity, labor and supply chains could impact business continuity for ourselves and our customers.

The effects of climate change, and a resulting shift to a lower carbon economy, could present several climate-related risks and opportunities for our business.

Physical risks from climate change could result in both chronic and acute perils including, but not limited to, extreme weather, changes in precipitation and temperature, and rising sea levels, all of which may result in physical damage to, or a decrease in demand for, our properties located in the areas affected by these conditions.

Should the impact of climate change be severe or occur for lengthy periods of time, connectivity, labor and supply chains could impact business continuity for ourselves and our clients.

This could adversely affect our financial condition or results of operations.

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Moreover, there can be no assurance that any of our sustainability strategies will result in reduced operating costs, higher occupancy or higher rental rates or deter our existing clients from relocating to properties owned by our competitors.

We are subject to risks related to recent proposals for reform regarding LIBOR.

Certain of our existing debt instruments and other financial arrangements, including our $3.0 billion revolving credit facility and our $250.0 million term loan facility, provide for borrowings to be made at variable interest rates that use the London Interbank Offered Rate, or LIBOR (or metrics derived from or related to LIBOR), as a benchmark for establishing the interest rate applicable to outstanding borrowings thereunder, and we may incur additional indebtedness or enter into new financial arrangements that use LIBOR as a benchmark for establishing the interest rate for borrowing thereunder.

The UK Financial Conduct Authority, which is the LIBOR administrator’s regulator, previously stated that it would no longer encourage or require banks to submit rates for LIBOR after 2021.

However, for U.S.

dollar LIBOR, it now appears that the relevant date may be deferred to June 30, 2023 for certain tenors, including overnight and one, three, six and 12 months), at which time the LIBOR administrator has indicated that it intends to cease publication of U.S.

dollar LIBOR.

Despite this potential deferral, the LIBOR administrator has advised that no new contracts using U.S.

dollar LIBOR should be entered into after December 31, 2021.

These actions are expected to cause LIBOR to cease to exist and the adoption of alternative reference rates.

Likewise, notwithstanding a possible deferral, the LIBOR administrator’s advice that no new contracts using U.S.

dollar LIBOR be entered into after December 31, 2021 may mean that LIBOR borrowings (including LIBOR borrowings under our credit facilities) may cease to be available after that date.

While our revolving credit facility and our term loan facility include provisions for establishing alternative reference rates in the event LIBOR shall no longer be available, the consequences of the adoption of any such alternative reference rates cannot be predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans and other financial obligations or extensions of credit held by or due to us and could also affect interest rates and other financing costs under our debt instruments and other financial arrangements, any of which could adversely affect our results of operations and financial condition.

We are subject to risks related to the discontinuance of LIBOR.

indebtedness or enter into new financial arrangements that use LIBOR as a benchmark for establishing the interest rate for borrowing thereunder.

Likewise, as part of our cash management practices we may from time to time invest available cash in financial instruments that use LIBOR as a benchmark for calculating interest payments or other obligations thereunder.

LIBOR is in the process of being discontinued.

While certain U.S.

dollar LIBOR settings will continue to be published on the current basis until June 30, 2023, all other LIBOR settings either are no longer being published or are being published only for a limited time and only on a “synthetic” basis (i.e., not on the basis of submissions made by panel banks).

The regulator of the administrator of LIBOR has prohibited any new use of LIBOR by firms subject to its supervision, and certain regulators in the United States have stated that no new contracts using U.S.

dollar LIBOR should be entered into after 2021.

While our revolving credit facility and our term loan facility include provisions for establishing alternative reference rates when LIBOR is no longer be available, the consequences of the adoption of any such alternative reference rates cannot be predicted and could have an adverse impact on the amount of interest and commitment fees that we pay under those facilities.

Likewise, the unavailability of LIBOR may have an adverse impact on interest rates and other financing costs under other debt instruments and other financial obligations of ours, as well as the market value of and the payments we receive under any LIBOR-linked securities or investments that we may own from time to time.

In addition, financial markets generally may be adversely affected by the discontinuation of LIBOR, the uncertainties regarding its discontinuation, the alternative reference rates that are being or may be used in place of LIBOR and other issues related to LIBOR.

Any of the foregoing could adversely affect our results of operations and financial condition.

Our charter contains restrictions upon ownership of our common stock.

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The value of certain of our investment in real property may be reduced as the result of the expiration or loss of local tax abatements, tax credit programs, or other governmental incentives.

Certain of our investments have the benefit of governmental tax incentives aimed at inducing retail users to relocate to incentivize development in areas and neighborhoods which have not historically seen robust commercial development.

The TCJA provided for such communities to be designated as Qualified Opportunity Zones, which are eligible for such tax benefits.

Certain of our investments have the benefit of governmental tax incentives aimed at inducing property users to relocate to incentivize development in areas and neighborhoods which have not historically seen robust commercial development.

The 2017 Tax Cuts and Jobs Act provided for such communities to be designated as Qualified Opportunity Zones, which are eligible for such tax benefits.

These incentives typically have specific sunset provisions and may be subject to governmental discretion in the eligibility or award of the applicable incentives.

The expiration of these incentive programs or the inability of potential clients or users to be eligible for or to obtain governmental approval of the incentives, or the inability to remain compliant with such programs, may have an adverse effect on the value of our investment, cash flow and net income, and may result in impairment charges.

Risks Relating to the Merger and the Transactions Contemplated by the Merger Agreement

We may not be able to integrate VEREIT’s business successfully or realize the anticipated synergies and related benefits of the merger and the transactions contemplated by the Merger Agreement.

The merger involved the combination of two companies which operated as independent public companies.

We are required to devote significant management attention and resources to integrating the business practices and operations of VEREIT.

Potential difficulties we may encounter in the integration process include the following:

• the inability to successfully combine the businesses of Realty Income and VEREIT in a manner that permits the combined company to achieve the anticipated cost savings;

• lost sales and clients as a result of certain clients of either of Realty Income or VEREIT deciding not to do business with the combined company;

• the complexities associated with managing the combined company out of multiple locations and integrating personnel from the two companies;

• the additional complexities of combining two companies with different histories, regulatory restrictions, markets and customer bases;

• the complexities associated with combining Realty Income and VEREIT’s information technology systems including integrating the companies’ two enterprise resource planning (ERP) platforms into one primary ERP tool;

• the inability to realize expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits;

• the failure to retain key employees of either of the two companies;

• performance shortfalls as a result of the diversion of management’s attention caused by integrating Realty Income’s and VEREIT’s operations.

Our historical and unaudited pro forma condensed combined financial statements may not be representative of our results after the merger and the transactions contemplated by the Merger Agreement.

The merger and the transactions contemplated by the Merger Agreement, including the subsequent spin-off of Orion, were completed in November 2021.

Accordingly, our historical financial statements and our operating results for the periods prior to such time do not give effect to those transactions.

In addition, the unaudited pro forma condensed combined financial statements related to such transactions that we have previously prepared were created for informational purposes only and do not purport to be indicative of the financial position or results of operations that actually would have occurred had the merger and the transactions contemplated by the Merger Agreement been completed as of the dates indicated, nor does it purport to be indicative of the future operating results or financial position of Realty Income after the merger and the transactions contemplated by the Merger Agreement.

The unaudited pro forma condensed combined financial statements reflect adjustments, which were based upon preliminary estimates, to allocate the purchase price to VEREIT’s assets and liabilities and certain estimates and assumptions regarding the merger and the transactions contemplated by the Merger Agreement that Realty Income and VEREIT believe are reasonable under the circumstances.

In addition, the unaudited pro forma condensed combined financial statements do not reflect other future events that occur after the merger and the transactions contemplated by the Merger Agreement, including the costs related to the planned integration of the two companies and any future nonrecurring charges resulting from the merger and the transactions contemplated by the Merger Agreement, and do not consider potential impacts of current market conditions on revenues or expense efficiencies.

As a result, we cannot assure you that our historical and unaudited pro forma condensed combined financial statements will be representative of our results for future periods.

General Risk Factors

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• Actual or anticipated variations in quarterly operating results of us and our competitors;

In addition, over the last several years, prices of common stock and debt securities in the United States, trading markets have been experiencing extreme price fluctuations, and the market values of our common stock and debt securities have also fluctuated significantly during this period.

• Failure to achieve the perceived benefits of the merger and the transactions contemplated by the Merger Agreement or if the effect of the merger and the transactions contemplated by the Merger Agreement on our results of operations or financial condition is not consistent with the expectations of financial or industry analysts.

In addition, over the last several years, prices of common stock and debt securities in the United States, trading markets have experienced extreme price fluctuations, and the market values of our common stock and debt securities have also fluctuated significantly during this period.

As a result of these and other factors, investors who purchase our capital stock and debt securities may experience a decrease, which could be substantial and rapid, in the market value of our capital stock and debt securities, including decreases unrelated to our operating performance or prospects.

Litigation risks could affect our business.

From time to time, we are involved in legal proceedings, lawsuits, and other claims.

From time to time, we are involved in legal proceedings, lawsuits, and other claims including those that may arise out acquisitions, development opportunities and other strategic transactions.

An unfavorable resolution of litigation may have a material adverse effect on our business, results of operations and financial condition.

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We depend on the efforts of our executive officers and key employees.

In addition, our success after the merger with VEREIT will depend in part upon our ability to retain executive officers and key employees who may depart because of issues relating to the uncertainty and difficulty of integration following the merger or a desire not to remain with Realty Income.

The loss of the services of our executive officers and key employees could have a material adverse effect on our results of operations or financial condition and on our ability to pay the principal and interest on our debt securities and other indebtedness and to make distributions to our stockholders.

It is possible that we will not be able to recruit additional personnel with equivalent experience in the net lease industry.

It is possible that we will not be able to recruit additional personnel with equivalent experience in the net lease industry or retain employees to the same extent as in the past.

Natural disasters, terrorist attacks, other acts of violence or war, or other unexpected events may affect the value of our debt and equity securities, the markets in which we operate and our results of operations.

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They also could result in or prolong an economic recession in the U.S.

occurrences could have a significant adverse impact on our operating results and revenues and on the market price of our capital stock and on the value of our debt securities.

Any of these occurrences could have a significant adverse impact on our operating results and revenues and on the market price of our capital stock and on the value of our debt securities.

It could also have an adverse effect on our ability to pay principal and interest on our debt securities or other indebtedness and to make distributions to our stockholders.

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We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information and to manage or support a variety of our business processes, including financial transactions and maintenance of records, which may include personal identifying information.

Although we have taken steps to protect the security of the data maintained in our information systems, our security measures may not be able to prevent the systems’ improper functioning, or the theft of intellectual property, personal information, or personal property, such as in the event of cyber-attacks.

Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, result in theft of company assets, damage our reputation, subject us to liability claims and could adversely affect our business, financial condition and results of operations.

Our business could be negatively affected as a result of actions of activist stockholders and shareholder advisory firms.

Campaigns by stockholders to effect changes at publicly traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company.

If we become engaged in a process or proxy contest with an activist stockholder in the future, our business could be adversely affected, as such activities could be costly and time-consuming, disrupt our operations and divert the attention of management and our employees from executing our business plan.

Additionally, perceived uncertainties as to our future direction as a result of stockholder activism or actual or potential changes to the composition of our Board of Directors or management team may lead to the perception of a change in the direction of our business, instability or lack of continuity, which may be exploited by our competitors, cause concern to current or potential sellers of properties, clients and financing sources, and make it more difficult to attract and retain qualified personnel.

If potential or existing sellers of properties, clients or financing sources choose to delay, defer or reduce transactions with us or transact with our competitors instead of us because of any such issues, then our results of operations could be adversely affected.

Similarly, we may suffer damage to our reputation (for example, regarding our corporate governance or stockholder relations) or brand by way of actions taken or statements made by outside constituents, including activist investors and shareholder advisory firms, which could adversely affect the market price of our common stock and preferred stock and the value of our debt securities, resulting in significant loss of value, which could impact our ability to access capital, increase our cost of capital, and decrease our ability to acquire properties on attractive terms.

Current volatility in market and economic conditions may impact the accuracy of the various estimates used in the preparation of our financial statements and footnotes to the financial statements.

Further, while we carry cyber liability insurance, such insurance may not be adequate to cover all losses related to such events.

Volatility in market and economic conditions may impact the accuracy of the various estimates used in the preparation of our financial statements and footnotes to the financial statements.

Various estimates are used in the preparation of our financial statements, including estimates related to asset and liability valuations (or potential impairments), and various receivables.

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Effective internal controls can provide only reasonable assurance with respect to financial statement and disclosure accuracy and safeguarding of assets.

Any failure of these internal controls could result in decreased investor confidence in the accuracy and completeness of our financial reports and disclosures, our REIT qualification being jeopardized, impairment in our access to capital, civil litigation or investigations by the NYSE, the SEC or other regulatory authorities, which may adversely impact our financial condition and results of operations.

Additionally, as a result of our merger with VEREIT, we are operating two separate ERP systems to execute our financial reporting until we can complete a full data migration and complete the related testing.

We have started the process of integrating these two ERP platforms into one primary system and expect to complete the implementation process during 2022.

We have updated our internal controls over financial reporting, as necessary, to accommodate modifications to our business processes for these parallel ERP systems, as we work towards enhanced automated controls through a central platform.

However, utilization of parallel ERP systems has inherent risks, which can complicate our financial reporting controls and potentially lead to breakdowns in data integrity.

This ERP integration also has required, and will continue to require, significant capital and human resources to deploy.

In addition, potential flaws in implementing the primary ERP or in the failure of any portion/module of the ERP to meet our needs or provide appropriate controls may pose risks to our ability to operate successfully and efficiently and with an effective system of internal controls.

Failures in our internal controls could result in adverse consequences in our financial reporting and operations, including delays, additional costs, impairment in our ability to access capital, adverse impacts to investor confidence, regulatory review, or litigation.

Our business operations may not generate the cash needed to make distributions on our capital stock or to service our indebtedness.

Our ability to make distributions on our common stock and any outstanding preferred stock and payments on our indebtedness, and to fund planned acquisitions and capital expenditures will depend on our ability to generate cash

in the future.

We cannot make any assurances that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to make distributions on our common stock and any outstanding preferred stock, to pay our indebtedness, or to fund our other liquidity needs.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors