What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-23 compared with 2021-02-23 · 911 added, 505 removed, 776 unchanged (65% of the section changed)

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Notes to Consolidated Financial Statements

Consolidated Quarterly Financial Data (unaudited) for 2020 and 2019

Schedule III Real Estate and Accumulated Depreciation

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases .

Basis for Opinion

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the fair values used in the allocation of the purchase price of real estate acquisitions

Evaluation of the Fair Value of Land in Real Estate Acquisitions

As discussed in Note 5 to the consolidated financial statements, during 2021, the Company acquired $6.4 billion of real estate properties.

As discussed in Note 2, the purchase price of a real estate acquisition is typically allocated to land, building and improvements, and identified lease related intangible assets and liabilities based on their estimated relative fair values.

We identified the evaluation of the fair values used in the purchase price allocated to land, building and improvements, and identified lease related intangible assets and liabilities as a critical audit matter.

Specifically, the measurement of the fair values of land, building and improvements, and identified lease

related intangible assets and liabilities is dependent upon significant assumptions that are subject to potential management bias and for which relevant external market data is not always readily available.

Such assumptions include market land and building values, market rental rates, and discount rates.

As discussed in Note 2, the purchase price of a real estate acquisition is typically allocated among the individual components of both tangible and intangible assets and liabilities acquired based on their estimated relative fair values.

We identified the evaluation of the fair value of land in real estate acquisitions as a critical audit matter.

Specifically, the measurement of the fair values of land is dependent upon significant assumptions of market land values for which relevant external market data is not always readily available.

There was a high degree of subjective and complex auditor judgment required in evaluating the fair value measurements given the sensitivity of the fair value measurements to changes in these assumptions.

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We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to allocate the purchase price of real estate acquisitions.

This included controls over the selection and review of the significant assumptions used to estimate fair value.

For a selection of real estate acquisitions, we involved valuation professionals with specialized skills and knowledge who assisted in evaluating the significant assumptions used to estimate the fair value measurements to allocate the purchase price, and the qualifications of third-party valuation professionals.

The evaluation included comparison of the Company’s assumptions noted above to independently developed ranges using market data from industry transaction databases, and published industry reports.

For a selection of real estate acquisitions, we compared the amounts allocated to land, building and improvements, and lease related intangible assets and liabilities as a percentage of the total acquisition value to the Company’s historical allocation percentages for similar types of properties.

We assessed potential management bias by evaluating the results of the procedures performed.

Evaluation of the provision for impairment of long-lived real estate assets

As discussed in Note 2 to the consolidated financial statements, during 2020, the Company recorded provisions for impairment of long-lived real estate assets of $147.2 million.

A provision for impairment is recorded if estimated future operating cash flows (undiscounted and without interest charges) including estimated disposition proceeds to be received are less than the current book value of the real estate asset.

The impairment recorded is measured as the amount by which the book value of the real estate asset exceeds its fair value.

We identified the evaluation of the provision for impairment of long-lived real estate assets as a critical audit matter.

The Company’s property level operating cash flow projections are used to both identify if an impairment has occurred and in determining a real estate asset’s fair value.

These projections are dependent upon assumptions that are subject to potential management bias and for which relevant external market data is not always readily available.

These assumptions include the expected property holding period, projected rental rates, and current and terminal property capitalization rates.

Given the sensitivity of the operating cash flow projections to changes in these assumptions, there was a high degree of subjective and complex auditor judgment required in evaluating the assumptions.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to identify and measure impairments including selection and review of the assumptions used to determine the property level operating cash flow projections.

For a selection of properties, we evaluated the projected rental rates and property holding period assumptions in the Company’s property level operating cash flow projections by comparing to lease agreements, the Company’s historical holding period data, market data from industry transaction databases, and published industry reports.

We also involved valuation professionals with specialized skills and knowledge who assisted in evaluating the projected market rent and current and terminal capitalization rates utilized by the Company.

This evaluation included comparison to independently developed ranges using publicly available market data.

We also performed a sensitivity analysis over the assumptions noted above, used to determine the Company’s property level operating cash flow projections for a selection of properties.

We assessed potential management bias by evaluating the results of the procedures performed.

Evaluation of lease revenue

As discussed in Note 2 to the consolidated financial statements, rental revenue for leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term.

When the Company concludes collection of substantially all future lease payments for a lease is less than probable, the Company writes off the receivable balances associated with the lease as a reduction to rental revenue for the period and it ceases to recognize rental revenue on a straight-line basis for that lease.

Rental revenue recognition is limited to the lesser of cash received or the amount that would have been recognized on a straight-line basis for that lease.

Rental revenue was $1.6 billion for the year ended December 31, 2020, and accounts receivable was $285.7 million as of December 31, 2020.

We identified the evaluation of the probability of collection of lease payments as a critical audit matter.

The significant assumption used in the evaluation is the creditworthiness of the client and any guarantors.

Evaluating the Company’s probability assessment of collection of substantially all the lease payments for the individual leases required significant auditor judgment, because of the subjective nature of management’s judgment and the potential impact of the current economic environment on the significant assumption.

This included controls over the measurement of the fair value of land.

For a selection of real estate acquisitions, we involved valuation professionals with specialized skills and knowledge who assisted in evaluating a selection of the Company’s acquired land values by comparing them to independently developed ranges using market data from industry transaction databases and published industry reports.

Business Combination

As discussed in Notes 2 and 3 to the consolidated financial statements, on November 1, 2021, the Company acquired VEREIT, Inc.

for $12.1 billion.

The transaction was accounted for as a business combination, and the acquired assets and assumed liabilities were recorded at their respective fair values.

The Company estimates the fair value of each property acquired, which is then allocated to land, buildings and improvements, and identified intangible assets and liabilities based on their estimated fair values.

We identified the evaluation of the fair values of certain acquired properties and the allocation of purchase price to land as a critical audit matter.

Specifically, the measurement of the fair values of certain acquired properties and allocation of purchase price to land is dependent upon significant assumptions for which relevant external market data is not always readily available.

Such assumptions include market land values, market rental rates, and capitalization rates.

There was a high degree of subjective and complex auditor judgment required to evaluate the fair value measurements given the sensitivity of the fair value measurements to changes in these assumptions.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s collectability probability assessment process, including the assessment of the creditworthiness of the client and any guarantors.

For a selection of the Company’s leases, we evaluated the Company’s determination of the collectability of substantially all of the contractual lease payments by performing the following:

(i) read the lease agreement, (ii) obtained and read third-party credit reports, (iii) searched for and read publicly available information, including the client’s financial statements, analyst reports, recent public filings and news articles to evaluate the Company’s collection probability assessment, (iv) considered the rental payment history of the lessee and (v) inquired of Company employees to obtain evidence regarding creditworthiness of the clients.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to allocate the purchase price of the VEREIT transaction.

This included controls over the selection and review of the significant assumptions used to estimate the fair value of certain properties acquired and the allocation of purchase price to land.

For a selection of properties, we involved valuation professionals with specialized skills and knowledge who assisted in evaluating the significant assumptions used to estimate the fair value measurements of certain acquired properties and allocation of purchase price to land.

The evaluation included comparison of the Company’s assumptions noted above to independently developed ranges using market data from industry transaction databases, and published industry reports.

(signed) KPMG LLP

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 23, 2022 expressed an unqualified opinion on those consolidated financial statements.

The Company acquired VEREIT, Inc.

during 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, VEREIT, Inc.’s internal control over financial reporting associated with total assets of $17.7 billion and total revenues of $176.3 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of VEREIT, Inc.

Basis for Opinion

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may

become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

(signed) KPMG LLP

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December 31, 2021 and 2020

(dollars in thousands, except per share data)

(in thousands, except per share and share count data)

Real estate held for investment, at cost:

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Lease intangible assets, net 5,275,304 1,710,655

Goodwill 3,676,705 14,180

Investment in unconsolidated entities 140,967 —

Other assets, net 1,369,579 420,117

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Distributions in excess of net income ( 4,530,571 ) ( 3,659,933 )

Accumulated other comprehensive loss ( 54,634 ) ( 17,102 )

Accumulated other comprehensive income (loss) 4,933 ( 54,634 )

Total stockholders’ equity 25,052,574 10,985,483

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Years Ended December 31, 2021, 2020 and 2019

(dollars in thousands, except per share data)

(in thousands, except per share data)

2021 2020 2019

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General and administrative 96,980 73,215 66,483

Income taxes 14,693 6,158 5,340

Provisions for impairment 38,967 147,232 40,186

Merger and integration-related costs 167,413 — —

Total expenses 1,658,444 1,311,424 1,080,206

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Loss on extinguishment of debt ( 97,178 ) ( 9,819 ) —

Equity in income of unconsolidated entities 1,106 — —

Other income, net 9,949 4,538 3,428

Income before income taxes 392,404 411,199 443,636

Income taxes ( 31,657 ) ( 14,693 ) ( 6,158 )

Net income 360,747 396,506 437,478

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Foreign currency translation adjustment 9,119 ( 2,606 ) 186

Unrealized loss on derivatives, net ( 34,926 ) ( 9,190 ) ( 8,098 )

Unrealized gain (loss) on derivatives, net 50,448 ( 34,926 ) ( 9,190 )

Comprehensive income available to common stockholders $ 419,023 $ 357,954 $ 427,478

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Years Ended December 31, 2021, 2020 and 2019

(dollars in thousands)

(in thousands, except share count data)

capital Distributions

net income Accumulated other comprehensive loss Total

net income Accumulated other comprehensive income (loss) Total

stockholders’

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Balance, December 31, 2018

303,742,090 $ 10,754,495 $ ( 2,657,655 ) $ ( 8,098 ) $ 8,088,742 $ 32,236 $ 8,120,978

Net income — — 436,482 — 436,482 996 437,478

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Balance, December 31, 2019

333,619,106 $ 12,873,849 $ ( 3,082,291 ) $ ( 17,102 ) $ 9,774,456 $ 29,702 $ 9,804,158

Net income — — 395,486 — 395,486 1,020 396,506

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Contributions by noncontrolling interests — — — — — 3,168 3,168

Redemption of common units — ( 6,866 ) — — ( 6,866 ) ( 14,257 ) ( 21,123 )

Reallocation of equity — 47 — — 47 ( 47 ) —

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Balance, December 31, 2020

361,303,445 $ 14,700,050 $ ( 3,659,933 ) $ ( 54,634 ) $ 10,985,483 $ 32,247 $ 11,017,730

Net income — — 359,456 — 359,456 1,291 360,747

Other comprehensive loss — — — ( 37,532 ) ( 37,532 ) — ( 37,532 )

Other comprehensive income — — — 59,567 59,567 — 59,567

Shares issued in merger 162,043,548 11,556,715 — — 11,556,715 3,160 11,559,875

Orion Divestiture — ( 1,140,769 ) — — ( 1,140,769 ) ( 1,352 ) ( 1,142,121 )

Distributions paid and payable — — ( 1,230,094 ) — ( 1,230,094 ) ( 1,868 ) ( 1,231,962 )

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Balance, December 31, 2021

591,261,991 $ 29,578,212 $ ( 4,530,571 ) $ 4,933 $ 25,052,574 $ 76,826 $ 25,129,400

The accompanying notes to consolidated financial statements are an integral part of these statements.

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Years Ended December 31, 2021, 2020 and 2019

(dollars in thousands)

(in thousands)

2021 2020 2019

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Amortization of share-based compensation 41,773 16,503 13,662

Non-cash revenue adjustments ( 3,562 ) ( 9,338 ) ( 7,835 )

Non-cash revenue and expense adjustments ( 23,380 ) ( 3,562 ) ( 9,338 )

Amortization of net premiums on mortgages payable ( 3,498 ) ( 1,258 ) ( 1,415 )

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Amortization of deferred financing costs 12,333 11,003 9,795

Loss (gain) on interest rate swaps 4,353 2,752 ( 2,733 )

Loss on interest rate swaps 2,905 4,353 2,752

Foreign currency and derivative gains, net ( 710 ) ( 4,585 ) ( 2,255 )

Gain on sales of real estate ( 55,798 ) ( 76,232 ) ( 29,996 )

Equity income of unconsolidated entities ( 1,106 ) — —

Distributions from unconsolidated entities 365 — —

Provisions for impairment on real estate 38,967 147,232 40,186

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Proceeds from sales of real estate 250,536 259,459 108,911

Insurance and other proceeds received — — 7,648

Collection of loans receivable — — 5,267

Non-refundable escrow deposits ( 28,390 ) — ( 14,603 )

Return of investment from unconsolidated entities 38,345 — —

Net cash paid in merger ( 366,030 ) — —

Net cash used in investing activities ( 6,437,695 ) ( 2,032,379 ) ( 3,501,809 )

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Principal payment on notes payable ( 1,700,000 ) ( 250,000 ) —

Proceeds from term loan — — 250,000

Payments upon extinguishment of debt ( 96,583 ) ( 9,445 ) —

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Proceeds from At-the-Market (ATM) program 3,179,490 1,094,938 1,264,518

Net cash received from Orion Divestiture 593,484 — —

Redemption of common units — — ( 21,123 )

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Effect of exchange rate changes on cash and cash equivalents 20,076 4,431 ( 9,796 )

Net increase in cash, cash equivalents and restricted cash 779,674 49,934 8,929

Net (decrease) increase in cash, cash equivalents and restricted cash ( 518,310 ) 779,674 49,934

Cash, cash equivalents and restricted cash, beginning of year 850,679 71,005 21,071

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Organization and Operation

Realty Income Corporation (“Realty Income,” the “Company,” “we,” “our” or “us”) is organized as a Maryland corporation.

We invest in commercial real estate and have elected to be taxed as a real estate investment trust, or REIT.

At December 31, 2020, we owned 6,592 properties, located in 49 U.S states, Puerto Rico and the United Kingdom (U.K.), containing approximately 110.8 million leasable square feet.

Information with respect to number of properties, square feet, average initial lease term and initial average cash lease yield is unaudited.

Summary of Significant Accounting Policies and Procedures and Newly Adopted Accounting Standards

Federal Income Taxes .

We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended.

We believe we have qualified and continue to qualify as a REIT.

Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income.

Assuming our dividends equal or exceed our taxable net income, we generally will not be required to pay federal corporate income taxes on such income.

Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of our taxable REIT subsidiaries.

The income taxes recorded on our consolidated statements of income and comprehensive income represent amounts accrued or paid by Realty Income and its subsidiaries for city and state income and franchise taxes and for U.K.

income taxes.

Earnings and profits that determine the taxability of distributions to stockholders differ from net income reported for financial reporting purposes due to differences in the estimated useful lives and methods used to compute depreciation and the carrying value (basis) of the investments in properties for tax purposes, among other things.

We regularly analyze our various federal and state filing positions and only recognize the income tax effect in our financial statements when certain criteria regarding uncertain income tax positions have been met.

We believe that our income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities.

Therefore, no provisions for uncertain income tax positions have been recorded in our financial statements.

Realty Income Corporation (“Realty Income,” the “Company,” “we,” “our” or “us”) was founded in 1969 and is organized as a Maryland corporation.

We invest in commercial real estate and have elected to be taxed as a real estate investment trust ("REIT").

We are listed on the New York Stock Exchange under the symbol “O”.

Over the past 53 years, we have been acquiring and managing freestanding commercial properties that generate rental revenue under long-term net lease agreements with our commercial clients.

At December 31, 2021, we owned 11,136 properties, located in all 50 United States (U.S.) states, Puerto Rico, the United Kingdom (U.K.) and Spain, containing approximately 210.1 million leasable square feet.

Information with respect to number of properties, leasable square feet, average initial lease term and initial weighted average cash lease yield is unaudited.

Unless otherwise indicated, all dollar amounts are expressed in U.S.

In November 2021, we completed our merger with VEREIT, Inc.

For more details, please see note 3, Merger with VEREIT, Inc.

and Orion Office REIT Inc.

Summary of Significant Accounting Policies and Procedures and New Accounting Standards

Basis of Presentation .

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

Intercompany accounts and transactions are eliminated in consolidation.

Dollar (“USD”) is our functional currency.

Principles of Consolidation .

These consolidated financial statements include the accounts of Realty Income and all other entities in which we have a controlling financial interest.

We evaluate whether we have a controlling financial interest in an entity in accordance with Accounting Standards Codification (“ASC”) 810 , Consolidation.

Voting interest entities are entities considered to have sufficient equity at risk and which the equity holders have the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities.

We consolidate voting interest entities in which we have a controlling financial interest, typically through holding of a majority of the entity’s voting equity interests.

Variable interest entities (“VIEs”) are entities that lack sufficient equity at risk or where the equity holders either do not have the obligation to absorb losses, do not have the right to receive residual returns, do not have the right to make decisions about the entity’s activities, or some combination of the above.

A controlling financial interest in a VIE is present when an entity has a variable interest, or a combination of variable interests, that provides the entity with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

An entity that meets both conditions above is deemed the primary beneficiary and consolidates the VIE.

We reassess our initial evaluation of whether an entity is a VIE when certain reconsideration events occur.

We reassess our determination of whether we are the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances.

The portion of a consolidated entity not owned by us is recorded as a noncontrolling interest.

Noncontrolling interests are reflected on our consolidated balance sheets as a component of equity.

Noncontrolling interest that was created or assumed as part of a business combination or asset acquisition was recognized at fair value as of the date of the transaction (see note 11, Noncontrolling Interests ).

Use of Estimates .

The consolidated financial statements were prepared in conformity with U.S.

GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.

Actual results could differ from those estimates.

Reclassifications .

Certain reclassifications have been made to the prior years' consolidated financial statements to conform to current year presentation.

We began presenting 'Goodwill,' which was previously presented in 'Other assets, net,' in a separate caption within our consolidated balance sheets.

In addition, we began presenting 'Income taxes,' which was previously presented in 'Expenses,' below a newly captioned subtotal for 'Income before income taxes' within our consolidated statements of income and comprehensive income.

Furthermore, we began presenting

'Other income, net' which consists of certain miscellaneous non-recurring revenue previously presented in 'Other' within 'Revenue,' in a separate caption within our consolidated statements of income and comprehensive income.

These reclassifications have no effect on net income, total assets, accumulated earnings or cash flow statements as previously reported.

Net Income per Common Share.

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Incremental shares from share-based compensation 234,563 135,132 322,265

Weighted average partnership common units convertible to common shares that were dilutive

Weighted average shares used for diluted net income per share computation

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500,217 463,119 442,073

Cash Equivalents and Restricted Cash .

We consider all short-term, highly liquid investments that are readily convertible to cash and have an original maturity of three months or less at the time of purchase to be cash equivalents.

Restricted cash includes cash proceeds from the sale of assets held by qualified intermediaries in anticipation of the acquisition of replacement properties in tax-free exchanges under Section 1031 of the U.S.

Internal Revenue Code, impounds related to mortgages payable and cash that is not immediately available to Realty Income (i.e.

escrow deposits for future acquisitions).

Cash accounts maintained on behalf of Realty Income in demand deposits at commercial banks and money market funds may exceed federally insured levels or may be held in accounts without any federal insurance or any other insurance or guarantee.

However, Realty Income has not experienced any losses in such accounts.

Lease Revenue Recognition and Accounts Receivable .

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Taxes and operating expenses paid directly by our clients are recorded on a net basis.

Other revenue, includes property-related revenue not included in rental revenue and interest income recognized on financing receivables for certain leases with above-market terms.

We assess collectability of our future lease payments based on an analysis of creditworthiness, economic trends (including trends arising from the COVID-19 pandemic) and other facts and circumstances related to the applicable clients.

If the collection of substantially all of the future lease payments is less than probable, we record a reserve of the receivable balances associated with the lease and cease to recognize lease income, including straight-line rent, unless cash is received when due.

Other revenue includes certain property-related revenue not included in rental revenue and interest income recognized on financing receivables for certain leases with above-market terms.

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.

These impacts may continue as the duration and severity of the pandemic increases.

As a result, we have closely monitored the collectability of our accounts receivable and continue to evaluate the potential impacts of the COVID-19 pandemic and the measures taken to limit its spread on our business and industry segments as the situation continues to evolve and more information becomes available.

On April 8, 2020, the Financial Accounting Standards Board, or FASB, staff and FASB board members responded to questions about the accounting for COVID-19 related rent concessions under Topic 842, Leases .

The accounting for these rent concessions under Topic 842 depends on the enforceable rights and obligations of the parties under the original lease contract (including those arising from the laws of the jurisdiction governing the lease contract) and the nature of any changes to the terms and conditions of the contract.

If a rent concession under these circumstances is required by the original lease contract (e.g.

by a force majeure clause), the concession will generally be accounted for as a variable lease payment.

In contrast, if the lessor is under no obligation to grant a rent concession, the lessor’s agreement to grant one should be accounted for as a lease modification.

The FASB staff has provided clarifying guidance for leases for which the total lease cash flows will remain substantially the same or less than those after the COVID-19 related effects, though companies may choose to forgo the evaluation of the enforceable rights and obligations of the original lease contract as a practical expedient.

Instead, the company would account for rent concessions, whatever their form (e.g.

rent deferral, abatement or other), either (1) as if they are part of the enforceable rights and obligations of the parties under the existing lease contract;

or (2) as a lease modification.

If accounting for a concession as a lease modification, the full lease modification requirements under Topic 842 apply.

Under either policy election, we must continue to assess the probability of collecting substantially all of the lease payments to which we are entitled under the original lease contract as required under Topic 842.

If a company concludes collection of substantially all lease payments under a lease is less than probable, rental revenue recognized for that lease is limited to cash received going forward, existing operating lease receivables must be written off as an adjustment to rental revenue, and no further operating lease receivables are recorded for that lease until such future determination is made that substantially all lease payments under that lease are now considered more than probable.

The majority of concessions granted to our clients during 2020 as a result of the COVID-19 pandemic have been rent deferrals with the original lease term unchanged.

We currently anticipate future concessions to be similar.

In accordance with the April 8, 2020 guidance provided by the FASB staff, we have elected to account for these leases as if the right of deferral existed in the lease contract and therefore continue to recognize lease revenue in accordance with the lease contract in effect.

In limited circumstances, the undiscounted cash flows resulting from deferrals granted during 2020 increased significantly from original lease terms, which required us to account for these as lease modifications, and resulted in an insignificant impact to rental revenue for 2020.

Similarly, rent abatements granted during 2020, which were also accounted for as lease modifications, impacted our rental revenue by an insignificant amount for 2020.

We continue to assess the probability of collecting substantially all of the lease payments to which we are entitled under the original lease contract as required under Topic 842, Leases .

We assess the collectability of our future lease payments based on an analysis of creditworthiness, economic trends (including trends arising from the COVID-19 pandemic) and other facts and circumstances related to the applicable clients.

If we conclude the

collection of substantially all lease payments under a lease is less than probable, rental revenue recognized for that lease is limited to cash received going forward, existing operating lease receivables, including those related to straight-line rental revenue, must be written off as an adjustment to rental revenue, and no further operating lease receivables are recorded for that lease until such future determination is made that substantially all lease payments under that lease are now considered probable.

If we subsequently conclude that the collection of substantially all lease payments under a lease is probable, a reversal of lease receivables previously written off is recognized.

The majority of concessions granted to our clients during 2020 and 2021 as a result of the COVID-19 pandemic have been rent deferrals with the original lease term unchanged.

We currently anticipate future concessions will be similar.

In accordance with the guidance provided by the Financial Accounting Standards Board (FASB) staff, we have elected to account for these leases as if the right of deferral existed in the lease contract and therefore continue to recognize lease revenue in accordance with the lease contract in effect.

In limited circumstances, the undiscounted cash flows resulting from deferrals granted increased significantly from original lease terms, which required us to account for these as lease modifications, and resulted in an insignificant impact to consolidated rental revenue during 2020 and 2021.

Similarly, rent abatements granted, which are also accounted for as lease modifications, impacted our rental revenue by an insignificant amount during 2020 and 2021.

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

The following table summarizes reserves recorded as a reduction of rental revenue (dollars in millions):

The following table summarizes reserves to rental revenue (in millions):

Year ended December 31,

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However, since the conversations regarding rent collections for our clients affected by the COVID-19 pandemic are ongoing and we do not currently know the types of future concessions, if any, that will ultimately be granted, there may be impacts in future periods that could change this assessment as the situation continues to evolve and as more information becomes available.

We also evaluated certain properties impacted by the COVID-19 pandemic for impairment (see Provisions for Impairment section below).

Principles of Consolidation .

The accompanying consolidated financial statements include the accounts of Realty Income and other subsidiaries for which we make operating and financial decisions (i.e.

control), after elimination of all material intercompany balances and transactions.

We consolidate entities that we control and record a noncontrolling interest for the portion that we do not own.

Noncontrolling interest that was created or assumed as part of a business combination or asset acquisition was recognized at fair value as of the date of the transaction (see note 10).

We have no unconsolidated investments.

Cash Equivalents and Restricted Cash .

We consider all short-term, highly liquid investments that are readily convertible to cash and have an original maturity of three months or less at the time of purchase to be cash equivalents.

Internal Revenue Code, impounds related to mortgages payable and cash that is not immediately available to Realty Income (i.e.

escrow deposits for future acquisitions).

However, Realty Income has not experienced any losses in such accounts.

Gain on Sales of Properties .

When real estate is sold, the related net book value of the applicable assets is removed and a gain from the sale is recognized in our consolidated statements of income and comprehensive income.

We also evaluated certain properties impacted by the COVID-19 pandemic for impairment (see note 14, Financial Instruments and Fair Value Measurements ).

Gain on Sales of Real Estate .

When real estate is sold, the carrying amount of the applicable assets is derecognized with a corresponding gain from the sale recognized in our consolidated statements of income and comprehensive income.

We record a gain from the sale of real estate provided that various criteria, relating to the terms of the sale and any subsequent involvement by us with the real estate, have been met.

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A majority of our acquisitions qualify as asset acquisitions and the transaction costs associated with those acquisitions are capitalized.

However, our merger with VEREIT comprises both an input and substantive process that together significantly contributes to the ability to create outputs and therefore would be considered a business.

As a result, the merger with VEREIT qualified as a business combination and, accordingly, the transaction costs have been expensed and categorized as merger and integration-related costs on our consolidated statements of income and comprehensive income.

In accordance with ASC Topic 805, Business Combinations , adjustments to the allocated purchase price are able to be made within one year of the closing date of our merger with VEREIT as acquisition date uncertainties are resolved (for more details on our merger with VEREIT, please see note 3, Merger with VEREIT, Inc.

and Orion Office REIT Inc.

Divestiture ).

When acquiring a property for investment purposes, we typically allocate the cost of real estate acquired, inclusive of transaction costs, to:

1 unchanged sentence

Intangible assets and liabilities consist of above-market or below-market lease value of in-place leases 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.

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 values of the land, building and improvements, and identified intangible assets and liabilities, and is often based upon 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.

In addition, any assumed notes payable or mortgages are recorded at their estimated fair values.

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.

1 unchanged sentence

market land and building values, market rental rates, discount rates and capitalization rates.

Our methodology for measuring and allocating the fair value of real estate acquisitions includes both observable market data (categorized as level 2 on the three-level valuation hierarchy of Accounting Standards Codification (ASC) Topic 820, Fair Value Measurement), and unobservable inputs that reflect our own internal assumptions (categorized as level 3 under ASC Topic 820).

Our methodology for measuring and allocating the fair value of real estate acquisitions includes both observable market data (categorized as level 2 on the three-level valuation hierarchy of ASC Topic 820, Fair Value Measurement), and unobservable inputs that reflect our own internal assumptions (categorized as level 3 under ASC Topic 820).

Given the significance of the unobservable inputs we believe the allocations of fair value of real estate acquisitions should be categorized as level 3 under ASC Topic 820.

For certain of our purchase price allocations we have used the assistance of an independent third party real estate valuation firm.

From time to time, we have used, and may continue to use, the assistance of independent third parties specializing in real estate valuations to prepare our purchase price allocations.

The allocation of tangible assets (which includes land and buildings/improvements) of an acquired property with an in-place lease is based upon relative fair value.

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In allocating the fair value to identified intangibles for above-market or below-market leases, an amount is recorded based on the present value of the difference between (i) the contractual amount to be paid pursuant to the in-place lease and (ii) our estimate of fair market lease rate for the corresponding in-place lease, measured over the remaining term of the lease.

The value of in-place leases is determined by our estimated costs related to acquiring a tenant and the carrying costs that would be incurred over the vacancy period to locate a tenant if the property were vacant, considering market conditions and costs to execute similar leases at the time of acquisition.

The value of in-place leases is determined by our estimated costs related to acquiring a client and the carrying costs that would be incurred over the vacancy period to locate a client if the property were vacant, considering market conditions and costs to execute similar leases at the time of acquisition.

The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of income and comprehensive income.

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If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease are recorded to revenue or expense as appropriate.

Real Estate and Lease Intangibles Held for Sale.

We generally reclassify assets to held for sale when the disposition has been approved, there are no known contingencies relating to the sale and the consummation of the disposition is considered probable within one year.

Upon classifying a real estate investment as held for sale, we will no longer recognize depreciation expense related to the depreciable assets of the property.

Assets held for sale are recorded at the lower of carrying value or estimated fair value, less the estimated cost to dispose of the assets.

If circumstances arise that we previously considered unlikely and, as a result, we decide not to sell a property previously classified as held for sale, we will reclassify the property as held for investment.

We measure and record a property that is reclassified as held for investment at the lower of (i) its carrying value before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held for investment or (ii) the estimated fair value at the date of the subsequent decision not to sell.

Thirty-three properties were classified as held for sale at December 31, 2021.

Investment in Unconsolidated Entities.

We account for our investment in unconsolidated entity arrangements using the equity method of accounting as we have the ability to exercise significant influence, but not control, over operating and financing policies of these investments.

We have determined that none of the unconsolidated entities would be considered variable interest entities ("VIE") under the applicable accounting guidance.

Our equity method investments were acquired in our merger with VEREIT.

As a result, the investments were recorded at fair value and subsequently will be adjusted for our share of equity in the entities' earnings and distributions received.

The step-up in fair value was allocated to the individual investment assets and liabilities and is being amortized over the estimated useful life of the respective underlying tangible real estate assets, the lease term of the intangible real

estate assets, and the remaining term of the assumed debt.

Investment in unconsolidated entities is included in the accompanying consolidated balance sheets.

We record our proportionate share of net income from the unconsolidated entities in other income, net in the consolidated statements of income and comprehensive income.

Upon the closing of a business combination, after identifying all tangible and intangible assets and liabilities, the excess consideration paid over the fair value of the assets and liabilities acquired and assumed, respectively, represents goodwill.

In connection with our merger with VEREIT, we recorded goodwill as a result of consideration exceeding the net assets acquired.

Goodwill has not yet been allocated to our individual operating segments;

the allocation is pending the finalization of our purchase accounting.

Deferred Financing Costs.

Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining or originating financing.

Deferred financing costs, other than those associated with the line of credit, are presented on the consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability.

Deferred financing costs related to the line of credit are included in other assets, net in the accompanying consolidated balance sheets.

These costs are amortized to interest expense over the terms of the respective financing agreements that approximates with the effective interest method.

Depreciation and Amortization .

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Acquired in-place leases Remaining terms of the respective leases

Provisions for Impairment.

Provisions for Impairment - Real Estate Assets.

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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

If a property is classified as held for

sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell, and depreciation of the property ceases.

If a property was previously reclassified as held for sale but the applicable criteria for this classification are no longer met, the property is reclassified to real estate held for investment.

A property that is reclassified to held for investment is measured and recorded at the lower of (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held for investment, or (ii) the fair value at the date of the subsequent decision not to sell.

Twenty-one properties were classified as held for sale at December 31, 2020.

During 2020, we identified the impact of the COVID-19 pandemic as an impairment triggering event for properties occupied by certain clients experiencing difficulties meeting their lease obligations to us.

After considering the impacts of the COVID-19 pandemic on the key assumptions noted above, we determined that the carrying values of 38 properti es classified as held for investment for the year ended December 31, 2020 were not recoverable.

As a result, we recorded provisions for impairment of $ 105.0 million for the year ended December 31, 2020 on the applicable properties impacted by the COVID-19 pandemic.

Of the provisions for impairment recorded during 2020 for properties impacted by the COVID-19 pandemic, a total of 13 assets occupied by certain of our clients in the theater industry were impaired for $ 83.8 million, which reduced the carrying value of the properties from $ 123.4 million to their estimated fair value of $ 39.6 million.

Impairments recorded on other properties during the year ended December 31, 2020 totaled $ 42.2 million.

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

Year Ended December 31,

2020 2019 2018

Total provisions for impairment $ 147.2 $ 40.2 $ 26.3

Number of properties:

Classified as held for sale 6 1 —

Classified as held for investment 42 5 3

Sold 51 45 41

Provisions for Impairment - Goodwill.

Goodwill is not amortized, but is subject to impairment reviews annually, or more frequently if necessary.

Goodwill is qualitatively assessed to determine whether a quantitative impairment assessment is necessary.

Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.

If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized, and the asset is written down to its estimated fair value.

We perform our annual goodwill impairment assessment as of June 30.

During the years ended December 31, 2021, 2020 and 2019 there were no impairments of goodwill.

Provisions for Impairment - Investment in Unconsolidated Entities.

When circumstances indicate that a decrease in value of an equity method investment has occurred that is other than temporary, an impairment loss should be recognized.

To determine whether an impairment is other-than-temporary, we consider whether it has the ability and intent to hold the investment until the carrying value is fully recovered.

We evaluate the recoverability of our investment in unconsolidated entities in accordance with accounting standards for equity investments by first reviewing each investment for indicators of impairment.

If indicators are present, we estimate the fair value of the

If the carrying value of the investment is greater than the estimated fair value, we make an assessment of whether the impairment is temporary or other-than-temporary.

In making this assessment, we consider the length of time and the extent to which fair value has been less than cost, the financial condition and near-term prospects of the entity, and our intent and ability to retain its interest long enough for a recovery in market value.

If we conclude that the impairment is other than temporary, the investment is reduced to its estimated fair value.

The evaluation of an investment in an unconsolidated entity for potential impairment requires significant judgment.

Since our merger with VEREIT in November 2021, when we assumed our first unconsolidated entities, through December 31, 2021, there have been no impairments of equity method investments.

Equity Offering Costs.

Underwriting commissions and offering costs have been reflected as a reduction of additional paid-in-capital on our consolidated balance sheets.

Noncontrolling Interests.

Noncontrolling interests are reflected on our consolidated balance sheets as a component of equity.

Derivative and Hedging Activities .

Derivatives are financial arrangements among two or more parties with returns linked to or “derived” from an underlying equity, debt, commodity, other asset, liability, interest rate, foreign exchange rate or another index, or the occurrence or nonoccurrence of a specified event.

The settlement of a derivative is determined by its underlying notional amount specified in the contract.

Derivative contracts may be entered into outright or embedded within a non-derivative host contract, and may be listed, traded on exchanges or privately negotiated directly between two parties.

We actively manage our risk exposures which arise from our liquidity and funding activities using derivative instruments which hedge for interest rate risk, foreign exchange risk, or both.

We record all derivatives on the balance sheet at fair value.

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.

We may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or we elect not to apply hedge accounting.

As of December 31, 2020 we had one interest rate swap in place on our $ 250.0 million unsecured term loan.

Our objective in using derivatives is to add stability to interest expense and to manage our exposure to interest rate movements.

We designated these interest rate swaps as hedges in accordance with Topic 815, Derivatives and Hedging.

We record interest rate swaps on the consolidated balances sheet at fair value.

Changes to fair value are recorded to accumulated other comprehensive income, or AOCI, and are amortized through interest expense over the term of the associated debt.

During December 2020, we entered into a currency exchange swap to exchange £ 463.1 million for $ 625.0 million, which matured in January 2021.

The currency exchange swap was entered into to hedge our exposure to foreign currency risk associated with Sterling-denominated liabilities.

As the currency exchange swap is not accounted for as a hedging instrument, the change in fair value is recorded in earnings through the caption entitled 'Foreign currency and derivative gains, net' in the consolidated statements of income and comprehensive income.

loss from derivatives not designated in hedging relationships for 2020 totaled $ 14.5 million.

We did not hold any derivatives that were not designated in hedging relationships during 2019.

In February 2020, we entered into five forward starting treasury rate locks with notional amounts totaling $ 500.0 million.

The treasury rate locks were entered into to hedge our exposure to the changes in the 10-year US treasury rates in anticipation of potential future debt offerings during the first half of 2020.

The treasury rate locks were designated as cash flow hedges, with any changes in fair value recorded in AOCI.

Upon the initial issuance of the 2031 Notes in May 2020, we amortized the AOCI balance over the term of the 2031 Notes.

In June 2020, all five treasury rate locks were terminated and we entered into six forward starting interest rate swaps with notional amounts totaling $ 500.0 million in a cashless settlement of the terminated treasury rate locks.

The forward starting swaps were entered into to hedge our exposure to the changes in the 3-month USD-LIBOR swap rate in anticipation of potential future debt offerings through a current estimated range ending in 2023.

The forward starting swaps are designated as cash flow hedges, with any changes in fair value recorded in AOCI.

Upon issuance of the 2031 Notes during July 2020, the AOCI balance associated with four of the forward starting swaps with a notional amount of $ 350.0 million we amortized over the term of the notes.

However, we elected not to terminate the four forward starting interest rate swaps, and redesignated the swaps in a new hedging relationship for a future debt issuance to hedge our exposure to the changes in the 10-year US treasury rates in anticipation of potential future debt offerings between May 2020 and December 2023.

Upon issuance during December 2020 of $ 325.0 million of 0.750 % notes due March 2026 and $ 400.0 million of 1.800 % notes due March 2033, the AOCI balance associated with four of the forward starting swaps with a notional amount of $ 350.0 million, representing the change in fair value for the swaps from the July issuance of the 2031 notes through the December note issuances, and the AOCI balance associated with the two remaining forward starting swaps with a notional amount of $ 150.0 million, representing the change in fair value from their inception during June 2020 through the December note issuances, are being amortized over the term, by first applying the notional to the $ 400.0 million of 1.800 % notes due March 2033 and $ 100.0 million of notional to the remaining $ 325.0 million of 0.750 % notes due March 2026.

However, we elected not to terminate any of the six forward starting interest rate swaps, and redesignated the swaps in a new hedging relationship to hedge our exposure to the changes in the 10-year US treasury rates in anticipation of potential future debt offerings between December 2020 and December 2023.

Due to the size of the initial net investment resulting from the termination value of the treasury rate locks being rolled into them, two of the six forward starting swaps were determined to be hybrid debt instruments containing embedded at-market swap derivative instruments.

As a result, we have bifurcated the derivative instrument and the debt instrument for those two forward starting interest rate swaps for accounting purposes.

The remaining four forward starting interest rates swaps are accounted for as derivative instruments.

In May 2019, we entered into four cross-currency swaps to exchange £ 130 million Sterling for $ 166 million maturing in May 2034, in order to hedge the foreign currency risk associated with our Sterling-denominated intercompany loan receivable from our consolidated foreign subsidiaries.

These cross-currency swaps were designated as cash flow hedges on their trade date.

Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in earnings over the life of the hedges on a systematic and rational basis, as documented at hedge inception in accordance with our accounting policy election.

The earnings recognition of excluded components is presented in foreign currency and derivative gains, net on our consolidated statements of income and comprehensive income, which is the same caption item as the hedged transactions.

Use of Estimates .

The consolidated financial statements were prepared in conformity with U.S.

generally accepted accounting principles, or GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.

Actual results could differ from those estimates.

Reclassifications .

During 2020, we reclassified 'Real estate held for sale, net', which was previously presented in 'Net real estate', into a new caption entitled 'Real estate and lease intangibles held for sale, net'.

The reclassification out of 'Net real estate' incorporates intangibles held for sale into a more appropriate presentation of the held for sale caption.

Intangibles held for investment are included in the captions entitled 'Lease intangible assets, net' and 'Lease intangible liabilities, net' in the consolidated balance sheets.

The December 31, 2019 balance sheet has been reclassified to match the current period classification.

Newly Issued Accounting Standards.

The recognition of changes in the fair value of derivatives is recorded in net income unless the derivative is designated in a cash flow or net investment hedge accounting relationship in which case the change in fair value is recorded in other comprehensive income until such time as the designated hedged item impacts net income.

Income Taxes .

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended.

We believe we have qualified and continue to qualify as a REIT.

Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income.

Assuming our dividends equal or exceed our taxable net income, we generally will not be required to pay federal corporate income taxes on such income.

Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of our taxable REIT subsidiaries (“TRS”).

A TRS is a subsidiary of a REIT that is subject to federal, state and local income taxes, as applicable.

Our use of a TRS enables us to engage in certain business activities while complying with the REIT qualification requirements and to retain any income generated by these businesses for reinvestment without the requirement to distribute those earnings.

We believe that our income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities.

Therefore, no provisions for uncertain income tax positions have been recorded in our financial statements.

Recently Issued Accounting Standards.

In July 2021, the FASB issued ASU 2021-05 establishing Topic 842, Lessors - Certain Leases with Variable Lease Payments .

ASU 2021-05 improves ASC 842 classification guidance as it relates to a lessor's accounting for certain leases with variable lease payments.

This guidance requires a lessor to classify a lease with variable payments that do not depend on an index or rate as an operating lease if either a sales-type lease or direct financing lease classification would trigger a day-one loss.

This guidance is effective for reporting periods beginning after December 15, 2021, with early adoption permitted.

We are currently evaluating the impact of the adoption of ASU 2021-05 on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform .

ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance is optional and is effective between March 12,

2020 and December 31, 2022.

The guidance is optional and is effective between March 12, 2020 and December 31, 2022.

The guidance may be elected over time as reference rate reform activities occur.

We are currently evaluating the impact that the expected market transition from LIBOR to alternative references rates will have on our financial statements as well as the applicability of the aforementioned expedients and exceptions provided in ASU 2020-04.

Recently Adopted Accounting Standards.

In February 2016, the FASB issued ASU 2016-02 (Topic 842, Leases), which replaced Topic 840, Leases.

Under this amended topic, the accounting applied by a lessor is largely unchanged from that applied under Topic 840, Leases.

The large majority of our leases remain classified as operating leases, and we continue to recognize lease income on a generally straight-line basis over the lease term.

Although primarily a lessor, we are also a lessee under several ground lease arrangements.

We adopted Topic 842, Leases, effective as of January 1, 2019 using the effective date method, and elected the practical expedients available for implementation under the standard for all classes of underlying assets.

As a result, we recognize lease obligations for ground leases designated as operating and financing leases with corresponding right of use assets and liabilities (see note 3).

Additionally, above-market rents on certain of our leases under which we are a lessor are accounted for as financing receivables amortizing over the lease term, and below-market rents on certain of our leases under which we are a lessor are accounted for as prepaid rent (see note 3).

Also, as a result of the adoption of this standard, contractually obligated reimbursements by our clients and property expenses are now presented on a gross basis as both contractually obligated reimbursements by our clients included in rental revenue, and as a reimbursable expense included in property expenses, respectively, on our consolidated statements of income and comprehensive income.

Property taxes and insurance paid directly by the lessee to a third party will continue to be presented on a net basis.

These presentation changes had no impact on our results of operations.

As a result, there was no restatement of prior issued financial statements and, similarly, no cumulative effect adjustment to opening equity;

however, we have elected to aggregate prior period tenant reimbursement revenue within rental revenue to be consistent with the current period presentation within the statements of income and comprehensive income.

Supplemental Detail for Certain Components of Consolidated Balance Sheets (dollars in thousands):

We are currently evaluating the impact

that the expected market transition from the London Interbank Offered Rate, commonly referred to as LIBOR, to alternative references rates will have on our financial statements as well as the applicability of the aforementioned expedients and exceptions provided in ASU 2020-04.

Merger with VEREIT, Inc.

and Orion Office REIT Inc.

Merger with VEREIT

On April 29, 2021, we entered into an Agreement and Plan of Merger, as amended, or the Merger Agreement, with VEREIT, its operating partnership, VEREIT Operating Partnership, L.P., or VEREIT OP, and two newly formed subsidiaries.

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 collectively as the merger.

The primary reason for the Merger is to expand our size, scale and diversification, in order to further enhance our competitive advantages and accelerate our investment activities.

On November 1, 2021, we completed our acquisition of VEREIT, and the merger was consummated.

Pursuant to the terms of the Merger Agreement and subject to the terms thereof, upon the consummation of the merger, (i) each outstanding share of VEREIT common stock, and each outstanding common partnership unit of VEREIT OP owned by any of its partners other than VEREIT, Realty Income or their respective affiliates, was automatically converted into 0.705 of newly issued shares of our common stock, or in certain instances, Realty Income L.P.

units, and (ii) each VEREIT OP outstanding common unit owned by VEREIT, Realty Income or their respective affiliates remained outstanding as partnership interests in the surviving entity.

Each outstanding VEREIT stock option and restricted stock unit that were unvested as of November 1, 2021 were converted into equivalent options and restricted stock units, in each case with respect to the share of the Company's common stock, using the equity award exchange ratio in accordance with the Merger Agreement.

For more details, see note 16, Common Stock Incentive Plan.

Our merger with VEREIT has been accounted for using the acquisition method of accounting in accordance with ASC, 805, Business Combinations , with Realty Income as the accounting acquirer, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their acquisition date fair value.

The fair value of the consideration transferred on the date of the acquisition is as follows (in thousands, except share and per share data):

Shares of VEREIT common stock and VEREIT OP common units exchanged (1)

Exchange Ratio 0.705

Fractional shares settled in cash ( 1,545 )

Shares of Realty Income common stock and Realty Income L.P.

units issued 161,657,800

Adjusted opening price of Realty common stock on November 1, 2021 (2)

Fair value of Realty common stock issued to former holders of VEREIT common stock and VEREIT OP common units $ 11,515,855

Fair value of VEREIT's equity-based compensation awards attributable to pre-combination services (3)

Total non-cash consideration 11,559,875

Cash paid for fractional shares 110

VEREIT indebtedness paid off in connection with the merger (4)

Consideration transferred $ 12,060,399

(1) Includes 229,152,001 shares of VEREIT common stock and 152,034 VEREIT OP common units outstanding as of November 1, 2021.

Under the Merger Agreement, these shares and units were converted to Realty Income common stock, or in certain instances, Realty Income L.P.

units, at an Exchange Ratio of 0.705 per share of VEREIT common stock or VEREIT OP common unit, as applicable.

(2) The fair value of Realty Income common stock issued to former holders of VEREIT common stock and VEREIT OP common units is based on the per share opening price of Realty Income common stock of $ 71.00 on November 1, 2021 (which traded on an ex-dividend basis), adjusted for the monthly dividend of $ 0.236 per share that former holders of VEREIT common stock and VEREIT OP common units were eligible to receive when such dividend was paid on November 15, 2021.

(3) Represents the fair value of fully vested deferred stock unit awards of VEREIT common stock (“VEREIT DSU Awards”) which were converted into Realty Income common stock upon our merger with VEREIT, as well as the estimated fair value of the Realty Income replacement employee and executive stock options and restricted stock units that were granted at the closing date of our merger with VEREIT and which were attributable to pre-combination services.

(4) Represents the outstanding balance of the VEREIT revolving credit facility paid off by Realty Income in connection with the merger.

The amount shown in the table above was based upon the balance outstanding immediately prior to November 1, 2021.

Preliminary Purchase Price Allocation

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Land $ 3,037,751

Buildings 8,685,049

Total real estate held for investment 11,722,800

Cash and cash equivalents 128,411

Accounts receivable 53,355

Lease intangible assets (1)

Goodwill 3,662,848

Investment in unconsolidated entities 194,876

Other assets 318,776

Total assets acquired $ 19,308,447

Accounts payable and accrued expenses $ 139,836

Lease intangible liabilities (2)

Other liabilities 337,052

Mortgages payable 869,113

Notes payable 4,946,965

Total liabilities assumed $ 7,246,696

Net assets acquired, at fair value $ 12,061,751

Noncontrolling interests $ 1,352

Total purchase price $ 12,060,399

(1) The weighted average amortization period for acquired lease intangible assets is 9.3 years.

(2) The weighted average amortization period for acquired lease intangible liabilities is 26.1 years.

The assessment of fair value is preliminary and is based on information that was available to management at the time the consolidated financial statements were prepared.

Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date.

The finalization of our purchase accounting assessment could result in changes in the valuation of assets acquired and liabilities assumed up to a year after the date of our merger with VEREIT, which could be material.

Due to the timing and complexity of the merger, we recorded the assets acquired and liabilities assumed at their preliminary estimated fair values.

As of December 31, 2021, we had not finalized the determination of fair values allocated to certain assets and liabilities, including land, buildings, lease intangible assets, lease intangible liabilities, and the allocation of goodwill.

The preliminary purchase price allocation is subject to change as we complete our analysis of the fair value at the date of the transactions, which could have an impact on the consolidated financial statements.

A preliminary estimate of approximately $ 3.66 billion has been allocated to goodwill.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed.

The recognized goodwill is attributable to expected synergies and benefits arising from the merger transaction, including anticipated financing and overhead cost savings, potential economies of scale benefits in both customer and vendor relationships and the employee workforce onboarded from VEREIT following the closing of the transaction.

Goodwill has not yet been allocated to our individual operating segments;

the allocation is pending the

finalization of our purchase accounting.

None of the goodwill recognized is expected to be deductible for tax purposes.

Merger and Integration-related Costs

In conjunction with our merger with VEREIT, we incurred approximately $ 161.4 million of transaction costs during the year ended December 31, 2021, which were included in the $ 167.4 million of merger and integration-related costs within our consolidated statements of income and comprehensive income.

The merger and integration-related costs primarily consist of advisory fees, including success-based fees, attorney fees, accountant fees, SEC filing fees and additional integration costs that include incremental and non-recurring costs necessary to convert data and systems, retain employees and otherwise enable us to operate acquired businesses or assets efficiently.

Unaudited Pro Forma Financial Information

Our consolidated results of operations for the year ended December 31, 2021 include $ 176.3 million of revenues and $ 36.7 million of net loss associated with the results of operations of VEREIT OP from the merger closing date to December 31, 2021.

The following unaudited pro forma information presents a summary of our combined results of operations for the years ended December 31, 2021 and 2020 as if our merger with VEREIT had occurred on January 1, 2020 (in millions, except per share data).

The following pro forma financial information is not necessarily indicative of the results of operations had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses.

The following information excludes the impact of the spin-off of office assets to Orion Office REIT Inc.

Year Ended December 31,

Total revenues $ 3,082.9 $ 2,828.0

Net income $ 762.9 $ 317.2

Basic and diluted earnings per share $ 1.39 $ 0.62

The unaudited pro forma financial information above includes the following nonrecurring significant adjustment made to account for certain costs incurred as if our merger with VEREIT had been completed on January 1, 2020:

merger and integration-related costs of $ 167.4 million were excluded within the pro forma financial information for 2021, but included for 2020.

Litigation Relating to the Merger

Purported stockholders of VEREIT filed 12 lawsuits challenging disclosures related to the merger ( Stein v.

VEREIT, Inc., et.

1:21-cv-01409 (D.

Md., June 7, 2021) (the “Stein Complaint”);

VEREIT, Inc., et.

1:21-cv-00845 (D.

Del., June 10, 2021) (the “Bowles Complaint”);

VEREIT, Inc., et.

1:21-cv-05270 (D.

S.D.N.Y., June 14, 2021) (the “Leach Complaint”);

VEREIT, Inc., et.

1:21-cv-05286 (D.

S.D.N.Y., June 15, 2021) (the “Jenkins Complaint”);

VEREIT, Inc., et.

1:21-cv-05357 (D.

S.D.N.Y., June 17, 2021) (the “Tacka Complaint”);

Congregation Zichron Moishe v.

VEREIT, Inc., et.

1:21-cv-01729 (D.

Colo., June 24, 2021) (the “Congregation Zichron Moishe Complaint”);

VEREIT, Inc., et al.

1:21-cv-01758 (D.

June 28, 2021) (the “Mishra Complaint”) ;

VEREIT, Inc., et.

1:21-cv-01791 (D.

July 1, 2021) (the “Walker Complaint”);

Ciccotelli v.

VEREIT, Inc., et.

2:21-cv-02983 (D.

July 2, 2021) (the “Ciccotelli Complaint”);

VEREIT, Inc., et.

1:21-cv-06129 (D.

S.D.N.Y July 16, 2021) (the “Upton Complaint”);

VEREIT, Inc., et al.

1:21-cv-06212 (S.D.N.Y.

July 21, 2021) (the “Matten Complaint”);

and Halberstam v.

VEREIT, Inc., et al.

1:21-cv-02000 (D.

July 23, 2021 (the “Halberstam Complaint”)).

Purported stockholders of Realty Income filed one lawsuit challenging the disclosures related to the merger ( Boyko v.

Realty Income Corp., et.

1:21-cv-01653 (D.

Colo., June 16, 2021) (the “Boyko Complaint,” and collectively, the “Complaints”)).

A stockholder of Realty Income also sent the Company a demand disclosure letter on June 30, 2021 (the “Demand Letter”).

The Stein, Leach, Tacka, Matten and Halberstam Complaints named VEREIT and the members of the VEREIT board of directors as defendants.

The Congregation Zichron Moishe, Mishra, Walker and Upton Complaints named VEREIT, VEREIT OP, and the members of the VEREIT board of directors as defendants.

The Bowles and Ciccotelli Complaints named VEREIT, the members of the VEREIT board of directors, VEREIT OP, Realty Income, Merger

Sub 1 and Merger Sub 2 as defendants.

The Jenkins Complaint named VEREIT, the members of the VEREIT board of directors, Realty Income, Merger Sub 1 and Merger Sub 2 as defendants.

The Boyko Complaint named Realty Income and the members of the Realty Income board of directors as defendants.

The Demand Letter was addressed to Realty Income and the members of the Realty Income board of directors.

The Complaints each alleged generally that the entities and individual defendants named in such Complaint violated Section 14(a) and Rule 14a-9 promulgated thereunder and that the individual defendants violated Section 20(a) of the Exchange Act by preparing and disseminating a registration statement that misstates or omits certain allegedly material information.

The Demand Letter included similar allegations.

Furthermore, the Jenkins Complaint also alleged that:

(1) members of the VEREIT board of directors breached their fiduciary duties by entering into the transactions contemplated by the Merger Agreement through a flawed and unfair process and by failing to disclose all material information to VEREIT’s stockholders;

and (2) VEREIT, Realty Income, Merger Sub 1 and Merger Sub 2 each aided and abetted such breach of fiduciary duty by the VEREIT board of directors.

Each Complaint sought, among other things, injunctive relief enjoining the consummation of the Merger, and, if the Merger was consummated, rescission or rescissory damages and an award of the plaintiff’s costs, including attorneys’ and experts’ fees.

The defendants believed that all of the claims asserted in the Complaints were without merit.

On July 30, 2021, VEREIT filed a Form 8-K containing supplemental disclosures regarding the merger and related transactions in response to allegations set forth in the Complaints and the Demand Letter.

In light of these additional disclosures, between August 2, 2021 and October 27, 2021, plaintiffs’ counsel in all of the cases voluntarily dismissed their respective complaints.

Orion Divestiture

Following of the closing of our merger with VEREIT, we contributed 92 office real estate assets, a consolidated real estate venture holding one office asset, and an unconsolidated real estate venture holding five office assets to a wholly owned subsidiary named Orion Office REIT Inc., or Orion.

On November 12, 2021, we distributed the outstanding shares of Orion common stock to our shareholders (including legacy VEREIT stockholders who received shares of our common stock in our merger with VEREIT) 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 November 12, 2021, the applicable record date, which we refer to as the Orion Divestiture.

The fair market value of these shares for tax distribution was determined to be $ 20.6272 per share, which was calculated using the five day volume weighted average share price after issuance.

For more detail, see note 12, Distributions Paid and Payable .

Following the Orion Divestiture, Orion began operating as a separate, independent public company.

In conjunction with the Orion Divestiture, we incurred approximately $ 6.0 million of transaction costs during the year ended December 31, 2021, which were included in the $ 167.4 million of merger and integration-related costs within our consolidated statements of income and comprehensive income.

As part of the Orion Divestiture, Orion paid us a dividend of $ 425.0 million and reimbursed $ 170.2 million to us for the early redemption of mortgage loans underlying the contributed assets prior to the effectuation of the Orion Divestiture.

The distribution of Orion resulted in the derecognition of net assets of $ 1.74 billion, which net of the aforementioned cash payments of $ 595.2 million, resulted in a reduction to additional paid in capital of $ 1.14 billion.

In connection with the divestiture, we entered into certain agreements with Orion to effect our legal and structural separation, including a transition services agreement (TSA) and reverse TSA to provide certain administrative and other services for a limited time, and tax matters.

As of December 31, 2021, those agreements are still in effect.

Supplemental Detail for Certain Components of Consolidated Balance Sheets (in thousands):

Accounts Receivable, net, consist of the following at:

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December 31, 2021 December 31, 2020

Right of use asset - operating leases, net $ 631,515 $ 112,049

Financing receivables 323,921 131,291

Right of use asset - financing leases 218,332 118,585

Right of use asset - operating leases, net 112,049 120,533

Restricted escrow deposits 68,541 21,220

Goodwill 14,180 14,430

Derivative assets and receivables – at fair value 29,593 10

Non-refundable escrow deposits 28,560 1,000

Prepaid expenses 18,062 11,795

Corporate assets, net 10,915 8,598

Credit facility origination costs, net 7,705 11,453

Investment in sales type leases 7,492 —

Impounds related to mortgages payable 5,249 4,983

Value-added tax receivable 1,130 9,682

Non-refundable escrow deposits 1,000 14,803

Derivative assets and receivables - at fair value 10 12

Note receivable 4,455 —

Credit facility origination costs, net 4,352 7,705

Other items 18,592 2,881

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Property taxes payable 36,173 23,413

Accrued property expenses 27,344 5,401

Accrued costs on properties under development 19,665 12,685

Value-added tax payable 8,077 13,434

Accrued income taxes 19,152 8,077

Mortgages, term loans, and credit line - interest payable and interest rate swaps 1,044 1,729

Value-added tax payable 11,297 5,182

Merger and integration-related costs 10,699 —

Mortgages, term loans, and credit line - interest payable 3,874 1,044

Other items 44,080 28,959

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December 31, 2021 December 31, 2020

Rent received in advance and other deferred revenue $ 130,231 $ 127,687

Lease liability - operating leases, net $ 461,748 $ 114,559

Rent received in advance and other deferred revenue 242,122 130,231

Lease liability - financing leases 43,987 6,256

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Investments in Real Estate

We acquire land, buildings and improvements necessary for the successful operations of our commercial clients.

We acquire land, buildings and improvements necessary for the successful operations of commercial clients.

Acquisitions during 2021 and 2020

Below is a summary of our acquisitions for the year ended December 31, 2020:

Below is a summary of our acquisitions for the year ended December 31, 2021 (information is unaudited and excludes properties assumed on November 1, 2021 in conjunction with our merger with VEREIT):

Number of Properties Leasable Square Feet Investment

($ in thousands) Weighted Average Lease Term (Years) Initial Average Cash Lease Yield

($ in thousands) Weighted Average Lease Term (Years) Initial Weighted Average Cash Lease Yield (1)

Year ended December 31, 2021 (2)

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714 14,727,335 $ 3,608,573 14.1 5.5 %

Acquisitions - U.K.

Acquisitions - Europe (U.K.

129 9,196,345 2,558,909 11.6 5.5 %

Total Acquisitions 843 23,923,680 $ 6,167,482 13.1 5.5 %

Properties under Development - U.S.

Properties under Development (3)

68 2,681,676 243,278 15.7 6.0 %

911 26,605,356 $ 6,410,760 13.2 5.5 %

(1) The initial weighted 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 $ 8.5 million received as settlement credits for 41 properties as reimbursement of free rent periods for the year ended December 31, 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 weighted 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 2021 caused any one client to be 10% or more of our total assets at December 31, 2021.

All of our investments in acquired properties during 2020 are 100 % leased at the acquisition date.

(2) Represents investments of £ 707.8 million Sterling during the year ended December 31, 2020 converted at the applicable exchange rate on the date of acquisition.

(3) Our clients occupying the new properties operate in 26 industries and are 86.6 % retail and 13.4 % industrial, based on rental revenue.

(3) Includes £ 7.0 million of investments in U.K.

development properties, converted at the applicable exchange rate on the funding date.

(4) Our clients occupying the new properties are 83.6 % retail and 16.4 % industrial, based on rental revenue.

Approximately 40 % of the rental revenue generated from acquisitions during 2021 is from our investment grade rated clients, their subsidiaries or affiliated companies.

The acquisitions during the year ended December 31, 2020, which had no associated contingent consideration, were allocated as follows (dollars in millions):

Acquired properties accounted for as asset acquisitions during the year ended December 31, 2021, which had no associated contingent consideration, were allocated as follows (in millions):

Acquisitions - U.S.

Acquisitions - U.K.

Acquisitions - Spain

Year ended December 31, 2021

(USD) (£ Sterling)

(USD) (£ Sterling) (€ Euro)

$ 1,059.3 £ 422.3 € 108.4

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Lease intangible assets (2)

579.8 249.0 37.8

Other assets (3)

503.7 40.4 21.9

Lease intangible liabilities (4)

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( 130.6 ) ( 0.3 ) ( 16.5 )

$ 3,715.8 £ 1,608.9 € 320.4

land includes £ 5.5 million of right of use assets under long-term ground leases.

(2) The weighted average amortization period for acquired lease intangible assets and liabilities is 15.9 years.

other assets consists of $ 51.7 million of financing receivables with above-market terms and $ 689,000 of right of use assets under ground leases.

other assets consists entirely of right of use assets under ground leases.

other liabilities consists entirely of lease liabilities under ground leases.

The properties acquired during 2020 generated total revenues of $ 54.6 million and net income of $ 19.4 million during the year ended December 31, 2020.

Below is a summary of our acquisitions for the year ended December 31, 2019:

(2) The weighted average amortization period for acquired lease intangible assets is 12.8 years.

other assets consists of $ 161.5 million of financing receivables with above-market terms, $ 76.7 million of right-of-use assets accounted for as finance leases, $ 5.8 million in investments in sales-type leases, and $ 259.7 million of right of use assets under ground leases accounted for as operating leases.

other assets consists of £ 7.2 million of financing receivables with above-market terms, £ 33.2 million of right-of-use assets accounted for as finance leases, and £ 13,000 of right of use assets under ground leases accounted for as operating leases.

Spain other assets consists entirely of financing receivables with above-market terms.

(4) The weighted average amortization period for acquired lease intangible liabilities i s 15.9 years.

other liabilities consists of $ 27.1 million of deferred rent on certain below-market leases, $ 67.4 million of lease liabilities under ground leases accounted for as operating leases, and $ 36.1 million for lease liabilities under financing leases.

other liabilities consists of £ 288,000 of a GBP mortgage premium and £ 13,000 of lease liabilities under ground leases.

Spain other liabilities consists entirely of deferred rent on certain below-market leases.

Acquired properties accounted for as asset acquisitions during 2021 generated total revenues of $ 136.6 million and net income of $ 25.8 million during the year ended December 31, 2021.

Below is a summary of our acquisitions for the year ended December 31, 2020 (unaudited):

Number of Properties Leasable Square Feet Investment

($ in thousands) Weighted Average Lease Term (Years) Initial Average Cash Lease Yield

($ in thousands) Weighted Average Lease Term (Years) Initial Weighted Average Cash Lease Yield

Year Ended December 31, 2020 (1)

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(1) None of our investments during 2020 caused any one client to be 10% or more of our total assets at December 31, 2020.

All of our 2019 investments in acquired properties were 100 % leased at the acquisition date.

(2) Represents investments of £ 707.8 million Sterling during the year ended December 31, 2020 converted at the applicable exchange rate on the date of acquisition.

(2) Our clients occupying the new properties operated in 31 industries, and are 94.6 % retail and 5.4 % industrial, based on rental revenue.

Approximately 36 % of the rental revenue generated from acquisitions during 2019 was from our investment grade rated clients, their subsidiaries or affiliated companies.

The acquisitions during the year ended December 31, 2019, which had no associated contingent consideration, were allocated as follows (dollars in millions):

(3) Our clients occupying the new properties are 86.6 % retail and 13.4 % industrial, based on rental revenue.

Approximately 61 % of the rental revenue generated from acquisitions during 2020 is from our investment grade rated clients, their subsidiaries or affiliated companies.

Acquired properties accounted for as asset acquisitions during the year ended December 31, 2020, which had no associated contingent consideration, were allocated as follows (in millions):

Acquisitions - U.S.

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(2) The weighted average amortization period for acquired lease intangible assets is 15.8 years.

(3) U.S other assets consists entirely of financing receivables with above-market terms.

other assets consists of $ 51.9 million of financing receivables with above-market terms and $ 689,000 of right of use assets under ground leases.

other assets consists entirely of right of use assets under ground leases.

(4) The weighted average amortization period for acquired lease intangible liabilities is 16.7 years.

other liabilities consists entirely of deferred rent on certain below-market leases.

The properties acquired during 2019 generated total revenues of $ 92.0 million and net income of $ 36.9 million during the year ended December 31, 2019.

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.

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:

other liabilities consists entirely of lease liabilities under ground leases.

Acquired properties accounted for as asset acquisitions during 2020 generated total revenues of $ 54.6 million and net income of $ 19.4 million during the year ended December 31, 2020.

Investments in Existing Properties

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Properties with Existing Leases

Of the $ 2.3 billion we invested during 2020, approximately $ 1.86 billion was used to acquire 127 properties with existing leases.

Of the $ 6.41 billion we invested during 2021, which excludes the 3,895 properties assumed in conjunction with our merger with VEREIT on November 1, 2021, approximately $ 5.02 billion was used to acquire 557 properties with existing leases.

In comparison, of the $ 2.31 billion we invested during 2020, approximately $ 1.86 billion was used to acquire 127 properties with existing leases.

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The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at December 31, 2021 (in thousands):

increase (decrease) to

rental revenue Increase to

6 unchanged sentences

Totals $ 20,713 $ 3,987,796

Gain on Sales of Real Estate

The following summarizes our property dispositions (dollars in millions).

These amounts exclude properties disposed from the spin-off of office properties to Orion Office REIT Inc.

in November 2021.

Year Ended December 31,

2021 2020 2019

Number of properties 154 126 93

Net sales proceeds $ 250.3 $ 262.5 $ 108.9

Gain on sales of real estate $ 55.8 $ 76.2 $ 30.0

These property sales do not represent a strategic shift that will have a major effect on our operations and financial results, and therefore do not require presentation as discontinued operations.

Investment in Unconsolidated Entities

The following is a summary of our investments in unconsolidated entities as of December 31, 2021 (in thousands):

Ownership % (1)

Number of Properties Carrying Amount of Investment as of (2)

Equity in Income (2)

Investment December 31, 2021

December 31, 2021

Industrial Partnerships 20 % 7 $ 140,967 $ 1,106

(1) Our ownership interest reflects legal ownership interest.

Legal ownership may, at times, not equal our economic interest in the listed properties because of various provisions in certain entity agreements regarding capital contributions, distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns.

As a result, our actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with legal ownership interests.

(2) Our unconsolidated entities are a result of our merger with VEREIT.

The total carrying amount of the investments was greater than the underlying equity in net assets by $ 100.3 million as of December 31, 2021.

The difference relates to a step-up in fair value of the investment net assets acquired in connection with the merger with VEREIT on November 1, 2021.

The step up in fair value was allocated to the individual investment assets and liabilities and is being amortized over the estimated useful life of the respective underlying tangible real estate assets, the lease term of the intangible real estate assets, and the remaining term of the mortgages payable.

Prior to November 1, 2021, we did not own any unconsolidated entities.

As a result of the merger with VEREIT, we assumed a preferred equity interest in the development of one distribution center for which we were entitled to receive a cumulative preferred return of 9 % per year on the initial contribution of $ 22.8 million along with a share in the profit earned in the event of the sale of the property to a third party.

Under the acquisition method of accounting, this preferred equity interest was adjusted to its fair value of $ 38.1 million at the time of the merger.

During December 2021, the distribution center was sold to a third party and we received proceeds of $ 38.3 million and recorded a $ 0.2 million gain on disposition.

The aggregate debt outstanding for unconsolidated entities was $ 431.8 million as of December 31, 2021, which is non-recourse to us.

As our only equity method investment resulted from our merger with VEREIT on November 1, 2021, there was no debt relating to unconsolidated entities as of December 31, 2020.

Each of us and our unconsolidated entity partners are subject to the provisions of the applicable entity agreements, which include provisions for when additional contributions may be required to fund certain cash shortfalls.

Revolving Credit Facility and Commercial Paper Program

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dollars, and has a $ 1.0 billion expansion option, which is subject to obtaining lender commitments.

Under our credit facility, our investment grade credit ratings as of December 31, 2020 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 pricing of 0.90 % over LIBOR.

Under our credit facility, our investment grade credit ratings as of December 31, 2021 provide for financing at LIBOR plus 0.775 % with a facility commitment fee of 0.125 %, for all-in 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.

1 unchanged sentence

Our revolving credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation.

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.

Our revolving credit facility and term loan facility were amended in December 2021 to include provisions for establishing alternative reference rates when LIBOR is no longer available.

At December 31, 2021, credit facility origination costs of $ 4.4 million are included in other assets, net, as compared to $ 7.7 million at December 31, 2020, on our consolidated balance sheet.

These costs are being amortized over the remaining term of our revolving credit facility.

At December 31, 2020, we had a borrowing capacity of $ 3.0 billion available on our revolving credit facility (subject to customary conditions to borrowing) and no outstanding balance, as compared to an outstanding balance of $ 704.3 million, including £ 169.2 million Sterling, at December 31, 2019.

At December 31, 2021, we had a borrowing capacity of $ 2.35 billion available on our revolving credit facility (subject to customary conditions to borrowing) and an outstanding balance of $ 650.0 million, as compared to no outstanding balance at December 31, 2020.

The weighted average interest rate on outstanding borrowings under our revolving credit facility was 0.9 % during 2021 and 1.5 % during 2020.

2 unchanged sentences

Commercial Paper Program

In August 2020, we established a U.S.

We have a U.S.

dollar-denominated unsecured commercial paper program.

Under the terms of the program, we may, from time to time, issue unsecured commercial paper notes up to a maximum aggregate amount outstanding of $ 1.0 billion.

The commercial paper will rank on a parity in right of payment with all of our other unsecured senior indebtedness outstanding from time to time, including borrowings under our revolving credit facility, our term loan facility and our outstanding senior unsecured notes.

Under the terms of the program, we may issue from time to time unsecured commercial paper notes up to a maximum aggregate amount outstanding of $ 1.0 billion.

The commercial paper ranks on a parity in right of payment with all of our other unsecured senior indebtedness outstanding from time to time, including borrowings under our revolving credit facility, our term loan and our outstanding senior unsecured notes.

Proceeds from commercial paper borrowings are used for general corporate purposes.

At December 31, 2020, we had no outstanding commercial paper borrowings.

The weighted average interest rate on borrowings under our commercial paper program was 0.3 % from inception of the plan through December 31, 2020.

At December 31, 2021, the balance of borrowings outstanding under our commercial paper program was $ 901.4 million as compared to no outstanding borrowings at December 31, 2020.

The weighted average interest rate on borrowings under our commercial paper program was 0.2 % for 2021 and 0.3 % from inception of the plan in August 2020 through December 31, 2020.

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

In October 2018, in conjunction with our revolving credit facility, we entered into a $ 250.0 million senior unsecured term loan, which matures in March 2024.

The commercial paper borrowings generally carry a term of less than six months .

The commercial paper borrowings outstanding at December 31, 2021 mature between January 2022 and April 2022.

In October 2018, in conjunction with entering into our current revolving credit facility, we entered into a $ 250.0 million senior unsecured term loan, which matures in March 2024.

Borrowing under this term loan bears interest at the current one-month LIBOR, plus 0.85 %.

In conjunction with this term loan, we also entered into an interest rate swap, which effectively fixes our per annum interest on this term loan at 3.89 %.

In June 2015, in conjunction with entering into our previous credit facility, we entered into a $ 250.0 million senior unsecured term loan which matured in June 2020.

Borrowing under this term loan bore interest at the current one-month LIBOR, plus 0.90 %.

In conjunction with this term loan, we also entered into an interest rate swap which effectively fixed our per annum interest rate on this term loan at 2.62 %.

In June 2020, we repaid the term loan in full upon maturity.

Deferred financing costs of $ 1.2 million incurred in conjunction with the $ 250.0 million term loan, which matured June 2020, and $ 1.1 million incurred in conjunction with the $ 250.0 million term loan maturing March 2024 are being amortized over the remaining terms of each respective term loan.

The net balance of deferred financing costs at December 31, 2020 of $ 642,000 relates to the $ 250.0 million term maturing March 2024.

The net balance of deferred financing costs at December 31, 2019 of $ 956,000 related to the $ 250.0 million term loan that matured in June 2020 and the $ 250.0 million term loan maturing March 2024.

At December 31, 2021, deferred financing costs of $ 443,000 are included net of the term loan principal balance, as compared to $ 642,000 at December 31, 2020, on our consolidated balance sheet.

These costs are being amortized over the remaining term of the term loan.

Mortgages Payable

During 2021, we made $ 66.6 million in principal payments, including the repayment of seven mortgages in full for $ 63.0 million.

During 2020, we made $ 108.8 million in principal payments, including the repayment of nine mortgages in full for $ 103.4 million.

During 2019, we made $ 20.7 million in principal payments, including the repayment of one mortgage in full for $ 15.8 million.

During 2021, we assumed 11 mortgages totaling $ 881.1 million in principal, including ten mortgages from our merger with VEREIT totaling $ 839.1 million and a Sterling-denominated mortgage on one property totaling £ 31.0 million.

No mortgages were assumed during 2020.

During 2019, we assumed two mortgages totaling $ 130.8 million on 33 properties.

Assumed mortgages are secured by the properties on which the debt was placed and are considered non-recourse debt with limited customary exceptions for items such as solvency, bankruptcy, misrepresentation, fraud, misapplication of payments, environmental liabilities, failure to pay taxes, insurance premiums, liens on the property, violations of the single purpose entity requirements, and uninsured losses.

Assumed mortgages are secured by the properties on which the debt was placed and are considered non-recourse debt with limited customary exceptions which vary from loan to loan.

In September 2021, we completed the early redemption on $ 12.5 million in principal of a mortgage due June 2032, plus accrued and unpaid interest.

As a result of the early redemption, we recognized a loss of $ 4.0 million on extinguishment of debt for 2021.

In October 2021, we completed the early redemption on $ 9.6 million in principal of a mortgage due June 2022, plus accrued and unpaid interest.

As a result of the early redemption, we recognized a loss of $ 315,000 on extinguishment of debt for 2021.

Our mortgages contain customary covenants, such as limiting our ability to further mortgage each applicable property or to discontinue insurance coverage without the prior consent of the lender.

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

The balance of our deferred financing costs, which are classified as part of mortgages payable, net, on our consolidated balance sheets, at December 31, 2020 and 2019 was $ 973,000 and $ 1.3 million, respectively.

The balance of our deferred financing costs, which are classified as part of mortgages payable, net, on our consolidated balance sheets, at December 31, 2021 and 2020 was $ 790,000 and $ 973,000 , respectively.

These costs are being amortized over the remaining term of each mortgage.

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At December 31, 2020, there were 18 mortgages on 68 properties.

The mortgages require monthly payments with principal payments due at maturity.

At December 31, 2020, all mortgages were at fixed interest rates.

At December 31, 2019, we had one variable rate mortgage with a principal balance of $ 7.1 million that was swapped to a fixed interest rate.

(2) Stated interest rates ranged from 3.8 % to 6.9 % at each of December 31, 2020 and 2019, respectively.

(3) Effective interest rates ranged from 4.0 % to 5.5 % at December 31, 2020, while effective interest rates ranged from 3.8 % to 7.6 % at December 31, 2019.

The following table summarizes the maturity of mortgages payable, excluding net premiums of $ 1.7 million and deferred financing costs of $ 973,000 , as of December 31, 2020 (dollars in millions):

With the exception of one Sterling-denominated mortgage which is paid quarterly, the mortgages require monthly payments with principal payments due at maturity.

At December 31, 2021 and December 31, 2020, all mortgages were at fixed interest rates.

(2) Stated interest rates ranged from 3.0 % to 6.9 % and 3.8 % to 6.9 % at each of December 31, 2021 and 2020, respectively.

(3) Effective interest rates ranged from 2.6 % to 6.0 % and 4.0 % to 5.5 % at each of December 31, 2021 and 2020, respectively.

The following table summarizes the maturity of mortgages payable, excluding net premiums of $ 28.7 million and deferred financing costs of $ 790,000 , as of December 31, 2021 (in millions):

Year of Maturity Principal

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Notes Payable

Our senior unsecured notes and bonds consist of the following, sorted by maturity date (dollars in millions):

Our senior unsecured notes and bonds consist of the following, sorted by maturity date (in millions):

Principal Amount (Currency Denomination) Carrying Value (USD) as of

December 31, 2021 December 31, 2020

5.750 % notes, issued in June 2010 and due in January 2021

3.250 % notes, $ 450 issued in October 2012 and $ 500 issued in December 2017, both due in October 2022 (1)

$ 950 $ — $ 950

4.650 % notes, issued in July 2013 and due in August 2023 (2)

4.600 % notes, $ 500 issued February 2014, of which $ 485 was exchanged in November 2021, both due in February 2024 (3)

3.875 % notes, issued in June 2014 and due in July 2024

$ 350 350 350

3.875 % notes, issued in April 2018 and due in April 2025

$ 500 500 500

4.625 % notes, $ 550 issued October 2018, of which $ 544 was exchanged in November 2021, both due in November 2025 (3)

0.750 % notes, issued December 2020 and due in March 2026

$ 325 325 325

4.875 % notes, $ 600 issued June 2016, of which $ 596 was exchanged in November 2021, both due in June 2026 (3)

4.125 % notes, $ 250 issued in September 2014 and $ 400 issued in March 2017, both due in October 2026

$ 650 650 650

3.000 % notes, issued in October 2016 and due in January 2027

$ 600 600 600

1.125 % notes, issued in July 2021 and due in July 2027

3.950 % notes, $ 600 issued August 2017, of which $ 594 was exchanged in November 2021, both due in August 2027 (3)

3.650 % notes, issued in December 2017 and due in January 2028

$ 550 550 550

3.400 % notes, $ 600 issued June 2020, of which $ 598 was exchanged in November 2021, both due in January 2028 (3)

2.200 % notes, $ 500 issued November 2020, of which $ 497 was exchanged in November 2021, both due in June 2028 (3)

3.250 % notes, issued in June 2019 and due in June 2029

$ 500 500 500

3.100 % notes, $ 600 issued December 2019, of which $ 596 was exchanged in November 2021, both due in December 2029 (3) (4)

1.625 % notes, issued in October 2020 and due December 2030

£ 400 541 547

3.250 % notes, $ 600 issued in May 2020 and $ 350 issued in July 2020, both due in January 2031

$ 950 950 950

2.850 % notes, $ 700 issued November 2020, of which $ 699 was exchanged in November 2021, both due in December 2032 (3)

1.800 % notes, issued in December 2020 and due in March 2033

$ 400 400 400

1.750 % notes, issued in July 2021 and due in July 2033

2.730 % notes, issued in May 2019 and due in May 2034

£ 315 427 431

5.875 % bonds, $ 100 issued in March 2005 and $ 150 issued in June 2011, both due in March 2035

$ 250 250 250

4.650 % notes, $ 300 issued in March 2017 and $ 250 issued in December 2017, both due in March 2047

$ 550 550 550

Total principal amount $ 12,257 $ 8,303

Unamortized net original issuance premiums and deferred financing costs ( 35 ) ( 30 )

Unamortized net premiums and deferred financing costs 243 ( 35 )

$ 12,500 $ 8,268

(1) In January 2021, we completed the early redemption of all $ 950.0 million in principal.

(1) In January 2021, we completed the early redemption of all $ 950.0 million in principal amount.

(2) In December 2021, we completed the early redemption of all $ 750.0 million in principal amount.

(3) In connection with our merger with VEREIT, we completed our debt exchange offer to exchange certain outstanding notes issued by VEREIT on November 9, 2021 for new notes issued by Realty Income.

Please refer to Exchange Offers Associated with our Merger with VEREIT below for more details.

Prior to the completion of our merger with VEREIT on November 1, 2021, these notes were not the obligation of Realty Income.

(4) These notes were originally issued by VEREIT in December of 2019 for the principal amount of $ 600 million.

The amount of Realty Income debt issued through the Exchange Offers was $ 599 million, resulting from cancellations due to late tenders that forfeited the early participation premium of $ 30 per $1,000 principal amount and cash paid in lieu of fractional shares.

In January 2022, we issued £ 250.0 million of 1.875 % senior unsecured notes due January 2027 and £ 250.0 million of 2.500 % senior unsecured notes due January 2042.

See note 19, Subsequent Events .

(2) Represents the principal balance (in U.S.

dollars) of the October 2020 Sterling-denominated note offering and May 2019 Sterling-denominated private placement of £ 400.0 million and £ 315.0 million, respectively, converted at the applicable exchange rate on December 31, 2020.

The following table summarizes the maturity of our notes and bonds payable as of December 31, 2020, excluding unamortized net original issuance premiums of $ 14.6 million and deferred financing costs of $ 49.2 million (dollars in millions):

The following table summarizes the maturity of our notes and bonds payable as of December 31, 2021, excluding unamortized net premiums of $ 295.5 million and deferred financing costs of $ 53.1 million (in millions):

Year of Maturity Principal

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Totals $ 12,257

(1) In January 2021, we completed the early redemption of all $ 950.0 million in principal.

See note 19, Subsequent Events .

As of December 31, 2021, the weighted average interest rate on our notes and bonds payable was 3.3 % and the weighted average remaining years until maturity was 7.7 years.

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accordingly, we have not pledged any assets as collateral for these or any other obligations.

Additionally, with the exception of our £ 400.0 million of 1.625 % senior unsecured

notes issued in October 2020, for which interest is paid annually, interest on our remaining senior unsecured note and bond obligations is paid semiannually.

Additionally, with the exception of our £ 400.0 million of 1.625 % senior unsecured notes issued in October 2020, our £ 400.0 million of 1.125 % senior unsecured notes issued in July 2021, £ 350.0 million of 1.750 % senior unsecured notes also issued in July 2021, our £ 250.0 million of 1.875 % senior unsecured notes issued in January 2022, and £ 250.0 million of 2.500 % senior unsecured notes also issued in January 2022, in each case where interest is paid annually, interest on our remaining senior unsecured note and bond obligations is paid semiannually.

All of these notes and bonds contain various covenants, including:

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Note Repayments

In January 2020, we repaid our $ 250.0 million of outstanding 5.75 % notes, plus accrued and unpaid interest upon maturity.

As a result of the early redemption, we recognized a $ 9.8 million loss on extinguishment of debt during the first quarter of 2020.

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.

For further information, see note 19, Subsequent Events .

We have redeemed the following principal amounts (in millions) of certain outstanding notes, prior to their maturity.

As a result of these early redemptions, we have recognized the following losses on extinguishment of debt (in millions) recognized in our consolidated statements of income and comprehensive income:

Loss on Extinguishment of Debt

2021 Repayments Principal Amount (1)

Amount of Loss Period Recognized

4.650 % notes due August 2023 redeemed in December 2021

$ 750.0 $ 46.4 December 31, 2021

3.250 % notes due October 2022 redeemed in January 2021

$ 950.0 $ 46.5 March 31, 2021

2020 Repayments

5.750 % notes due January 2021 redeemed in January 2020

$ 250.0 $ 9.8 March 31, 2020

(1) The redeemed principal amounts presented exclude the amounts we paid in accrued and unpaid interest.

Note Issuances

During the three year period ended December 31, 2021 we issued the following notes and bonds (in millions):

2020 Issuances Date of

Issuance Maturity date Principal

issued Price of par value Effective yield to

2021 Issuances Date of Issuance Maturity Date Principal amount used Price of par value Effective yield to maturity

1.125 % notes

July 2021 July 2027 £ 400 99.31 % 1.24 %

1.750 % notes

July 2021 July 2033 £ 350 99.84 % 1.76 %

4.600 % notes (1)

November 2021 February 2024 $ 485 100.00 % 4.60 %

4.625 % notes (1)

November 2021 November 2025 $ 544 100.00 % 4.63 %

4.875 % notes (1)

November 2021 June 2026 $ 596 100.00 % 4.88 %

3.950 % notes (1)

November 2021 August 2027 $ 594 100.00 % 3.95 %

3.400 % notes (1)

November 2021 January 2028 $ 598 100.00 % 3.40 %

2.200 % notes (1)

November 2021 June 2028 $ 497 100.00 % 2.20 %

3.100 % notes (1)

November 2021 December 2029 $ 596 100.00 % 3.10 %

2.850 % notes (1)

November 2021 December 2032 $ 699 100.00 % 2.85 %

2020 Issuances Date of Issuance Maturity Date Principal amount used Price of par value Effective yield to maturity

3.250 % notes (2)

May 2020 January 2031 $ 600 98.99 % 3.36 %

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December 2020 March 2033 $ 400 98.47 % 1.94 %

2019 Issuances

2019 Issuances Date of Issuance Maturity Date Principal amount used Price of par value Effective yield to maturity

2.730 % notes

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June 2019 June 2029 $ 500 99.36 % 3.33 %

2018 Issuance

3.875 % notes

April 2018 April 2025 $ 500 99.50 % 3.96 %

(1) In connection with our merger with VEREIT, we completed our debt exchange offer to exchange all outstanding notes issued by VEREIT OP on November 9, 2021 for new notes issued by Realty Income, pursuant to which approximately 99.2 % of the outstanding notes issued by VEREIT OP were exchanged.

We issued $ 1,000 principal amount of Realty Notes for each validly tendered VEREIT Notes with $ 1,000 principal amount.

For this reason, we denote our “Price of par value” as 100 %.

Prior to the completion of our merger with VEREIT on November 1, 2021, these notes were not the obligation of Realty Income.

With respect to the notes originally issued by VEREIT OP that remained outstanding, we amended the indenture governing such notes to, among other things, eliminate substantially all of the restrictive covenants in such indenture.

Additional details regarding the exchange offers are provided in the Exchange Offers Associated with our Merger with VEREIT section below.

(2) In July 2020, we issued $ 350.0 million of 3.250 % senior unsecured notes due January 2031 (the "2031 Notes"), which constituted a further issuance of, and formed a single series with, the $ 600.0 million of 2031 Notes issued in May 2020.

We intend to allocate an equal amount of the net proceeds from the July 2021 Sterling-denominated offering of 1.125 % notes due 2027 of £ 400.0 million, which approximated $ 546.3 million, and the July 2021 Sterling-denominated offering of 1.750 % notes due 2033 of £ 350.0 million, which approximated $ 480.6 million, as converted at the applicable exchange rate on the closing of the offerings, to finance or refinance, in whole or in part, new or existing eligible green projects in the categories outlined in our Green Financing Framework, which is designed to align with the International Capital Markets Association ("ICMA") Green Bond Principles 2021.

Pending the allocation of an amount equal to the net proceeds from the offering of the notes to eligible green projects, we may temporarily use all or a portion of the net proceeds to repay any outstanding indebtedness or for liability management activities, or invest such net proceeds in accordance with our cash investment policy.

The net proceeds of $ 391.3 million from the December 2020 offering of 1.800 % notes due 2033 and the net proceeds of $ 320.3 million from the December 2020 offering of 0.750 % notes due 2026 were used, along with available cash and additional borrowings, as necessary, to redeem in January 2021 all $ 950 million in aggregate principal amount of our outstanding 3.25 % notes due 2022 at the applicable redemption price, plus accrued interest and, to the extent not used for those purposes, to fund investment opportunities and for other general corporate purposes.

The net proceeds from the October 2020 Sterling-denominated offering of £ 400.0 million approximated $ 508.2 million, as converted at the applicable exchange rate on the closing of the offering, and were used to repay GBP-denominated borrowings outstanding under our $ 3.0 billion revolving credit facility, to settle an outstanding GBP/USD currency exchange swap arrangement and, to the extent not used for those purposes, to fund investment opportunities and for other general corporate purposes.

GBP/USD currency exchange swap arrangement and, to the extent not used for those purposes, to fund investment opportunities and for other general corporate purposes.

The net proceeds of $ 376.6 million from the July 2020 note offering and the net proceeds of $ 590.0 million from the May 2020 note offering were used to repay borrowings under our credit facility, to fund potential investment opportunities and for other general corporate purposes.

The gross proceeds from the May 2019 Sterling-denominated private placement of £ 315.0 million approximated $ 400.9 million, as converted at the applicable exchange rate on the closing of the offering, and were used to fund our initial investment in U.K.

The net proceeds of $ 493.5 million from the June 2019 note offering and the net proceeds of approximately $ 494.4 million from the April 2018 note offering were used to repay borrowings outstanding under our credit facility, to fund investment opportunities, and for other general corporate purposes.

The net proceeds of $ 493.5 million from the June 2019 note offering were used to repay borrowings outstanding under our credit facility, to fund investment opportunities, and for other general corporate purposes.

Exchange Offers Associated with our Merger with VEREIT

As part of our merger with VEREIT, Realty Income exchanged the following notes issued by VEREIT OP with notes of identical terms issued by Realty Income (in millions):

Series of VEREIT Notes Tenders and Consents Received as of the Expiration Date (1)

Percentage of Total Outstanding Principal Amount of Such Series of VEREIT Notes

4.600% Notes due 2024 $ 485 97.06 %

4.625% Notes due 2025 $ 544 98.95 %

4.875% Notes due 2026 $ 596 99.29 %

3.950% Notes due 2027 $ 594 99.02 %

3.400% Notes due January 2028 $ 598 99.66 %

2.200% Notes due June 2028 $ 497 99.42 %

3.100% Notes due 2029 $ 597 99.48 %

2.850% Notes due 2032 $ 700 99.93 %

(1) The amount of VEREIT notes exchanged are higher than the amount that Realty Income issued as a result of cancellations due to late tenders that forfeited the early participation premium of $ 30 per $1,000 principal amount and cash paid in lieu of fractional shares.

To induce holders of the VEREIT OP notes to participate in the exchange, Realty Income offered noteholders electing to exchange their notes a cash payment equal to 10 basis points of the note principal amount held.

Across the various note classes, Realty Income had a success rate of approximately 99.2 % on the exchange, resulting in a cash payment of $ 4.6 million to participating noteholders.

The exchange was accounted for as a modification of the existing VEREIT OP notes assumed in our merger with VEREIT .

The interest rate, interest payment dates, redemption terms and maturity of each series of Realty Income notes issued by Realty Income in the exchange offers were the same as those of the corresponding series of VEREIT notes exchanged.

Issuances of Common Stock

Issuance of Common Stock in an Overnight Offering

In March 2020, we issued 9,690,500 shares of common stock in an overnight underwritten public offering, including 690,500 shares purchased by the underwriters upon the exercise of their option to purchase to purchase additional shares.

Issuance of Common Stock in Connection with VEREIT Acquisition

On November 1, 2021, we completed our acquisition of VEREIT.

As a result of the merger, former VEREIT common stockholders, VEREIT OP common unitholders and awardees of vested share awards separated from Realty Income and received approximately 162 million shares of Realty Income common stock, based on the shares of VEREIT common stock and common units of VEREIT OP outstanding as of October 29, 2021.

For further details, please refer to note 3, Merger with VEREIT, Inc.

and Orion Office REIT Inc.

Divestiture .

Issuances of Common Stock in Overnight Underwritten Public Offerings

In July 2021, we issued 9,200,000 shares of common stock, including 1,200,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares.

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

In January 2021, we issued 12,075,000 shares of common stock, including 1,575,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares.

After deducting underwriting discounts

of $ 19.3 million, the net proceeds of $ 669.6 million were used to fund property acquisitions and for general corporate purposes, and working capital.

In March 2020, we issued 9,690,500 shares of common stock, including 690,500 shares purchased by the underwriters upon the exercise of their option to purchase additional shares.

The net proceeds of $ 728.9 million were used to repay borrowings under our credit facility, to fund investment opportunities, and for other general corporate purposes.

In May 2019, we issued 12,650,000 shares of common stock in an overnight underwritten public offering.

In May 2019, we issued 12,650,000 shares of common stock.

The net proceeds of $ 845.4 million were used to repay borrowings under our credit facility, to fund investment opportunities, and for other general corporate purposes.

We did no t issue any shares in an underwritten offering in 2018.

In January 2021, we issued 12,075,000 shares of common stock in an underwritten public offering, including 1,575,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares.

The company used the net proceeds from the offering, along with available cash and additional borrowings, to fund property acquisitions and for general corporate purposes and working capital.

For further information, see note 19, Subsequent Events .

At-the-Market (ATM) Program

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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 Dividend Reinvestment and Stock Purchase Plan ("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.

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Our DRSPP includes a waiver approval process, allowing larger investors or institutions, per a formal approval process, to purchase shares at a small discount, if approved by us.

We did not issue shares under the waiver approval process during 2020, 2019 or 2018.

We did no t issue shares under the waiver approval process during 2021, 2020 or 2019.

Noncontrolling Interests

In January 2013, we completed our acquisition of American Realty Capital Trust, Inc.

Equity issued as consideration for this transaction included common and preferred partnership units issued by Tau Operating Partnership, L.P., or Tau Operating Partnership, the consolidated subsidiary which owns properties acquired through the ARCT acquisition.

At December 31, 2018, Tau Operating Partnership and Realty Income, L.P.

were considered variable interest entities, or VIEs, in which we were deemed the primary beneficiary based on our controlling financial interests.

In January 2019, we redeemed all 317,022 remaining Tau Operating Partnership common units held by nonaffiliates for $ 20.2 million and recorded the excess over carrying value of $ 6.9 million as a reduction to common stock and paid in capital.

In conjunction with this redemption, we also paid off the outstanding balance and interest on the $ 70.0 million senior unsecured term loan entered in January 2013 in conjunction with our acquisition of ARCT.

Following the redemption, our taxable REIT subsidiary, Crest Net Lease, obtained a 0.11 % interest in Tau Operating Partnership, and we hold 100 % of the ownership interests of Tau Operating Partnership, L.P.

While we continue to consolidate the entity, it is no longer considered a VIE.

In 2019 and 2018, we completed the acquisitions of portfolios of properties, both by paying cash and by issuing additional common partnership units in Realty Income, L.P.

There are four entities with noncontrolling interests that we consolidate, including an operating partnership, Realty Income, L.P., two development joint ventures, one acquired in May 2021, one acquired in December 2020, and a joint venture acquired in 2019.

From time to time, we complete the acquisitions of assets in by issuing additional common partnership units in Realty Income, L.P.

as consideration for the acquisitions.

At December 31, 2020, the remaining units from this issuance represent a 1.9 % ownership in Realty Income, L.P.

We hold the remaining 98.1 % interests in this entity and consolidate the entity.

In November 2021, we issued 300,604 common partnership units in Realty Income, L.P.

in connection with the acquisition of seven properties and recorded $ 20.4 million of non-controlling interests.

In December 2021, we issued 240,586 common partnership units in Realty Income, L.P.

in connection with the acquisition of one property and recorded $ 16.6 million of non-controlling interests.

In addition, during November 2021 we issued 56,400 of common partnership units in Realty Income, L.P.

in exchange for VEREIT OP units in connection with our merger with VEREIT and recorded noncontrolling interests of $ 1.8 million.

At December 31, 2021, outstanding common partnership units in Realty

represent 4.2 % ownership interest in Realty Income L.P.

We hold the remaining 95.8 % interest and consolidate the entity.

None of our common partnership units have voting rights.

Common partnership units are entitled to monthly distributions equal to the amount paid to common stockholders of Realty Income, and are redeemable in cash or Realty Income common stock, at our option, and at a conversion ratio of one to one, subject to certain exceptions.

Prior to the Orion Divestiture, the conversion ratio was one to one.

These issuances with redemption provisions that permit the issuer to settle in either cash or common stock, at the option of the issuer, were evaluated to determine whether temporary or permanent equity classification on the balance sheet was appropriate.

We determined that the units meet the requirements to qualify for presentation as permanent equity.

In December 2020, we completed the acquisition of a development property by acquiring a controlling interest in a joint venture.

We are the managing member of this joint venture, and possess the ability to control the business and manage the affairs of this entity.

At December 31, 2020, we and our subsidiaries held an 75.8 % interest, and consolidated this entity in our consolidated financial statements.

In May 2021 and December 2020, we completed the respective acquisition of a development property by acquiring a controlling interest in a joint venture.

We are the managing member of these two joint ventures, and possess the ability to control the business and manage the affairs of these entities.

At December 31, 2021, we and our subsidiaries held an 72.4 % interest in the joint venture established in May 2021 and an 94.5 % interest in the joint venture established in December 2020.

In December 2019, we completed the acquisition of nine properties by acquiring a controlling interest in a joint venture.

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At December 31, 2021, we and our subsidiaries held an 89.9 % interest, and consolidated this entity in our consolidated financial statements.

In 2016, we completed the acquisition of two properties by acquiring a controlling interest in two entities.

In December 2018, we acquired all of the outstanding minority ownership interests associated with one of these entities.

In July 2019, we acquired all of the outstanding minority interest associated with the remaining entity.

The following table represents the change in the carrying value of all noncontrolling interests through December 31, 2020 (dollars in thousands):

Tau Operating

Partnership units (1)

The following table represents the change in the carrying value of all noncontrolling interests through December 31, 2021 (in thousands):

Realty Income, L.P.

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Reallocation of equity ( 47 ) — ( 47 )

Redemptions ( 13,356 ) — ( 901 ) ( 14,257 )

Additions to noncontrolling interest — 3,168 3,168

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Carrying value at December 31, 2020

$ 24,100 $ 8,147 $ 32,247

Contributions 36,975 6,415 43,390

Issued in merger 3,160 — 3,160

Orion divestiture ( 1,352 ) — ( 1,352 )

Reallocation of equity ( 42 ) — ( 42 )

Additions to noncontrolling interest — — 3,168 3,168

Distributions ( 1,574 ) ( 294 ) ( 1,868 )

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Carrying value at December 31, 2021

(1) 317,022 Tau Operating Partnership units were issued on January 22, 2013.

No units remained outstanding as of December 31, 2020 and 2019.

(2) 242,007 units were issued on March 30, 2018, 131,790 units were issued on April 30, 2018 and 89,322 units were issued on March 28, 2019.

463,119 units remained outstanding as of December 31, 2020 and 2019.

$ 62,416 $ 14,410 $ 76,826

(1) 242,007 units were issued on March 30, 2018, 131,790 units were issued on April 30, 2018, 89,322 units were issued on March 28, 2019, 56,400 units were issued on November 1, 2021, 300,604 units were issued on November 30, 2021, and 240,586 units were issued on December 30, 2021.

1,060,709 units remained outstanding as of December 31, 2021.

At December 31, 2021 and 2020, respectively, Realty Income, L.P.

and the joint ventures acquired during 2020 and 2019 were considered variable interest entities, or VIEs, in which we were deemed the primary beneficiary based on our controlling financial interests.

and certain of our joint venture investments were considered variable interest entities, or VIEs, in which we were deemed the primary beneficiary based on our controlling financial interests.

Below is a summary of selected financial data of consolidated VIEs included in the consolidated balance sheets at December 31, 2021 and 2020 (in thousands):

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Total capital gain distribution (1)

Totals $ 2.7940000 $ 2.7105000 $ 2.6305000

0.0854609 0.0238401 —

$ 4.8927123 $ 2.7940000 $ 2.7105000

(1) Unrecaptured Section 1250 Gain of $ 0.0649153 , or 1.327 % of the total common dividends paid in 2021, and Section 897 Gain of $ 0.0854609 , or 1.747 % of the total common dividends paid in 2021, both represent additional characterization of, and are part of, total capital gain distribution.

(2) The amount distributed in 2021 includes the $ 2.060 tax distribution of Orion shares, that occurred in conjunction with the Orion Divestiture on November 12, 2021, after our merger with VEREIT on November 1, 2021.

The fair market value of these shares for tax distribution was determined to be $ 20.6272 per share, which was calculated using the five day volume weighted average share price after issuance.

At December 31, 2021, a distribution of $ 0.2465 per common share was payable and was paid in January 2022.

At December 31, 2020, a distribution of $ 0.2345 per common share was payable and was paid in January 2021.

Operating Leases

At December 31, 2020, we owned 6,592 properties in 49 U.S.

states, Puerto Rico and the U.K.

Lessor Operating Leases

At December 31, 2021, we owned 11,136 properties in all 50 U.S.

states, Puerto Rico, the U.K.

Of the 11,136 properties, 11,043 , or 99.2 %, are single-client properties, and the remaining are multi-client properties.

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Substantially all of our leases are net leases where our client pays or reimburses us for property taxes and assessments, maintains the interior and exterior of the building and leased premises, and carries insurance coverage for public liability, property damage, fire and extended coverage.

Rent based on a percentage of our client's gross sales, or percentage rents, was $ 5.1 million for 2020, $ 8.0 million for 2019 and $ 5.9 million for 2018.

At December 31, 2020, minimum future annual rents to be received on the operating leases for the next five years and thereafter are as follows (dollars in thousands):

Rental revenue based on a percentage of our client's gross sales, or percentage rents, was $ 6.5 million for 2021, $ 5.1 million in 2020, and $ 8.0 million for 2019.

At December 31, 2021, minimum future annual rental revenue to be received on the operating leases for the next five years and thereafter are as follows (in thousands):

Future Minimum Operating Lease Payments Future Minimum Direct Financing Lease Payments (1)

2022 $ 2,900,002 $ 1,925

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Totals $ 28,222,310 $ 4,824

Major Clients - No individual client's rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the years ended December 31, 2020, 2019 or 2018.

Gain on Sales of Real Estate

The following table summarizes our properties sold during the periods indicated below (dollars in millions):

Year Ended December 31,

2020 2019 2018

Number of properties 126 93 128

Net sales proceeds $ 262.5 $ 108.9 $ 142.3

Gain on sales of real estate $ 76.2 $ 30.0 $ 24.6

These property sales do not represent a strategic shift that will have a major effect on our operations and financial results, and therefore do not require presentation as discontinued operations.

(1) Related to 18 properties which are subject to direct financing leases and, therefore, revenue is recognized as rental income on the discounted cash flows of the lease payments.

Amounts reflect undiscounted cash flows to be received by the Company under the lease agreements on these respective properties.

No individual client's rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the years ended December 31, 2021, 2020 or 2019.

Financial Instruments and Fair Value Measurements

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The disclosure for assets and liabilities measured at fair value requires allocation to a three-level valuation hierarchy.

This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

ASC 820, Fair Value Measurements and Disclosures , sets forth a fair value hierarchy that categorizes inputs to valuation techniques used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs.

Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

We believe that the carrying values reflected in our consolidated balance sheets reasonably approximate the fair values for cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, line of credit payable and commercial paper borrowings, term loans and all other liabilities, due to their short-term nature or interest rates and terms that are consistent with market, except for our mortgages payable assumed in connection with acquisitions and our senior notes and bonds payable, which are disclosed as follows (dollars in millions):

At December 31, 2020 Carrying value Estimated fair value

• Level 1 – Unadjusted quoted prices in active markets

Financial instruments are classified as Level 1 if their value is observable in an active market.

Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions.

An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis.

• Level 2 – Valuation Technique Using Observable Inputs

Financial instruments classified as Level 2 are valued using quoted prices for identical instruments in markets that are not considered to be active, or quoted prices for similar assets or liabilities in active markets, or valuation techniques in which all significant inputs are observable, or can be corroborated by observable market data for substantially the entire contractual term of the financial asset or liability.

• Level 3 – Valuation Technique Using Significant Unobservable Inputs

Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs).

Such inputs are generally determined based on observable inputs of a similar nature, historical observations on the level of the inputs, or other analytical techniques.

We evaluate our hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from period to period.

Changes in the type of inputs may result in a reclassification for certain assets.

We have not historically had changes in classifications and do not expect that changes in classifications between levels will be frequent.

Financial Instruments Not Measured at Fair Value on the Consolidated Balance Sheets

The fair value of short-term financial instruments such as cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, accounts payable, distributions payable, line of credit payable and commercial paper borrowings, and other liabilities approximate their carrying value in the accompanying consolidated balance sheets, due to their short-term nature.

The fair value of our financial instruments not carried at fair value are disclosed as follows (in millions):

At December 31, 2021

Carrying value Estimated fair value

Mortgages payable assumed in connection with acquisitions (1)

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$ 12,257.3 $ 13,114.5

At December 31, 2019 Carrying value Estimated fair value

At December 31, 2020

Carrying value Estimated fair value

Mortgages payable assumed in connection with acquisitions (1)

4 unchanged sentences

The unamortized balance of these net premiums is $ 28.7 million at December 31, 2021, and $ 1.7 million at December 31, 2020.

Also excludes deferred financing costs of $ 973,000 at December 31, 2020, and $ 1.3 million at December 31, 2019.

(2) Excludes non-cash original issuance premiums and discounts recorded on notes payable.

The unamortized balance of the net original issuance premiums was $ 14.6 million at December 31, 2020, and $ 6.3 million at December 31, 2019.

Also excludes deferred financing costs of $ 790,000 at December 31, 2021, and $ 973,000 at December 31, 2020.

(2) Excludes non-cash premiums and discounts recorded on notes payable.

The unamortized balance of the net premiums was $ 295.5 million at December 31, 2021, and $ 14.6 million at December 31, 2020.

Also excludes deferred financing costs of $ 53.1 million at December 31, 2021 and $ 49.2 million at December 31, 2020.

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Because this methodology includes unobservable inputs that reflect our own internal assumptions and calculations, the measurement of estimated fair values related to our mortgages payable is categorized as level three on the three-level valuation hierarchy.

The estimated fair values of our publicly-traded senior notes and bonds payable are based upon indicative market prices and recent trading activity of our senior notes and bonds payable.

The estimated fair values of our publicly-traded senior notes and bonds payable are based upon indicative market prices and recent trading activity of our senior notes and bonds payable, including the senior notes and bonds payable assumed in the debt exchange offer on November 9, 2021 in connection with our merger with VEREIT.

Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values related to our notes and bonds payable is categorized as level two on the three-level valuation hierarchy.

The following table summarizes the terms and fair values of our derivative financial instruments at December 31, 2020 and 2019 (dollars in millions):

Financial Instruments Measured at Fair Value on a Recurring Basis

For derivative assets and liabilities, we utilize interest rate swaps and forward-starting swaps to manage interest rate risk, and cross-currency swaps, currency exchange swaps, foreign currency forwards and foreign currency collars to manage foreign currency risk.

The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative.

This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, spot and forward rates, as well as option volatility .

Derivative fair values also include credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although we have determined that the majority of the inputs used to value our derivatives fall within level two on the three-level valuation hierarchy, the credit valuation adjustments associated with our derivatives utilize level three inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by ourselves and our counterparties.

However, at December 31, 2021 and 2020, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.

As a result, we determined that our derivative valuations in their entirety are classified as level two.

Items Measured at Fair Value on a Non-Recurring Basis

Certain financial and nonfinancial assets and liabilities are measured at fair value on a non-recurring basis and are subject to fair value adjustments only under certain circumstances, such as when an impairment write-down occurs.

As a result, we recorded provisions for impairment of $ 105.0 million for the year ended December 31, 2020 on the applicable properties impacted by the COVID-19 pandemic.

Of the provisions for impairment recorded during 2020

for properties impacted by the COVID-19 pandemic, a total of 13 assets occupied by certain of our clients in the theater industry were impaired for $ 83.8 million, which reduced the carrying value of the properties from $ 123.4 million to their estimated fair value of $ 39.6 million.

Impairments recorded on other properties during the year ended December 31, 2020 totaled $ 42.2 million.

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

Year Ended December 31,

2021 2020 2019

Total provisions for impairment $ 39.0 $ 147.2 $ 40.2

Number of properties:

Classified as held for sale 16 1 —

Classified as held for investment 11 34 3

Sold 76 64 48

Derivative Designated as Hedging Instruments

In order to hedge the foreign currency risk associated with interest payments on intercompany loans denominated in British Pound Sterling, or GBP, during the second quarter of 2021, we initiated a hedging strategy to enter into foreign currency forward contracts to sell GBP and buy U.S.

Dollars, or USD.

These foreign currency forwards are designated as cash flow hedges.

Forward points on the forward contracts are included in the assessment of hedge effectiveness.

Amounts reported in other comprehensive income (loss) related to foreign currency derivative contracts will be reclassified to other gains and (losses) in the same period during which the hedged forecasted transactions affect earnings.

As of December 31, 2021, we had one interest rate swap in place on our $ 250.0 million unsecured term loan.

Our objective in using derivatives is to add stability to interest expense and to manage our exposure to interest rate movements.

We designated this interest rate swap as a cash flow hedge in accordance with Topic 815, Derivatives and Hedging .

This interest rate swap is recorded on the consolidated balances sheets at fair value.

Changes to fair value are recorded to accumulated other comprehensive income, or AOCI, and are amortized through interest expense over the term of the associated debt.

In February 2020, we entered into five forward starting treasury rate locks with notional amounts totaling $ 500.0 million.

The treasury rate locks were entered into to hedge our exposure to the changes in the 10-year US treasury rates in anticipation of potential future debt offerings during the first half of 2020.

The treasury rate locks were designated as cash flow hedges, with any changes in fair value recorded in AOCI.

Upon the initial issuance of the 2031 Notes in May 2020, we amortized the AOCI balance over the term of the 2031 Notes.

The forward starting swaps are designated as cash flow hedges, with any changes in fair value recorded in AOCI.

Upon the December 2020 issuance of $ 325.0 million of 0.750 % notes due March 2026 and $ 400.0 million of 1.800 % notes due March 2033, the AOCI balance associated with six of the forward starting swaps with a notional amount of $ 500.0 million began amortizing over the term.

The AOCI balance being amortized represents the change in fair value on four swaps with a notional amount of $ 350.0 million from the July issuance of the 2031 notes through the December note issuances and the change in fair value from the two remaining forward starting swaps with a notional amount of $ 150.0 million from their June 2020 inception through the December note issuances.

The notional amounts of the six swaps were first applied to the $ 400.0 million of 1.800 % notes due March 2033, with the remaining $ 100.0 million of notional applied to the $ 325.0 million of 0.750 % notes due March 2026.

As a result, we have bifurcated the derivative instrument and the debt instrument for those two forward starting interest rate swaps for accounting purposes.

The remaining four forward starting interest rates swaps are accounted for as derivative instruments.

The following table summarizes the amount of unrealized gain (loss) on derivatives in other comprehensive income (loss) during the periods indicated below (in thousands):

Years Ended December 31,

Derivatives in Cash Flow Hedging Relationships 2021 2020 2019

Currency swaps $ 8,232 $ ( 2,169 ) $ ( 971 )

Interest rate swaps 34,659 ( 32,757 ) ( 8,219 )

Foreign currency forwards 7,557 — —

Total unrealized gain (loss) on derivatives $ 50,448 $ ( 34,926 ) $ ( 9,190 )

The following table summarizes the amount of gain (loss) on derivatives reclassified from accumulated other comprehensive income (loss) during the periods indicated below (in thousands):

Years Ended December 31,

Derivatives in Cash Flow Hedging Relationships Location of Gain (Loss) Recognized in Income 2021 2020 2019

Currency swaps Foreign currency and derivative gain (loss), net $ 3,541 $ ( 3,617 ) $ ( 5,472 )

Interest rate swaps Interest expense ( 10,343 ) ( 11,434 ) ( 3,436 )

Net decrease to net income $ ( 6,802 ) $ ( 15,051 ) $ ( 8,908 )

We expect to reclassify $ 9.4 million from AOCI as an increase to interest expense relating to interest rate swaps and $ 3.3 million from AOCI to foreign currency gain relating to cross-currency swaps within the next twelve months.

Derivatives Not Designated as Hedging Instruments

Based on our potential exposure to changes in foreign currency exchange rate, primarily in British Pound Sterling and, to a lesser extent, the Euro, we initiated a program in the third quarter of 2021 to enter into foreign currency collars.

A foreign currency collar consists of a written call option and a purchased put option to sell the foreign currency at a range of predetermined exchange rates.

A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices.

Our foreign currency collars generally have maturities of five months or less and are not designated as hedge instruments for accounting purposes.

The gains or loss on these derivative contracts are recognized in other income, net based on the changes in fair value.

As of December 31, 2021, we had no outstanding foreign currency collars.

In addition, from time to time we enter into currency exchange swap agreements to reduce the effects of currency exchange rate fluctuations between the British Pound Sterling and Euro.

These derivative contracts generally mature within two months and are not designated as hedge instruments for accounting purposes.

The net gain from derivatives not designated in hedging relationships for 2021 totaled $ 9.7 million and resulted from short term currency exchange swaps and foreign currency collars.

The net loss from derivatives not designated in hedging relationships for 2020 totaled $ 14.5 million and resulted from short term currency exchange swaps.

The following table summarizes the terms and fair values of our derivative financial instruments at December 31, 2021 and December 31, 2020 (dollars in millions):

Derivative Type

Accounting Classification Hedge Designation

Notional Amount

Effective Date

Number of Instruments (1)

Accounting Classification Notional Amount as of December 31,

Weighted Average Strike Rate (2)

Maturity Date (3)

Fair Value - asset (liability)

December 31, December 31, December 31, December 31,

2020 2019 2020 2019

Interest rate swap (1)

Derivative Cash flow

$ — $ 7.0 6.03 % 09/25/2012 09/03/2021 $ — $ ( 0.2 )

Interest rate swap

Derivative Cash flow

— 250.0 1.72 % 06/30/2015 06/30/2020 — ( 0.1 )

Fair Value - asset (liability) as of December 31,

Derivatives Designated as Hedging Instruments 2021 2020 2021 2020

Interest rate swap

Derivative Cash flow

250.0 250.0 3.04 % 10/24/2018 03/24/2024 ( 22.6 ) ( 14.7 )

Cross-currency swap (2)

Derivative Cash flow

41.6 41.6 (3) 05/20/2019 05/22/2034 ( 5.2 ) ( 2.6 )

Cross-currency swap (2)

Derivative Cash flow

41.6 41.6 (4) 05/20/2019 05/22/2034 ( 5.1 ) ( 2.6 )

Cross-currency swap (2)

Derivative Cash flow

41.6 41.6 (5) 05/20/2019 05/22/2034 ( 5.4 ) ( 2.9 )

Cross-currency swap (2)

Derivative Cash flow

41.6 41.6 (6) 05/20/2019 05/22/2034 ( 5.7 ) ( 3.2 )

Currency exchange swap (2)

Derivative N/A 625.0 — (7) 12/23/2020 01/29/2021 ( 8.2 ) —

Forward-starting swap Derivative Cash flow

75.0 — 2.02 % (8) 06/30/2033 ( 5.0 ) —

Forward-starting swap Derivative Cash flow

75.0 — 1.94 % (8) 11/30/2032 ( 5.2 ) —

Forward-starting swap Derivative Cash flow

1 Derivative $ 250.0 $ 250.0 3.04 % 03/2024 $ ( 11.9 ) $ ( 22.6 )

Cross-currency swaps (4)

4 Derivative 166.3 166.4 (5) 05/2034 ( 13.8 ) ( 21.4 )

Foreign currency forwards 32 Derivative 176.1 0.0 (6) 01/2022 - 08/2024 7.6 —

Forward-starting swaps (7)

4 Derivative 300.0 300.0 1.86 % 11/2032 - 06/2033 ( 3.2 ) ( 16.5 )

Forward-starting swaps (7)

2 Hybrid debt 200.0 200.0 1.93 % 11/2032 - 06/2033 ( 5.1 ) ( 12.8 )

$ 1,092.4 $ 916.4 $ ( 26.4 ) $ ( 73.3 )

Forward-starting swap Derivative Cash flow

Derivatives not Designated as Hedging Instruments

Currency exchange swaps (8)

4 Derivative 1,639.5 625.0 (9) 01/2022 - 02/2022 ( 14.7 ) ( 8.2 )

Total of all Derivatives $ 2,731.9 $ 1,541.4 $ ( 41.1 ) $ ( 81.5 )

(1) This column represents the number of instruments outstanding as of December 31, 2021.

(2) Weighted average strike rate is calculated using the current notional value as of December 31, 2021.

(3) This column represents maturity dates for instruments outstanding as of December 31, 2021.

(4) Represents four British Pound Sterling, or GBP cross-currency swaps with notional amount of $ 166.3 million.

(5) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD weighted average fixed rate at 9.78 %.

(6) Weighted average forward GBP-USD exchange rate of 1.41 .

(7) There were five treasury rate locks entered into during February 2020 that were terminated in June 2020 and converted into six forward starting interest rate swaps through a cashless settlement.

For full discussion of the hedging arrangements for these six forward starting swaps, please refer to Derivative Designated as Hedging Instruments above.

(8) Represents two British Pound Sterling, or GBP currency exchange swaps with notional amount of $ 1.36 billion and two Euro, or EUR currency exchange swaps with notional amount of $ 275.9 million.

(9) Weighted average Forward GBP-USD exchange rate of 1.34 and Weighted Average Forward EUR-USD exchange rate of 1.16 .

We have agreements with each of our derivative counterparties containing provisions under which we could be declared in default on our derivative obligations if repayment of our indebtedness is accelerated by the lender due to our default.

Certain of our derivative transactions include credit support annex collateral agreements with derivative counterparties requiring collateral posting based on changes in value of the derivative.

As of December 31, 2021 and December 31, 2020, no collateral has been posted related to such arrangements .

Supplemental Disclosures of Cash Flow Information

The following table summarizes our supplemental cash flow information during the periods indicated below (in thousands):

2021 2020 2019

Forward-starting swap Hybrid debt Cash flow

Supplemental disclosures:

Cash paid for interest $ 355,483 $ 285,617 $ 275,303

Cash paid for income taxes $ 19,676 $ 13,128 $ 4,221

Cash paid for merger and integration-related costs $ 157,115 $ — $ —

Non-cash activities:

Increase (decrease) in net derivative liability position at fair value $ ( 40,489 ) $ 55,205 $ —

Mortgages assumed at fair value (1)

$ 911,525 $ — $ 130,765

Forward-starting swap Hybrid debt Cash flow

Notes payable assumed at fair value $ 4,946,965 $ — $ —

Non-cash assets and liabilities assumed in merger $ 11,559,875 $ — $ —

Non-cash assets and liabilities distributed in Orion Divestiture $ 1,142,121 $ — $ —

Adoption of Accounting Standards Codifications Topic 842, Leases

$ — $ — $ 131,982

Issuance of common partnership units of Realty Income, L.P.

$ 38,783 $ — $ 6,286

(1) In connection with the early prepayment of a mortgage loan during the fourth quarter of 2020, the swap was terminated with a payment of $ 0.2 million and we recognized an associated loss on derivative of $ 0.2 million.

(2) Represents British Pound Sterling, or GBP, United States Dollar, or USD, cross-currency swap.

(3) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.800 %.

(4) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.803 %.

(5) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.745 %.

(6) GBP fixed rates initially at 4.82 % and escalating to 10.96 %, and USD fixed rate at 9.755 %.

(7) The forward GBP-USD exchange rate is 1.35 .

(8) The five treasury rate locks which were entered into during February 2020 were terminated in June 2020 and converted into six forward starting interest rate swaps through a cashless settlement of the terminated treasury rate locks.

We measure our derivatives at fair value and include the balances within other assets and accounts payable and accrued expenses on our consolidated balance sheets.

We utilize interest rate swap agreements to manage interest rate risk and cross-currency swaps to manage foreign currency risk.

The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative.

To comply with the provisions of ASC 820, Fair Value Measurement , we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

However, at December 31, 2020 and 2019, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.

As a result, we determined that our derivative valuations in their entirety are classified as level two on the three-level valuation hierarchy.

Unrealized gains and losses in AOCI are reclassified to interest expense in the case of interest rate swaps and to foreign currency gains and losses, net in the case of cross-currency swaps, when the related hedged items are recognized.

During 2020, we reclassified $ 11.4 million from AOCI as an increase to interest expense for our interest rate swaps and $ 3.6 million for 2020 in cross-currency swap losses into foreign currency and derivative gains, net.

During 2019, we reclassified $ 3.4 million from AOCI as an increase to interest expense for our interest rate swaps and $ 5.5 million for 2019 in cross-currency swap losses into foreign currency and derivative gains, net.

During 2018, there were no outstanding derivatives designated as hedges and accounted for through AOCI.

As a result, there were no amounts to reclassify from AOCI during 2018.

We expect to reclassify $ 10.3 million from AOCI as an increase to interest expense relating to interest rate swaps and $ 1.0 million from AOCI to foreign currency gain relating to cross-currency swaps within the next twelve months.

Supplemental Disclosures of Cash Flow Information

Cash paid for interest was $ 285.6 million in 2020, $ 275.3 million in 2019, and $ 251.5 million in 2018.

Cash paid for income taxes was $ 13.1 million in 2020, $ 4.2 million in 2019, and $ 4.7 million in 2018.

The following non-cash activities are included in the accompanying consolidated financial statements:

During 2020, the fair value of derivatives decreased by $ 55.2 million.

Non-refundable deposits from 2019 of $ 13.8 million were applied to acquisitions during 2020.

As a result of the adoption of Accounting Standards Codifications Topic 842, Leases , on January 1, 2019, we recorded $ 132.0 million of lease liabilities and related right of use assets as lessee under operating leases.

During 2019, we issued 89,322 common partnership units of Realty Income, L.P.

totaling $ 6.3 million, as partial consideration for an acquisition of properties.

During 2019, we recorded $ 5.1 million to noncontrolling interests in connection with the acquisition of a controlling interest in a consolidated joint venture.

During 2019, we assumed mortgages payable to the third-party lenders of $ 130.8 million.

During 2018, we issued 373,797 common partnership units of Realty Income, L.P.

as partial consideration for an acquisition of properties, totaling $ 18.8 million.

During 2018, we completed the acquisition of a property using $ 7.5 million in funds that were held in a non-refundable escrow account.

Per the requirements of ASU 2016-18 (Topic 230, Statement of Cash Flows ) the following table provides a reconciliation of cash and cash equivalents reported within the consolidated balance sheets to the total of the cash, cash equivalents and restricted cash reported within the consolidated statements of cash flows (dollars in thousands):

Acquisition of a controlling interest $ — $ — $ 5,084

(1) For 2021, includes £ 31.0 million Sterling, converted at the applicable exchange rate on the date of transaction, for one mortgage and $ 869.1 million, estimated at fair value, for ten mortgages from our merger with VEREIT.

(2) For 2021, includes $ 1.8 million for the issuance of 56,400 units on November 1, 2021 that were a result of our merger with VEREIT, $ 20.4 million for the issuance of 300,604 units on November 30, 2021 that were a partial consideration for an acquisition of properties, and $ 16.6 million for the issuance of 240,586 units on December 30, 2021 that were issued to a new partner in connection with an industrial property contribution.

For 2019, includes $ 6.3 million for the issuance of 89,322 units on March 28, 2019 that were a partial consideration for an acquisition of properties.

The following table provides a reconciliation of cash and cash equivalents reported within the consolidated balance sheets to the total of the cash, cash equivalents and restricted cash reported within the consolidated statements of cash flows (in thousands):

December 31, 2021 December 31, 2020

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Restricted escrow deposits (1)

68,541 21,220

Impounds related to mortgages payable (1)

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Common Stock Incentive Plan

In 2012, our Board of Directors adopted and stockholders approved the Realty Income Corporation 2012 Incentive Award Plan, or the 2012 Plan, to enable us to motivate, attract and retain the services of directors and employees considered essential to our long-term success.

The 2012 Plan offers our directors and employees an opportunity to own our stock or rights that will reflect our growth, development and financial success.

Under the terms of the 2012 plan, the aggregate number of shares of our common stock subject to options, restricted stock, stock appreciation rights, restricted stock units, performance shares and other awards, will be no more than 3,985,734 shares.

The 2012 Plan has a term of ten years from the date it was adopted by our Board of Directors.

The amount of share-based compensation costs recognized in general and administrative expense on our consolidated statements of income and comprehensive income was $ 16.5 million during 2020, $ 13.7 million during 2019 and $ 27.3 million during 2018.

Upon the departure of our former CFO in March 2020, we incurred a severance charge of $ 3.5 million, consisting of $ 1.6 million of cash, $ 1.8 million of share-based compensation expense and $ 58,000 of professional fees.

Upon the departure of our former CEO in October 2018, we incurred a severance charge of $ 28.3 million, consisting of $ 9.8 million of cash, $ 17.9 million of share-based compensation expense and $ 574,000 of professional fees.

The incremental severance of $ 18.7 million consists of the $ 28.3 million total severance charge reduced by $ 9.6 million of compensation accrued prior to separation.

The net amount of accelerated equity awards expensed in 2018 related to his departure was $ 11.8 million.

In March 2021, our Board of Directors adopted, and in May 2021, stockholders approved, the Realty Income 2021 Incentive Award Plan, or 2021 Plan, to enable us to motivate, attract and retain the services of directors, employees and consultants, considered essential to our long-term success.

The 2021 Plan offers our directors, employees and consultants an opportunity to own our stock and/or rights that will reflect our growth, development and financial success.

Except as noted below, the aggregate number of shares of our common stock subject to options, stock purchase rights, or SPR, stock appreciation rights, or SAR, and other awards, will be no more 8,924,231 shares.

The maximum number of shares that may be subject to options, SPR, SAR and other awards granted under the plan to any individual in any calendar year may not exceed 3,200,000 , and the maximum aggregate amount of cash that may be paid in cash during any calendar year with respect to one or more shares payable in cash shall be $ 10.0 million.

The 2021 Plan replaced the Realty Income Corporation 2012 Incentive Award Plan, or the 2012 Plan, which was set to expire in March 2022.

No further awards will be granted under the 2012 Plan.

The disclosures below incorporate activity for both the 2012 Plan and the 2021 Plan.

In connection with the Merger, shares which remained available for issuance under the VEREIT, Inc.

2021 Equity Incentive Plan immediately prior to the closing of the merger (as adjusted by the Exchange Ratio) may be used for awards under the 2021 Plan and will not reduce the shares authorized for grant under the 2021 Plan, to the extent that awards using such shares (i) are permitted without stockholder approval under applicable stock exchange rules, (ii) are made only to VEREIT service providers or individuals who become Realty Income service providers following the date of the consummation of the merger, and (iii) are only granted under the 2021 Plan during the period commencing on the date of the consummation of the merger and ending on June 2, 2031.

As a result, 6,186,101 additional shares are available for issuance under the 2021 Plan.

The amount of share-based compensation costs recognized in general and administrative expense on our consolidated statements of income and comprehensive income was $ 16.2 million during 2021, $ 16.5 million during 2020 (including $ 1.8 million of accelerated share-based compensation costs for our former Chief Financial Officer ("CFO")) and $ 13.7 million during 2019.

In connection with the Merger, each outstanding VEREIT, Inc.

stock option and restricted stock unit that were unvested as of November 1, 2021 were converted into equivalent options and restricted stock units, in each case with respect to shares of the Company's common stock, using the equity award exchange ratio in accordance with the merger agreement.

The converted awards issued by Realty Income have identical terms to the original VEREIT, Inc.

On November 1, 2021, we issued 442,418 shares of Realty Income common stock in settlement of equity awards that vested upon the separation of certain former-VEREIT employees and directors in connection with the merger.

This issuance is excluded from the Restricted Stock Units and Stock Options sections below, as the awards were not granted under the 2021 Plan.

The aggregate fair value of the converted awards was $ 71.6 million, of which i.) $ 44.0 million related to pre-combination services and is included in the consideration transferred in the merger (please refer to Note 3, Merger with VEREIT and Orion Divestiture ), ii.) $ 25.6 million of expense was recognized during November in merger and integration-related costs related to the acceleration of vesting upon the separation of certain employees in connection with the merger, and iii.) $ 2.0 million will be amortized through general and administrative expenses over the remaining vesting term for former VEREIT, Inc.

employees who were retained by Realty Income.

The following disclosures are inclusive of converted awards for former VEREIT employees continuing as employees of Realty Income, which are reflected as grants, as the replacement awards represent newly issued awards settled in Realty Income common shares.

In connection with the Orion Divestiture, each stock option, restricted stock unit and performance award outstanding at November 12, 2021 was entitled to an equitable adjustment equal to the ratio of the five-day volume weighted average per-share price of Realty Income common stock prior to the Orion Divestiture divided by the five-day volume weighted average per-share of Realty Income common stock following the Orion Divestiture, resulting in an adjustment factor of approximately 1.002342 .

The equitable adjustment was considered a modification in accordance with the provisions of ASC 718, Compensation-Stock Compensation .

As a result, we compared the fair value of each award immediately prior to the equitable adjustment to the fair value immediately after the equitable adjustment to measure incremental compensation cost, if any.

The equitable adjustment did not result in any incremental fair value.

Therefore, no stock-based compensation expense was recorded as of result of the modification.

The following disclosures are inclusive of these adjustments, which has been labeled 'Equitable adjustment - Orion Divestiture' throughout.

Restricted Stock

The following table summarizes our common stock grant activity under our 2012 Plan.

The following table summarizes our common stock grant activity under our 2021 and 2012 Plans.

2021 2020 2019

16 unchanged sentences

During May 2021, we granted 36,000 shares of restricted stock to the independent members of our Board of Directors, in connection with our annual awards, of which 24,000 shares vested immediately, and 12,000 shares vest in equal parts over a three-year service period.

In addition, in November 2021, we granted 8,000 shares of restricted stock to the new members of our Board of Directors, which vest in equal parts over a three-year service period.

Our restricted stock awards granted to employees typically vest annually in equal parts over a four-year service period.

During 2020, 67,473 shares were granted to our employees, and vest over a four-year service period, with the exception of 4,541 shares granted to our former CFO, which vested upon his departure from the Company.

During 2021, 89,052 shares were granted to our employees, and vest over a four-year service period.

As of December 31, 2021, the remaining unamortized share-based compensation expense related to restricted stock totaled $ 9.2 million, which is being amortized on a straight-line basis over the service period of each applicable award.

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Performance Shares

During 2020, 2019 and 2018, we granted performance share awards, as well as dividend equivalent rights, to our executive officers.

During 2021, 2020 and 2019, we granted annual performance share awards, as well as dividend equivalent rights, to our executive officers.

The number of performance shares that vest for each of the three years is based on the achievement of the following performance goals:

Weighting for year granted

Performance Awards Metrics 2020 2019 2018

Annual Performance Awards Metrics 2021 2020 2019

Total shareholder return (“TSR”) ranking relative to MSCI US REIT Index 70 % 70 % 45 %

TSR ranking relative to J.P.

Morgan Net Lease Peer Group N/A 26 % 26 %

Morgan Net Lease Peer Group N/A N/A 26 %

Dividend per share Growth Rate 15 % 15 % 16 %

Debt-to-Adjusted EBITDA re Ratio

N/A 13 % 13 %

Net Debt-to-Adjusted EBITDA re Ratio

The performance shares are earned based on our performance related to our metrics above, and vest 50 % on the first and second January 1 after the end of the three-year performance period, subject to continued service.

15 % 15 % N/A

The annual performance shares are earned based on our performance related to our metrics above, and vest 50 % on the first and second January 1 after the end of the three-year performance period, subject to continued service.

The performance period for the 2019 performance awards began on January 1, 2019 and ended on December 31, 2021.

The performance period for the 2019 performance awards began on January 1, 2019 and will end on December 31, 2021.

The performance period for the 2020 performance awards began on January 1, 2020 and will end on

December 31, 2022.

The performance period for the 2021 performance awards began on January 1, 2021 and will end on December 31, 2023.

The fair value of the performance shares was estimated on the date of grant using a Monte Carlo Simulation model.

The following table summarizes our performance share grant activity:

On November 15, 2021, the Compensation Committee approved a one-time grant of performance share awards and a one-time cash bonus to certain of our named executives in connection with the completion of our merger with VEREIT and the transactions contemplated thereby, including the Orion Divestiture (the "VEREIT Transaction").

The awards were made to reward the executives for the successful consummation of the VEREIT Transaction and were intended to retain and motivate the executives to achieve optimal synergies and incentivize further growth from the merger.

The performance shares are earned based on our performance related to AFFO accretion ( 50 % weighting) and general and administrative expense synergies ( 50 % weighting), and vest 50 % upon the completion of the performance period.

The remaining 50 % will vest on the one-year anniversary of the completion of the applicable performance period.

All vesting is subject to continued service.

The performance period is one year for the AFFO accretion targets from January 1, 2022 to December 31, 2022 and two years for the general and administrative expense synergies from January 1, 2022 to December 31, 2023.

The fair value of the annual performance shares was estimated on the date of grant using a Monte Carlo Simulation model.

The fair value of the one-time performance shares was based on the fair value of our common stock at the grant date and is dependent on the probability of satisfying the performance conditions stipulated in the award grant.

The following table summarizes our performance share grant activity, inclusive of annual performance shares and the one-time performance shares related to the merger with VEREIT:

2021 2020 2019

4 unchanged sentences

291,759 $ 69.73 304,663 $ 62.25 223,392 $ 58.78

Equitable adjustment - Orion Divestiture (2)

Shares granted (3)

257,149 $ 64.18 136,729 $ 79.98 128,581 $ 65.34

Shares vested ( 109,113 ) $ 62.52 ( 139,012 ) $ 63.66 ( 47,310 ) $ 54.27

3 unchanged sentences

(1) Grant date fair value.

(2) Effective with the Orion Divestiture on November 12, 2021, outstanding equity awards were adjusted by a conversion ratio of 1.002342 per one Realty Income share then held.

(3) 194,053 shares granted relate to annual performance grants and 63,096 shares granted relate to one-time grant of performance shares.

As of December 31, 2021, the remaining share-based compensation expense related to the performance shares totaled $ 14.6 million and is being recognized on a tranche-by-tranche basis over the service period.

Restricted Stock Units

During 2020, 2019 and 2018 we also granted restricted stock units that primarily vest over a four-year service period and have the same economic rights as shares of restricted stock:

During 2021, 2020 and 2019, and in connection with our merger with VEREIT, we also granted restricted stock units that primarily vest over service periods of three or four-years and have the same economic rights as shares of restricted stock:

2021 2020 2019

4 unchanged sentences

18,670 $ 70.38 15,511 $ 59.82 14,968 $ 54.62

Equitable adjustment - Orion Divestiture (2)

Shares granted 71,956 $ 68.96 9,966 $ 78.79 5,482 $ 69.58

4 unchanged sentences

(1) Grant date fair value.

(2) Effective with the Orion Divestiture on November 12, 2021, outstanding equity awards were adjusted by a conversion ratio of 1.002342 per one Realty Income share then held.

The amount of share-based compensation for the restricted stock units is based on the fair value of our common stock at the grant date.

The expense amortization period is the lesser of the four-year service period or the period over which the awardee reaches the qualifying retirement age.

The expense amortization period for restricted stock units is the lesser of the four-year service period or the period over which the awardee reaches the qualifying retirement age.

For employees who have already met the qualifying retirement age, restricted stock units are fully expensed at the grant date.

As of December 31, 2020, the remaining share-based compensation expense related to the restricted stock units totaled $ 399,000 and is being recognized on a straight-line basis over the service period.

As of December 31, 2021, the remaining share-based compensation expense related to the restricted stock units totaled $ 1.7 million and is being recognized on a straight-line basis over the service period.

Stock Options

During 2021, we also granted stock options, in connection with our merger with VEREIT.

The following inputs and assumptions were used to calculate the weighted-average fair values of the options granted at the date of grant as follows:

The fair value of the stock options as of their grant date is determined using the Black-Scholes option pricing model, which requires the input of assumptions including expected terms, expected volatility, dividend yield and risk free rate.

The following table summarizes our stock option activity:

Number of stock options Weighted average exercise price (1)

Weighted average remaining contractual term (Years) Aggregate intrinsic value

Outstanding nonvested options, beginning of year —

Options granted 709,426 $ 53.80

Equitable adjustment - Orion Divestiture (2)

Options exercised ( 395,903 ) $ 54.54

Options forfeited —

Outstanding nonvested options, end of each period 315,070 $ 52.89 2.4 $ 5,891,639

(1) Grant date fair value.

(2) Effective with the Orion Divestiture on November 12, 2021, outstanding equity awards were adjusted by a conversion ratio of 1.002342 per one Realty Income share then held.

Compensation expense for stock options is recognized on a straight-line basis over the service period described above.

In 2021, we recorded $ 68,000 of expense related to stock options.

As of December 31, 2021, there was $ 57,000 of unrecognized compensation expense related to stock options with a weighted-average remaining term of 0.2 years.

Segment Information

3 unchanged sentences

Unless otherwise specified, all segments listed below are located within the U.S.

Because substantially all of our leases require our clients to pay or reimburse us for operating expenses, rental revenue is the only component of segment profit and loss we measure.

Because almost all of our leases require our clients to pay or reimburse us for operating expenses, rental revenue is the only component of segment profit and loss we measure.

Our investments in industries outside of the U.S.

are managed as separate operating segments.

The following tables set forth certain information regarding the properties owned by us, classified according to the business of our respective clients (dollars in thousands):

The following tables set forth certain information regarding the properties owned by us, classified according to the business of the respective clients (in thousands):

Assets, as of December 31:

3 unchanged sentences

Child care 347,680 216,718

Convenience stores 2,101,005 2,057,157

Convenience stores - U.S.

2,844,800 2,101,005

Dollar stores 2,303,906 1,420,210

1 unchanged sentence

Financial services 576,065 374,508

General merchandise 730,806 475,418

General merchandise - U.S.

1,289,735 730,806

Grocery stores - U.S.

3 unchanged sentences

Health and fitness 1,325,932 1,050,791

Health care - U.S.

670,864 289,244

Home furnishings - U.S.

583,564 109,631

Home improvement - U.S.

946,870 608,222

Home improvement - U.K.

780,308 187,289

Restaurants - casual dining 2,016,017 515,226

Restaurants-quick service 1,062,918 1,059,155

Restaurants - quick service - U.S.

2,689,806 1,062,918

Theaters - U.S.

3 unchanged sentences

Other non-reportable segments 6,080,123 2,644,041

Total segment net real estate 17,485,156 16,496,772

Total net real estate $ 31,988,872 $ 17,485,156

Intangible assets:

2 unchanged sentences

Child care 33,449 19,848

Convenience stores 121,151 131,808

Convenience stores - U.S.

275,548 121,151

Dollar stores 366,319 77,176

1 unchanged sentence

Financial services 92,986 14,611

General merchandise 108,646 66,135

General merchandise - U.S.

254,343 108,646

Grocery stores - U.S.

3 unchanged sentences

Health and fitness 125,586 67,537

Health care - U.S.

103,143 21,032

Home furnishings - U.S.

210,654 9,336

Home improvement - U.S.

207,637 97,228

Home improvement - U.K.

158,667 57,369

Restaurants - casual dining 416,653 20,553

Restaurants-quick service 47,517 52,353

Restaurants - quick service - U.S.

270,092 47,517

Theaters - U.S.

3 unchanged sentences

Other non-reportable segments 1,142,849 233,923

3,676,705 14,180

Other corporate assets 2,195,800 1,530,294

Total assets $ 43,137,502 $ 20,740,285

(1) During 2021, we invested in 43 properties in Spain.

As of December 31, 2021, grocery stores - Spain was not a reportable segment.

(2) Goodwill has not yet been allocated to our individual operating segments;

the allocation is pending the finalization of our purchase accounting.

Revenue for the years ended December 31, 2021 2020 2019

3 unchanged sentences

Child care 36,425 35,643 31,749

Convenience stores 189,658 166,755 142,194

Convenience stores - U.S.

217,175 189,658 166,755

Dollar stores 149,136 126,719 102,695

1 unchanged sentence

Financial services 36,831 30,531 30,189

General merchandise 49,352 35,366 29,249

General merchandise - U.S.

72,442 49,352 35,366

Grocery stores - U.S.

3 unchanged sentences

Health and fitness 115,878 104,744 105,896

Health care - U.S.

33,579 25,563 21,011

Home furnishings - U.S.

21,457 12,447 10,490

Home improvement - U.S.

62,076 46,392 42,351

Home improvement - U.K.

34,470 4,224 —

Restaurants - casual dining 71,338 46,265 45,238

Restaurants-quick service 88,163 92,018 72,465

Restaurants - quick service - U.S.

115,758 88,163 92,018

Theaters - U.S.

6 unchanged sentences

Total revenue $ 2,080,463 $ 1,647,087 $ 1,488,163

(1) During 2021, we invested in 43 properties in Spain.

As of December 31, 2021, grocery stores - Spain was not a reportable segment.

Commitments and Contingencies

2 unchanged sentences

At December 31, 2021, we had commitments of $ 74.7 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements.

In addition, as of December 31, 2020, we had committed $ 100.0 million under construction contracts, which is expected to be paid in the next twelve months.

In addition, as of December 31, 2021, we had committed $ 285.7 million under construction contracts, the majority of which is expected to be paid in the next twelve months.

We have certain properties that are subject to ground leases, which are accounted for as operating leases.

At December 31, 2020, minimum future rental payments for the next five years and thereafter are as follows (dollars in millions):

Ground Leases

Realty Income (1)

Ground Leases

Our Clients (2)

At December 31, 2021, minimum future rental payments for the next five years and thereafter are as follows (in millions):

Operating Leases Finance Leases Total

2022 $ 38.3 $ 1.6 $ 39.9

6 unchanged sentences

Present value adjustment for remaining lease payments (1)

Lease liability - operating leases, net $ 114.6

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

(2) Our clients, who are generally sub-tenants under the ground leases, are responsible for paying the rent under these ground leases.

In the event a client fails to pay the ground lease rent, we are primarily responsible.

(3 ) The range of discount rates used to calculate the present value of the lease payments is 2.42 % to 5.50 %.

At December 31, 2020, the weighted average discount rate is 4.29 % and the weighted average remaining lease term is 11.5 years.

The discount rates are derived using a hypothetical corporate credit curve for the ground leases based on our outstanding senior notes and relevant market data.

( 198.1 ) ( 8.6 )

Total lease liability $ 461.7 $ 44.0

(1 ) The discount rates are specific for individual leases primarily based on the lease term.

The range of discount rates used to calculate the present value of the operating lease payments is 0.41 % to 5.50 % and for finance lease payments is 0.54 % to 5.50 %.

The weighted average discount rate was derived from estimated incremental borrowing rates based on our credit quality, as we did not have any borrowings at the balance sheet date with comparable terms to our lease agreements.

At December 31, 2021, the weighted average discount rate for operating leases is 3.15 % and the weighted average remaining lease term is 21.5 years.

At December 31, 2021, the weighted average discount rate for finance leases is 3.55 % and the weighted average remaining lease term is 22.8 years.

Subsequent Events

Dividend Payments

In January and February 2022, we declared a dividend of $ 0.2465 , which will be paid in February 2022 and March 2022, respectively.

• In January 2021, we completed the early redemption of our outstanding 3.250 % notes due October 2022, for a redemption price of approximately $ 1.004 billion, consisting of the principal of $ 950.0 million, call premium of $ 47.2 million and accrued and unpaid interest of $ 7.1 million.

• In January 2021, we raised $ 669.6 million from the issuance of 12,075,000 shares of common stock in an underwritten public offering, which included the underwriters' options to purchase 1,575,000 additional shares.

REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED QUARTERLY FINANCIAL DATA

(dollars in thousands, except per share data) (unaudited)

(not covered by Report of Independent Registered Public Accounting Firm)

Quarter Second

Quarter Third

Quarter Fourth

Total revenue (1)

$ 414,341 $ 414,636 $ 404,572 $ 418,076 $ 1,651,625

Depreciation and amortization expense 164,585 168,328 169,084 175,041 677,038

Interest expense 75,925 77,841 76,806 78,764 309,336

Other expenses (2)

53,811 62,222 151,611 72,099 339,743

Net income 147,143 108,070 23,143 118,150 396,506

Net income available to common stockholders 146,827 107,824 22,904 117,931 395,486

Net income per common share

Basic 0.44 0.31 0.07 0.33 1.15

Diluted 0.44 0.31 0.07 0.33 1.14

Dividends paid per common share 0.6925 0.6990 0.7005 0.7020 2.7940

Total revenue $ 354,365 $ 365,450 $ 374,247 $ 397,529 $ 1,491,591

Depreciation and amortization expense 137,517 150,426 149,424 156,594 593,961

Interest expense 70,020 72,488 73,410 75,073 290,991

Other expenses (2)

42,861 54,143 52,139 52,269 201,412

Net income 111,230 95,420 101,275 129,553 437,478

Net income available to common stockholders 110,942 95,194 101,049 129,297 436,482

Net income per common share

Basic and diluted 0.37 0.31 0.32 0.39 1.38

Dividends paid per common share 0.6720 0.6780 0.6795 0.6810 2.7105

(1) Total revenue for the second half of 2020 was negatively impacted by rent reserves recorded as reductions of rental revenue.

(2) Other expenses can vary among quarters, primarily due to provisions for impairment, gains on sales of real estate, and foreign currency gains and losses.

Note Issuances

In January 2022, we issued £ 250.0 million of 1.875 % senior unsecured notes due January 2027 (the "January 2027 Notes") and £ 250.0 million of 2.500 % senior unsecured notes due January 2042 (the "January 2042 Notes").

The public offering price for the January 2027 Notes was 99.487 % of the principal amount for an effective semi-annual yield to maturity of 1.974 % and the public offering price for the January 2042 Notes was 98.445 % of the principal amount for an effective semi-annual yield to maturity of 2.584 %.

Combined, the new issues of the January 2027 Notes and the January 2042 Notes have a weighted average term of approximately 12.5 years and a weighted average effective semi-annual yield to maturity of approximately 2.28 %.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

1 unchanged sentence

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 8. Financial Statements and Supplementary Data