REALTY INCOME CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations -29- Table of Content s FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. When used in this quarterly report, the words “estimated”, “anticipated”, “expect”, “believe”, “intend” and similar expressions are intended to identify forward-looking statements. Forward-looking statements include, without limitation, discussions of strategy, plans and intentions and statements regarding estimated or future results of operations, financial condition or prospects (including, without limitation, estimated and future funds from operations (“FFO”), adjusted funds from operations (“AFFO”) and normalized and adjusted FFO and net income, estimated initial weighted average contractual lease rates, estimated square footage of properties under development or expansion, the timing, prices and other terms of potential or planned acquisitions, statements regarding initial cash lease yields on or percentages of investment grade clients that are lessees of properties that we have acquired or intend or agreed to acquire or that are under development or expansion, statements regarding the payment, dependability and amount of and potential increases in future common stock dividends, statements regarding future cash flow or cash generation, statements regarding our ability to meet our liquidity needs, and statements regarding the anticipated or projected impact of our merger with VEREIT on our business, results of operations, financial condition or prospects). Forward-looking statements are subject to risks, uncertainties, and assumptions about Realty Income Corporation, including, among other things: • Our access to capital and other sources of funding; • Our anticipated growth strategies; • Our intention to acquire additional properties and the timing of these acquisitions; • Our intention to sell properties and the timing of these property sales; • Our intention to re-lease vacant properties; • Anticipated trends in our business, including trends in the market for long-term net leases of freestanding, single-client properties; • Future expenditures for development projects; • The impact of the COVID-19 pandemic, or future pandemics, on us, our business, our clients, or the economy generally; and • The uncertainties regarding whether the anticipated benefits or results of our merger with VEREIT will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed or implied by the forward-looking statements. In particular, forward-looking statements regarding estimated or future results of operations or financial condition, estimated or future acquisitions of properties, or the estimated or potential impact of our merger with VEREIT are based upon numerous assumptions and estimates and are inherently subject to substantial uncertainties and actual results of operations, financial condition, property acquisitions and the impacts of our merger with VEREIT may differ materially from those expressed or implied in the forward-looking statements, particularly if actual events differ from those reflected in the estimates and assumptions upon which such forward-looking statements are based. Some of the factors that could cause actual results to differ materially are: • Our continued qualification as a real estate investment trust; • General domestic and foreign business and economic conditions; • Competition; • Fluctuating interest and currency rates; • Access to debt and equity capital markets; • Continued volatility and uncertainty in the credit markets and broader financial markets; • Other risks inherent in the real estate business including our clients' defaults under leases, potential liability relating to environmental matters, illiquidity of real estate investments, and potential damages from natural disasters; • Impairments in the value of our real estate assets; • Changes in income tax laws and rates; • The continued evolution of the COVID-19 pandemic and the measures taken to limit its spread, and its impacts on us, our business, our clients, or the economy generally; • The timing and pace of reopening efforts at the local, state and national level in response to the COVID-19 pandemic and developments, such as the unexpected surges in COVID-19 cases, that cause a delay in or postponement of reopenings; • The outcome of any legal proceedings to which we are a party, or which may occur in the future; • Acts of terrorism and war; and -30- Table of Content s • Any effects of uncertainties regarding whether the anticipated benefits or results of our merger with VEREIT will be achieved. Additional factors that may cause future events and actual results, financial or otherwise, to differ, potentially materially, from those discussed in or implied by the forward-looking statements include those discussed in the sections entitled “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K , for the fiscal year ended December 31, 2021. Readers are cautioned not to place undue reliance on forward-looking statements. Those forward-looking statements are not guarantees of future performance and speak only as of the date that this quarterly report was filed with the Securities and Exchange Commission, or SEC. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, the forward-looking events discussed in this quarterly report might not occur. THE COMPANY Realty Income, The Monthly Dividend Company ® , is an S&P 500 company and member of the S&P 500 Dividend Aristocrats ® index for having increased its dividend every year for over 25 consecutive years. We invest in people and places to deliver dependable monthly dividends that increase over time. The Company is structured as a real estate investment trust ("REIT"), requiring us annually to distribute at least 90% of our taxable income (excluding net capital gains) in the form of dividends to its stockholders. The monthly dividends are supported by the cash flow generated from real estate owned under long-term net lease agreements with our commercial clients. Realty Income was founded in 1969 and listed on the New York Stock Exchange (NYSE: O) in 1994. Over the past 53 years, Realty Income has been acquiring and managing freestanding commercial properties that generate rental revenue under long-term net lease agreements with our commercial clients. At March 31, 2022, we owned a diversified portfolio: • Consisting of 11,288 properties; • With an occupancy rate of 98.6%, or 11,132 properties leased and 156 properties available for lease or sale; • With clients doing business in 70 separate industries; • Located in all 50 U.S. states, Puerto Rico, the United Kingdom (U.K.) and Spain; • With approximately 213.9 million square feet of leasable space; • With a weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of approximately 8.9 years; and • With an average leasable space per property of approximately 18,950 square feet; approximately 12,660 square feet per retail property and approximately 244,460 square feet per industrial property. Of the 11,288 properties in the portfolio at March 31, 2022, 11,180, or 99.0%, are single-client properties, of which 11,026 were leased, and the remaining are multi–client properties. Unless otherwise specified, references to rental revenue in the Management's Discussion and Analysis of Financial Condition and Results of Operations are exclusive of reimbursements from clients for recoverable real estate taxes and operating expenses totaling $44.0 million and $21.7 million for the three months ended March 31, 2022, and 2021, respectively. Investment Philosophy We believe that owning an actively managed, diversified portfolio of commercial properties under long-term, net lease agreements produces consistent and predictable income. A net lease typically requires the client to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance. In addition, clients of our properties typically pay rent increases based on: (1) fixed increases, (2) increases tied to inflation (typically subject to ceilings), or (3) additional rent calculated as a percentage of the clients’ gross sales above a specified level. We believe that a portfolio of properties under long-term net lease agreements with our commercial clients generally produces a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income. -31- Table of Content s Diversification is also a key component of our investment philosophy. We believe that diversification of the portfolio by client, industry, geography, and property type leads to more consistent and predictable income for our stockholders by reducing vulnerability that can come with any single concentration. Our investment activities have led to a diversified property portfolio that, as of March 31, 2022, consisted of 11,288 properties located in all 50 U.S. states, Puerto Rico, the U.K. and Spain, and doing business in 70 industries. None of the 70 industries represented in our property portfolio accounted for more than 9.1% of our annualized contractual rent as of March 31, 2022. With expanded scale from our merger with VEREIT, we hope to serve our existing clients better and to partner with new clients that require the larger and more diversified balance sheet we now provide. Equally, as we look to continue to expand geographically across Europe, we hope to partner with new multinational clients that seek a real estate partner with an expanding geographic footprint. Investment Strategy We seek to invest in high-quality real estate that our clients consider important to the successful operation of their businesses. We generally seek to acquire commercial real estate that has some or all of the following characteristics: • Properties in markets or locations important to our clients; • Properties that we deem to be profitable for our clients (e.g., retail stores or revenue generating sites); • Properties with strong demographic attributes relative to the specific business drivers of our clients; • Properties with real estate valuations that approximate replacement costs; • Properties with rental or lease payments that approximate market rents for similar properties; • Properties that can be purchased with the simultaneous execution or assumption of long-term net lease agreements, offering both current income and the potential for future rent increases; • Properties that leverage relationships with clients, sellers, investors, or developers as part of a long-term strategy; and • Properties that leverage our proprietary insights, including predictive analytics (e.g., through the selection of locations and geographic markets we expect to remain strong or strengthen in the future). We typically seek to invest in properties owned or leased by clients that are already or could become leaders in their respective businesses supported by mechanisms including (but not limited to) occupancy of prime real estate locations, pricing, merchandise assortment, service, quality, economies of scale, consumer branding, e-commerce, and advertising. In addition, we frequently acquire large portfolios of properties net leased to different clients operating in a variety of industries. We have an internal team dedicated to sourcing such opportunities, often using our relationships with various clients, owners/developers, brokers and advisers to uncover and secure transactions. We also undertake thorough research and analysis to identify what we consider to be appropriate property locations, clients, and industries for investment. This research expertise is instrumental to uncovering net lease opportunities in markets where we believe we can add value. In selecting potential investments, we generally look for clients with the following attributes: • Reliable and sustainable cash flow, including demonstrated economic resiliency; • Revenue and cash flow from multiple sources; • Are willing to sign a long-term lease (10 or more years); and • Are large owners and users of real estate. From a retail perspective, our investment strategy is to target clients that have a service, non-discretionary, and/or low-price-point component to their business. Our investments are usually with clients who have demonstrated resiliency to e-commerce or have a strong omni channel retail strategy, uniting brick-and-mortar and mobile browsing, both of which reflect the continued importance of last mile retail, the movement of goods to their final destination, real estate as part of a customer experience and supply chain strategy. Our overall investments (including last mile retail) are driven by an optimal portfolio strategy that, among other considerations, targets allocation ranges by asset class and industry. We review our strategy periodically and stress test our portfolio in a variety of positive and negative economic scenarios to ensure we deliver consistent earnings growth and value creation across economic cycles. As a result of the execution of this strategy, approximately 93% of our annualized retail contractual rent on March 31, 2022, is derived from our clients with a service, non-discretionary, and/or low price point component to their business. From a non-retail perspective, we target industrial properties leased to industry leaders, the majority of which are investment grade rated companies. We believe these characteristics enhance the stability of the rental revenue generated from these properties. -32- Table of Content s After applying this investment strategy, we pursue those transactions where we believe we can achieve an attractive investment spread over our cost of capital and favorable risk-adjusted returns. We will continue to evaluate all investments for consistency with our objective of owning net lease assets. Underwriting Strategy In order to be considered for acquisition, properties must meet stringent underwriting requirements. We have established a four-part analysis that examines each potential investment based on: • The aforementioned overall real estate characteristics, including demographics, replacement cost, and comparative rental rates; • Industry, client (including credit profile), and market conditions; • Store profitability for retail locations if profitability data is available; and • The importance of the real estate location to the operations of the clients’ business. We believe the principal financial obligations for most of our clients typically include their bank and other debt, payment obligations to employees, suppliers, and real estate lease obligations. Because we typically own the land and building in which a client conducts its business or which are critical to the client’s ability to generate revenue, we believe the risk of default on a client’s lease obligation is less than the client’s unsecured general obligations. It has been our experience that clients must retain their profitable and critical locations in order to survive. Therefore, in the event of reorganization, we believe they are less likely to reject a lease of a profitable or critical location because this would terminate their right to use the property. Thus, as the property owner, we believe that we will fare better than unsecured creditors of the same client in the event of reorganization. If a property is rejected by our client during reorganization, we own the property and can either lease it to a new client or sell the property. In addition, we believe that the risk of default on real estate leases can be further mitigated by monitoring the performance of our clients’ individual locations and considering whether to proactively sell locations that meet our criteria for disposition. We conduct comprehensive reviews of the business segments and industries in which our clients operate. Prior to entering into any transaction, our research department conducts a review of a client’s credit quality. The information reviewed may include reports and filings, including any public credit ratings, financial statements, debt and equity analyst reports, and reviews of corporate credit spreads, stock prices, market capitalization, and other financial metrics. We conduct additional due diligence, including additional financial reviews of the client, and continue to monitor our clients’ credit quality on an ongoing basis by reviewing the available information previously discussed, and providing summaries of these findings to management. At March 31, 2022, approximately 43% of our total portfolio annualized contractual rent comes from properties leased to our investment grade clients, their subsidiaries or affiliated companies. At March 31, 2022, our top 20 clients (based on percentage of total portfolio annualized contractual rent) represented approximately 42% of our annualized rent and 12 of these clients have investment grade credit ratings or are subsidiaries or affiliates of investment grade companies. Asset Management Strategy In addition to pursuing new properties for investment, we seek to increase earnings and dividends through active asset management. Generally, our asset management efforts seek to achieve: • Rent increases at the expiration of existing leases, when market conditions permit; • Optimum exposure to certain clients, industries, and markets through re-leasing vacant properties and selectively selling properties; • Maximum asset-level returns on properties that are re-leased or sold; • Additional value creation from the existing portfolio by enhancing individual properties, pursuing alternative uses, and deriving ancillary revenue; and • Investment opportunities in new asset classes for the portfolio. We continually monitor our portfolio for any changes that could affect the performance of our clients, our clients’ industries, and the real estate locations in which we have invested. We also regularly analyze our portfolio with a view towards optimizing its returns and enhancing its overall credit quality. Our active asset management strategy pursues asset sales when we believe the reinvestment of the sale proceeds will: -33- Table of Content s • Generate higher returns; • Enhance the credit quality of our real estate portfolio; • Extend our average remaining lease term; and/or • Strategically decrease client, industry, or geographic concentration. The active management of the portfolio is an essential component of our long-term strategy of maintaining high occupancy. Impact of Real Estate and Credit Markets In the commercial real estate market, property prices generally continue to fluctuate. Likewise, during certain periods, including the current market, the global credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real estate and global credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly. RECENT DEVELOPMENTS Increases in Monthly Dividends to Common Stockholders We have continued our 53-year policy of paying monthly dividends. In addition, we increased the dividend two times during 2022. As of April 2022, we have paid 98 consecutive quarterly dividend increases and increased the dividend 115 times since our listing on the NYSE in 1994. The following table summarizes our dividend increases in 2022: 2022 Dividend increases Month Declared Month Paid Dividend per share Increase per share 1st increase Dec 2021 Jan 2022 $ 0.2465 $ 0.0005 2nd increase Mar 2022 Apr 2022 $ 0.2470 $ 0.0005 The dividends paid per share during the three months ended March 31, 2022, totaled approximately $0.7395, as compared to approximately $0.7035 during the three months ended March 31, 2021, an increase of $0.036, or 5.1%. The monthly dividend of $0.2470 per share represents a current annualized dividend of $2.9640 per share, and an annualized dividend yield of approximately 4.3% based on the last reported sale price of our common stock on the NYSE of $69.30 on March 31, 2022. Although we expect to continue our policy of paying monthly dividends, we cannot guarantee that we will maintain our current level of dividends, that we will continue our pattern of increasing dividends per share, or what our actual dividend yield will be in any future period. Acquisitions During the Three Months Ended March 31, 2022 Below is a listing of our acquisitions in the U.S. and Europe for the periods indicated below: Number of Properties Leasable Square Feet (in thousands) Investment ($ in millions) Weighted Average Lease Term (Years) Initial Average Cash Lease Yield (1) Three months ended March 31, 2022 (2) Acquisitions - U.S. 139 2,627 $ 629.8 15.0 5.7 % Acquisitions - Europe 21 2,772 794.2 8.9 5.5 % Total acquisitions 160 5,399 $ 1,424.0 11.8 5.6 % Properties under development (3) 53 1,868 131.3 17.3 5.7 % Total (4) 213 7,267 $ 1,555.3 12.3 5.6 % (1) The initial average cash lease yield for a property is generally computed as estimated contractual first year cash net operating income, which, in the case of a net leased property, is equal to the aggregate cash base rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a client could default on the payment of contractual rent, we cannot provide assurance that the actual return on the funds invested will remain at the percentages listed above. Contractual net operating income used in the calculation of initial average cash yield includes approximately $4.3 million received as settlement credits for 16 properties as reimbursement of free rent periods for the three months ended March 31, 2022. 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 -34- Table of Content s development or expansion, the initial average cash lease yield is computed as follows: estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs. (2) None of our investments during the three months ended March 31, 2022, caused any one client to be 10% or more of our total assets at March 31, 2022. (3) Includes one U.K. development property that represents an investment of £1.7 million Sterling during the three months ended March 31, 2022, converted at the applicable exchange rate on the funding date. (4) Our clients occupying the new properties are 85.4% retail and 14.6% industrial, based on rental revenue. Approximately 26% of the rental revenue generated from acquisitions during the three months ended March 31, 2022, is from our investment grade rated clients, their subsidiaries or affiliated companies. Announcement of Transaction with Wynn Resorts In February 2022, we announced that we had signed a definitive agreement with Wynn Resorts, Limited to acquire the Encore Boston Harbor Resort and Casino for $1.7 billion under a long-term net lease agreement. This sale-leaseback transaction, which is expected to close in the fourth quarter of 2022, is expected to be executed at a 5.9% initial weighted average cash lease yield and includes an initial lease term of 30 years with annual rent growth of 1.75% for the first ten years and the greater of 1.75% or CPI (capped at 2.5%) over the remaining lease term. The lease also includes an additional 30-year option to renew upon expiration. This transaction is subject to numerous uncertainties, including various closing conditions, and there can be no assurance that the transaction will be consummated on the terms or timetable currently contemplated, or at all. Leasing Results At March 31, 2022, we had 156 properties available for lease out of 11,288 properties in our portfolio, which represents a 98.6% occupancy rate based on the number of properties in our portfolio. Below is a summary of our portfolio activity for the periods indicated below: Three months ended March 31, 2022 Properties available for lease at December 31, 2021 164 Lease expirations (1) 133 Re-leases to same client (99) Re-leases to new client (11) Vacant dispositions (31) Properties available for lease at March 31, 2022 156 (1) Includes scheduled and unscheduled expirations (including leases rejected in bankruptcy), as well as future expirations resolved in the periods indicated above. During the three months ended March 31, 2022, the annual new rent on re-leases was $31.69 million, as compared to the previous annual rent of $29.84 million on the same units, representing a rent recapture rate of 106.2% on the units re-leased. We re-leased three units to new clients without a period of vacancy, and 12 units to new clients after a period of vacancy. As part of our re-leasing costs, we pay leasing commissions to unrelated, third-party real estate brokers consistent with the commercial real estate industry standard, and sometimes provide rent concessions to our clients. We do not consider the collective impact of the leasing commissions or rent concessions to our clients to be material to our financial position or results of operations. At March 31, 2022, our average annualized contractual rent was approximately $14.19 per square foot on the 11,132 leased properties in our portfolio. At March 31, 2022, we classified 47 properties, with a carrying amount of $84.4 million, as real estate and lease intangibles held for sale, net on our balance sheet. The expected sale of these properties does not represent a strategic shift that will have a major effect on our operations and financial results and is consistent with our existing disposition strategy to further enhance our real estate portfolio and maximize portfolio returns. Investments in Existing Properties During the three months ended March 31, 2022, we capitalized costs of $12.0 million on existing properties in our portfolio, consisting of $2.4 million for re-leasing costs, $13,000 for recurring capital expenditures, and $9.6 million for non-recurring building improvements. The majority of our building improvements relate to roof repairs, HVAC improvements, and parking lot resurfacing and replacements. The amounts of our capital expenditures can vary significantly, depending on the rental market, -35- Table of Content s credit worthiness of our clients, the lease term and the willingness of our clients to pay higher rents over the terms of the leases. We define recurring capital expenditures as mandatory and recurring landlord capital expenditure obligations that have a limited useful life. We define non-recurring capital expenditures as property improvements in which we invest additional capital that extend the useful life of the properties. Capital Raising During the three months ended March 31, 2022, we raised $663.0 million of gross proceeds from the sale of common stock at a weighted average price of $65.55 per share, primarily through proceeds from the sale of common stock through our At-The-Market (ATM) program. Note Issuances In April 2022, we entered into a definitive agreement for the private placement of £140 million of senior unsecured notes due 2030, £345 million of senior unsecured notes due 2032, and £115 million of senior unsecured notes due 2037. The combined notes, if issued, are expected to have a weighted average tenor of approximately 10.5 years, and a weighted average fixed interest rate of 3.22%. We currently anticipate closing to occur during the second quarter of 2022. 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%. New, Expanded Revolving Credit Facility In April 2022, we entered a new $4.25 billion unsecured credit facility to amend and restate our previous $3.0 billion unsecured credit facility, which was due to expire in March 2023. The new revolving credit facility matures in June 2026 and includes two six-month extensions that can be exercised at our option. Similar to our previous revolving credit facility, the new revolving credit facility also has a $1.0 billion expansion feature, which is subject to obtaining lender commitments. As of March 31, 2022, the balance of borrowings outstanding under our previous revolving credit facility was $569.6 million, and we had a cash balance of $151.6 million. Select Financial Results The following summarizes our select financial results (dollars in millions, except per share data): Three months ended March 31, % Increase 2022 2021 Total revenue $ 807.3 $ 442.3 82.5 % Net income available to common stockholders (1) $ 199.4 $ 95.9 107.9 % Net income per share (2) $ 0.34 $ 0.26 30.8 % Funds from operations available to common stockholders ("FFO") $ 601.4 $ 267.7 124.7 % FFO per share (2) $ 1.01 $ 0.72 40.3 % Normalized funds from operations available to common stockholders ("Normalized FFO") $ 607.9 $ 267.7 127.1 % Normalized FFO per share (2) $ 1.02 $ 0.72 41.7 % Adjusted funds from operations available to common stockholders ("AFFO") $ 580.1 $ 318.2 82.3 % AFFO per share (2) $ 0.98 $ 0.86 14.0 % (1) The calculation to determine net income available to common stockholders includes provisions for impairment, gains from the sale of real estate, and foreign currency gains and losses. These items can vary from quarter to quarter and can significantly impact net income available to common stockholders and period to period comparisons. (2) All per share amounts are presented on a diluted per common share basis. Our financial results during the three months ended March 31, 2021, were impacted by a $46.5 million loss on extinguishment of debt due to the January 2021 early redemption of the 3.250% notes due October 2022. -36- Table of Content s See our discussion of FFO, Normalized FFO, and AFFO (which are not financial measures under generally accepted accounting principles, or GAAP), later in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this quarterly report, which includes a reconciliation of net income available to common stockholders to FFO and Normalized FFO, and AFFO. LIQUIDITY AND CAPITAL RESOURCES Capital Philosophy Historically, we have met our long-term capital needs by issuing common stock, long-term unsecured notes and bonds, term loans under our revolving credit facility, and preferred stock. Over the long term, we believe that common stock should be the majority of our capital structure; however, we may also raise funds from debt or other equity securities. We may issue common stock when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties. In addition, we may issue common stock to permanently finance properties that were initially financed by our revolving credit facility, commercial paper program, or debt securities. However, we cannot assure you that we will have access to the capital markets at all times and at terms that are acceptable to us. Our primary cash obligations, for the current year and subsequent years, are included in the “Table of Obligations,” which is presented later in this section. We expect to fund our operating expenses and other short-term liquidity requirements, including property acquisitions and development costs, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to common stockholders, primarily through cash provided by operating activities, borrowings on our credit facility and under our commercial paper program and through public securities offerings. As of March 31, 2022, there are $2.1 billion of obligations becoming due through the remainder of 2022, which we expect to fund through a combination of cash flows from operations, issuances of common stock or debt, and additional borrowings under our revolving credit facility and rolling over borrowings under our commercial paper program. We may choose to mitigate our financial exposure to exchange rate risk for properties acquired outside the U.S. through the issuance of debt securities denominated in the same local currency and through currency derivatives. We may leave a portion of our foreign cash flow unhedged to reinvest in additional properties in the same local currency. Conservative Capital Structure We believe that our stockholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. At March 31, 2022, our total outstanding borrowings of senior unsecured notes and bonds, term loan, mortgages payable, revolving credit facility and commercial paper were $15.78 billion, or approximately 27.4% of our total market capitalization of $57.54 billion. We define our total market capitalization at March 31, 2022, as the sum of: • Shares of our common stock outstanding of 601,566,581, plus total common units outstanding of 1,060,709, multiplied by the last reported sales price of our common stock on the NYSE of $69.30 per share on March 31, 2022, or $41.76 billion; • Outstanding borrowings of $569.6 million on our revolving credit facility; • Outstanding borrowings of $950.0 million on our commercial paper program; • Outstanding mortgages payable of $1.07 billion, excluding net mortgage premiums of $25.0 million and deferred financing costs of $713,000; • Outstanding borrowings of $250.0 million on our term loan, excluding deferred financing costs of $394,000; • Outstanding senior unsecured notes and bonds of $12.86 billion, including Sterling-denominated notes of £1.97 billion, and excluding unamortized net premiums of $272.7 million and deferred financing costs of $60.6 million; and • Our proportionate share of outstanding debt from unconsolidated entities of $86.0 million, excluding premiums and deferred financing costs. Universal Shelf Registration In June 2021, we filed a shelf registration statement with the SEC, which is effective for a term of three years and will expire in June 2024. In accordance with SEC rules, the amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit. The securities covered by this registration statement include (1) common stock, (2) preferred stock, (3) debt securities, (4) depositary -37- Table of Content s shares representing fractional interests in shares of preferred stock, (5) warrants to purchase debt securities, common stock, preferred stock, or depositary shares, and (6) any combination of these securities. We may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. At-the-Market ("ATM") Program Under our "at-the-market" equity distribution plan, or our ATM program, up to 69,088,433 shares of common stock may be offered and sold (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers' transactions on the NYSE at prevailing market prices or at negotiated prices. During the three months ended March 31, 2022, we issued 10,073,209 shares and raised approximately $660.2 million of gross proceeds under the ATM program. At March 31, 2022, we had 19,314,282 shares remaining for future issuance under our ATM program. We anticipate maintaining the availability of our ATM program in the future, including the replenishment of authorized shares issuable thereunder. Dividend Reinvestment and Stock Purchase Plan Our Dividend Reinvestment and Stock Purchase Plan, or our DRSPP, provides our common stockholders, as well as new investors, with a convenient and economical method of purchasing our common stock and reinvesting their distributions. Our DRSPP also allows our current stockholders to buy additional shares of common stock by reinvesting all or a portion of their distributions. Our DRSPP authorizes up to 26,000,000 common shares to be issued. Our DRSPP includes a waiver approval process, allowing larger investors or institutions, per a formal approval process, to purchase shares at a small discount, if approved by us. We did not issue shares under the waiver approval process during the three months ended March 31, 2022. During the three months ended March 31, 2022, we issued 41,371 shares and raised approximately $2.8 million under our DRSPP. At March 31, 2022, we had 11,294,008 shares remaining for future issuance under our DRSPP program. Revolving Credit Facility In April 2022, we entered a new $4.25 billion unsecured revolving credit facility to amend and restate our previous $3.0 billion unsecured revolving credit facility, which was due to expire in March 2023. This new multicurrency credit facility matures in June 2026, includes two six-month extensions that can be exercised at our option and allows us to borrow in up to 14 currencies, including U.S. dollars. Similar to our previous credit facility, our new revolving credit facility also has a $1.0 billion expansion feature, which is subject to obtaining lender commitments. Under the new revolving credit facility, our current investment grade credit ratings provide for financing on U.S. Dollar borrowings at the Secured Overnight Financing Rate (“SOFR”), plus 0.725% with a SOFR adjustment charge of 0.10% and a revolving credit facility fee of 0.125%, for all-in pricing of 0.95% over SOFR and British Pound Sterling at the Sterling Overnight Indexed Average (“SONIA”), plus 0.725% with a SONIA adjustment charge of 0.0326% and a revolving credit facility fee of 0.125%, for all-in pricing of 0.8826% over SONIA. The borrowing rate is subject to an interest rate floor and may change if our investment grade credit ratings change. We also have other interest rate options available to us in different currencies as well. Our new credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation. At March 31, 2022, we had a borrowing capacity of $2.4 billion available on our previous revolving credit facility and an outstanding balance of $569.6 million. The weighted average interest rate on borrowings under our revolving credit facility during the three months ended March 31, 2022, was 1.1% per annum. We must comply with various financial and other covenants in our credit facility. At March 31, 2022, we were in compliance with these covenants. We expect to use our credit facility to acquire additional properties and for other general corporate purposes. Any additional borrowings will increase our exposure to interest rate risk. Commercial Paper Program We have a U.S. dollar-denominated unsecured commercial paper program. Under the terms of the program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding of $1.0 billion. Borrowings under this program generally mature in one year or less. At March 31, 2022, we had an outstanding balance of $950.0 million. The weighted average interest rate on borrowings under our commercial paper program was 0.5% for the three months ended March 31, 2022. We use our $3.0 billion revolving credit facility as a liquidity backstop for the repayment of the notes issued under the commercial paper program. The commercial paper borrowings outstanding at March 31, 2022, mature between April 2022 and December 2022. We generally use our credit facility and commercial paper borrowings for the short-term financing of new property -38- Table of Content s acquisitions. Thereafter, we generally seek to refinance those borrowings with the net proceeds of long-term or more permanent financing, including the issuance of equity or debt securities. We cannot assure you, however, that we will be able to obtain any such refinancing, or that market conditions prevailing at the time of the refinancing will enable us to issue equity or debt securities at acceptable terms. We regularly review our credit facility and commercial paper program and may seek to extend, renew or replace our credit facility and commercial paper program, to the extent we deem appropriate. Term Loan In October 2018, in conjunction with entering into our revolving credit facility, we entered into a $250.0 million senior unsecured term loan, which matures in March 2024, and is governed by the credit agreement that governs our revolving credit facility. Borrowing under this term loan bears interest at the current one-month LIBOR, plus 0.85%. In conjunction with this term loan, we also entered into an interest rate swap which effectively fixes our per annum interest on this term loan at 3.89%. Mortgage Debt As of March 31, 2022, we had $1.07 billion of mortgages payable, the majority of which were assumed in connection with our property acquisitions, including ten mortgages from our merger with VEREIT in 2021 totaling $839.1 million, of which one mortgage for $42.5 million was paid off during the three months ended March 31, 2022, and a Sterling-denominated mortgage payable of £30.8 million. Additionally, at March 31, 2022, we had net premiums totaling $25.0 million on these mortgages and deferred financing costs of $713,000. We expect to pay off the mortgages payable as soon as prepayment penalties have declined to a level that would make it economically feasible to do so. During the three months ended March 31, 2022, we made $43.6 million in principal payments, including the repayment of one mortgage in full for $42.5 million. -39- Table of Content s Notes Outstanding Our senior unsecured note and bond obligations consist of the following as of March 31, 2022, sorted by maturity date (in millions): As of March 31, 2022 Principal Amount (Currency Denomination) Carrying Value (USD) 4.600% notes, $500 issued February 2014, of which $485 was exchanged in November 2021, both due in February 2024 (1) $ 500 $ 500 3.875% notes, issued in June 2014 and due in July 2024 $ 350 350 3.875% notes, issued in April 2018 and due in April 2025 $ 500 500 4.625% notes, $550 issued October 2018, of which $544 was exchanged in November 2021, both due in November 2025 (1) $ 550 550 0.750% notes, issued December 2020 and due in March 2026 $ 325 325 4.875% notes, $600 issued June 2016, of which $596 was exchanged in November 2021, both due in June 2026 (1) $ 600 600 4.125% notes, $250 issued in September 2014 and $400 issued in March 2017, both due in October 2026 $ 650 650 1.875% notes, issued in January 2022 and due in January 2027 £ 250 329 3.000% notes, issued in October 2016 and due in January 2027 $ 600 600 1.125% notes, issued in July 2021 and due in July 2027 £ 400 526 3.950% notes, $600 issued August 2017, of which $594 was exchanged in November 2021, both due in August 2027 (1) $ 600 600 3.650% notes, issued in December 2017 and due in January 2028 $ 550 550 3.400% notes, $600 issued June 2020, of which $598 was exchanged in November 2021, both due in January 2028 (1) $ 600 600 2.200% notes, $500 issued November 2020, of which $497 was exchanged in November 2021, both due in June 2028 (1) $ 500 500 3.250% notes, issued in June 2019 and due in June 2029 $ 500 500 3.100% notes, $600 issued December 2019, of which $596 was exchanged in November 2021, both due in December 2029 (1)(2) $ 599 599 1.625% notes, issued in October 2020 and due December 2030 £ 400 526 3.250% notes, $600 issued in May 2020 and $350 issued in July 2020, both due in January 2031 $ 950 950 2.850% notes, $700 issued November 2020, of which $699 was exchanged in November 2021, both due in December 2032 (1) $ 700 700 1.800% notes, issued in December 2020 and due in March 2033 $ 400 400 1.750% notes, issued in July 2021 and due in July 2033 £ 350 460 2.730% notes, issued in May 2019 and due in May 2034 £ 315 413 5.875% bonds, $100 issued in March 2005 and $150 issued in June 2011, both due in March 2035 $ 250 250 2.500% notes, issued in January 2022 and due in January 2042 £ 250 329 4.650% notes, $300 issued in March 2017 and $250 issued in December 2017, both due in March 2047 $ 550 550 Total principal amount $ 12,857 Unamortized net premiums and deferred financing costs 212 $ 13,069 (1) Carrying Value (USD) as of March 31, 2022, includes the portion of the VEREIT OP notes that remained outstanding, totaling $39.1 million in the aggregate, that were not exchanged in the exchange offers commenced by us with respect to the outstanding bonds of VEREIT Operating Partnership, L.P. ("VEREIT OP") in connection with the consummation of the merger with VEREIT (the "Exchange Offers"). (2) These notes were originally issued by VEREIT OP in December 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. -40- Table of Content s In April 2022 we entered into a definitive agreement for the private placement of £140 million of senior unsecured notes due 2030, £345 million of senior unsecured notes due 2032, and £115 million of senior unsecured notes due 2037. The combined notes, if issued, are expected to have a weighted average tenor of approximately 10.5 years, and a weighted average fixed interest rate of 3.22%. All of our outstanding notes and bonds have fixed interest rates and contain various covenants, with which we remained in compliance as of March 31, 2022. Interest on our £400 million of 1.625% senior unsecured notes issued in October 2020, our £400 million of 1.125% senior unsecured notes issued in July 2021, our £350 million of 1.750% senior unsecured notes also issued in July 2021, our £250 million of 1.875% senior unsecured notes issued in January 2022, and £250 million of 2.500% senior unsecured notes also issued in January 2022 is paid annually. Interest on our remaining senior unsecured note and bond obligations is paid semiannually. The following is a summary of the key financial covenants for our senior unsecured notes, as defined and calculated per the terms of our senior notes and bonds. These calculations, which are not based on U.S. generally accepted accounting principles ("GAAP") measurements, are presented to investors to show our ability to incur additional debt under the terms of our senior notes and bonds as well as to disclose our current compliance with such covenants and are not measures of our liquidity or performance. The actual amounts as of March 31, 2022, are: Note Covenants Required Actual Limitation on incurrence of total debt < 60% of adjusted assets 41.1 % Limitation on incurrence of secured debt < 40% of adjusted assets 2.9 % Debt service coverage (trailing 12 months) (1) > 1.5x 5.6 Maintenance of total unencumbered assets > 150% of unsecured debt 252.3 % (1) Our debt service coverage ratio is calculated on a pro forma basis for the preceding four-quarter period on the assumptions that: (i) the incurrence of any debt (as defined in the covenants) incurred by us since the first day of such four-quarter period and the application of the proceeds therefrom (including to refinance other debt since the first day of such four-quarter period), (ii) the repayment or retirement of any of our debt since the first day of such four-quarter period, and (iii) any acquisition or disposition by us of any asset or group since the first day of such four quarters had in each case occurred on April 1, 2021 and subject to certain additional adjustments. Such pro forma ratio has been prepared on the basis required by that debt service covenant, reflects various estimates and assumptions and is subject to other uncertainties, and therefore does not purport to reflect what our actual debt service coverage ratio would have been had transactions referred to in clauses (i), (ii) and (iii) of the preceding sentence occurred as of April 1, 2021, nor does it purport to reflect our debt service coverage ratio for any future period. The following is our calculation of debt service and fixed charge coverage at March 31, 2022 (in thousands, for trailing twelve months): Net income available to common stockholders $ 462,884 Plus: interest expense, excluding the amortization of deferred financing costs 345,454 Plus: loss on extinguishment of debt 50,706 Plus: provision for taxes 36,413 Plus: depreciation and amortization 1,123,612 Plus: provisions for impairment 43,285 Plus: pro forma adjustments 733,983 Less: gain on sales of real estate (57,553) Income available for debt service, as defined $ 2,738,784 Total pro forma debt service charge $ 491,346 Debt service and fixed charge coverage ratio 5.6 Cash Reserves We are organized to operate as an equity REIT that acquires and leases properties and distributes to stockholders, in the form of monthly cash distributions, a substantial portion of our net cash flow generated from leases on our properties. We intend to retain an appropriate amount of cash as working capital. At March 31, 2022, we had cash and cash equivalents totaling $151.6 million, inclusive of £86.8 million Sterling and €7.2 million Euro. We believe that our cash and cash equivalents on hand, cash provided from operating activities, and borrowing capacity is sufficient to meet our liquidity needs for the next twelve months. We intend, however, to use permanent or long-term capital to fund property acquisitions and to repay future borrowings under our credit facility and commercial paper program. -41- Table of Content s Credit Agency Ratings The borrowing interest rates under our revolving credit facility are based upon our ratings assigned by credit rating agencies. As of March 31, 2022, we were assigned the following investment grade corporate credit ratings on our senior unsecured notes and bonds: Moody’s Investors Service has assigned a rating of A3 with a “stable” outlook and Standard & Poor’s Ratings Group has assigned a rating of A- with a “stable” outlook. In addition, we were assigned the following ratings on our commercial paper at March 31, 2022: Moody's Investors Service has assigned a rating of P-2 and Standard & Poor's Ratings Group has assigned a rating of A-2. Based on our credit agency ratings as of March 31, 2022, interest rates under our new credit facility for U.S. borrowings would have been at the Secured Overnight Financing Rate (“SOFR”), plus 0.725% with a SOFR adjustment charge of 0.10% and a revolving credit facility fee of 0.125%, for all-in pricing of 0.95% over SOFR and, for British Pound Sterling borrowings, at the Sterling Overnight Indexed Average (“SONIA”), plus 0.725% with a SONIA adjustment charge of 0.0326% and a revolving credit facility fee of 0.125%, for all-in pricing of 0.8826% over SONIA. In addition, our new credit facility provides that the interest rates can range between: (i) SOFR/SONIA, plus 1.40% if our credit rating is lower than BBB-/Baa3 or our senior unsecured debt is unrated and (ii) SOFR/SONIA, plus 0.70% if our credit rating is A/A2 or higher. In addition, our credit facility provides for a facility commitment fee based on our credit ratings, which range from: (i) 0.30% for a rating lower than BBB-/Baa3 or unrated, and (ii) 0.10% for a credit rating of A/A2 or higher. We also issue senior debt securities from time to time and our credit ratings can impact the interest rates charged in those transactions. If our credit ratings or ratings outlook change, our cost to obtain debt financing could increase or decrease. The credit ratings assigned to us could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that our ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover, a rating is not a recommendation to buy, sell or hold our debt securities, preferred stock or common stock. Table of Obligations The following table summarizes the maturity of each of our obligations as of March 31, 2022 (dollars in millions): Year of Maturity Credit Facility and Commercial Paper Program (1) Senior Unsecured Notes and Bonds (2) Term Loan (3) Mortgages Payable (4) Interest (5) Ground Leases Paid by Realty Income (6) Ground Leases Paid by Our Clients (7) Other (8) Totals 2022 $ 950.0 $ — $ — $ 227.5 $ 352.4 $ 6.9 $ 23.0 $ 517.4 $ 2,077.2 2023 569.6 — — 62.1 467.4 9.2 30.7 23.3 1,162.3 2024 — 850.0 250.0 733.0 414.4 12.1 30.1 — 2,289.6 2025 — 1,050.0 — 40.8 368.8 10.8 29.6 — 1,500.0 2026 — 1,575.0 — 1.2 317.4 9.2 27.5 — 1,930.3 Thereafter — 9,381.6 — 4.7 1,480.1 270.9 226.5 — 11,363.8 Totals $ 1,519.6 $ 12,856.6 $ 250.0 $ 1,069.3 $ 3,400.5 $ 319.1 $ 367.4 $ 540.7 $ 20,323.2 (1) As of March 31, 2022, the initial term of our previous credit facility would have expired in March 2023, and included, at our option, two six-month extensions. In April 2022, we amended and restated our unsecured credit facility, or our new credit facility, in order to increase the borrowing capacity to $4.25 billion and extend the initial term to June 2026 with two six-months extensions that can be exercised at our option. The amended and restated new credit facility is otherwise substantively consistent with our previous credit agreement. We also have an unsecured commercial paper program, with outstanding borrowings of $950.0 million, which mature between April 2022 and December 2022. (2) Excludes non-cash net premiums recorded on notes payable of $272.7 million and deferred financing costs of $60.6 million. (3) Excludes deferred financing costs of $394,000. (4) Excludes both non-cash net premiums recorded on the mortgages payable of $25.0 million and deferred financing costs of $713,000. (5) Interest on the term loan, notes, bonds, mortgages payable, previous credit facility and commercial paper program has been calculated based on outstanding balances at period end through their respective maturity dates. Excludes interest from the April 2022 private placement of £140 million of senior unsecured notes due 2030, £345 million of senior unsecured notes due 2032, and £115 million of senior unsecured notes due 2037. We currently expect closing to occur during the second quarter of 2022. (6) Realty Income currently pays the ground lessors directly for the rent under the ground leases. (7) Our clients, who are generally sub-clients under ground leases, are responsible for paying the rent under these ground leases. In the event our client fails to pay the ground lease rent, we are primarily responsible. (8) “Other” consists of $485.7 million of commitments under construction contracts, $55.0 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements. Our credit facility, commercial paper program, term loan, and notes payable obligations are unsecured. Accordingly, we have not pledged any assets as collateral for these obligations. -42- Table of Content s Unconsolidated Investments As a result of our merger with VEREIT, we assumed an equity method investment in three unconsolidated entities. We are responsible to fund our proportionate share of any operating cash deficits pursuant to the governance documents of the applicable entities. There are no further material commitments related to these investments at this time. The debt held by the unconsolidated entities is secured by its properties, though is non-recourse to us with limited customary exceptions which vary from loan to loan. Dividend Policy Distributions are paid monthly to holders of shares of our common stock. Distributions are paid monthly to the limited partners holding common units of Realty Income, L.P. each on a per unit basis that is generally equal to the amount paid per share to our common stockholders. In order to maintain our status as a REIT for federal income tax purposes, we generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our taxable income (excluding net capital gains), and we are subject to income tax to the extent we distribute less than 100% of our taxable income (including net capital gains). In 2021, our cash distributions to common stockholders totaled $1.17 billion, or approximately 149.4% of our estimated taxable income of $783.3 million. Our estimated taxable income reflects non-cash deductions for depreciation and amortization. Our estimated taxable income is presented to show our compliance with REIT dividend requirements and is not a measure of our liquidity or operating performance. We intend to continue to make distributions to our stockholders that are sufficient to meet this dividend requirement and that will reduce or eliminate our exposure to income taxes. Furthermore, we believe our cash on hand and funds from operations are sufficient to support our current level of cash distributions to our stockholders. Our cash distributions to common stockholders in the three months ended March 31, 2022, totaled $438.3 million, representing 75.6% of our adjusted funds from operations available to common stockholders of approximately $580.1 million. In comparison, our cash distributions to common stockholders in 2021 totaled $1.17 billion, representing 78.5% of our adjusted funds from operations available to common stockholders of $1.49 billion. Future distributions will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, FFO, Normalized FFO, AFFO, cash flow from operations, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, our debt service requirements, and any other factors the Board of Directors may deem relevant. In addition, our credit facility contains financial covenants that could limit the amount of distributions payable by us in the event of a default, and which prohibit the payment of distributions on our common stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facility. Distributions of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income, except to the extent that we recognize capital gains and declare a capital gains dividend, or that such amounts constitute “qualified dividend income” subject to a reduced rate of tax. The maximum tax rate of non-corporate taxpayers for “qualified dividend income” is generally 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that certain holding requirements have been met with respect to the REIT’s stock and the REIT’s dividends are attributable to dividends received from certain taxable corporations (such as our taxable REIT subsidiaries) or to income that was subject to tax at the corporate or REIT level (for example, if we distribute taxable income that we retained and paid tax on in the prior taxable year). However, non-corporate stockholders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017, and before January 1, 2026. Distributions in excess of earnings and profits generally will first be treated as a non-taxable reduction in the stockholders’ basis in their stock, but not below zero. Distributions in excess of that basis generally will be taxable as a capital gain to stockholders who hold their shares as a capital asset. Approximately 67.3% of the distributions to our common stockholders, made or deemed to have been made in 2021, were classified as a return of capital for federal income tax purposes. -43- Table of Content s RESULTS OF OPERATIONS Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with GAAP and are the basis for our discussion and analysis of financial condition and results of operations. Preparing our consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. We believe that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. This summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021. In order to prepare our consolidated financial statements according to the rules and guidelines set forth by GAAP, many subjective judgments must be made with regard to critical accounting policies. Management must make significant assumptions in determining the fair value of assets acquired and liabilities assumed. When acquiring a property for investment purposes, we typically allocate the cost of real estate acquired, inclusive of transaction costs, to: (1) land, (2) building and improvements, and (3) identified intangible assets and liabilities, based in each case on their relative estimated fair values. Intangible assets and liabilities consist of above-market or below-market lease value and the value of in-place leases, as applicable. Additionally, above–market rents on certain leases under which we are a lessor are accounted for as financing receivables amortizing over the lease term, while below–market rents on certain leases under which we are a lessor are accounted for as prepaid rent. In an acquisition of multiple properties, we must also allocate the purchase price among the properties. The allocation of the purchase price is based on our assessment of estimated fair value of the land, building and improvements, and identified intangible assets and liabilities and is often based upon the various characteristics of the market where the property is located. In addition, any assumed mortgages are recorded at their estimated fair values. The estimated fair values of our mortgages payable have been calculated by discounting the future cash flows using applicable interest rates that have been adjusted for factors, such as industry type, client investment grade, maturity date, and comparable borrowings for similar assets. The use of different assumptions in the allocation of the purchase price of the acquired properties and liabilities assumed could affect the timing of recognition of the related revenue and expenses. Another significant judgment must be made as to if, and when, impairment losses should be taken on our properties when events or a change in circumstances indicate that the carrying amount of the asset may not be recoverable. If estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property, a fair value analysis is performed and, to the extent the estimated fair value is less than the current book value, a provision for impairment is recorded to reduce the book value to estimated fair value. Key inputs that we utilize in this analysis include projected rental rates, estimated holding periods, capital expenditures, and property sales capitalization rates. If a property is held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell. The carrying value of our real estate is the largest component of our consolidated balance sheets. Our strategy of primarily holding properties, long-term, directly decreases the likelihood of their carrying values not being recoverable, thus requiring the recognition of an impairment. However, if our strategy, or one or more of the above assumptions were to change in the future, an impairment may need to be recognized. If events should occur that require us to reduce the carrying value of our real estate by recording provisions for impairment, they could have a material impact on our results of operations. -44- Table of Content s The following is a comparison of our results of operations for the three months ended March 31, 2022, to the three months ended March 31, 2021. Total Revenue The following summarizes our total revenue (dollars in thousands): Three months ended March 31, $ Increase 2022 2021 REVENUE Rental (excluding reimbursable) $ 755,562 $ 417,688 $ 337,874 Rental (reimbursable) 44,003 21,677 22,326 Other 7,778 2,889 4,889 Total revenue $ 807,343 $ 442,254 $ 365,089 The increase in total revenue primarily relates to the merger with VEREIT and acquisitions from January 1, 2021, through March 31, 2022 . Rental Revenue (excluding reimbursable) The table below summarizes the increase in rental revenue (excluding reimbursable) in the three months ended March 31, 2022, compared to the three months ended March 31, 2021 (dollars in thousands): Three months ended March 31, Increase/(Decrease) Number of Properties Square Footage (1) 2022 2021 $ Change Properties acquired during 2022 & 2021 1,235 29,069,157 $ 98,518 $ 5,049 $ 93,469 Same store rental revenue 9,728 169,816,153 629,886 605,266 24,620 Orion Divestiture 92 10,093,123 413 44,197 (43,784) Constant currency adjustment (2) N/A N/A 1,215 1,225 (10) Properties sold prior to 2022 318 6,615,724 627 12,851 (12,224) Straight-line rent and other non-cash adjustments N/A N/A 8,252 1,456 6,796 Vacant rents, development and other (3) 325 6,932,900 16,651 13,790 2,861 Less: VEREIT same store rental revenue (4) N/A N/A — (266,146) 266,146 Totals $ 755,562 $ 417,688 $ 337,874 (1) Excludes 5,910,715 square feet from properties ground leased to clients and 2,164,712 square feet from properties with no land or building ownership. (2) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as of March 31, 2022, of 1.31 GBP/USD. None of the properties in Spain met our same store pool definition for the periods presented. (3) Relates to the aggregate of (i) rental revenue from properties (313 properties comprising 6,850,516 square feet) that were available for lease during part of 2022 or 2021, (ii) rental revenue for properties (12 properties comprising 82,384 square feet) under development, and (iii) rental revenue that is not contractual base rent such as lease termination settlements. (4) Amounts for the three months ended March 31, 2021 represent same store rental revenue from VEREIT properties, which were not included in our financial statements prior to the close of the merger on November 1, 2021. For purposes of determining the same store rent property pool, we include all properties that were owned for the entire year-to-date period, for both the current and prior year, except for properties during the current or prior year that; (i) were vacant at any time, (ii) were under development or redevelopment, or (iii) were involved in eminent domain and rent was reduced. Beginning with the first quarter of 2022, properties acquired through the merger with VEREIT were considered under each element of our same store pool criterion, except for the requirement that the property be owned for the full comparative period. If the property was owned by VEREIT for the full comparative period and each of the other criterion were met, the property was included in our same store property pool. Each of the exclusions from the same store pool are separately addressed within the applicable sentences above, explaining the changes in rental revenue for the period. -45- Table of Content s Our calculation of same store rental revenue includes rent deferred for future payment as a result of lease concessions we granted in response to the COVID-19 pandemic and recognized under the practical expedient provided by the Financial Accounting Standards Board (FASB). Beginning with the first quarter of 2022, properties acquired through the merger with VEREIT were considered under each element of our Same Store Pool criterion, except for the requirement that the property be owned for the full comparative period. If the property was owned by VEREIT for the full comparative period and each of the other criterion were met, the property was included in our same store property pool. Our calculation of same store rental revenue also includes uncollected rent for which we have not granted a lease concession. If these applicable amounts of rent deferrals and uncollected rent were excluded from our calculation of same store rental revenue, the increases for the three months ended March 31, 2022, relative to the comparable periods for 2021 would have been 4.4%. Of the 11,288 properties in the portfolio at March 31, 2022, 11,180, or 99.0%, are single-client properties and the remaining are multi-client properties. Of the 11,180 single-client properties, 11,026, or 98.6%, were net leased at March 31, 2022. Of the 11,501 in-place leases in the portfolio, which excludes 201 vacant units, 9,839 or 85.5% were under leases that provide for increases in rents through: • Base rent increases tied to inflation (typically subject to ceilings); • Percentage rent based on a percentage of the clients’ gross sales; • Fixed increases; or • A combination of two or more of the above rent provisions. Percentage rent, which is included in rental revenue, was $3.7 million in the three months ended March 31, 2022, and $1.0 million in the three months ended March 31, 2021. We anticipate percentage rent to be less than 1% of rental revenue for 2022. At March 31, 2022, our portfolio of 11,288 properties was 98.6% leased with 156 properties available for lease, as compared to 98.5% leased, with 164 properties available for lease at December 31, 2021, and 98.0% leased with 131 properties available for lease at March 31, 2021. It has been our experience that approximately 1% to 4% of our property portfolio will be unleased at any given time; however, it is possible that the number of properties available for lease or sale could increase in the future, given the nature of economic cycles and other unforeseen global events, such as the ongoing COVID-19 pandemic and the measures taken to limit its spread. Rental Revenue (reimbursable) A number of our leases provide for contractually obligated reimbursements from clients for recoverable real estate taxes and operating expenses. The increase in contractually obligated reimbursements by our clients in the periods presented is primarily due to the growth of our portfolio due to acquisitions. Other Revenue Other revenue primarily relates to interest income recognized on financing receivables for certain leases with above-market terms. -46- Table of Content s Total Expenses The following summarizes our total expenses (dollars in thousands): Three months ended March 31, $ Increase 2022 2021 EXPENSES Depreciation and amortization $ 403,762 $ 177,985 $ 225,777 Interest 106,403 73,075 33,328 Property (excluding reimbursable) 8,339 6,822 1,517 Property (reimbursable) 44,003 21,677 22,326 General and administrative 32,699 20,796 11,903 Provisions for impairment 7,038 2,720 4,318 Merger and integration-related costs 6,519 — 6,519 Total expenses $ 608,763 $ 303,075 $ 305,688 Total revenue (1) $ 763,340 $ 420,577 General and administrative expenses as a percentage of total revenue (1) 4.3 % 4.9 % Property expenses (excluding reimbursable) as a percentage of total revenue (1) 1.1 % 1.6 % (1) Excludes rental revenue (reimbursable). Depreciation and Amortization The increase in depreciation and amortization for the three months ended March 31, 2022, was primarily due to the acquisition of properties in 2021 and the merger with VEREIT. As discussed in the sections entitled “Funds from Operations Available to Common Stockholders (FFO) and Normalized Funds from Operations Available to Common Stockholders (Normalized FFO)" and “Adjusted Funds from Operations Available to Common Stockholders (AFFO),” depreciation and amortization is a non-cash item that is added back to net income available to common stockholders for our calculation of FFO, Normalized FFO, and AFFO. -47- Table of Content s Interest Expense The following is a summary of the components of our interest expense (dollars in thousands): Three months ended March 31, 2022 2021 Interest on our credit facility, commercial paper, term loan, notes, mortgages and interest rate swaps $ 120,962 $ 69,528 Credit facility commitment fees 937 938 Amortization of debt origination and deferred financing costs 3,123 2,661 Loss on interest rate swaps 722 722 Amortization of net mortgage premiums (3,561) (280) Amortization of net note premiums (15,740) (85) Interest capitalized (375) (486) Capital lease obligation 322 77 Interest on deferred financing leases 13 — Interest expense $ 106,403 $ 73,075 Credit facility, commercial paper, term loan, mortgages and notes Average outstanding balances (dollars in thousands) $ 15,529,939 $ 8,293,374 Average interest rates 3.07 % 3.27 % The increase in interest expense for the three months ended March 31, 2022 is primarily due the January 2022 issuance of £500 million in principal of Sterling denominated notes, the issuance of $4.65 billion in principal of notes associated with the exchange offer and assumption of $839.1 million in principal of mortgage debt, both associated with our merger with VEREIT in November 2021, the July 2021 issuance of £750 million in principal of Sterling denominated notes, and higher average balances and rates on the credit facility and commercial paper borrowings, partially offset by the December 2021 early redemption on all $750.0 million in principal of the 4.650% notes due August 2023, and the January 2021 early redemption on all $950.0 million in principal of the 3.250% notes due October 2022. During the three months ended March 31, 2022, the weighted average interest rate on our: • Revolving credit facility outstanding borrowings of $569.6 million was 1.1%; • Commercial paper outstanding borrowings of $950.0 million was 0.5%; • Term loan outstanding of $250.0 million (excluding deferred financing costs of $394,000) was swapped to fixed at 3.9%; • Mortgages payable of $1.07 billion (excluding net premiums totaling $25.0 million and deferred financing costs of $713,000 on these mortgages) was 4.8%; • Notes and bonds payable of $12.86 billion (excluding net unamortized original issue premiums of $272.7 million and deferred financing costs of $60.6 million) was 3.2%; and • Notes, bonds, mortgages, term loan, and credit facility and commercial paper borrowings of $15.7 billion (excluding all net premiums and deferred financing costs) was 3.1%. Property Expenses (excluding reimbursable) Property expenses (excluding reimbursable) consist of costs associated with properties available for lease, non-net-leased properties and general portfolio expenses. Expenses related to properties available for lease and non-net-leased properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections and legal fees. General portfolio costs include, but are not limited to, insurance, legal, property inspections, and title search fees. At March 31, 2022, 156 properties were available for lease or sale, as compared to 164 at December 31, 2021, and 131 at March 31, 2021. The increase in property expenses (excluding reimbursable) for the three months ended March 31, 2022, is primarily due to the increase in portfolio size, resulting in higher utilities, repairs and maintenance, property-related legal expenses, and property taxes. -48- Table of Content s Property Expenses (reimbursable) The increase in property expenses (reimbursable) for the three months ended March 31, 2022, was primarily attributable to our increased portfolio size, which contributed to higher operating expenses as a result of our acquisitions in 2021 and the three months ended March 31, 2022, and an increase in ground lease rent, insurance, and property taxes paid on behalf of our clients. General and Administrative Expenses General and administrative expenses are expenditures related to the operations of our company, including employee-related costs, professional fees, and other general overhead costs associated with running our business. The increase in general and administrative expenses for the three months ended March 31, 2022, is primarily due to higher payroll-related costs and higher corporate-level professional fees associated with the growth of the company, including the merger with VEREIT. At March 31, 2022, the headcount was 384 versus 225 at March 31, 2021. Provisions for Impairment The following table summarizes provisions for impairment during the periods indicated below (dollars in millions): Three months ended March 31, 2022 2021 Total provisions for impairment $ 7.0 $ 2.7 Number of properties: Classified as held for sale 18 1 Classified as held for investment — 2 Sold 16 18 Merger and Integration-related Costs In conjunction with our merger with VEREIT, we incurred approximately $6.5 million of merger and integration-related transaction costs during the three months ended March 31, 2022, respectively. The merger and integration-related costs incurred to date primarily consist of advisory fees, attorney fees, accountant fees and additional incremental and non-recurring costs necessary to convert data and systems, retain employees and otherwise enable us to operate the acquired VEREIT business and assets efficiently. There were no comparable merger and integration-related costs for the three months ended March 31, 2021. Gain on Sales of Real Estate The following summarizes our property dispositions (dollars in millions): Three months ended March 31, 2022 2021 Number of properties sold 34 27 Net sales proceeds $ 122.2 $ 34.7 Gain on sales of real estate $ 10.2 $ 8.4 Foreign Currency and Derivative Gains (Losses), Net We borrow in the functional currencies of the countries in which we invest. Net foreign currency gains and losses are primarily related to the remeasurement of intercompany debt from foreign subsidiaries. Gains and losses on foreign currency are largely offset by derivative gains and losses. Derivative gains and losses relate to mark-to-market adjustments on derivatives that do not qualify for hedge accounting. Net derivative gains and losses are primarily related to realized and unrealized short term currency exchange swaps. Gains and losses on derivatives are largely offset by foreign currency gains and losses. Loss on Extinguishment of Debt In January 2021, we completed the early redemption on all $950.0 million in principal amount of outstanding 3.250% notes due October 2022, plus accrued and unpaid interest. As a result of the early redemption, we recognized a $46.5 million loss on extinguishment of debt for the three months ended March 31, 2021. There were no comparable redemptions of debt for the three months ended March 31, 2022. -49- Table of Content s Equity in Income of Unconsolidated Entities Equity in income of unconsolidated entities for the three months ended March 31, 2022, relates to three equity method investments that were acquired in our merger with VEREIT. There were no comparative investments for the three months ended March 31, 2021. Other Income, Net Certain miscellaneous non-recurring revenue is included in other income, net. The increase in the three months ended March 31, 2022, compared to the three months ended March 31, 2021, is primarily related to insurance proceeds received from property losses. Income Taxes Income taxes are for city and state income and franchise taxes, and for international income taxes accrued or paid by us and our subsidiaries. The increase in income taxes for the three months ended March 31, 2022, was primarily attributable to our increased volume of U.K. investments, which contributed to higher U.K. income taxes as compared to the same period in 2021. Net Income Available to Common Stockholders The following summarizes our net income available to common stockholders (dollars in millions, except per share data): Three months ended March 31, % Increase 2022 2021 Net income available to common stockholders $ 199.4 $ 95.9 107.9 % Net income per share (1) $ 0.34 $ 0.26 30.8 % (1) All per share amounts are presented on a diluted per common share basis. The calculation to determine net income available to common stockholders includes provisions for impairment, gains from the sale of properties, and foreign currency gains and losses, which can vary from period to period based on timing and significantly impact net income available to the Company and available to common stockholders. The increase in net income available to common stockholders for the three months ended March 31, 2022, compared to the three months ended March 31, 201 primarily related to the increase in the size of our portfolio due to the merger with VEREIT, which closed on November 1, 2021. In addition, net income available to common stockholders for the three months ended March 31, 2021, was impacted by a $46.5 million loss on extinguishment of debt due to the January 2021 early redemption of the 3.250% notes due October 2022. Adjusted Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate (Adjusted EBITDA re ) The National Association of Real Estate Investment Trusts (Nareit) established an EBITDA metric for real estate companies (i.e., EBITDA for real estate, or EBITDA re ) it believed would provide investors with a consistent measure to help make investment decisions among REITs. Our definition of “Adjusted EBITDA re ” is generally consistent with the Nareit definition, other than our adjustments to remove foreign currency and derivative gains and losses (which is consistent with our previous calculations of "Adjusted EBITDA"). We define Adjusted EBITDA re , a non–GAAP financial measure, for the most recent quarter as earnings (net income) before (i) interest expense, including non-cash loss (gain) on swaps, (ii) income and franchise taxes, (iii) loss on extinguishment of debt, (iv) real estate depreciation and amortization, (v) provisions for impairment, (vi) merger and integration-related costs, (vii) gain on sales of real estate, (viii) foreign currency and derivative gains and losses, net (as described in the Adjusted Funds from Operations section), and (ix) our proportionate share of interest expense and real estate depreciation and amortization from unconsolidated entities. Our Adjusted EBITDA re may not be comparable to Adjusted EBITDA re reported by other companies or as defined by Nareit, and other companies may interpret or define Adjusted EBITDA re differently than we do. Management believes Adjusted EBITDA re to be a meaningful measure of a REIT’s performance because it provides a view of our operating performance, analyzes our ability to meet interest payment obligations before the effects of income tax, depreciation and amortization expense, provisions for impairment, gains on sales of real estate and other items, as defined above, that affect comparability, including the removal of non-recurring and non-cash items that industry observers believe are less relevant to evaluating the operating performance of a company. In addition, EBITDA re is widely followed by industry analysts, lenders, investors, rating agencies, and others as a means of evaluating the operational cash generating capacity of a company prior to servicing debt obligations. Management also believes the use of an annualized quarterly Adjusted -50- Table of Content s EBITDA re metric, which we refer to as Annualized Adjusted EBITDA re , is meaningful because it represents the Company’s current earnings run rate for the period presented. Annualized Adjusted EBITDA re should be considered along with, but not as an alternative to net income as a measure of our operating performance. Management also uses our ratio of net debt-to-Annualized Adjusted EBITDA re as a measure of leverage in assessing the Company's financial performance, which is calculated as net debt (which we define as total debt per the consolidated balance sheet, excluding deferred financing costs and net premiums and discounts, but including our proportionate share on debt from unconsolidated entities, less cash and cash equivalents), divided by annualized quarterly Adjusted EBITDA re. The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable GAAP measure) to adjusted EBITDA re and Annualized Adjusted EBITDA re calculations for the periods indicated below (dollars in thousands): Three months ended March 31, 2022 2021 Net income $ 199,971 $ 96,236 Interest 106,403 73,075 Loss on extinguishment of debt — 46,473 Income taxes 10,981 6,225 Depreciation and amortization 403,762 177,985 Provisions for impairment 7,038 2,720 Merger and integration-related costs 6,519 — Gain on sales of real estate (10,156) (8,401) Foreign currency and derivative (gains) losses, net 590 (804) Proportionate share of adjustments for unconsolidated entities 1,092 — Quarterly Adjusted EBITDA re $ 726,200 $ 393,509 Annualized Adjusted EBITDA re (1) $ 2,904,800 $ 1,574,036 Total debt per the consolidated balance sheet, excluding deferred financing costs and net premiums and discounts $ 15,695,516 $ 8,566,505 Proportionate share for unconsolidated entities debt, excluding deferred financing costs 86,006 — Less: Cash and cash equivalents (151,624) (183,984) Net Debt (2) $ 15,629,898 $ 8,382,521 Net Debt/Annualized Adjusted EBITDA re (3) 5.4 5.3 (1) We calculate Annualized Adjusted EBITDA re by multiplying the Quarterly Adjusted EBITDA re by four. (2) Net Debt is total debt per our consolidated balance sheet, excluding deferred financing costs and net premiums and discounts, but including our proportionate share on debt from unconsolidated entities, less cash and cash equivalents. (3) During 2021, Net Debt was adjusted to exclude deferred financing costs and net premiums and discounts. The adjustment of Net Debt did not impact the calculation for the three months ended March 31, 2021. -51- Table of Content s FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (FFO) AND NORMALIZED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (Normalized FFO) The following summarizes our FFO and Normalized FFO (dollars in millions, except per share data): We define FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trusts' definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus provisions for impairments of depreciable real estate assets, and reduced by gains on property sales. We define Normalized FFO, a non-GAAP financial measure, as FFO excluding merger and integration-related costs related to our merger with VEREIT. We define diluted FFO and diluted normalized FFO as FFO and normalized FFO adjusted for dilutive noncontrolling interests. Three months ended March 31, % Increase 2022 2021 FFO available to common stockholders $ 601.4 $ 267.7 124.7 % FFO per share (1) $ 1.01 $ 0.72 40.3 % Normalized FFO available to common stockholders $ 607.9 $ 267.7 127.1 % Normalized FFO per share (1) $ 1.02 $ 0.72 41.7 % (1) All per share amounts are presented on a diluted per common share basis. FFO and Normalized FFO for the three months ended March 31, 2021, was impacted was impacted by a $46.5 million loss on extinguishment of debt due to the January 2021 early redemption of the 3.250% notes due October 2022. The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable GAAP measure) to FFO and Normalized FFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts): -52- Table of Content s Three months ended March 31, 2022 2021 Net income available to common stockholders $ 199,369 $ 95,940 Depreciation and amortization 403,762 177,985 Depreciation of furniture, fixtures and equipment (478) (371) Provisions for impairment 7,038 2,720 Gain on sales of real estate (10,156) (8,401) Proportionate share of adjustments for unconsolidated entities 2,235 — FFO adjustments allocable to noncontrolling interests (354) (166) FFO available to common stockholders $ 601,416 $ 267,707 FFO allocable to dilutive noncontrolling interests 808 — Diluted FFO $ 602,224 $ 267,707 FFO available to common stockholders $ 601,416 $ 267,707 Merger and integration-related costs 6,519 — Normalized FFO available to common stockholders $ 607,935 $ 267,707 Normalized FFO allocable to dilutive noncontrolling interests 808 — Diluted Normalized FFO $ 608,743 $ 267,707 FFO per common share, basic and diluted $ 1.01 $ 0.72 Normalized FFO per common share, basic and diluted $ 1.02 $ 0.72 Distributions paid to common stockholders $ 438,280 $ 260,697 FFO available to common stockholders in excess of distributions paid to common stockholders $ 163,136 $ 7,010 Normalized FFO available to common stockholders in excess of distributions paid to common stockholders $ 169,655 $ 7,010 Weighted average number of common shares used for FFO and normalized FFO: Basic 593,827,299 371,522,607 Diluted 595,102,548 371,601,901 We consider FFO and Normalized FFO to be appropriate supplemental measures of a REIT’s operating performance as they are based on a net income analysis of property portfolio performance that adds back items such as depreciation and impairments for FFO, and adds back merger and integration-related costs, for Normalized FFO. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (AFFO) The following summarizes our AFFO (dollars in millions, except per share data): We define AFFO, a non-GAAP measure, as FFO adjusted for unique revenue and expense items, which we believe are not as pertinent to the measurement of our ongoing operating performance. We define diluted AFFO as AFFO adjusted for dilutive noncontrolling interests. Three months ended March 31, % Increase 2022 2021 AFFO available to common stockholders $ 580.1 $ 318.2 82.3 % AFFO per share (1) $ 0.98 $ 0.86 14.0 % -53- Table of Content s (1) All per share amounts are presented on a diluted per common share basis. We consider AFFO to be an appropriate supplemental measure of our performance. Most companies in our industry use a similar measurement, but they may use the term “CAD” (for Cash Available for Distribution), “FAD” (for Funds Available for Distribution) or other terms. Our AFFO calculations may not be comparable to AFFO, CAD or FAD reported by other companies, and other companies may interpret or define such terms differently than we do. The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable GAAP measure) to Normalized FFO and AFFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts): Three months ended March 31, 2022 2021 Net income available to common stockholders $ 199,369 $ 95,940 Cumulative adjustments to calculate Normalized FFO (1) 408,566 171,767 Normalized FFO available to common stockholders 607,935 267,707 Loss on extinguishment of debt — 46,473 Amortization of share-based compensation 5,002 3,697 Amortization of net debt premiums and deferred financing costs (2) (17,096) 1,385 Loss on interest rate swaps 722 722 Straight-line payments from cross-currency swaps (3) 517 618 Leasing costs and commissions (2,373) (706) Recurring capital expenditures (13) (23) Straight-line rent (27,822) (10,463) Amortization of above and below-market leases, net 13,642 9,300 Proportionate share of adjustments for unconsolidated entities (2,064) — Other adjustments (4) 1,648 (488) AFFO available to common stockholders $ 580,098 $ 318,222 AFFO allocable to dilutive noncontrolling interests 820 351 Diluted AFFO $ 580,918 $ 318,573 AFFO per common share, basic and diluted $ 0.98 $ 0.86 Distributions paid to common stockholders $ 438,280 $ 260,697 AFFO available to common stockholders in excess of distributions paid to common stockholders $ 141,818 $ 57,525 Weighted average number of common shares used for computation per share: Basic 593,827,299 371,522,607 Diluted 595,102,548 372,065,020 (1) See reconciling items for Normalized FFO presented under “Funds from Operations Available to Common Stockholders (FFO) and Normalized Funds from Operations Available to Common Stockholders (Normalized FFO)." (2) Includes the amortization of premiums and discounts on notes payable and assumption of our mortgages payable, which are being amortized over the life of the applicable debt, and costs incurred and capitalized upon issuance and exchange of our notes payable, assumption of our mortgages payable and issuance of our term loans, which are also being amortized over the lives of the applicable debt. No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included. (3) Straight-line payments from cross-currency swaps represent quarterly payments in U.S. dollars received by us from counterparties in exchange for associated foreign currency payments. These USD payments are fixed and determinable for the duration of the associated hedging transaction. (4) Includes adjustments allocable to noncontrolling interests, obligations related to financing lease liabilities, mark-to-market adjustments on investments and derivatives that do not qualify for hedge accounting, and foreign currency gains and losses as a result of intercompany debt and remeasurement transactions. -54- Table of Content s We believe the non-GAAP financial measure AFFO provides useful information to investors because it is a widely accepted industry measure of the operating performance of real estate companies that is used by industry analysts and investors who look at and compare those companies. In particular, AFFO provides an additional measure to compare the operating performance of different REITs without having to account for differing depreciation assumptions and other unique revenue and expense items which are not pertinent to measuring a particular company’s on-going operating performance. Therefore, we believe that AFFO is an appropriate supplemental performance metric, and that the most appropriate GAAP performance metric to which AFFO should be reconciled is net income available to common stockholders. Presentation of the information regarding FFO, Normalized FFO, and AFFO is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO, Normalized FFO, and AFFO in the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO, Normalized FFO, and AFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as alternatives to net income as an indication of our performance. FFO, Normalized FFO, and AFFO should not be considered as alternatives to reviewing our cash flows from operating, investing, and financing activities. In addition, FFO, Normalized FFO, and AFFO should not be considered as measures of liquidity, our ability to make cash distributions, or our ability to pay interest payments. PROPERTY PORTFOLIO INFORMATION At March 31, 2022, we owned a diversified portfolio: • Consisting of 11,288 properties; • With an occupancy rate of 98.6%, or 11,132 properties leased and 156 properties available for lease or sale; • With clients doing business in 70 separate industries; • Located in all 50 U.S. states, Puerto Rico, the U.K. and Spain; • With approximately 213.9 million square feet of leasable space; • With a weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of approximately 8.9 years; and • With an average leasable space per property of approximately 18,950 square feet; approximately 12,660 square feet per retail property and approximately 244,460 square feet per industrial property. At March 31, 2022, 11,132 properties were leased under net lease agreements. A net lease typically requires the client to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance. In addition, clients of our properties typically pay rent increases based on: (1) fixed increases, (2) increases tied to inflation (typically subject to ceilings), or (3) additional rent calculated as a percentage of the clients' gross sales above a specified level. We define total portfolio annualized contractual rent as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables, but excluding percentage rent and reimbursements from clients, as of the balance sheet date, multiplied by 12, excluding percentage rent. We believe total portfolio annualized contractual revenue is a useful supplemental operating measure, as it excludes properties that were no longer owned at the balance sheet date and includes the annualized rent from properties acquired during the quarter. Total portfolio annualized contractual rent has not been reduced to reflect reserves and reserve reversals recorded as adjustments to GAAP rental revenue in the periods presented and excludes unconsolidated entities. -55- Table of Content s Industry Diversification The following table sets forth certain information regarding our property portfolio classified according to the business of the respective clients, expressed as a percentage of our total portfolio annualized contractual rent: Percentage of Total Portfolio Annualized Contractual Rent by Industry As of Mar 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 U.S. Aerospace 0.4% 0.4% 0.6% 0.8% 0.9% Apparel stores 1.5 1.5 1.3 1.1 1.2 Automotive collision services 1.0 1.0 1.1 1.0 0.9 Automotive parts 1.5 1.5 1.6 1.6 1.7 Automotive service 3.3 3.2 2.7 2.6 2.3 Automotive tire services 1.6 1.8 2.0 2.1 2.3 Beverages 1.3 1.3 2.1 2.0 2.4 Child care 1.5 1.5 2.1 2.1 2.2 Consumer electronics 0.6 0.6 0.3 0.3 0.3 Consumer goods 0.7 0.7 0.6 0.6 0.7 Convenience stores 9.1 9.1 11.9 12.3 12.6 Crafts and novelties 1.0 1.0 0.9 0.6 0.6 Diversified industrial 1.1 1.0 0.8 0.7 0.8 Dollar stores 7.4 7.5 7.6 7.9 7.3 Drug stores 6.4 6.6 8.2 8.8 9.4 Education 0.1 0.1 0.2 0.2 0.3 Energy 0.4 0.4 — — — Entertainment 0.9 0.8 0.3 0.3 0.3 Equipment services 0.3 0.3 0.3 0.4 0.4 Financial services 2.0 2.0 1.8 2.0 2.4 Food processing 0.7 0.7 0.7 0.7 0.5 General merchandise 3.4 3.5 3.4 2.5 2.1 Government services * * 0.6 0.7 0.9 Grocery stores 4.9 4.9 4.9 5.2 5.0 Health and beauty 0.2 0.2 0.2 0.2 0.2 Health and fitness 4.6 4.7 6.7 7.0 7.1 Health care 1.8 1.9 1.5 1.6 1.6 Home furnishings 2.5 2.2 0.7 0.8 0.8 Home improvement 3.0 3.1 3.1 2.9 2.8 Machinery 0.1 0.1 0.1 0.1 0.1 Motor vehicle dealerships 1.2 1.3 1.6 1.6 1.8 Office supplies 0.2 0.2 0.1 0.2 0.2 Other manufacturing 0.5 0.5 0.4 0.6 0.7 Packaging 0.6 0.6 0.9 0.8 1.0 Paper * * 0.1 0.1 0.1 Pet supplies and services 1.0 0.9 0.7 0.7 0.5 Restaurants - casual dining 5.8 5.9 2.8 3.2 3.3 Restaurants - quick service 6.5 6.5 5.3 5.8 6.3 Shoe stores 0.2 0.2 0.2 0.2 0.5 Sporting goods 1.4 1.5 0.7 0.8 0.9 Telecommunications 0.1 0.1 0.5 0.5 0.6 Theaters 3.3 3.4 5.6 6.1 5.3 Transportation services 3.3 3.4 3.9 4.3 5.0 Wholesale clubs 2.5 2.5 2.4 2.5 2.9 Other 0.7 0.9 0.3 0.8 0.8 Total U.S. 90.6% 91.5% 93.8% 97.3% 100.0% Europe (1) Grocery stores 5.5 5.3 4.9 2.7 — Health care 0.1 0.1 0.1 — — Home improvement 2.0 2.0 1.2 — — Warehousing and storage 0.2 0.2 — — — Other 1.6 0.9 * * — Total Europe 9.4% 8.5% 6.2% 2.7% —% Totals 100.0% 100.0% 100.0% 100.0% 100.0% * Less than 0.1% (1) Europe consists of properties in the U.K., starting in May 2019, and in Spain, starting in September 2021. -56- Table of Content s Property Type Composition The following table sets forth certain property type information regarding our property portfolio as of March 31, 2022 (dollars in thousands): Property Type Number of Properties Approximate Leasable Square Feet (1) Total Portfolio Annualized Contractual Rent Percentage of Total Portfolio Annualized Contractual Rent Retail 10,967 138,843,400 $ 2,506,807 83.6 % Industrial 298 72,849,200 431,852 14.4 Other (2) 23 2,201,000 57,745 2.0 Totals 11,288 213,893,600 $ 2,996,404 100.0 % (1) Includes leasable building square footage. Excludes 3,600 acres of leased land categorized as agriculture at March 31, 2022. (2) "Other" includes seven properties classified as office, consisting of approximately 2.0 million leasable square feet and $29.2 million in annualized contractual rent, and 16 properties classified as agriculture, consisting of approximately 191,000 leasable square feet and $28.6 million in annualized contractual rent. Client Diversification The following table sets forth the 20 largest clients in our property portfolio, expressed as a percentage of total portfolio annualized contractual rent, which does not give effect to deferred rent, at March 31, 2022: Client Number of Leases Percentage of Total Portfolio Annualized Contractual Rent (1) Walgreens 338 4.0 % 7-Eleven 627 3.9 % Dollar General 1,272 3.9 % Dollar Tree / Family Dollar 1,022 3.5 % FedEx 80 2.9 % LA Fitness 79 2.4 % Sainsbury's 26 2.2 % BJ's Wholesale Clubs 32 1.9 % CVS Pharmacy 183 1.8 % Wal-Mart / Sam's Club 65 1.7 % AMC Theatres 35 1.6 % B&Q (Kingfisher) 25 1.6 % Regal Cinemas (Cineworld) 41 1.5 % Red Lobster 201 1.5 % Tesco 16 1.5 % Tractor Supply 160 1.4 % Lifetime Fitness 16 1.4 % Home Depot 29 1.2 % Fas Mart (GPM Investments) 261 1.0 % Circle K (Couche-Tard) 253 1.0 % Total 4,761 42.2 % (1) Amounts for each client are calculated independently; therefore, the individual percentages may not sum to the total. -57- Table of Content s Lease Expirations The following table sets forth certain information regarding the timing of the lease term expirations in our portfolio (excluding rights to extend a lease at the option of the client) and their contribution to total portfolio annualized contractual rent as of March 31, 2022 (dollars in thousands): Total Portfolio (1) Expiring Leases Approximate Leasable Square Feet Total Portfolio Annualized Contractual Rent Percentage of Total Portfolio Annualized Contractual Rent Year Retail Non-Retail 2022 278 11 3,632,900 $ 49,642 1.8 % 2023 756 28 11,488,900 144,672 4.8 2024 671 31 13,443,300 153,759 5.1 2025 812 34 13,690,000 193,912 6.5 2026 754 32 15,420,500 177,284 5.9 2027 1210 31 20,916,600 241,978 8.1 2028 976 33 18,754,100 227,455 7.6 2029 827 16 17,396,700 214,227 7.1 2030 507 17 14,217,400 163,226 5.4 2031 435 36 20,035,100 229,907 7.7 2032 602 15 9,422,000 175,515 5.9 2033 513 13 11,893,600 153,254 5.1 2034 504 5 9,377,400 192,605 6.4 2035 379 3 4,290,300 99,117 3.3 2036 381 6 6,577,100 123,353 4.1 2037 - 2059 1,555 30 20,667,500 456,498 15.2 Totals 11,160 341 211,223,400 $ 2,996,404 100.0 % (1) Leases on our multi-client properties are counted separately in the table above. This table excludes 201 vacant units. -58- Table of Content s Geographic Diversification The following table sets forth certain state-by-state information regarding our property portfolio as of March 31, 2022 (dollars in thousands): Location Number of Properties Percent Leased Approximate Leasable Square Feet Percentage of Total Portfolio Annualized Contractual Rent Alabama 384 96 % 4,122,400 2.0 % Alaska 6 100 299,700 0.1 Arizona 228 100 3,496,000 1.9 Arkansas 226 99 2,453,000 1.1 California 323 99 11,326,400 6.4 Colorado 158 98 2,570,800 1.5 Connecticut 27 100 1,244,600 0.5 Delaware 26 100 192,000 0.2 Florida 702 99 9,515,800 5.3 Georgia 494 99 7,997,700 3.6 Hawaii 22 100 47,800 0.2 Idaho 27 100 189,100 0.1 Illinois 462 98 11,796,100 5.0 Indiana 387 99 6,701,900 2.9 Iowa 89 98 3,501,800 1.0 Kansas 173 100 4,465,600 1.2 Kentucky 172 97 3,413,800 1.3 Louisiana 308 99 4,888,700 2.2 Maine 55 98 1,008,300 0.5 Maryland 73 96 2,748,000 1.3 Massachusetts 91 99 3,109,400 1.4 Michigan 450 98 5,303,000 2.8 Minnesota 230 100 3,495,200 2.0 Mississippi 275 100 4,156,000 1.4 Missouri 343 99 4,736,900 2.0 Montana 21 100 204,500 0.1 Nebraska 75 99 1,013,000 0.4 Nevada 72 100 2,638,200 1.0 New Hampshire 30 100 567,900 0.4 New Jersey 142 98 2,233,300 1.8 New Mexico 102 99 1,299,200 0.7 New York 241 99 4,315,400 3.2 North Carolina 377 99 7,692,000 3.2 North Dakota 22 86 352,300 0.2 Ohio 663 98 15,126,700 4.6 Oklahoma 286 98 3,958,900 1.8 Oregon 42 98 658,900 0.4 Pennsylvania 330 99 5,861,400 2.8 Rhode Island 7 86 109,800 0.1 South Carolina 285 99 3,912,700 2.0 South Dakota 29 100 428,400 0.2 Tennessee 374 98 6,475,400 2.6 Texas 1450 98 23,908,100 10.7 Utah 36 100 1,529,500 0.5 Vermont 7 100 134,900 0.1 Virginia 347 97 5,918,800 2.5 Washington 77 99 1,711,900 0.9 West Virginia 74 100 726,000 0.4 Wisconsin 245 100 4,444,400 1.9 Wyoming 23 100 157,700 0.1 Puerto Rico 6 100 59,400 0.1 Spain 43 100 2,492,000 0.7 U.K. 151 100 13,182,900 8.7 Totals/average 11,288 99 % 213,893,600 100.0 % -59- Table of Content s IMPACT OF INFLATION Leases generally provide for limited increases in rent as a result of fixed increases, increases in the consumer price index, or retail price index in the case of certain leases in the U.K. (typically subject to ceilings), or increases in the clients’ sales volumes. We expect that inflation will cause these lease provisions to result in rent increases over time. During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation. Moreover, our use of net lease agreements tends to reduce our exposure to rising property expenses due to inflation because the client is responsible for property expenses. Inflation and increased costs may have an adverse impact on our clients if increases in their operating expenses exceed increases in revenue. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS For information on the impact of new accounting standards on our business, see note 2 of the Notes to the Consolidated Financial Statements. OTHER INFORMATION Our common stock is listed on the NYSE under the ticker symbol “O” with a CUSIP number of 756109-104. Our 1.625% notes due December 2030 are listed on the NYSE under the ticker symbol "O30" with a CUSIP number of 756109-AY0. Our 1.875% notes due January 2027 are listed on the NYSE under the ticker symbol "O27B" with a CUSIP number of 756109-BM5. Our 1.125% notes due July 2027 are listed on the NYSE under the ticker symbol "O27A" with a CUSIP number of 756109-BB9 . Our 1.750% notes due July 2033 are listed on the NYSE under the ticker symbol "O33A" with a CUSIP number of 756109-BC7. Our 2.500% notes due January 2042 are listed on the NYSE under the ticker symbol "O42" with a CUSIP number of 756109-BN3. Our central index key number is 726728. We maintain a corporate website at www.realtyincome.com. On our website we make available, free of charge, copies of our annual report on Form 10-K , quarterly reports on Form 10-Q, Form 3s, Form 4s, Form 5s, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file these reports with the SEC. None of the information on our website is deemed to be part of this report.