REALTY INCOME CORP 10-Q

Item 1. Financial Statements REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share and share count data) (unaudited) September 30, 2022 December 31, 2021 ASSETS Real estate held for investment, at cost: Land $ 11,852,057 $ 10,753,750 Buildings and improvements 26,981,664 25,155,178 Total real estate held for investment, at cost 38,833,721 35,908,928 Less accumulated depreciation and amortization ( 4,624,243 ) ( 3,949,798 ) Real estate held for investment, net 34,209,478 31,959,130 Real estate and lease intangibles held for sale, net 18,309 30,470 Cash and cash equivalents 187,745 258,579 Accounts receivable, net 529,248 426,768 Lease intangible assets, net 5,064,322 5,275,304 Goodwill 3,731,478 3,676,705 Investment in unconsolidated entities — 140,967 Other assets, net 2,151,895 1,369,579 Total assets $ 45,892,475 $ 43,137,502 LIABILITIES AND EQUITY Distributions payable $ 156,999 $ 146,919 Accounts payable and accrued expenses 408,482 351,128 Lease intangible liabilities, net 1,368,525 1,308,221 Other liabilities 752,530 759,197 Line of credit payable and commercial paper 1,920,159 1,551,376 Term loan, net 249,705 249,557 Mortgages payable, net 855,363 1,141,995 Notes payable, net 13,316,455 12,499,709 Total liabilities 19,028,218 18,008,102 Commitments and contingencies Stockholders’ equity: Common stock and paid in capital, par value $ 0.01 per share, 1,300,000,000 and 740,200,000 shares authorized, 627,145,827 and 591,261,991 shares issued and outstanding as of September 30, 2022, and December 31, 2021, respectively 32,003,069 29,578,212 Distributions in excess of net income ( 5,241,012 ) ( 4,530,571 ) Accumulated other comprehensive income (loss) ( 24,938 ) 4,933 Total stockholders’ equity 26,737,119 25,052,574 Noncontrolling interests 127,138 76,826 Total equity 26,864,257 25,129,400 Total liabilities and equity $ 45,892,475 $ 43,137,502 The accompanying notes to consolidated financial statements are an integral part of these statements. -2- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (dollars in thousands, except per share and share count data) (unaudited) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 REVENUE Rental (including reimbursable) $ 825,946 $ 486,337 $ 2,426,311 $ 1,385,958 Other 11,323 3,554 28,720 9,485 Total revenue 837,269 489,891 2,455,031 1,395,443 EXPENSES Depreciation and amortization 419,016 198,832 1,232,215 564,606 Interest 117,409 76,156 333,933 222,905 Property (including reimbursable) 52,719 29,662 157,241 89,895 General and administrative 34,096 23,813 100,934 66,458 Provisions for impairment 1,650 11,011 16,379 30,977 Merger and integration-related costs 3,746 16,783 12,994 30,081 Total expenses 628,636 356,257 1,853,696 1,004,922 Gain on sales of real estate 42,883 12,094 93,611 35,396 Foreign currency and derivative loss, net ( 22,893 ) ( 2,374 ) ( 16,003 ) ( 1,170 ) Gain (loss) on extinguishment of debt 240 ( 3,983 ) 367 ( 50,456 ) Equity in income and impairment of investment in unconsolidated entities ( 662 ) — ( 6,335 ) — Other income, net 2,249 1,984 6,907 3,518 Income before income taxes 230,450 141,355 679,882 377,809 Income taxes ( 10,163 ) ( 6,079 ) ( 35,802 ) ( 21,529 ) Net income 220,287 135,276 644,080 356,280 Net income attributable to noncontrolling interests ( 720 ) ( 280 ) ( 1,937 ) ( 865 ) Net income available to common stockholders $ 219,567 $ 134,996 $ 642,143 $ 355,415 Amounts available to common stockholders per common share: Net Income, basic and diluted $ 0.36 $ 0.34 $ 1.06 $ 0.94 Weighted average common shares outstanding: Basic 617,511,609 391,913,478 604,463,977 379,291,782 Diluted 617,957,039 392,050,401 604,835,836 379,409,427 Other comprehensive income: Net income available to common stockholders $ 219,567 $ 134,996 $ 642,143 $ 355,415 Foreign currency translation adjustment ( 89,231 ) 1,438 ( 148,929 ) 1,130 Unrealized gain on derivatives, net 41,914 16,852 119,058 52,428 Comprehensive income available to common stockholders $ 172,250 $ 153,286 $ 612,272 $ 408,973 The accompanying notes to consolidated financial statements are an integral part of these statements. -3- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (dollars in thousands) (unaudited) Three months ended September 30, 2022, and 2021 Shares of common stock Common stock and paid in capital Distributions in excess of net income Accumulated other comprehensive income (loss) Total stockholders’ equity Noncontrolling interests Total equity Balance, June 30, 2022 617,564,272 $ 31,303,383 $ ( 4,999,150 ) $ 22,379 $ 26,326,612 $ 76,267 $ 26,402,879 Net income — — 219,567 — 219,567 720 220,287 Other comprehensive loss — — — ( 47,317 ) ( 47,317 ) — ( 47,317 ) Distributions paid and payable — — ( 461,429 ) — ( 461,429 ) ( 1,070 ) ( 462,499 ) Issuance of common partnership units — — — — — 51,221 51,221 Share issuances, net of costs 9,582,012 694,708 — — 694,708 — 694,708 Share-based compensation, net ( 457 ) 4,978 — — 4,978 — 4,978 Balance, September 30, 2022 627,145,827 $ 32,003,069 $ ( 5,241,012 ) $ ( 24,938 ) $ 26,737,119 $ 127,138 $ 26,864,257 Balance, June 30, 2021 380,174,042 $ 15,827,231 $ ( 3,968,333 ) $ ( 19,366 ) $ 11,839,532 $ 34,147 $ 11,873,679 Net income — — 134,996 — 134,996 280 135,276 Other comprehensive income — — — 18,290 18,290 — 18,290 Distributions paid and payable — — ( 279,616 ) — ( 279,616 ) ( 407 ) ( 280,023 ) Share issuances, net of costs 24,030,435 1,618,463 — — 1,618,463 — 1,618,463 Share-based compensation, net 1,599 3,428 — — 3,428 — 3,428 Balance, September 30, 2021 404,206,076 $ 17,449,122 $ ( 4,112,953 ) $ ( 1,076 ) $ 13,335,093 $ 34,020 $ 13,369,113 Nine months ended September 30, 2022 and 2021 Shares of common stock Common stock and paid in capital Distributions in excess of net income Accumulated other comprehensive income (loss) Total stockholders’ equity Noncontrolling interests Total equity Balance, December 31, 2021 591,261,991 $ 29,578,212 $ ( 4,530,571 ) $ 4,933 $ 25,052,574 $ 76,826 $ 25,129,400 Net income — — 642,143 — 642,143 1,937 644,080 Other comprehensive income — — — ( 29,871 ) ( 29,871 ) — ( 29,871 ) Distributions paid and payable — — ( 1,352,584 ) — ( 1,352,584 ) ( 2,846 ) ( 1,355,430 ) Issuance of common partnership units — — — — — 51,221 51,221 Share issuances, net of costs 35,715,042 2,415,281 — — 2,415,281 — 2,415,281 Share-based compensation, net 168,794 9,576 — — 9,576 — 9,576 Balance, September 30, 2022 627,145,827 $ 32,003,069 $ ( 5,241,012 ) $ ( 24,938 ) $ 26,737,119 $ 127,138 $ 26,864,257 Balance December 31, 2020 361,303,445 $ 14,700,050 $ ( 3,659,933 ) $ ( 54,634 ) $ 10,985,483 $ 32,247 $ 11,017,730 Net income — — 355,415 — 355,415 865 356,280 Other comprehensive income — — — 53,558 53,558 — 53,558 Distributions paid and payable — — ( 808,435 ) — ( 808,435 ) ( 1,198 ) ( 809,633 ) Share issuances, net of costs 42,777,850 2,743,039 — — 2,743,039 — 2,743,039 Contributions by noncontrolling interests — — — — — 2,106 2,106 Share-based compensation, net 124,781 6,033 — — 6,033 — 6,033 Balance, September 30, 2021 404,206,076 $ 17,449,122 $ ( 4,112,953 ) $ ( 1,076 ) $ 13,335,093 $ 34,020 $ 13,369,113 The accompanying notes to consolidated financial statements are an integral part of these statements. -4- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Nine months ended September 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 644,080 $ 356,280 Adjustments to net income: Depreciation and amortization 1,232,215 564,606 Amortization of share-based compensation 16,742 12,484 Non-cash revenue adjustments ( 37,538 ) ( 12,722 ) (Gain) loss on extinguishment of debt ( 367 ) 50,456 Amortization of net premiums on mortgages payable ( 10,418 ) ( 1,158 ) Amortization of net premiums on notes payable ( 47,185 ) ( 37 ) Amortization of deferred financing costs 11,116 8,649 Loss on interest rate swaps 2,181 2,179 Foreign currency and derivative loss, net 16,003 1,170 Gain on sales of real estate ( 93,611 ) ( 35,396 ) Equity in income and impairment of investment in unconsolidated entities 6,335 — Distributions from unconsolidated entities 1,605 — Provisions for impairment on real estate 16,379 30,977 Change in assets and liabilities Accounts receivable and other assets 207,838 ( 46,670 ) Accounts payable, accrued expenses and other liabilities ( 32,009 ) 39,248 Net cash provided by operating activities 1,933,366 970,066 CASH FLOWS FROM INVESTING ACTIVITIES Investment in real estate ( 4,980,159 ) ( 3,709,894 ) Improvements to real estate, including leasing costs ( 66,047 ) ( 11,159 ) Proceeds from sales of real estate 414,688 123,533 Return of investment from unconsolidated entities 1,401 — Net proceeds from sale of unconsolidated entities 107,621 — Proceeds from note receivable 5,867 — Insurance proceeds received 16,046 — Non-refundable escrow deposits ( 28,556 ) ( 5,432 ) Net cash used in investing activities ( 4,529,139 ) ( 3,602,952 ) CASH FLOWS FROM FINANCING ACTIVITIES Cash distributions to common stockholders ( 1,342,695 ) ( 797,847 ) Borrowings on line of credit and commercial paper programs 19,644,724 6,277,918 Payments on line of credit and commercial paper programs ( 19,147,386 ) ( 5,853,423 ) Proceeds from notes and bonds payable issued 1,405,570 1,033,387 Principal payment on notes payable — ( 950,000 ) Principal payments on mortgages payable ( 311,083 ) ( 55,983 ) Payments upon extinguishment of debt — ( 51,218 ) Proceeds from common stock offerings, net 2,404,092 2,734,830 Proceeds from dividend reinvestment and stock purchase plan 8,708 8,208 Distributions to noncontrolling interests ( 2,658 ) ( 1,198 ) Net receipts on derivative settlements 7,474 2,463 Debt issuance costs ( 27,732 ) ( 8,670 ) Other items, including shares withheld upon vesting ( 4,685 ) ( 6,451 ) Net cash provided by financing activities 2,634,329 2,332,016 Effect of exchange rate changes on cash and cash equivalents ( 82,012 ) ( 3,711 ) Net decrease in cash, cash equivalents and restricted cash ( 43,456 ) ( 304,581 ) Cash, cash equivalents and restricted cash, beginning of period 332,369 850,679 Cash, cash equivalents and restricted cash, end of period $ 288,913 $ 546,098 For supplemental disclosures, see note 16. The accompanying notes to consolidated financial statements are an integral part of these statements. -5- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (unaudited) 1. Basis of Presentation The consolidated financial statements of Realty Income Corporation (“Realty Income,” the “Company,” “we,” “our” or “us”) were prepared from our books and records without audit and include all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented. Readers of this quarterly report should refer to our audited consolidated financial statements for the year ended December 31, 2021, which are included in our 2021 Annual Report on Form 10-K , as certain disclosures that would substantially duplicate those contained in the audited financial statements have not been included in this report. The U.S. Dollar (“USD”) is our reporting currency. Unless otherwise indicated, all dollar amounts are expressed in United States USD. Our financial results for the three and nine months ended September 30, 2021 do not reflect our merger with VEREIT, Inc. (VEREIT), which was completed on November 1, 2021. For our consolidated subsidiaries whose functional currency is not the U.S. dollar, we translate their financial statements into U.S. dollars at the time we consolidate those subsidiaries’ financial statements. Generally, assets and liabilities are translated at the exchange rate in effect at the balance sheet date. The resulting translation adjustments are included in 'Accumulated other comprehensive income (loss)', or AOCI, in the consolidated balance sheets. Certain balance sheet items, primarily equity and capital-related accounts, are reflected at the historical exchange rate. Income statement accounts are translated using the average exchange rate for the period. We and certain of our consolidated subsidiaries have intercompany and third-party debt that is not denominated in our functional currency. When the debt is remeasured to the functional currency of the entity, a gain or loss can result. The resulting adjustment is reflected in 'Foreign currency and derivative loss, net' in the consolidated statements of income and comprehensive income. At September 30, 2022, we owned 11,733 properties, located in all 50 U.S. states, Puerto Rico, the United Kingdom (U.K.), and Spain, consisting of approximately 225.7 million leasable square feet. 2. Summary of Significant Accounting Policies and Procedures and New Accounting Standards Principles of Consolidation. These consolidated financial statements include the accounts of Realty Income and all other entities in which we have a controlling financial interest. We evaluate whether we have a controlling financial interest in an entity in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation. Voting interest entities are entities considered to have sufficient equity at risk and which the equity holders have the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. We consolidate voting interest entities in which we have a controlling financial interest, which we typically have through holding of a majority of the entity’s voting equity interests. Variable interest entities (“VIEs”) are entities that lack sufficient equity at risk or where the equity holders either do not have the obligation to absorb losses, do not have the right to receive residual returns, do not have the right to make decisions about the entity’s activities, or some combination of the above. A controlling financial interest in a VIE is present when an entity has a variable interest, or a combination of variable interests, that provides the entity with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. An entity that meets both conditions above is deemed the primary beneficiary and consolidates the VIE. We reassess our initial evaluation of whether an entity is a VIE when certain reconsideration events occur. We reassess our determination of whether we are the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances. The portion of a consolidated entity not owned by us is recorded as a noncontrolling interest. Noncontrolling interests are reflected on our consolidated balance sheets as a component of equity. Noncontrolling interest that was created or assumed as part of a business combination or asset acquisition was recognized at fair value as of the date of the transaction (see note 11, Noncontrolling Interests ). -6- Table of Contents Income Taxes. We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended. We believe we have qualified and continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income. Assuming our dividends equal or exceed our taxable net income in the US, we generally will not be required to pay U.S. income taxes on such income. However, we are liable for taxes in the United Kingdom and Spain. Accordingly, a provision has been made for U.K. and Spain income taxes, as well as U.S. income taxes on our taxable REIT subsidiaries, but no provision was made for U.S. income taxes for our U.S. REIT parent. Lease Revenue Recognition and Accounts Receivable. The COVID-19 pandemic and the measures taken to limit its spread have negatively impacted the economy across many industries, including the industries in which some of our clients operate. We continue to assess the probability of collecting substantially all of the lease payments to which we are entitled under the original lease contract as required under Topic 842, Leases . We assess the collectability of our future lease payments based on an analysis of creditworthiness, economic trends (including trends arising from the COVID-19 pandemic) and other facts and circumstances related to the applicable clients. If we conclude the collection of substantially all lease payments under a lease is less than probable, rental revenue recognized for that lease is limited to cash received going forward, existing operating lease receivables, including those related to straight-line rental revenue, must be written off as an adjustment to rental revenue, and no further operating lease receivables are recorded for that lease until such future determination is made that substantially all lease payments under that lease are now considered probable. If we subsequently conclude that the collection of substantially all lease payments under a lease is probable, a reversal of lease receivables previously written off is recognized. The majority of concessions granted to our clients as a result of the COVID-19 pandemic have been rent deferrals with the original lease term unchanged. In accordance with the guidance provided by the Financial Accounting Standards Board (FASB) staff, we have elected to account for these leases as if the right of deferral existed in the lease contract and therefore continue to recognize lease revenue in accordance with the lease contract in effect. In limited circumstances, the undiscounted cash flows resulting from deferrals granted increased significantly from original lease terms, which required us to account for these as lease modifications and resulted in an insignificant impact to consolidated rental revenue. Similarly, rent abatements granted, which are also accounted for as lease modifications, have impacted our rental revenue by an insignificant amount. As of September 30, 2022, other than the information related to the reserves recorded to date, we do not have any further client specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable. However, since the conversations regarding rent collections for our clients affected by the COVID-19 pandemic are ongoing and we do not currently know the types of future concessions, if any, that will ultimately be granted, there may be impacts in future periods that could change this assessment as the situation continues to evolve and as more information becomes available. Investment in Unconsolidated Entities. During the three months ended September 30, 2022, all seven properties owned by our industrial partnerships and accounted for under the equity method were sold. For further details, see note 5. Investments in Real Estate. We accounted for our investment in unconsolidated entity arrangements using the equity method of accounting as we had the ability to exercise significant influence, but not control, over operating and financing policies of these investments. We had determined that none of the unconsolidated entities would be considered VIEs under the applicable accounting guidance. Our equity method investments were acquired in our merger with VEREIT. As a result, the investments were recorded at fair value and subsequently would be adjusted for our share of equity in the entities' earnings and distributions received. The step-up in fair value was allocated to the individual investment assets and liabilities and is being amortized over the estimated useful life of the respective underlying tangible real estate assets, the lease term of the intangible real estate assets, and the remaining term of the assumed debt. The carrying value of our investment was included in 'Investment in unconsolidated entities' in the accompanying consolidated balance sheets. We recorded our proportionate share of net income from the unconsolidated entities in 'Equity in income and impairment of investment in unconsolidated entities' in the consolidated statements of income and comprehensive income. Segment Reporting. During the second quarter of 2022, a re-evaluation of our business and management structure led to a change in identification of operating and reportable segments. As we have grown in size and scale over recent years, including through the acquisition of VEREIT in November 2021, management has shifted its focus from managing primarily through identification of concentrations of risk from exposure to client industries or -7- Table of Contents geographies, to now focused on seeking investments with attractive yields and risk adjusted returns regardless of client industry or geography. As a result, we reorganized our business activities into one operating and reportable segment. ASC Topic 280, Segment Reporting , establishes standards for the manner in which enterprises report information about operating segments. We are engaged in a single business activity, which is the leasing of property to clients, generally on a net basis (whereby clients are responsible for property taxes, insurance and maintenance costs). That business activity spans various geographic boundaries and includes property types and clients engaged in various industries, but ultimately all business activity involves similar economic characteristics of owning and leasing commercial properties under long-term, net lease agreements. Therefore, we aggregate these business activities for reporting purposes and operate in one operating and reportable segment. This segmental presentation is consistent with the information provided to our chief operating decision maker to make decisions about allocating resources and assessing our performance. Newly Issued Accounting Standards In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform . ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, 2020, and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. As of September 30, 2022, all of our debt and derivative instruments have been converted from LIBOR to SOFR. The interest rate swap on our term loan, which was converted to a SOFR benchmark from LIBOR during June 2022, continues to be accounted for as a cash flow hedge. The adoption of this guidance had no impact on our consolidated financial statements. -8- Table of Contents 3. Merger with VEREIT, Inc. Merger with VEREIT On November 1, 2021, we completed our merger with VEREIT, Inc. For further details, see note 3. Merger with VEREIT, Inc. and Orion Office REIT Inc. Divestiture , to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021. Our merger with VEREIT has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations , with Realty Income as the accounting acquirer, which requires, among other things, that the assets acquired, and liabilities assumed be recognized at their acquisition date fair value. The fair value of the consideration transferred on the date of the acquisition is as follows (in thousands, except share and per share data): Shares of VEREIT common stock and VEREIT Operating Partnership, L.P. ("OP") common units exchanged (1) 229,304,035 Exchange Ratio 0.705 161,659,345 Less: Fractional shares settled in cash ( 1,545 ) Shares of Realty Income common stock and Realty Income L.P. units issued 161,657,800 Adjusted opening price of Realty common stock on November 1, 2021 (2) $ 71.236 Fair value of Realty common stock issued to former holders of VEREIT common stock and VEREIT OP common units $ 11,515,855 Fair value of VEREIT's equity-based compensation awards attributable to pre-combination services (3) 44,020 Total non-cash consideration 11,559,875 Cash paid for fractional shares 110 VEREIT indebtedness paid off in connection with the merger (4) 500,414 Consideration transferred $ 12,060,399 (1) Includes 229,152,001 shares of VEREIT common stock and 152,034 VEREIT OP common units outstanding as of November 1, 2021. Under the Merger Agreement, these shares and units were converted to Realty Income common stock, or in certain instances, Realty Income L.P. units, at an Exchange Ratio of 0.705 per share of VEREIT common stock or VEREIT OP common unit, as applicable. (2) The fair value of Realty Income common stock issued to former holders of VEREIT common stock and VEREIT OP common units is based on the per share opening price of Realty Income common stock of $ 71.00 on November 1, 2021, adjusted for the monthly dividend of $ 0.236 per share that former holders of VEREIT common stock and VEREIT OP common units were eligible to receive when such dividend was paid on November 15, 2021. (3) Represents the fair value of fully vested deferred stock unit awards of VEREIT common stock (“VEREIT DSU Awards”) which were converted into Realty Income common stock upon our merger with VEREIT, as well as the estimated fair value of the Realty Income replacement employee and executive stock options and restricted stock units that were granted at the closing date of our merger with VEREIT and which were attributable to pre-combination services. (4) Represents the outstanding balance of the VEREIT revolving credit facility repaid by Realty Income in connection with the closing of the merger. The amount shown in the table above was based upon the balance outstanding immediately prior to November 1, 2021. -9- Table of Contents A. Purchase Price Allocation The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands): ASSETS Land $ 3,021,906 Buildings 8,677,467 Total real estate held for investment 11,699,373 Cash and cash equivalents 128,411 Accounts receivable 53,355 Lease intangible assets (1) 3,204,773 Goodwill 3,717,620 Investment in unconsolidated entities 175,379 Other assets 308,910 Total assets acquired $ 19,287,821 LIABILITIES Accounts payable and accrued expenses $ 139,836 Lease intangible liabilities (2) 949,349 Other liabilities 320,893 Mortgages payable 869,027 Notes payable 4,946,965 Total liabilities assumed $ 7,226,070 Net assets acquired, at fair value $ 12,061,751 Noncontrolling interests $ 1,352 Total purchase price $ 12,060,399 (1) The weighted average amortization period for acquired lease intangible assets is 9.3 years. (2) The weighted average amortization period for acquired lease intangible liabilities is 25.5 years. The initial assessment of fair value provided in our Annual Report on Form 10-K for the year ended December 31, 2021 was preliminary and was based on information that was available to management at the time the consolidated financial statements were prepared. Measurement period adjustments were recorded during 2022 in the period in which they were determined, as if they had been completed at the acquisition date. As of September 30, 2022, measurement period adjustments, as reflected in the table above, resulted in a net increase of $ 54.8 million to goodwill from the initial valuation. Approximately $ 3.72 billion was allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. The recognized goodwill was attributable to expected synergies and benefits arising from the merger transaction, including anticipated financing and overhead cost savings, potential economies of scale benefits in both customer and vendor relationships and the employee workforce onboarded from VEREIT following the closing of the merger. None of the goodwill recognized is deductible for tax purposes. B. Merger and Integration-Related Costs In conjunction with our merger with VEREIT, we incurred approximately $ 3.7 million and $ 13.0 million of transaction costs during the three and nine months ended September 30, 2022, respectively, compared to approximately $ 16.8 million and $ 30.1 million of merger-related transaction costs during the three and nine months ended September 30, 2021, respectively. Merger and integration-related costs consist of advisory fees, attorney fees, -10- Table of Contents accountant fees, SEC filing fees and additional incremental and non-recurring costs necessary to convert data and systems, retain employees and otherwise enable us to operate the acquired business or assets efficiently. C. Unaudited Pro Forma Financial Information Our consolidated results of operations for the three and nine months ended September 30, 2022, include $ 252.6 million and $ 766.3 million of revenues, respectively, and $ 15.6 million and $ 41.7 million of net income associated with the results of operations of VEREIT OP, respectively. The following unaudited pro forma information presents a summary of our combined results of operations for the three and nine months ended September 30, 2021, as if our merger with VEREIT had occurred on January 1, 2020 (in millions, except per share data). There are no pro forma adjustments for the three and nine months ended September 30, 2022, as the merger was completed November 1, 2021. Amounts for the three and nine months ended September 30, 2022 are presented for comparative purposes. The following pro forma financial information is not necessarily indicative of the results of operations had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses. In accordance with ASC 805, Business Combinations , the following information excludes the impact of the spin-off of office assets to Orion Office REIT Inc. Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Total revenues $ 837.3 $ 792.3 $ 2,455.0 $ 2,300.1 Net income $ 220.3 $ 172.3 $ 644.1 $ 548.2 Basic and diluted earnings per share $ 0.36 $ 0.31 $ 1.06 $ 1.01 4. Supplemental Detail for Certain Components of Consolidated Balance Sheets (dollars in thousands): A. Accounts Receivable, net, consist of the following at: September 30, 2022 December 31, 2021 Straight-line rent receivables, net $ 325,190 $ 231,943 Client receivables, net 204,058 194,825 $ 529,248 $ 426,768 B. Lease intangible assets, net, consist of the following at: September 30, 2022 December 31, 2021 In-place leases $ 5,054,166 $ 4,791,846 Accumulated amortization of in-place leases ( 1,249,683 ) ( 804,050 ) Above-market leases 1,663,492 1,591,382 Accumulated amortization of above-market leases ( 403,653 ) ( 303,874 ) $ 5,064,322 $ 5,275,304 -11- Table of Contents C. Other assets, net, consist of the following at: September 30, 2022 December 31, 2021 Financing receivables $ 708,755 $ 323,921 Right of use asset - operating leases, net 592,800 631,515 Right of use asset - financing leases 441,473 218,332 Derivative assets and receivables – at fair value 174,697 29,593 Restricted escrow deposits 90,639 68,541 Prepaid expenses 32,961 18,062 Non-refundable escrow deposits 28,556 28,560 Credit facility origination costs, net 18,430 4,352 Corporate assets, net 12,428 10,915 Impounds related to mortgages payable 10,529 5,249 Investment in sales type lease 5,926 7,492 Note receivable — 4,455 Other items 34,701 18,592 $ 2,151,895 $ 1,369,579 D. Accounts payable and accrued expenses consist of the following at: September 30, 2022 December 31, 2021 Notes payable - interest payable $ 117,448 $ 108,227 Derivative liabilities and payables – at fair value 69,445 70,617 Property taxes payable 54,425 36,173 Accrued property expenses 39,057 27,344 Accrued costs on properties under development 28,961 19,665 Value-added tax payable 22,189 11,297 Accrued income taxes 14,995 19,152 Mortgages, term loans, and credit line - interest payable 4,410 3,874 Merger and integration-related costs 1,072 10,699 Other items 56,480 44,080 $ 408,482 $ 351,128 E. Lease intangible liabilities, net, consist of the following at: September 30, 2022 December 31, 2021 Below-market leases $ 1,583,531 $ 1,460,701 Accumulated amortization of below-market leases ( 215,006 ) ( 152,480 ) $ 1,368,525 $ 1,308,221 F. Other liabilities consist of the following at: September 30, 2022 December 31, 2021 Lease liability - operating leases, net $ 432,163 $ 461,748 Rent received in advance and other deferred revenue 258,032 242,122 Lease liability - financing leases 49,594 43,987 Security deposits 12,741 11,340 $ 752,530 $ 759,197 -12- Table of Contents 5. Investments in Real Estate We acquire land, buildings and improvements necessary for the successful operations of commercial clients. A. Acquisitions During the Nine Months Ended September 30, 2022, and 2021 Below is a summary of our acquisitions for the nine months ended September 30, 2022: Number of Properties Leasable Square Feet (in thousands) Investment ($ in millions) Weighted Average Lease Term (Years) Initial Weighted Average Cash Lease Yield (1) Nine months ended September 30, 2022 (2) Acquisitions - U.S. 561 9,396 $ 2,623.6 15.1 5.9 % Acquisitions - Europe 78 8,904 2,058.6 8.9 5.8 % Total acquisitions 639 18,300 $ 4,682.2 12.5 5.9 % Properties under development (3) 127 3,201 416.4 15.6 5.6 % Total (4) 766 21,501 $ 5,098.6 12.7 5.8 % (1) The initial weighted average cash lease yield for a property is generally computed as estimated contractual first year cash net operating income, which, in the case of a net leased property, is equal to the aggregate cash base rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a client could default on the payment of contractual rent, we cannot provide assurance that the actual return on the funds invested will remain at the percentages listed above. Contractual net operating income used in the calculation of initial weighted average cash yield includes approximately $ 8.0 million received as settlement credits as reimbursement of free rent periods for the nine months ended September 30, 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 development or expansion, the initial weighted average cash lease yield is computed as follows: estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs. (2) None of our investments during the nine months ended September 30, 2022, caused any one client to be 10% or more of our total assets at September 30, 2022. (3) Includes five U.K. development properties that represent an investment of £ 36.6 million Sterling during the nine months ended September 30, 2022, converted at the applicable exchange rate on the funding date. (4) Our clients occupying the new properties are 90.6 % retail, 9.3 % industrial and 0.1 % other property types, based on rental revenue. Approximately 30 % of the rental revenue generated from acquisitions during the nine months ended September 30, 2022, is from investment grade rated clients, their subsidiaries or affiliated companies. The acquisitions during the nine months ended September 30, 2022, which had no associated contingent consideration, were allocated as follows (in millions): Acquisitions - U.S. Acquisitions - U.K. Acquisitions - Spain Nine months ended September 30, 2022 (USD) (£ Sterling) (€ Euro) Land (1) $ 729.4 £ 595.7 € 63.2 Buildings and improvements 1,572.1 556.8 80.5 Lease intangible assets (2) 305.5 210.0 12.4 Other assets (3) 386.6 203.2 8.7 Lease intangible liabilities (4) ( 72.3 ) ( 54.3 ) ( 1.1 ) Other liabilities (5) ( 21.8 ) ( 2.4 ) — $ 2,899.5 £ 1,509.0 € 163.7 (1) U.K. land includes £ 43.5 million of right of use assets under long-term ground leases. (2) The weighted average amortization period for acquired lease intangible assets is 10.9 years. (3) U.S. other assets consists of $ 353.8 million of financing receivables with above-market terms and $ 32.8 million of right-of-use assets accounted for as finance leases. U.K. other assets consists of £ 15.9 million of financing receivables with above-market terms, £ 184.9 million of right-of-use assets accounted for as finance leases and £ 2.4 million of right-of-use assets accounted for as operating leases. Spain other assets consists entirely of financing receivables with above-market terms. (4) The weighted average amortization period for acquired lease intangible liabilities is 13.8 years. (5) U.S. other liabilities consists of $ 15.3 million of deferred rent on certain below-market leases, $ 8.6 million of lease liabilities under financing leases, offset by $ 2.1 million of mortgage discounts. U.K. other liabilities consists entirely of lease liabilities under operating leases. -13- Table of Contents The properties acquired during the nine months ended September 30, 2022, which were all accounted for as asset acquisitions, generated total revenues of $ 94.5 million and net income of $ 35.3 million during the nine months ended September 30, 2022. Below is a summary of our acquisitions for the nine months ended September 30, 2021: Number of Properties Leasable Square Feet (in thousands) Investment ($ in millions) Weighted Average Lease Term (Years) Initial Weighted Average Cash Lease Yield (1) Nine months ended September 30, 2021 (2) Acquisitions - U.S. 415 9,227 $ 2,073.1 13.8 5.5 % Acquisitions - Europe 71 5,217 1,520.8 10.5 5.5 % Total acquisitions 486 14,444 $ 3,593.9 12.4 5.5 % Properties under development - U.S. (3) 50 2,127 182.0 15.8 5.9 % Total (4) 536 16,571 $ 3,775.9 12.6 5.5 % (1) Contractual net operating income used in the calculation of initial weighted average cash yield includes approximately $ 3.2 million received as settlement credits as reimbursement of free rent periods for the nine months ended September 30, 2021. (2) None of our investments during the nine months ended September 30, 2021, caused any one client to be 10% or more of our total assets at September 30, 2021. (3) Includes one U.K. development property that represents an investment of £ 4.7 million Sterling during the nine months ended September 30, 2021, converted at the applicable exchange rate on the funding date. (4) Our clients occupying the new properties are 80.2 % retail and 19.8 % industrial, based on rental revenue. Approximately 43 % of the rental revenue generated from acquisitions during the nine months ended September 30, 2021, was from investment grade rated clients, their subsidiaries or affiliated companies. The acquisitions during the nine months ended September 30, 2021, which had no associated contingent consideration, were allocated as follows (in millions): Acquisitions - U.S. Acquisitions - U.K. Acquisitions - Spain Nine months ended September 30, 2021 (USD) (£ Sterling) (€ Euro) Land (1) $ 596.8 £ 292.3 € 36.7 Buildings and improvements 991.0 529.6 36.3 Lease intangible assets (2) 349.8 179.7 23.2 Other assets (3) 372.6 25.9 — Lease intangible liabilities (4) ( 46.7 ) ( 6.4 ) — Other liabilities (5) ( 122.3 ) ( 0.3 ) — £ 2,141.2 £ 1,020.8 £ 96.2 (1) U.K land includes £ 1.3 million of right of use assets under long-term ground leases. (2) The weighted average amortization period for acquired lease intangible assets is 13.1 years. (3) U.S. other assets consists of $ 68.2 million of financing receivables with above-market terms, $ 39.1 million of right-of-use assets accounted for as finance leases, $ 5.8 million in investments in sales-type leases, and $ 259.5 million of right of use assets under ground leases. U.K. other assets consists of £ 4.3 million of financing receivables with above-market terms and £ 21.7 million of right-of-use assets accounted for as finance leases. (4) The weighted average amortization period for acquired lease intangible liabilities is 18.6 years. (5) U.S. other liabilities consists of $ 21.6 million of deferred rent on certain below-market leases and $ 100.7 million of lease liabilities under ground leases. U.K other liabilities consists entirely of a mortgage premium. The properties acquired during the nine months ended September 30, 2021, which were all accounted for as asset acquisitions, generated total revenues of $ 67.4 million and net income of $ 12.9 million during the nine months ended September 30, 2021. -14- Table of Contents B. Investments in Existing Properties During the nine months ended September 30, 2022, we capitalized costs of $ 70.6 million on existing properties in our portfolio, consisting of $ 3.9 million for re-leasing costs, $ 3.0 million for recurring capital expenditures, and $ 63.7 million for non-recurring building improvements. In comparison, during the nine months ended September 30, 2021, we capitalized costs of $ 11.1 million on existing properties in our portfolio, consisting of $ 2.0 million for re-leasing costs, $ 416,000 for recurring capital expenditures, and $ 8.7 million for non-recurring building improvements. C. Properties with Existing Leases Of the $ 5.1 billion we invested during the nine months ended September 30, 2022, approximately $ 416.4 million related to development. Of the $ 4.68 billion invested outside of development, $ 2.98 billion was used to acquire 341 properties with existing leases. In comparison, of the $ 3.78 billion we invested during the nine months ended September 30, 2021, $ 182.0 million related to development. Of the $ 3.59 billion invested outside of development, $ 3.17 billion was used to acquire 339 properties with existing leases. The value of the in-place and above-market leases is recorded to 'Lease intangible assets, net' on our consolidated balance sheets, and the value of the below-market leases is recorded to 'Lease intangible assets, net' on our consolidated balance sheets. The values of the in-place leases are amortized as depreciation and amortization expense. The amounts amortized to expense for all of our in-place leases, for the nine months ended September 30, 2022, and 2021 were $ 476.8 million and $ 123.7 million, respectively. The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue in the consolidated statements of income and comprehensive income. The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for the nine months ended September 30, 2022, and 2021 were $ 78.7 million and $ 34.0 million, respectively. If a lease was to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense, as appropriate. The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at September 30, 2022 (dollars in thousands): Net increase (decrease) to rental revenue Increase to amortization expense 2022 $ ( 14,280 ) $ 153,081 2023 ( 56,378 ) 556,569 2024 ( 50,221 ) 495,063 2025 ( 43,921 ) 425,927 2026 ( 35,870 ) 379,544 Thereafter 309,356 1,794,299 Totals $ 108,686 $ 3,804,483 D. Gain on Sales of Real Estate The following table summarizes our properties sold during the periods indicated below, excluding our proportionate share of net proceeds from the disposition of properties by our unconsolidated industrial partnerships (dollars in millions): Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Number of properties 34 27 138 96 Net sales proceeds $ 142.2 $ 31.9 $ 414.4 $ 123.5 Gain on sales of real estate $ 42.6 $ 12.1 $ 93.4 $ 35.4 -15- Table of Contents E. Investment in Unconsolidated Entities The following is a summary of our investments in unconsolidated entities as of September 30, 2022 (in thousands): Ownership % (1) Number of Properties Carrying Amount of Investment as of Equity in income and impairment of investment in unconsolidated entities for the nine months ended (2) Investment (2) September 30, 2022 September 30, 2022 December 31, 2021 September 30, 2022 September 30, 2021 Industrial Partnerships 20 % — $ — $ 140,967 $ ( 6,335 ) $ — (1) Our ownership interest reflects legal ownership interest. Legal ownership may, at times, not equal our economic interest in the listed properties because of various provisions in certain entity agreements regarding capital contributions, distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns. As a result, our actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with legal ownership interests. (2) All seven assets held by our Industrial Partnerships were sold during the three months ended September 30, 2022. As the portion of the net proceeds applied to our investment basis that we expect to receive at closing was less than our $ 121.4 million carrying amount of investment in unconsolidated entities, we recognized an other than temporary impairment of $ 7.8 million during the six months ended June 30, 2022. We recorded an additional impairment of $ 0.7 million during the three months ended September 30, 2022. The other than temporary impairments are included in 'Equity in income and impairment of investment in unconsolidated entities' in the consolidated statements of income and comprehensive income for the periods presented. The aggregate debt outstanding for unconsolidated entities was $ 431.8 million as of December 31, 2021, all of which was non-recourse to us with limited customary exceptions which varied from loan to loan. There was no aggregate debt outstanding as of September 30, 2022, as all seven properties owned by our industrial partnerships were sold during the three months ended September 30, 2022, and the debt underlying each of the seven properties was either defeased or prepaid in connection with the sales. Each of us and our unconsolidated entity partners were subject to the provisions of the applicable entity agreements for our unconsolidated partnerships, which included provisions for when additional contributions might be required to fund certain cash shortfalls. 6. Revolving Credit Facility and Commercial Paper Programs A. 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 revolving credit facility, which was due to expire in March 2023. The 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 revolving credit facility, the new revolving credit facility also has a $ 1.0 billion expansion option, which is subject to obtaining lender commitments. Under the new revolving credit, 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. At September 30, 2022, credit facility origination costs of $ 18.4 million are included in other assets, net, as compared to $ 4.4 million at December 31, 2021, on our consolidated balance sheets. These costs are being amortized over the remaining term of our revolving credit facility. At September 30, 2022, we had a borrowing capacity of $ 3.05 billion available on our revolving credit facility (subject to customary conditions to borrowing) and an outstanding balance of $ 1.2 billion, as compared to an outstanding balance at December 31, 2021, of $ 650.0 million. The weighted average interest rate on outstanding borrowings under our revolving credit facility was 1.7 % during the nine months ended September 30, 2022, and 0.8 % during the nine months ended September 30, 2021. At September 30, 2022, our weighted average interest rate on borrowings outstanding under our revolving credit facility was 1.6 %. Our revolving credit facility is subject to various leverage and interest coverage ratio limitations, and at September 30, 2022, we were in compliance with the covenants under our revolving credit facility. B. Commercial Paper Programs During July 2022, our U.S. Dollar-denominated unsecured commercial paper program was amended to increase the maximum aggregate amount of outstanding notes from $ 1.0 billion to $ 1.5 billion. Also during July 2022, we established a new Euro-denominated unsecured commercial paper program, which permits us to issue additional -16- Table of Contents unsecured commercial notes up to a maximum aggregate amount of $ 1.5 billion (or foreign currency equivalent), which may be issued in U.S. Dollars or various other foreign currencies, including but not limited to, Euros, Sterling, Swiss Francs, Yen, Canadian Dollars, and Australian Dollars, in each case, pursuant to customary terms in the European commercial paper note market. The commercial paper ranks on a parity in right of payment with all of our other unsecured senior indebtedness outstanding from time to time, including borrowings under our revolving credit facility, our term loan and our outstanding senior unsecured notes. Proceeds from commercial paper borrowings are used for general corporate purposes. As of September 30, 2022, the balance of borrowings outstanding under our commercial paper programs was $ 723.8 million, including € 511.0 million of Euro-denominated borrowings, as compared to $ 901.4 million outstanding commercial paper borrowings, consisting entirely of U.S. Dollar-denominated borrowings at December 31, 2021. The weighted average interest rate on outstanding borrowings under our commercial paper programs was 1.3 % for the nine months ended September 30, 2022, and 0.2 % for the nine months ended September 30, 2021. As of September 30, 2022, our weighted average interest rate on outstanding borrowings under our commercial paper programs was 1.5 %. We use our $ 4.25 billion revolving credit facility as a liquidity backstop for the repayment of the notes issued under the commercial paper programs . The commercial paper borrowings outstanding at September 30, 2022 have matured and will mature between October 2022 and January 2023 . 7. Term Loan In October 2018, in conjunction with entering into our current revolving credit facility, we entered into a $ 250.0 million senior unsecured term loan, which matures in March 2024. Prior to April 2022, borrowing under this term loan bore interest at the current one-month LIBOR, plus 0.85 %. In connection with entering into our new unsecured credit facility in April 2022, the previous LIBOR benchmark rate was replaced with daily SOFR, based on a five day lookback period, and, due to our current credit ratings, is not subject to a credit spread adjustment. In conjunction with this term loan, we also entered into an interest rate swap, which was based off the daily SOFR through June 30, 2022. As of September 30, 2022, effective interest rate on this term loan, after giving effect to the interest rate swap, was 3.83 %. At September 30, 2022, deferred financing costs of $ 295,000 are included net of the term loan principal balance, as compared to $ 443,000 at December 31, 2021, on our consolidated balance sheets. These costs are being amortized over the remaining term of the term loan . 8. Mortgages Payable During the nine months ended September 30, 2022, we made $ 311.1 million in principal payments, including the full repayment of 12 mortgages for $ 308.0 million. During the nine months ended September 30, 2021, we made $ 56.0 million in principal payments, including the full repayment of six mortgages for $ 53.3 million. We assumed eight mortgages on 17 properties totaling $ 45.1 million during the nine months ended September 30, 2022, as compared to the assumption of one Sterling-denominated mortgage on one property totaling £ 31.0 million for the nine months ended September 30, 2021. Assumed mortgages are secured by the properties on which the debt was placed and are considered non-recourse debt with limited customary exceptions which vary from loan to loan. Our mortgages contain customary covenants, such as limiting our ability to further mortgage each applicable property or to discontinue insurance coverage without the prior consent of the lender. At September 30, 2022, we were in compliance with these covenants. The balance of our deferred financing costs, which are classified as part of 'Mortgages payable, net', on our consolidated balance sheets, was $ 926,000 at September 30, 2022, and $ 790,000 at December 31, 2021. These costs are being amortized over the remaining term of each mortgage. -17- Table of Contents The following table summarizes our mortgages payable as of September 30, 2022, and December 31, 2021, respectively (dollars in thousands): As Of Number of Properties (1) Weighted Average Stated Interest Rate (2) Weighted Average Effective Interest Rate (3) Weighted Average Remaining Years Until Maturity Remaining Principal Balance Unamortized Premium and Deferred Financing Costs Balance, net Mortgage Payable Balance 9/30/2022 136 4.8 % 3.3 % 1.6 $ 840,682 $ 14,681 $ 855,363 12/31/2021 267 4.8 % 3.5 % 1.8 $ 1,114,129 $ 27,866 $ 1,141,995 (1) At September 30, 2022, there were 18 mortgages on 136 properties. At December 31, 2021, there were 22 mortgages on 267 properties. With the exception of one Sterling-denominated mortgage which is paid quarterly, the mortgages require monthly payments with principal payments due at maturity. At September 30, 2022 and December 31, 2021, all mortgages were at fixed interest rates. (2) Stated interest rates ranged from 3.0 % to 6.9 % at each of September 30, 2022 and December 31, 2021. (3) Effective interest rates ranged from 2.6 % to 6.6 % and 2.6 % to 6.0 % at September 30, 2022 and December 31, 2021, respectively. The following table summarizes the maturity of mortgages payable, excluding net premiums of $ 15.6 million and deferred financing costs of $ 926,000 as of September 30, 2022 (dollars in millions): Year of Maturity Principal 2022 $ 1.1 2023 22.0 2024 740.5 2025 39.2 2026 12.0 Thereafter 25.9 Totals $ 840.7 -18- Table of Contents 9. Notes Payable A. General Our senior unsecured notes and bonds are U.S. dollar denominated and Sterling denominated. Foreign denominated notes are converted at the applicable exchange rate on the balance sheet date. The following are sorted by maturity date (in millions): Principal Amount (Currency Denomination) Carrying Value (USD) as of September 30, 2022 December 31, 2021 4.600 % notes, $ 500 issued February 2014, of which $ 485 was exchanged in November 2021, both due in February 2024 (1) $ 500 $ 500 $ 500 3.875 % notes, issued in June 2014 and due in July 2024 $ 350 350 350 3.875 % notes, issued in April 2018 and due in April 2025 $ 500 500 500 4.625 % notes, $ 550 issued October 2018, of which $ 544 was exchanged in November 2021, both due in November 2025 (1) $ 550 550 550 0.750 % notes, issued December 2020 and due in March 2026 $ 325 325 325 4.875 % notes, $ 600 issued June 2016, of which $ 596 was exchanged in November 2021, both due in June 2026 (1) $ 600 600 600 4.125 % notes, $ 250 issued in September 2014 and $ 400 issued in March 2017, both due in October 2026 $ 650 650 650 1.875 % notes, issued in January 2022 and due in January 2027 £ 250 279 — 3.000 % notes, issued in October 2016 and due in January 2027 $ 600 600 600 1.125 % notes, issued in July 2021 and due in July 2027 £ 400 446 541 3.950 % notes, $ 600 issued August 2017, of which $ 594 was exchanged in November 2021, both due in August 2027 (1) $ 600 600 600 3.650 % notes, issued in December 2017 and due in January 2028 $ 550 550 550 3.400 % notes, $ 600 issued June 2020, of which $ 598 was exchanged in November 2021, both due in January 2028 (1) $ 600 600 600 2.200 % notes, $ 500 issued November 2020, of which $ 497 was exchanged in November 2021, both due in June 2028 (1) $ 500 500 500 3.250 % notes, issued in June 2019 and due in June 2029 $ 500 500 500 3.100 % notes, $ 600 issued December 2019, of which $ 596 was exchanged in November 2021, both due in December 2029 (1)(2) $ 599 599 599 3.160 % notes, issued in June 2022 and due in June 2030 £ 140 156 — 1.625 % notes, issued in October 2020 and due December 2030 £ 400 446 541 3.250 % notes, $ 600 issued in May 2020 and $ 350 issued in July 2020, both due in January 2031 $ 950 950 950 3.180 % notes, issued in June 2022 and due in June 2032 £ 345 384 — 2.850 % notes, $ 700 issued November 2020, of which $ 699 was exchanged in November 2021, both due in December 2032 (1) $ 700 700 700 1.800 % notes, issued in December 2020 and due in March 2033 $ 400 400 400 1.750 % notes, issued in July 2021 and due in July 2033 £ 350 390 474 2.730 % notes, issued in May 2019 and due in May 2034 £ 315 350 427 5.875 % bonds, $ 100 issued in March 2005 and $ 150 issued in June 2011, both due in March 2035 $ 250 250 250 3.390 % notes, issued in June 2022 and due in June 2037 £ 115 128 — 2.500 % notes, issued in January 2022 and due in January 2042 £ 250 279 — 4.650 % notes, $ 300 issued in March 2017 and $ 250 issued in December 2017, both due in March 2047 $ 550 550 550 Total principal amount $ 13,132 $ 12,257 Unamortized net premiums and deferred financing costs 184 243 $ 13,316 $ 12,500 (1) Carrying Value (USD) includes the portion of the VEREIT OP notes that remained outstanding, totaling $ 39.1 million in the aggregate at each of September 30, 2022, and December 31, 2021, that were not exchanged in the exchange offers commenced by us with respect to the outstanding bonds of 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 of 2019 for the principal amount of $ 600 million. The amount of Realty Income debt issued through the Exchange Offers was $ 599 million, resulting from cancellations due to late tenders that forfeited the early participation premium of $ 30 per $1,000 principal amount and cash paid in lieu of fractional shares. -19- Table of Contents The following table summarizes the maturity of our notes and bonds payable as of September 30, 2022, excluding net unamortized premiums of $ 241.3 million and deferred financing costs of $ 56.6 million (dollars in millions): Year of Maturity Principal 2024 $ 850 2025 1,050 2026 1,575 Thereafter 9,657 Totals $ 13,132 As of September 30, 2022, the weighted average interest rate on our notes and bonds payable was 3.3 % and the weighted average remaining years until maturity was 7.3 years. Interest incurred on all of the notes and bonds was $ 107.9 million and $ 65.8 million for the three months ended September 30, 2022 and September 30, 2021, respectively, and $ 314.0 million and $ 191.7 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. Our outstanding notes and bonds are unsecured; accordingly, we have not pledged any assets as collateral for these or any other obligations. 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. All of these notes and bonds contain various covenants, including: (i) a limitation on incurrence of any debt which would cause our debt to total adjusted assets ratio to exceed 60 %; (ii) a limitation on incurrence of any secured debt which would cause our secured debt to total adjusted assets ratio to exceed 40 %; (iii) a limitation on incurrence of any debt which would cause our debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of total unencumbered assets not less than 150 % of our outstanding unsecured debt. At September 30, 2022, we were in compliance with these covenants. B. Note Repayment In January 2021, we redeemed all $ 950.0 million in principal amount of our outstanding 3.250 % notes due October 2022, plus accrued and unpaid interest. As a result of the early redemption, we recognized a $ 46.5 million loss on extinguishment of debt in the consolidated statements of income and comprehensive income for the nine months ended September 30, 2021. There were no comparable repayments for the nine months ended September 30, 2022. C. Note Issuances During the nine months ended September 30, 2022 and 2021, we issued the following notes and bonds (in millions): 2022 Issuances Date of Issuance Maturity Date Principal amount used Price of par value Effective yield to maturity 1.875 % Notes January 2022 January 2027 £ 250 99.487 % 1.974 % 2.500 % Notes January 2022 January 2042 £ 250 98.445 % 2.584 % 3.160 % Notes June 2022 June 2030 £ 140 100.000 % 3.160 % 3.180 % Notes June 2022 June 2032 £ 345 100.000 % 3.180 % 3.390 % Notes June 2022 June 2037 £ 115 100.000 % 3.390 % 2021 Issuances Date of Issuance Maturity Date Principal amount used Price of par value Effective yield to maturity 1.125 % Notes July 2021 July 2027 £ 400 99.305 % 1.242 % 1.750 % Notes July 2021 July 2033 £ 350 99.842 % 1.757 % The proceeds from each of these offerings were used to repay borrowings outstanding under our credit facility, to fund investment opportunities, and for other general corporate purposes. In October 2022, we issued $ 750.0 million of 5.625 % senior unsecured notes due October 2032. See Note 19, Subsequent Events . -20- Table of Contents 10. Issuances of Common Stock A. Issuances of Common Stock in Underwritten Public Offerings In July 2021, we issued 9,200,000 shares of common stock in an underwritten public offering, including 1,200,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After deducting underwriting discounts of $ 2.9 million, the net proceeds of $ 594.1 million were primarily used to repay borrowings under our $ 1.0 billion commercial paper programs, to fund potential investment opportunities and for other general corporate purposes. In January 2021, we issued 12,075,000 shares of common stock in an underwritten public offering, including 1,575,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After deducting underwriting discounts of $ 19.3 million, the net proceeds of $ 669.6 million were used to fund property acquisitions, for general corporate purposes and working capital. There were no comparative offerings during the nine months ended September 30, 2022. B. At-the-Market (ATM) Program In June 2022, we replaced our prior "at-the-market" program, or our prior ATM program, which authorized us to offer and sell up to 69,088,433 shares of common stock, with a new "at-the-market" equity distribution program, or our ATM program, pursuant to which we may offer and sell up to 120,000,000 shares of common stock (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers' transactions on the New York Stock Exchange ("NYSE: O") at prevailing market prices or at negotiated prices. After deducting 19,995,547 shares sold pursuant to forward sale confirmations that remained open at September 30, 2022, we had 90,471,600 additional shares remaining for future issuance under our ATM program. We anticipate maintaining the availability of our ATM program in the future, including the replenishment of authorized shares issuable thereunder. The following table outlines common stock issuances pursuant to our ATM programs (dollars in millions): Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Shares of common stock issued under the ATM program (1) 9,532,853 14,788,822 35,506,034 21,378,420 Gross proceeds $ 696.6 $ 1,032.3 $ 2,424.1 $ 1,487.1 Sales agents' commissions ( 4.1 ) ( 10.1 ) ( 15.0 ) ( 14.7 ) Other offering expenses ( 1.1 ) ( 0.6 ) ( 5.0 ) ( 0.9 ) Net proceeds $ 691.4 $ 1,021.6 $ 2,404.1 $ 1,471.5 (1) During the three and nine months ended September 30, 2022, 9,532,853 and 25,432,825 shares were sold and settled pursuant to forward sale confirmations, respectively. In addition, as of September 30, 2022, 19,995,547 shares of common stock subject to forward sale confirmations have been executed at a weighted average initial price of $ 66.70 per share but not settled. Upon settlement, subject to certain exceptions, we may elect, in our sole discretion, to cash settle or net share settle all or any portion of our obligations under any forward sale agreement, in which cases we may not receive any proceeds (in the case of cash settlement) or will not receive any proceeds (in the case of net share settlement), and we may owe cash (in the case of cash settlement) or shares of our common stock (in the case of net share settlement) to the relevant forward purchaser. We currently expect to fully physically settle any forward sale agreement with the respective forward purchaser on one or more dates specified by us on or prior to the maturity date of such forward sale agreement, in which case we expect to receive aggregate net cash proceeds at settlement equal to the number of shares specified in such forward sale agreement multiplied by the relevant forward price per share. We currently expect to fully settle the outstanding forward sale agreements during the three months ended December 31, 2022, representing $ 1.3 billion in gross proceeds, for which the weighted average forward price at September 30, 2022 was $ 66.43 per share. Our forward sale confirmations are accounted for as equity instruments, as we have determined the agreements meet the derivatives and hedging guidance scope exception. No shares were sold pursuant to forward sale confirmations during the three and nine months ended September 30, 2021 . -21- Table of Contents C. Dividend Reinvestment and Stock Purchase Plan Our Dividend Reinvestment and Stock Purchase Plan, or our DRSPP, provides our common stockholders, as well as new investors, with a convenient and economical method of purchasing our common stock and reinvesting their distributions. Our DRSPP also allows our current stockholders to buy additional shares of common stock by reinvesting all or a portion of their distributions. Our DRSPP authorizes up to 26,000,000 common shares to be issued. At September 30, 2022, we had 11,207,318 shares remaining for future issuance under our DRSPP program. The following table outlines common stock issuances pursuant to our DRSPP program (dollars in millions): Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Shares of common stock issued under the DRSPP program 43,430 41,463 128,061 124,430 Gross proceeds $ 3.0 $ 2.9 $ 8.7 $ 8.2 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 no t issue shares under the waiver approval process during the nine months ended September 30, 2022, or 2021. 11. Noncontrolling Interests There are four entities with noncontrolling interests that we consolidate, including an operating partnership, Realty Income, L.P., a joint venture acquired in 2019, and two development joint ventures, one acquired in 2020 and one acquired in May 2021. The following table represents the change in the carrying value of all noncontrolling interests through September 30, 2022 (dollars in thousands): Realty Income, L.P. units (1) Other Noncontrolling Interests Total Carrying value at December 31, 2021 $ 62,416 $ 14,410 $ 76,826 Contributions 51,221 — 51,221 Distributions ( 2,623 ) ( 223 ) ( 2,846 ) Allocation of net income 1,784 153 1,937 Carrying value at September 30, 2022 $ 112,798 $ 14,340 $ 127,138 (1) 1,795,167 and 1,060,709 units were outstanding as of September 30, 2022 and December 31, 2021, respectively. In September 2022, we issued 734,458 common partnership units in Realty Income, L.P. in connection with the acquisition of nine properties and recorded $ 51.2 million of contributions to non-controlling interests. At September 30, 2022, Realty Income, L.P. and certain of our joint venture investments are considered VIEs in which we were deemed the primary beneficiary based on our controlling financial interests. Below is a summary of selected financial data of consolidated VIEs included on our consolidated balance sheets at September 30, 2022, and December 31, 2021 (in thousands): September 30, 2022 December 31, 2021 Net real estate $ 787,643 $ 688,229 Total assets $ 900,497 $ 795,670 Total liabilities $ 60,614 $ 57,057 12. Financial Instruments and Fair Value Measurements Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). -22- Table of Contents ASC 820, Fair Value Measurements and Disclosures , sets forth a fair value hierarchy that categorizes inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs. Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. • Level 1 – Unadjusted quoted prices in active markets Financial instruments are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis. • Level 2 – Valuation Technique Using Observable Inputs Financial instruments classified as Level 2 are valued using quoted prices for identical instruments in markets that are not considered to be active, or quoted prices for similar assets or liabilities in active markets, or valuation techniques in which all significant inputs are observable or can be corroborated by observable market data for substantially the entire contractual term of the financial asset or liability. • Level 3 – Valuation Technique Using Significant Unobservable Inputs Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). Such inputs are generally determined based on observable inputs of a similar nature, historical observations on the level of the inputs, or other analytical techniques. We evaluate our hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from period to period. Changes in the type of inputs may result in a reclassification for certain assets. We have not historically had changes in classifications and do not expect that changes in classifications between levels will be frequent. Financial Instruments Not Measured at Fair Value on the Consolidated Balance Sheets The fair value of short-term financial instruments such as cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, accounts payable, distributions payable, line of credit payable and commercial paper borrowings, and other liabilities approximate their carrying value in the accompanying consolidated balance sheets, due to their short-term nature. The fair value of our term loan approximates carrying value due to the frequent repricing of the variable interest rate charged on the borrowing, which is based on the daily SOFR. The fair value of our financial instruments not carried at fair value are disclosed as follows (in millions): September 30, 2022 Carrying value Estimated fair value Mortgages payable assumed in connection with acquisitions (1) $ 840.7 $ 808.3 Notes and bonds payable (2) $ 13,131.8 $ 11,331.8 December 31, 2021 Carrying value Estimated fair value Mortgages payable assumed in connection with acquisitions (1) $ 1,114.1 $ 1,154.7 Notes and bonds payable (2) $ 12,257.3 $ 13,114.5 (1) Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums was $ 15.6 million at September 30, 2022, and $ 28.7 million at December 31, 2021. Also excludes deferred financing costs of $ 926,000 at September 30, 2022, and $ 790,000 at December 31, 2021. (2) Excludes non-cash premiums and discounts recorded on notes payable. The unamortized balance of the net premiums was $ 241.3 million at September 30, 2022, and $ 295.5 million at December 31, 2021. Also excludes deferred financing costs of $ 56.6 million at September 30, 2022, and $ 53.1 million at December 31, 2021. The estimated fair values of our mortgages payable assumed in connection with acquisitions and private senior notes payable have been calculated by discounting the future cash flows using an interest rate based upon the relevant forward interest rate curve, plus an applicable credit-adjusted spread. Because this methodology includes unobservable inputs that reflect our own internal assumptions and calculations, the measurement of estimated fair values related to our mortgages payable is categorized as level three on the three-level valuation hierarchy. -23- Table of Contents The estimated fair values of our publicly-traded senior notes and bonds payable are based upon indicative market prices and recent trading activity of our senior notes and bonds payable, including the senior notes and bonds payable assumed in the debt exchange offer on November 9, 2021, in connection with our merger with VEREIT. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values related to our notes and bonds payable is categorized as level two on the three-level valuation hierarchy. Financial Instruments Measured at Fair Value on a Recurring Basis For derivative assets and liabilities, we may utilize interest rate swaps and forward-starting swaps to manage interest rate risk, and cross-currency swaps, currency exchange swaps, foreign currency forwards and foreign currency collars to manage foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, spot and forward rates, as well as option volatility . Derivative fair values also include credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although we have determined that the majority of the inputs used to value our derivatives fall within level two on the three-level valuation hierarchy, the credit valuation adjustments associated with our derivatives utilize level three inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by ourselves and our counterparties. However, at September 30, 2022, and December 31, 2021, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety are classified as level two. Items Measured at Fair Value on a Non-Recurring Basis Certain financial and nonfinancial assets and liabilities are measured at fair value on a non-recurring basis and are subject to fair value adjustments only under certain circumstances, such as when an impairment write-down occurs. The following table summarizes our provisions for impairment on real estate investments during the periods indicated below (dollars in millions): Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Carrying value prior to impairment $ 48.1 $ 35.0 $ 107.0 $ 85.7 Less: total provisions for impairment ( 1.7 ) ( 11.0 ) ( 16.4 ) ( 31.0 ) Carrying value after impairment $ 46.4 $ 24.0 $ 90.6 $ 54.7 Number of properties: Classified as held for sale 3 — 3 — Classified as held for investment — 1 5 7 Sold 20 22 69 57 Derivative Designated as Hedging Instruments In order to hedge the foreign currency risk associated with interest payments on intercompany loans denominated in British Pound Sterling, or GBP, we initiated a hedging strategy to enter into foreign currency forward contracts to sell GBP and buy U.S. Dollars, or USD. These foreign currency forwards are designated as cash flow hedges. Forward points on the forward contracts are included in the assessment of hedge effectiveness. Amounts reported in other comprehensive income (loss) related to foreign currency derivative contracts will be reclassified to other gain and (loss) in the same period during which the hedged forecasted transactions affect earnings. -24- Table of Contents In May 2019, we entered into four cross-currency swaps to exchange £ 130 million Sterling for $ 166 million maturing in May 2034, in order to hedge the foreign currency risk associated with our Sterling-denominated intercompany loan receivable from our consolidated foreign subsidiaries. These cross-currency swaps were designated as cash flow hedges on their trade date. In June 2022, following the early prepayment of our Sterling-denominated intercompany loan receivable from our consolidated foreign subsidiaries, we terminated the four cross-currency swaps used to hedge the foreign currency exposure of the intercompany loan. As the hedge relationship was terminated and the future principal and interest associated with the prepaid intercompany loan did not occur, a $ 20.0 million gain was reclassified from AOCI to 'Foreign currency and derivative loss, net' during the three months ended June 30, 2022 . As of September 30, 2022, we had one interest rate swap in place on our $ 250.0 million unsecured term loan. Our objective in using derivatives is to add stability to interest expense and to manage our exposure to interest rate movements. We designated this interest rate swap as a cash flow hedge in accordance with Topic 815, Derivatives and Hedging . This interest rate swap is recorded on the consolidated balances sheets at fair value. Changes to fair value are recorded to accumulated other comprehensive income (loss), or AOCI, and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings. This interest rate swap, which was converted to a SOFR benchmark from LIBOR during June 2022, continues to be accounted for as a cash flow hedge. The following table summarizes the amount of unrealized gain (loss) on derivatives in other comprehensive income during the periods indicated below (in thousands): Three months ended September 30, Nine months ended September 30, Derivatives in Cash Flow Hedging Relationships 2022 2021 2022 2021 Currency swaps $ — $ 6,570 $ ( 5,091 ) $ 10,548 Interest rate swaps 30,838 5,701 100,229 33,377 Foreign currency forwards 11,076 4,581 23,920 8,503 Total unrealized gain on derivatives $ 41,914 $ 16,852 $ 119,058 $ 52,428 The following table summarizes the amount of gain (loss) on derivatives reclassified from AOCI (in thousands): Three months ended September 30, Nine months ended September 30, Derivatives in Cash Flow Hedging Relationships Location of Gain (Loss) Recognized in Income 2022 2021 2022 2021 Currency swaps Foreign currency and derivative gain, net $ 2,784 $ 4,747 $ 30,425 $ 3,360 Interest rate swaps Interest expense ( 1,286 ) ( 2,614 ) ( 5,969 ) ( 7,734 ) Net increase (decrease) to net income $ 1,498 $ 2,133 $ 24,456 $ ( 4,374 ) We expect to reclassify $ 10.0 million from AOCI as a decrease to interest expense relating to interest rate swaps and $ 15.5 million from AOCI to foreign currency gain relating to foreign currency forwards within the next twelve months. Derivatives Not Designated as Hedging Instruments We enter into foreign currency exchange swap agreements to reduce the effects of currency exchange rate fluctuations between the U.S. dollar, our reporting currency, and British Pound Sterling and Euro. These derivative contracts generally mature within one to three months and are not designated as hedge instruments for accounting purposes. As the currency exchange swap is not accounted for as a hedging instrument, the change in fair value is recorded in earnings through the caption entitled 'Foreign currency and derivative loss, net' in the consolidated statements of income and comprehensive income -25- Table of Contents The following table details our foreign currency and derivative gains (losses), net included in income (in thousands): Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Realized foreign currency and derivative gain (loss), net: Gain on the settlement of undesignated derivatives $ 4,050 $ — $ 80,677 $ — Gain on the settlement of designated derivatives reclassified from AOCI 2,784 4,747 30,425 3,360 Gain (loss) on the settlement of transactions with third parties ( 111 ) 58 ( 41 ) 58 Total realized foreign currency and derivative gain (loss), net $ 6,723 $ 4,805 $ 111,061 $ 3,418 Unrealized foreign currency and derivative gain (loss), net: Gain (loss) on the change in fair value of undesignated derivatives $ ( 24,488 ) $ — $ 35,506 $ 3,724 Gain (loss) on remeasurement of certain assets and liabilities ( 5,128 ) ( 7,179 ) ( 162,570 ) ( 8,312 ) Total unrealized foreign currency and derivative loss, net $ ( 29,616 ) $ ( 7,179 ) $ ( 127,064 ) $ ( 4,588 ) Total foreign currency and derivative gains (losses), net $ ( 22,893 ) $ ( 2,374 ) $ ( 16,003 ) $ ( 1,170 ) -26- Table of Contents The following table summarizes the terms and fair values of our derivative financial instruments at September 30, 2022, and December 31, 2021 (dollars in millions): Derivative Type Number of Instruments (1) Accounting Classification Notional Amount as of Weighted Average Strike Rate (2) Maturity Date (3) Fair Value - asset (liability) as of Derivatives Designated as Hedging Instruments September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021 Interest rate swap 1 Derivative $ 250.0 $ 250.0 2.88 % March 2024 $ 4.7 $ ( 11.9 ) Cross-currency swaps (4) — Derivative — 166.3 — — — ( 13.8 ) Foreign currency forwards 32 Derivative 167.4 176.1 (5) Oct 2022 - Aug 2024 31.5 7.6 Forward-starting swaps (6) 4 Derivative 300.0 300.0 1.86 % Nov 2032 - Jun 2033 (6) 47.0 ( 3.2 ) Forward-starting swaps (6) 2 Hybrid Debt 200.0 200.0 1.93 % Nov 2032 - Jun 2033 (6) 26.2 ( 5.1 ) $ 917.4 $ 1,092.4 $ 109.4 $ ( 26.4 ) Derivatives not Designated as Hedging Instruments Currency exchange swaps (7) 9 Derivative 2,590.8 1,639.5 (8) Oct 2022 - Nov 2022 ( 4.2 ) ( 14.7 ) Total of all Derivatives $ 3,508.2 $ 2,731.9 $ 105.2 $ ( 41.1 ) (1) This column represents the number of instruments outstanding as of September 30, 2022. (2) Weighted average strike rate is calculated using the current notional value as of September 30, 2022. (3) This column represents maturity dates for instruments outstanding as of September 30, 2022. (4) In June 2022, we terminated the four British Pound Sterling, or GBP, cross-currency swaps with a notional amount of $ 166.3 million. (5) Weighted average forward GBP-USD exchange rate of 1.39 . (6) There were five treasury rate locks entered into during February 2020 that were terminated in June 2020 and converted into six forward starting interest rate swaps through a cashless settlement. These forward starting interest rate swaps were terminated in connection with a senior unsecured note issuance in October 2022. See Note 19, Subsequent Events . (7) Represents five GBP currency exchange swaps with a notional amount of $ 1.2 billion and four Euro, or EUR, currency exchange swaps with an associated notional amount of $ 1.4 billion. (8) Weighted average Forward GBP-USD exchange rate of 1.14 and Weighted Average Forward EUR-USD exchange rate of 0.99 . We measure our derivatives at fair value and include the balances within other assets and accounts payable as well as accrued expenses on our consolidated balance sheets. We have agreements with each of our derivative counterparties containing provisions under which we could be declared in default on our derivative obligations if repayment of our indebtedness is accelerated by the lender due to our default. We utilize interest rate swaps and forward starting swaps to manage interest rate risk and cross-currency swaps, currency exchange swaps, foreign currency forwards and foreign currency collars to manage foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, spot and forward rates, as well as option volatility. To comply with the provisions of ASC 820, Fair Value Measurement , we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. -27- Table of Contents 13. Operating Leases A. At September 30, 2022, we owned 11,733 properties in all 50 U.S. states, Puerto Rico, the U.K. and Spain. Of the 11,733 properties, 11,587 , or 98.8 %, are single-client properties, and the remaining are multi-client properties. At September 30, 2022, 131 properties were available for lease or sale. Substantially all of our leases are net leases where our client pays or reimburses us for property taxes and assessments, maintains the interior and exterior of the building and leased premises, and carries insurance coverage for public liability, property damage, fire and extended coverage. Rent based on a percentage of our client's gross sales, or percentage rent, for the three months ended September 30, 2022, and 2021 was $ 2.3 million and $ 441,000 , respectively. Percentage rents for the nine months ended September 30, 2022 and 2021 were $ 8.3 million and $ 2.0 million, respectively. B. Major Clients - No individual client’s rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the nine months ended September 30, 2022, and 2021. 14. Distributions Paid and Payable We pay monthly distributions to our common stockholders. The following is a summary of monthly distributions paid per common share for the nine months ended September 30, 2022, and 2021: Month 2022 2021 January $ 0.2465 $ 0.2345 February 0.2465 0.2345 March 0.2465 0.2345 April 0.2470 0.2350 May 0.2470 0.2350 June 0.2470 0.2350 July 0.2475 0.2355 August 0.2475 0.2355 September 0.2475 0.2355 Total $ 2.2230 $ 2.1150 At September 30, 2022, a distribution of $ 0.2480 per common share was payable and was paid in October 2022 . 15. Net Income per Common Share Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted net income per common share is computed by dividing net income available to common stockholders, plus income attributable to dilutive shares and convertible common units for the period, by the weighted average number of common shares that would have been outstanding assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. -28- Table of Contents The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Weighted average shares used for the basic net income per share computation 617,511,609 391,913,478 604,463,977 379,291,782 Incremental shares from share-based compensation 355,063 136,923 341,626 117,645 Dilutive effect of forward ATM offerings 90,367 — 30,233 — Weighted average shares used for diluted net income per share computation 617,957,039 392,050,401 604,835,836 379,409,427 Unvested shares from share based compensation that were anti-dilutive 68,318 91,221 36,950 119,981 Weighted average partnership common units convertible to common shares that were anti-dilutive 1,244,324 463,119 1,122,586 463,119 Weighted average forward ATM offerings that were anti-dilutive 563,295 — 188,455 — 16. Supplemental Disclosures of Cash Flow Information The following table summarizes our supplemental cash flow information during the periods indicated below (dollars in thousands): Nine months ended September 30, 2022 2021 Supplemental disclosures: Cash paid for interest $ 363,518 $ 229,465 Cash paid for income taxes $ 42,225 $ 9,776 Non-cash activities: Net increase in fair value of derivatives $ 146,310 $ 75,279 Mortgages assumed at fair value (1) $ 45,079 $ 43,779 Issuance of common partnership units of Realty Income, L.P. (2) $ 51,221 $ — (1) Represents £ 31.0 million Sterling, converted at the applicable exchange rate on the date of transaction. Mortgages assumed at fair value entirely consists of one Sterling denominated mortgage for the nine months ended September 30, 2021. (2) In September 2022, we issued 734,458 common partnership units of Realty Income L.P. in connection with the acquisition of nine properties. The following table provides a reconciliation of cash and cash equivalents reported within the consolidated balance sheets to the total of the cash, cash equivalents and restricted cash reported within the consolidated statements of cash flows (dollars in thousands): September 30, 2022 September 30, 2021 Cash and cash equivalents shown in the consolidated balance sheets $ 187,745 $ 516,983 Restricted escrow deposits (1) 90,639 28,141 Impounds related to mortgages payable (1) 10,529 974 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 288,913 $ 546,098 (1) Included within other assets, net on the consolidated balance sheets (see note 4). These amounts consist of cash that we are legally entitled to, but that is not immediately available to us. As a result, these amounts were considered restricted as of the dates presented. -29- Table of Contents 17. Common Stock Incentive Plan In March 2021, our Board of Directors adopted, and in May 2021, stockholders approved, the Realty Income 2021 Incentive Award Plan, or 2021 Plan. This note should be read in conjunction with the more complete discussion of our 2021 Plan included in note 16 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021. The amount of share-based compensation costs recognized in 'General and administrative' in the consolidated statements of income and comprehensive income was $ 5.1 million and $ 4.3 million during the three months ended September 30, 2022 and 2021, respectively and $ 16.7 million and $ 12.5 million during the nine months ended September 30, 2022 and 2021, respectively. A. Restricted Stock During the nine months ended September 30, 2022, we granted 154,332 shares of common stock under the 2021 Plan. This included 40,000 total shares of restricted stock granted to the independent members of our Board of Directors in connection with our annual awards in May 2022, 20,000 shares of which vested immediately and 20,000 shares of which vest in equal parts over a three-year service period. Our restricted stock awards granted to employees vest in equal parts over a four-year service period. As of September 30, 2022, the remaining unamortized share-based compensation expense related to restricted stock totaled $ 13.0 million, which is being amortized on a straight-line basis over the service period of each applicable award. The amount of share-based compensation is based on the fair value of the stock at the grant date. We define the grant date as the date the recipient and Realty Income have a mutual understanding of the key terms and conditions of the award, and the recipient of the grant begins to benefit from, or be adversely affected by, subsequent changes in the price of the shares. B. Performance Shares and Restricted Stock Units During the nine months ended September 30, 2022, we granted 154,840 performance shares, as well as dividend equivalent rights, to our executive officers. The performance shares are earned based on our Total Shareholder Return (TSR) performance relative to select industry indices and peer groups as well as achievement of certain operating metrics, and vest 50 % on the first and second January 1 after the end of the three - year performance period, subject to continued service. During the nine months ended September 30, 2022, we also granted 24,456 restricted stock units, all of which vest over a four-year service period. These restricted stock units have the same economic rights as shares of restricted stock. As of September 30, 2022, the remaining share-based compensation expense related to the performance shares and restricted stock units totaled $ 20.5 million. The fair value of the performance shares was estimated on the date of grant using a Monte Carlo Simulation model. The performance shares are being recognized on a tranche-by-tranche basis over the service period. The amount of share-based compensation for the restricted stock units is based on the fair value of our common stock at the grant date. The expense amortization period for restricted stock units is the lesser of the four-year service period or the period over which the awardee reaches the qualifying retirement age. For employees who have already met the qualifying retirement age, restricted stock units are fully expensed at the grant date. C. Stock Options We did no t grant any stock options during the nine months ended September 30, 2022. During the nine months ended September 30, 2022, we recorded $ 47,000 of expense related to stock options. There was no comparable expense for the nine months ended September 30, 2021. As of September 30, 2022, there was no unamortized expense relating to our outstanding stock options. 18. Commitments and Contingencies In the ordinary course of business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated financial position or results of operations. At September 30, 2022, we had commitments of $ 22.3 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements. In addition, as of September 30, 2022, we had committed $ 764.9 million Table of Contents under construction contracts related to development projects, which have estimated rental revenue commencement dates between October 2022 and May 2024. 19. Subsequent Events A. Dividends In October 2022, we declared a dividend of $ 0.2480 per share to our common stockholders, which will be paid in November 2022. B. Note Issuance In October 2022, we issued $ 750.0 million of 5.625 % senior unsecured notes due October 2032 (the "October 2032 Notes"). The public offering price for the October 2032 Notes was 99.879 % of the principal amount for an effective semi-annual yield to maturity of 5.641 %. -31- Table of Contents