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) March 31, 2023 December 31, 2022 ASSETS Real estate held for investment, at cost: Land $ 13,324,929 $ 12,948,835 Buildings and improvements 30,803,410 29,707,751 Total real estate held for investment, at cost 44,128,339 42,656,586 Less accumulated depreciation and amortization ( 5,188,105 ) ( 4,904,165 ) Real estate held for investment, net 38,940,234 37,752,421 Real estate and lease intangibles held for sale, net 24,445 29,535 Cash and cash equivalents 164,576 171,102 Accounts receivable, net 617,359 567,963 Lease intangible assets, net 5,256,795 5,168,366 Goodwill 3,731,478 3,731,478 Other assets, net 2,366,551 2,252,227 Total assets $ 51,101,438 $ 49,673,092 LIABILITIES AND EQUITY Distributions payable $ 173,223 $ 165,710 Accounts payable and accrued expenses 422,365 399,137 Lease intangible liabilities, net 1,445,133 1,379,436 Other liabilities 789,903 774,787 Line of credit payable and commercial paper 1,304,858 2,729,040 Term loan, net 1,297,966 249,755 Mortgages payable, net 850,580 853,925 Notes payable, net 15,430,072 14,278,013 Total liabilities 21,714,100 20,829,803 Commitments and contingencies (Note 16) Stockholders’ equity: Common stock and paid in capital, par value $ 0.01 per share, 1,300,000,000 shares authorized, 673,206,775 and 660,300,195 shares issued and outstanding as of March 31, 2023, and December 31, 2022, respectively 34,958,608 34,159,509 Distributions in excess of net income ( 5,772,923 ) ( 5,493,193 ) Accumulated other comprehensive income 73,421 46,833 Total stockholders’ equity 29,259,106 28,713,149 Noncontrolling interests 128,232 130,140 Total equity 29,387,338 28,843,289 Total liabilities and equity $ 51,101,438 $ 49,673,092 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 March 31, 2023 2022 REVENUE Rental (including reimbursable) $ 925,289 $ 799,565 Other 19,110 7,778 Total revenue 944,399 807,343 EXPENSES Depreciation and amortization 451,477 403,762 Interest 154,132 106,403 Property (including reimbursable) 69,397 52,342 General and administrative 34,167 32,699 Provisions for impairment 13,178 7,038 Merger and integration-related costs 1,307 6,519 Total expenses 723,658 608,763 Gain on sales of real estate 4,279 10,156 Foreign currency and derivative gain (loss), net 10,322 ( 590 ) Equity in income of unconsolidated entities — 954 Other income, net 2,730 1,852 Income before income taxes 238,072 210,952 Income taxes ( 11,950 ) ( 10,981 ) Net income 226,122 199,971 Net income attributable to noncontrolling interests ( 1,106 ) ( 602 ) Net income available to common stockholders $ 225,016 $ 199,369 Amounts available to common stockholders per common share: Net Income, basic and diluted $ 0.34 $ 0.34 Weighted average common shares outstanding: Basic 660,462,399 593,827,299 Diluted 661,238,844 594,041,839 Net income available to common stockholders $ 225,016 $ 199,369 Total other comprehensive income: Foreign currency translation adjustment 28,750 ( 10,706 ) Unrealized (loss) gain on derivatives, net ( 2,162 ) 43,690 Total other comprehensive income $ 26,588 $ 32,984 Comprehensive income available to common stockholders $ 251,604 $ 232,353 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 March 31, 2023, and 2022 Shares of common stock Common stock and paid in capital Distributions in excess of net income Accumulated other comprehensive income 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 — — 199,369 — 199,369 602 199,971 Other comprehensive income — — — 32,984 32,984 — 32,984 Distributions paid and payable — — ( 440,910 ) — ( 440,910 ) ( 882 ) ( 441,792 ) Share issuances, net of costs 10,171,808 660,044 — — 660,044 — 660,044 Share-based compensation, net 132,782 ( 1,882 ) — — ( 1,882 ) — ( 1,882 ) Balance, March 31, 2022 601,566,581 $ 30,236,374 $ ( 4,772,112 ) $ 37,917 $ 25,502,179 $ 76,546 $ 25,578,725 Balance, December 31, 2022 660,300,195 $ 34,159,509 $ ( 5,493,193 ) $ 46,833 $ 28,713,149 $ 130,140 $ 28,843,289 Net income — — 225,016 — 225,016 1,106 226,122 Other comprehensive income — — — 26,588 26,588 — 26,588 Distributions paid and payable — — ( 504,746 ) — ( 504,746 ) ( 3,014 ) ( 507,760 ) Share issuances, net of costs 12,706,141 798,901 — — 798,901 — 798,901 Share-based compensation, net 200,439 198 — — 198 — 198 Balance, March 31, 2023 673,206,775 $ 34,958,608 $ ( 5,772,923 ) $ 73,421 $ 29,259,106 $ 128,232 $ 29,387,338 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) Three months ended March 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 226,122 $ 199,971 Adjustments to net income: Depreciation and amortization 451,477 403,762 Amortization of share-based compensation 6,300 5,002 Non-cash revenue adjustments ( 19,127 ) ( 14,180 ) Amortization of net premiums on mortgages payable ( 3,200 ) ( 3,561 ) Amortization of net premiums on notes payable ( 15,532 ) ( 15,740 ) Amortization of deferred financing costs 6,474 3,445 (Loss) gain on interest rate swaps ( 1,801 ) 722 Foreign currency and unrealized derivative (gain) loss, net ( 8,942 ) 590 Gain on sales of real estate ( 4,279 ) ( 10,156 ) Equity in income of unconsolidated entities — ( 954 ) Distributions from unconsolidated entities — 729 Provisions for impairment on real estate 13,178 7,038 Change in assets and liabilities Accounts receivable and other assets 42,081 ( 17,698 ) Accounts payable, accrued expenses and other liabilities 38,483 ( 45,491 ) Net cash provided by operating activities 731,234 513,479 CASH FLOWS FROM INVESTING ACTIVITIES Investment in real estate ( 1,675,136 ) ( 1,525,836 ) Improvements to real estate, including leasing costs ( 13,860 ) ( 13,471 ) Proceeds from sales of real estate 28,594 122,235 Insurance proceeds received 6,282 15,892 Non-refundable escrow deposits ( 23,599 ) ( 16,828 ) Net cash used in investing activities ( 1,677,719 ) ( 1,418,008 ) CASH FLOWS FROM FINANCING ACTIVITIES Cash distributions to common stockholders ( 497,245 ) ( 438,280 ) Borrowings on line of credit and commercial paper programs 4,249,746 2,311,812 Payments on line of credit and commercial paper programs ( 5,690,060 ) ( 2,328,990 ) Proceeds from term loan 1,029,383 — Proceeds from notes payable issued 1,090,968 676,631 Principal payments on mortgages payable ( 1,233 ) ( 43,589 ) Proceeds from common stock offerings, net 796,190 656,094 Proceeds from dividend reinvestment and stock purchase plan 2,711 2,799 Distributions to noncontrolling interests ( 1,479 ) ( 882 ) Net (payments) receipts on derivative settlements ( 6,452 ) 903 Debt issuance costs ( 16,603 ) ( 9,692 ) Other items, including shares withheld upon vesting ( 6,102 ) ( 5,733 ) Net cash provided by financing activities 949,824 821,073 Effect of exchange rate changes on cash and cash equivalents 13,545 ( 6,063 ) Net increase (decrease) in cash, cash equivalents and restricted cash 16,884 ( 89,519 ) Cash, cash equivalents and restricted cash, beginning of period 226,881 332,369 Cash, cash equivalents and restricted cash, end of period $ 243,765 $ 242,850 For supplemental disclosures, see note 14, S upplemental Disclosures of Cash Flow Information . 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 March 31, 2023 (unaudited) 1. Basis of Presentation Realty Income Corporation (“Realty Income,” the “Company,” “we,” “our” or “us”) was founded in 1969 and is organized as a Maryland corporation. We invest in commercial real estate and have elected to be taxed as a real estate investment trust ("REIT"). We are listed on the New York Stock Exchange ("NYSE") under the symbol “O”. Our accompanying unaudited consolidated financial statements were prepared from our books and records in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented have been included. Operating results for the three months ended March 31, 2023 are not necessarily an indication of the results that may be expected for the entire year. Readers of this quarterly report should refer to our audited consolidated financial statements for the year ended December 31, 2022, which are included in our 2022 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 USD. We report our results in a single reportable segment, which reflects how our chief operating decision maker allocates resources and assesses our performance. For our consolidated subsidiaries whose functional currency is not the USD, we translate their financial statements into USD 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', ("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) gain, net' in the consolidated statements of income and comprehensive income. Intercompany accounts and transactions are eliminated in consolidation. 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 interests that were created or assumed as part of a business combination or asset acquisition were recognized at fair value as of the date of the transaction (see note 9, Noncontrolling Interests ). -6- Table of Contents At March 31, 2023, Realty Income, L.P. and certain investments, including investments in joint ventures, 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 in the consolidated balance sheets at March 31, 2023, and December 31, 2022 (in thousands): March 31, 2023 December 31, 2022 Net real estate $ 926,907 $ 920,032 Total assets $ 1,075,099 $ 1,082,346 Total liabilities $ 56,905 $ 60,127 Income Taxes. We have elected to be taxed as a REIT, under the Internal Revenue Code of 1986, as amended. We believe we have qualified and continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income. Assuming our dividends equal or exceed our taxable net income in the U.S., we generally will not be required to pay U.S. income taxes on such income. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of our taxable REIT subsidiaries ("TRS"). A TRS is a subsidiary of a REIT that is subject to federal, state and local income taxes, as applicable. Our use of TRS entities enables us to engage in certain business activities while complying with the REIT qualification requirements and to retain any income generated by these businesses for reinvestment without the requirement to distribute those earnings. For our international territories, we are liable for taxes in the United Kingdom and Spain. Accordingly, provisions have been made for U.K. and Spain income taxes. Therefore, the income taxes recorded on our consolidated statements of income and comprehensive income represent amounts accrued or paid by Realty Income and its subsidiaries for U.S. income taxes on our TRS entities, city and state income and franchise taxes, and income taxes for the U.K. and Spain. Earnings and profits that determine the taxability of distributions to stockholders differ from net income reported for financial reporting purposes primarily due to differences in the estimated useful lives and methods used to compute depreciation and the carrying value (basis) of the investments in properties for tax purposes, among other things. We regularly analyze our various international, federal and state filing positions and only recognize the income tax effect in our financial statements when certain criteria regarding uncertain income tax positions have been met. We believe that our income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities. Therefore, no provisions for uncertain tax positions have been recorded on our consolidated financial statements. Lease Revenue Recognition and Accounts Receivable. The majority of our leases are accounted for as operating leases. Under this method, leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term. Any rental revenue contingent upon our client’s sales, or percentage rent, is recognized only after our client exceeds their sales breakpoint. Rental increases based upon changes in the consumer price indexes are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements. Contractually obligated rental revenue from our clients for recoverable real estate taxes and operating expenses are included in contractually obligated reimbursements by our clients, a component of rental revenue, in the period when such costs are incurred. Taxes and operating expenses paid directly by our clients are recorded on a net basis. Other revenue includes certain property-related revenue not included in rental revenue and interest income recognized on financing receivables for certain leases with above-market terms. The COVID-19 pandemic and the measures taken to limit its spread 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 -7- Table of Contents 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 March 31, 2023, 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 impact to rent collections for our clients affected by the COVID-19 pandemic is ongoing, we do not 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. Recent Accounting Pronouncements. The Company reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our consolidated financial statements. 2. Supplemental Detail for Certain Components of Consolidated Balance Sheets (dollars in thousands): A. Accounts receivable, net, consist of the following at: March 31, 2023 December 31, 2022 Straight-line rent receivables, net $ 403,702 $ 363,993 Client receivables, net 213,657 203,970 $ 617,359 $ 567,963 B. Lease intangible assets, net, consist of the following at: March 31, 2023 December 31, 2022 In-place leases $ 5,518,701 $ 5,324,565 Accumulated amortization of in-place leases ( 1,561,739 ) ( 1,409,878 ) Above-market leases 1,778,381 1,697,367 Accumulated amortization of above-market leases ( 478,548 ) ( 443,688 ) $ 5,256,795 $ 5,168,366 C. Other assets, net, consist of the following at: March 31, 2023 December 31, 2022 Financing receivables $ 997,684 $ 933,116 Right of use asset - operating leases, net 596,597 603,097 Right of use asset - financing leases 531,326 467,920 Restricted escrow deposits 50,009 37,627 Prepaid expenses 47,177 28,128 Impounds related to mortgages payable 29,180 18,152 Derivative assets and receivables – at fair value 27,180 83,100 Credit facility origination costs, net 15,963 17,196 Corporate assets, net 12,919 12,334 Investment in sales type lease 5,977 5,951 Non-refundable escrow deposits 23,599 5,667 Other items 28,940 39,939 $ 2,366,551 $ 2,252,227 -8- Table of Contents D. Accounts payable and accrued expenses consist of the following at: March 31, 2023 December 31, 2022 Notes payable - interest payable $ 147,510 $ 129,202 Derivative liabilities and payables – at fair value 66,349 64,724 Property taxes payable 42,333 45,572 Accrued income taxes 30,470 22,626 Accrued property expenses 30,176 25,290 Value-added tax payable 24,500 23,375 Accrued costs on properties under development 23,776 26,559 Mortgages, term loans, and credit line - interest payable 7,498 4,404 Merger and integration-related costs 6,464 1,464 Other items 43,289 55,921 $ 422,365 $ 399,137 E. Lease intangible liabilities, net, consist of the following at: March 31, 2023 December 31, 2022 Below-market leases $ 1,708,146 $ 1,617,870 Accumulated amortization of below-market leases ( 263,013 ) ( 238,434 ) $ 1,445,133 $ 1,379,436 F. Other liabilities consist of the following at: March 31, 2023 December 31, 2022 Lease liability - operating leases, net $ 433,666 $ 440,096 Rent received in advance and other deferred revenue 286,322 269,645 Lease liability - financing leases 49,342 49,469 Security deposits 20,573 15,577 $ 789,903 $ 774,787 3. Investments in Real Estate We acquire land, buildings and improvements necessary for the successful operations of commercial clients. A. Acquisitions of Real Estate Below is a summary of our acquisitions for the period indicated below: Number of Properties Leasable Square Feet (in thousands) Investment ($ in millions) Weighted Average Lease Term (Years) Initial Weighted Average Cash Lease Yield (1) Three months ended March 31, 2023 (2) Acquisitions - U.S. 197 5,926 $ 1,048.9 10.0 7.0 % Acquisitions - Europe 20 2,437 389.7 12.6 7.6 % Total acquisitions 217 8,363 $ 1,438.6 10.7 7.2 % Properties under development (3) 122 2,319 235.6 14.8 6.0 % Total (4) 339 10,682 $ 1,674.2 11.2 7.0 % (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 (defined as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables), 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 lease yield includes approximately $ 0.7 million received as settlement credits as reimbursement of free rent periods for the three months ended March 31, 2023. 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. -9- Table of Contents (2) None of our investments during the three months ended March 31, 2023 caused any one client to be 10% or more of our total assets at March 31, 2023. (3) Includes three U.K. development properties that represent an investment of £ 3.8 million during the three months ended March 31, 2023, converted at the applicable exchange rate on the funding dates. (4) Our clients occupying the new properties are 85.5 % retail and 14.5 % industrial based on annualized contractual rent. Approximately 42 % of the annualized contractual rent generated from acquisitions during the three months ended March 31, 2023 is from our investment grade rated clients, their subsidiaries or affiliated companies. The acquisitions during the three months ended March 31, 2023 had no contingent consideration. The aggregate purchase price of the assets acquired during the three months ended March 31, 2023 has been allocated as follows (in millions): Acquisitions - USD Acquisitions - Sterling Land (1) $ 243.9 £ 74.2 Buildings and improvements 794.6 153.0 Lease intangible assets (2) 231.9 38.1 Other assets (3) 59.8 54.5 Lease intangible liabilities (4) ( 84.7 ) ( 3.8 ) Other liabilities (5) ( 0.6 ) — $ 1,244.9 £ 316.0 (1) Sterling-denominated land includes £ 1.7 million of right of use assets under long-term ground leases. (2) The weighted average amortization period for acquired lease intangible assets is 11.3 years. (3) USD-denominated other assets consist entirely of $ 59.8 million of financing receivables with above-market terms. Sterling-denominated other assets consist of £ 8.6 million of financing receivables with above-market terms and £ 45.8 million of right-of-use assets accounted for as finance leases. (4) The weighted average amortization period for acquired lease intangible liabilities is 18.8 years. (5) USD-denominated other liabilities consist entirely of $ 0.6 million of deferred rent on certain below-market leases. The properties acquired during the three months ended March 31, 2023 generated total revenues of $ 7.3 million and net income of $ 2.8 million during the three months ended March 31, 2023. B. Investments in Existing Properties During the three months ended March 31, 2023, we capitalized costs of $ 13.8 million on existing properties in our portfolio, consisting of $ 13.3 million for non-recurring building improvements, $ 0.4 million for re-leasing costs, and $ 0.1 million for recurring capital expenditures. In comparison, during the three months ended March 31, 2022, we capitalized costs of $ 12.0 million on existing properties in our portfolio, consisting of $ 9.6 million for non-recurring building improvements, $ 2.4 million for re-leasing costs and less than $ 0.1 million for recurring capital expenditures. C. 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 three months ended March 31, 2023, and 2022 were $ 157.4 million and $ 160.1 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 three months ended March 31, 2023, and 2022 were $ 39.8 million, and $ 21.9 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. -10- Table of Contents 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 March 31, 2023 (dollars in thousands): Net increase (decrease) to rental revenue Increase to amortization expense 2023 $ ( 45,162 ) $ 459,375 2024 ( 54,192 ) 552,774 2025 ( 47,292 ) 477,383 2026 ( 39,501 ) 425,893 2027 ( 30,827 ) 369,300 Thereafter 362,274 1,672,237 Totals $ 145,300 $ 3,956,962 D. Gain on Sales of Real Estate The following table summarizes our properties sold during the periods indicated below (dollars in millions): Three months ended March 31, 2023 2022 Number of properties 26 34 Net sales proceeds $ 28.6 $ 122.2 Gain on sales of real estate $ 4.3 $ 10.2 4. Revolving Credit Facility and Commercial Paper Programs A. Credit Facility We have a $ 4.25 billion unsecured revolving multicurrency credit facility that 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 USD. Our revolving credit facility also has a $ 1.0 billion expansion option, which is subject to obtaining lender commitments. Under our revolving credit facility, our current investment grade credit ratings provide for USD 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, 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, and Euro Borrowings at one-month Euro Interbank Offered Rate (“EURIBOR”), plus 0.725 %, and a revolving credit facility fee of 0.125 %, for all-in pricing of 0.85 % over one-month EURIBOR. As of March 31, 2023, credit facility origination costs of $ 16.0 million are included in other assets, net, as compared to $ 17.2 million at December 31, 2022, on our consolidated balance sheets. These costs are being amortized over the remaining term of our revolving credit facility. As of March 31, 2023, we had a borrowing capacity of $ 3.1 billion available on our revolving credit facility (subject to customary conditions to borrowing) and an outstanding balance of $ 1.1 billion, comprised of $ 770.0 million USD and £ 305.0 million Sterling borrowings, as compared to an outstanding balance at December 31, 2022 of $ 2.0 billion, comprised of € 1.8 billion Euro and £ 70.0 million Sterling borrowings. The weighted average interest rate on outstanding borrowings under our revolving credit facility was 3.7 % and 1.1 % during the three months ended March 31, 2023, and 2022, respectively. At March 31, 2023, our weighted average interest rate on borrowings outstanding under our revolving credit facility was 5.4 %. Our revolving credit facility is subject to various leverage and interest coverage ratio limitations, and at March 31, 2023, we were in compliance with the covenants under our revolving credit facility. B. Commercial Paper Programs We have a USD-denominated unsecured commercial paper program, under which we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding of $ 1.5 billion, as well as a Euro-denominated unsecured commercial paper program, which permits us to issue additional unsecured commercial notes up to a maximum aggregate amount of $ 1.5 billion (or foreign currency equivalent). Our Euro-denominated -11- Table of Contents unsecured commercial paper program may be issued in USD or various 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 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 loans and our outstanding senior unsecured notes. Proceeds from commercial paper borrowings are used for general corporate purposes. As of March 31, 2023, the balance of borrowings outstanding under our commercial paper programs was $ 157.5 million, consisting entirely of € 145.0 million of Euro-denominated borrowings, as compared to $ 701.8 million outstanding commercial paper borrowings, including € 361.0 million of Euro-denominated borrowings, at December 31, 2022. The weighted average interest rate on outstanding borrowings under our commercial paper programs was 3.5 % and 0.5 % for the three months ended March 31, 2023, and 2022, respectively. As of March 31, 2023, our weighted average interest rate on outstanding borrowings under our commercial paper programs was 3.1 %. 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 generally carry a term of less than a year . 5. Term Loans In January 2023, we entered into a term loan agreement, permitting us to incur multicurrency term loans, up to an aggregate of $ 1.5 billion in total borrowings. As of March 31, 2023, we had $ 1.1 billion in multicurrency borrowings, including $ 90.0 million, £ 705.0 million and € 85.0 million in outstanding borrowings. The 2023 term loans initially mature in January 2024 and include two 12-month maturity extensions that can be exercised at our option. Our A3/A- credit ratings provide for a borrowing rate of 80 basis points over the applicable benchmark rate, which includes adjusted SOFR for USD-denominated loans, adjusted SONIA for Sterling-denominated loans, and EURIBOR for Euro-denominated loans. In conjunction with our 2023 term loans, we entered into interest rate swaps which fix our per annum interest rate. As of March 31, 2023, the effective interest rate, after giving effect to the interest rate swaps, was 5.0 %. We also have a $ 250.0 million senior unsecured term loan, which matures in March 2024. In conjunction with this term loan, we also entered into an interest rate swap. As of March 31, 2023, the effective interest rate on this term loan, after giving effect to the interest rate swap, was 3.8 %. At March 31, 2023, deferred financing costs of $ 6.5 million are included net of the term loans principal balance, as compared to $ 0.2 million related to our $ 250.0 million term loan at December 31, 2022, on our consolidated balance sheets. These costs are being amortized over the remaining term of the term loans. As of March 31, 2023, we were in compliance with the covenants contained in the term loans. 6. Mortgages Payable During the three months ended March 31, 2023, we mad e $ 1.2 million in principal payments. During the three months ended March 31, 2022, we made $ 43.6 million in princi pal payments, including the full repayment of one mortgage for $ 42.5 million. No mortgages were assumed during the three months ended March 31, 2023, or 2022. 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 March 31, 2023, 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 $ 0.7 million at March 31, 2023 and $ 0.8 million at December 31, 2022. These costs are being amortized over the remaining term of each mortgage. -12- Table of Contents The following table summarizes our mortgages payable as of March 31, 2023 and December 31, 2022 (dollars in millions): 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 March 31, 2023 136 4.8 % 3.4 % 1.1 $ 842.1 $ 8.5 $ 850.6 December 31, 2022 136 4.8 % 3.3 % 1.4 $ 842.3 $ 11.6 $ 853.9 (1) At March 31, 2023 and at December 31, 2022, there were 18 mortgages on 136 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 March 31, 2023 and December 31, 2022, all mortgages were at fixed interest rates. (2) Stated interest rates ranged from 3.0 % to 6.9 % March 31, 2023 and December 31, 2022, respectively. (3) Effective interest rates ranged from 2.5 % to 6.6 % and 2.7 % to 6.6 % at March 31, 2023 and December 31, 2022, respectively. The following table summarizes the maturity of mortgages payable as of March 31, 2023, excluding net premiums of $ 9.2 million and deferred financing costs of $ 0.7 million (dollars in millions): Year of Maturity Principal 2023 $ 20.9 2024 740.5 2025 42.9 2026 12.0 2027 22.3 Thereafter 3.5 Totals $ 842.1 -13- Table of Contents 7. Notes Payable A. General Our senior unsecured notes and bonds are USD-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 March 31, 2023 December 31, 2022 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 5.050 % notes, issued in January 2023 and due in January 2026 $ 500 500 — 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 £ 250 309 301 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 £ 400 495 482 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 4.850 % notes, issued in January 2023 and due in March 2030 $ 600 600 — 3.160 % notes, issued in June 2022 and due in June 2030 £ 140 173 169 1.625 % notes, issued in October 2020 and due December 2030 £ 400 495 482 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 £ 345 427 416 5.625 % notes, issued in October 2022 and due in October 2032 $ 750 750 750 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 £ 350 433 422 2.730 % notes, issued in May 2019 and due in May 2034 £ 315 390 379 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 £ 115 142 138 2.500 % notes, issued in January 2022 and due in January 2042 £ 250 309 301 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 $ 15,297 $ 14,114 Unamortized net premiums, deferred financing costs and basis adjustment on interest rate swaps designated as fair value hedge (3) 133 164 $ 15,430 $ 14,278 -14- Table of Contents (1) Carrying Value (USD) includes the portion of the VEREIT OP notes that remained outstanding, totaling $ 39.1 million in the aggregate at March 31, 2023 and December 31, 2022, 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. (3) In January 2023, we entered into three-year , fixed-to-variable interest rate swaps, which are accounted for as fair value hedges. See Note 10, Financial Instruments and Fair Value Measurements, for further details. The following table summarizes the maturity of our notes and bonds payable as of March 31, 2023, excluding $ 133.3 million related to unamortized net premiums, deferred financing costs, and basis adjustment on interest rate swaps designated as fair value hedge (dollars in millions): Year of Maturity Principal 2024 $ 850 2025 1,050 2026 2,075 2027 2,004 Thereafter 9,318 Totals $ 15,297 As of March 31, 2023, the weighted average interest rate on our notes and bonds payable was 3.4 %, which includes the effect of the interest rate swaps, and the weighted average remaining years until maturity was 6.8 years. Interest incurred on all of the notes and bonds was $ 130.3 million and $ 103.1 million for the three months ended March 31, 2023, and 2022, 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 March 31, 2023, we were in compliance with these covenants. B. Note Issuances During the three months ended March 31, 2023, and 2022, we issued the following notes and bonds (in millions): First Quarter 2023 Issuances Date of Issuance Maturity Date Principal amount used Price of par value Effective semi-annual yield to maturity 5.050 % Notes January 2023 January 2026 $ 500.0 99.618 % 5.189 % 4.850 % Notes January 2023 March 2030 $ 600.0 98.813 % 5.047 % First Quarter 2022 Issuances Date of Issuance Maturity Date Principal amount used Price of par value Effective semi-annual yield to maturity 1.875 % Notes January 2022 January 2027 £ 250.0 99.487 % 1.974 % 2.500 % Notes January 2022 January 2042 £ 250.0 98.445 % 2.584 % 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. -15- Table of Contents In April 2023, we issued $ 400.0 million of 4.70 % senior unsecured notes due December 2028 and $ 600.0 million of 4.90 % senior unsecured notes due July 2033. See note 17, Subsequent Events, for further details. 8. Issuances of Common Stock A. At-the-Market ("ATM") Program Under our current ATM program, 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 NYSE under the ticker symbol "O" at prevailing market prices or at negotiated prices. 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. As of March 31, 2023, we had 45,081,312 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 March 31, 2023 2022 Shares of common stock issued under the ATM program (1) 12,664,478 10,073,209 Gross proceeds $ 801.7 $ 660.2 Sales agents' commissions ( 5.3 ) ( 3.9 ) Other offering expenses ( 0.2 ) ( 0.1 ) Net proceeds $ 796.2 $ 656.2 (1) During the three months ended March 31, 2023, 25,538,809 shares were sold and 12,664,478 were settled pursuant to forward sale confirmations. In addition, as of March 31, 2023, 19,619,215 shares of common stock subject to forward sale confirmations have been executed, but not settled, at a weighted average initial price of $ 62.59 per share. We currently expect to fully settle forward sale agreements outstanding by June 30, 2023, representing $ 1.2 billion in net proceeds, for which the weighted average forward price at March 31, 2023 was $ 62.17 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 months ended March 31, 2022. B. Dividend Reinvestment and Stock Purchase Plan ("DRSPP") 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 March 31, 2023, we had 11,118,162 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 March 31, 2023 2022 Shares of common stock issued under the DRSPP program 41,663 41,371 Gross proceeds $ 2.7 $ 2.8 9. Noncontrolling Interests There are four entities with noncontrolling interests that we consolidate, consisting of our operating partnership, (Realty Income, L.P.), a joint venture acquired in December 2019, and two development joint ventures ( one acquired in December 2020 and one acquired in May 2021). The following table represents the change in the carrying value of all noncontrolling interests through March 31, 2023 (dollars in thousands): -16- Table of Contents Realty Income, L.P. units (1) Other Noncontrolling Interests Total Carrying value at December 31, 2022 $ 115,801 $ 14,339 $ 130,140 Distributions (2) ( 1,411 ) ( 1,603 ) ( 3,014 ) Allocation of net income 973 133 1,106 Carrying value at March 31, 2023 $ 115,363 $ 12,869 $ 128,232 (1) 1,795,167 units were outstanding as of March 31, 2023 and December 31, 2022. (2) Include a non-cash reduction of noncontrolling interest of $ 1.5 million from our partner's responsibility to absorb construction cost overages for a development joint venture during the three months ended March 31, 2023. 10. 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). 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. A. 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 aggregate fair value of our term loans 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): -17- Table of Contents March 31, 2023 Carrying value Estimated fair value Mortgages payable assumed in connection with acquisitions (1) $ 842.1 $ 820.0 Notes and bonds payable (2) $ 15,296.7 $ 13,833.5 December 31, 2022 Carrying value Estimated fair value Mortgages payable assumed in connection with acquisitions (1) $ 842.3 $ 810.4 Notes and bonds payable (2) $ 14,114.2 $ 12,522.8 (1) Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums was $ 9.2 million at March 31, 2023, and $ 12.4 million at December 31, 2022. Also excludes deferred financing costs of $ 0.7 million at March 31, 2023, and $ 0.8 million at December 31, 2022. (2) Excludes non-cash premiums and discounts recorded on notes payable. The unamortized balance of the net premiums was $ 200.0 million at March 31, 2023, and $ 224.6 million at December 31, 2022. Also excludes deferred financing costs of $ 66.3 million and basis adjustment on interest rate swaps designated as fair value hedges of $ 0.4 million at March 31, 2023, and $ 60.7 million of deferred financing costs at December 31, 2022. 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. 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. 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. B. Financial Instruments Measured at Fair Value on a Recurring Basis For derivative assets and liabilities, we may utilize interest rate swaps, interest rate swaptions, and forward-starting swaps to manage interest rate risk, and cross-currency swaps, currency exchange swaps, and foreign currency forwards 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 March 31, 2023, and December 31, 2022, 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. C. Items Measured at Fair Value on a Non-Recurring Basis Impairment of Real Estate Investments 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. Depending on impairment triggering events during the applicable period, impairments are typically recorded for properties sold, in the process of being sold, vacant, in bankruptcy, or experiencing difficulties with collection of rent. -18- Table of Contents The following table summarizes our provisions for impairment on real estate investments during the periods indicated below (dollars in millions): Three months ended March 31, 2023 2022 Carrying value prior to impairment $ 35.6 $ 44.8 Less: total provisions for impairment ( 13.2 ) ( 7.0 ) Carrying value after impairment $ 22.4 $ 37.8 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 ("GBP") and Euro ("EUR"), we have a hedging strategy to enter into foreign currency forward contracts to sell GBP, USD, and EUR and buy EUR, USD, and GBP. 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 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. To add stability to interest expense and to manage our exposure to interest rate movements associated with our 2023 term loans, we executed six one-year variable-to-fixed interest rate swaps maturing January 2024. We designated these interest rate swaps as cash flow hedges in accordance with Topic 815, Derivatives and Hedging . The interest rate swaps are recorded on the consolidated balances sheets at fair value. Changes to fair value are recorded to accumulated other comprehensive income, or AOCI, and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings. In January 2023, we issued $ 500.0 million of 5.05 % senior unsecured notes due January 13, 2026, which are callable at par on January 13, 2024. In conjunction with the pricing of the 2026 notes, we executed two three-year , fixed-to-variable interest rate swaps totaling $ 500.0 million, which are subject to the counterparties' right to terminate the swaps at any time following the 2026 notes par call date. We designated these interest rate swaps as fair value hedges in accordance with Topic 815, Derivatives and Hedging . These interest rate swaps are recorded on the consolidated balances sheets at fair value, with changes in fair value recognized in earnings. The carrying value of the hedged item on the balance sheet is adjusted through earnings by the equal and offsetting amount of the change in fair value of the swaps. For the three months ended March 31, 2023, such adjustments decreased the carrying value of notes payable by $ 0.4 million. Interest accruals on the swaps are recorded as adjustments to interest expense on the hedged item. In March 2023, we entered into six interest rate swaption agreements to mitigate the impact of fluctuating interest rates, structured as a swaption corridor, in anticipation of issuing USD denominated bonds. Interest rate swaption corridors are a combination of two swaption positions, whereby we purchase a payer swaption, which is an option that allows us to enter into a swap where we will pay the fixed rate and receive the floating rate of the swap, and sell a swaption, which is an option that provides the counterparty with the right to enter into a swap where we will receive the fixed rate and pay the floating rate of the swap. For the swaption corridor entered into during March 2023, the combination of purchasing the payer swaption and selling the swaption resulted in a premium being paid of $ 7.6 million. We designated the swaptions as qualifying hedging instruments and accounted for these derivatives as cash flow hedges. Changes in fair value of the swaptions have been recorded in AOCI. The following table summarizes the amount of unrecognized gain (loss) on derivatives in other comprehensive income (in thousands): -19- Table of Contents Three months ended March 31, Derivatives in Cash Flow Hedging Relationships 2023 2022 Currency swaps $ — $ 1,895 Interest rate swaps ( 1,720 ) 39,005 Foreign currency forwards ( 5,113 ) 2,790 Interest rate swaption ( 1,287 ) — Total derivatives in cash flow hedging relationships $ ( 8,120 ) $ 43,690 Derivatives in Fair Value Hedging Relationships Currency swaps $ 5,958 $ — Total derivatives in fair value hedging relationships $ 5,958 $ — Total unrealized (loss) gain on derivatives $ ( 2,162 ) $ 43,690 The following table summarizes the amount of gain (loss) on derivatives reclassified from AOCI (in thousands): Three months ended March 31, Derivatives in Cash Flow Hedging Relationships Location of Gain (Loss) Recognized in Income 2023 2022 Currency swaps Foreign currency and derivative gain (loss), net $ — $ 6,114 Interest rate swaps Interest expense 1,480 ( 2,530 ) Foreign currency forwards Foreign currency and derivative gain (loss), net 1,431 — Total derivatives in cash flow hedging relationships $ 2,911 $ 3,584 Derivatives in Fair Value Hedging Relationships Currency swaps Foreign currency and derivative gain (loss), net $ 294 $ — Total derivatives in fair value hedging relationships $ 294 $ — Net increase to net income $ 3,205 $ 3,584 We expect to reclassify $ 12.8 million from AOCI as a decrease to interest expense relating to interest rate swaps and $ 7.9 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 USD, our reporting currency, and GBP and EUR. These derivative contracts generally mature within one year 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 gain (loss), net' in the consolidated statements of income and comprehensive income. -20- Table of Contents The following table details our foreign currency and derivative gains (losses), net included in income (in thousands): Three months ended March 31, 2023 2022 Realized foreign currency and derivative gain (loss), net: Loss on the settlement of undesignated derivatives $ ( 345 ) $ ( 2,681 ) Gain on the settlement of designated derivatives reclassified from AOCI 1,725 6,114 Gain (loss) on the settlement of transactions with third parties 1,326 ( 52 ) Total realized foreign currency and derivative gain, net $ 2,706 $ 3,381 Unrealized foreign currency and derivative gain (loss), net: (Loss) gain on the change in fair value of undesignated derivatives $ ( 782 ) $ 22,720 Gain (loss) on remeasurement of certain assets and liabilities 8,398 ( 26,691 ) Total unrealized foreign currency and derivative gain (loss), net $ 7,616 $ ( 3,971 ) Total foreign currency and derivative gains (losses), net $ 10,322 $ ( 590 ) The following table summarizes the terms and fair values of our derivative financial instruments at March 31, 2023 and December 31, 2022 (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 March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 Interest rate swaps 9 Derivative $ 1,630.0 $ 250.0 4.26 % Jan 2024 - Jan 2026 $ 5.3 $ 5.6 Interest rate swaptions 6 Derivative 1,000.0 — (4) Feb 2034 6.3 — Cross-currency swaps 3 Derivative 320.0 320.0 (5) Oct 2032 ( 33.1 ) ( 33.3 ) Foreign currency forwards 24 Derivative 155.9 185.5 (6) Apr 2023 - Aug 2024 11.0 16.1 $ 3,105.9 $ 755.5 $ ( 10.5 ) $ ( 11.6 ) Derivatives not Designated as Hedging Instruments Currency exchange swaps (7) 2 Derivative $ 475.9 $ 2,427.7 (8) April 2023 $ ( 1.1 ) $ 58.8 Cross-currency swaps 3 Derivative 280.0 280.0 (5) Oct 2032 ( 29.3 ) ( 29.5 ) $ 755.9 $ 2,707.7 $ ( 30.4 ) $ 29.3 Total of all Derivatives $ 3,861.8 $ 3,463.2 $ ( 40.9 ) $ 17.7 (1) This column represents the number of instruments outstanding as of March 31, 2023. (2) Weighted average strike rate is calculated using the notional value as of March 31, 2023. (3) This column represents maturity dates for instruments outstanding as of March 31, 2023. (4) Represent purchase swaptions with a strike rate of 3.75 % and a sold swaption with a strike rate of 4.25 %. (5) USD fixed rate of 5.625 % and EUR weighted average fixed rate of 4.697 %. (6) Weighted average forward GBP-USD exchange rate of 1.35 . (7) Represent one GBP currency exchange swap with a notional amount of $ 61.6 million and one EUR currency exchange swap with an associated notional amount of $ 414.3 million as of March 31, 2023. (8) Weighted average EUR-USD exchange rate of 1.09 and GBP-USD exchange rate of 1.23 . 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. -21- Table of Contents 11. Lessor Operating Leases A. At March 31, 2023, we owned or held interests in 12,492 properties. Of the 12,492 properties, 12,263 , or 98.2 %, are single-client properties, and the remaining are multi-client properties. At March 31, 2023, 131 properties were available for lease or sale. The majority of our leases are accounted for as operating leases. 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 March 31, 2023, and 2022 was $ 4.1 million, and $ 3.7 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 three months ended March 31, 2023, and 2022. 12. 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 periods indicated below: Three months ended March 31, Month 2023 2022 January $ 0.2485 $ 0.2465 February 0.2485 0.2465 March 0.2545 0.2465 Total $ 0.7515 $ 0.7395 At March 31, 2023, a distribution of $ 0.2550 per common share was payable and was paid in April 2023. 13. 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. 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 March 31, 2023 2022 Weighted average shares used for the basic net income per share computation 660,462,399 593,827,299 Incremental shares from share-based compensation 407,962 214,540 Dilutive effect of forward ATM offerings 368,483 — Weighted average shares used for diluted net income per share computation 661,238,844 594,041,839 Unvested shares from share-based compensation that were anti-dilutive 127,350 70,256 Weighted average partnership common units convertible to common shares that were anti-dilutive 1,795,167 1,060,709 Weighted average forward ATM offerings that were anti-dilutive 45,817 — -22- Table of Contents 14. Supplemental Disclosures of Cash Flow Information The following table summarizes our supplemental cash flow information during the periods indicated below (dollars in thousands): Three months ended March 31, 2023 2022 Supplemental disclosures: Cash paid for interest $ 146,461 $ 118,187 Cash paid for income taxes $ 2,768 $ 12,318 Non-cash activities: Net (decrease) increase in fair value of derivatives $ ( 58,667 ) $ 85,032 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): March 31, 2023 March 31, 2022 Cash and cash equivalents shown in the consolidated balance sheets $ 164,576 $ 151,624 Restricted escrow deposits (1) 50,009 84,066 Impounds related to mortgages payable (1) 29,180 7,160 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 243,765 $ 242,850 (1) Included within other assets, net on the consolidated balance sheets (see note 2, Supplemental Detail for Certain Components of Consolidated Balance Sheets ). 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. 15. 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 17 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022. The amount of share-based compensation costs recognized in 'General and administrative' in the consolidated statements of income and comprehensive income was $ 6.3 million and $ 5.0 million during the three months ended March 31, 2023, and 2022, respectively. A. Restricted Stock and Restricted Stock Units During the three months ended March 31, 2023, we granted 170,241 shares of common stock under the 2021 Plan. Our restricted stock awards granted to employees vest over a service period not exceeding four-years . During the three months ended March 31, 2023, we also granted 13,375 restricted stock units, all of which vest over a four-year service period. As of March 31, 2023, the remaining unamortized share-based compensation expense related to restricted stock awards and units totaled $ 23.0 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 During the three months ended March 31, 2023, we granted 193,868 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. -23- Table of Contents As of March 31, 2023, the remaining share-based compensation expense related to the performance shares totaled $ 27.7 million. The performance shares are being recognized on a tranche-by-tranche basis over the service period. The fair value of the performance shares was estimated on the date of grant using a Monte Carlo Simulation model. 16. 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 March 31, 2023, we had commitments of $ 14.9 million, which primarily relate to re-leasing costs, recurring capital expenditures, and non-recurring building improvements. In addition, as of March 31, 2023, we had committed $ 509.5 million under construction contracts related to development projects, which have estimated rental revenue commencement dates between April 2023 and August 2024. 17. Subsequent Events A. Dividends In April 2023, we declared a dividend of $ 0.2550 per share to our common stockholders, which will be paid in May 2023. B. ATM Forward Offerings As of May 4, 2023, ATM forward agreements for a total of 23.4 million shares remain unsettled with total expected net proceeds of approximately $ 1.5 billion of which 3.8 million shares were executed in April 2023. C. Notes Issuance In April 2023, we issued $ 400.0 million of 4.70 % senior unsecured notes due December 2028 (the "2028 Notes") and $ 600.0 million of 4.90 % senior unsecured notes due July 2033 (the "2033 Notes"). The public offering price for the 2028 Notes was 98.949 % of the principal amount for an effective semi-annual yield to maturity of 4.912 % and the public offering price for the 2033 Notes was 98.020 % of the principal amount for an effective semi-annual yield to maturity of 5.148 %. -24- Table of Contents