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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-04 · 233 added, 303 removed, 508 unchanged (51% of the section changed)

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When used in this quarterly report, the words “estimated,” “anticipated,” “expect,” “believe,” “intend,” “continue,” “should,” “may,” “likely,” “plans,” and similar expressions are intended to identify forward-looking statements.

Forward-looking statements include discussions of our business and portfolio (including our growth strategies and our intention to acquire or dispose of additional properties and the timing of these acquisitions and dispositions), re-lease, re-development and speculative development of properties and expenditures related thereto;

Forward-looking statements include discussions of our business and portfolio (including our growth strategies and our intention to acquire or dispose of additional domestic and international properties and the timing of these acquisitions and dispositions), re-lease, re-development and speculative development of properties and expenditures related thereto;

future operations and results;

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property ownership through joint ventures and partnerships which may limit control of the underlying investments;

the continued evolution of the COVID-19 pandemic or future epidemics or pandemics, measures taken to limit their spread, the impacts on us, our business, our clients (including those in the theater and fitness industries), and the economy generally;

current or future epidemics or pandemics, measures taken to limit their spread, the impacts on us, our business, our clients (including those in the theater and fitness industries), and the economy generally;

the loss of key personnel;

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Over the past 54 years, Realty Income has been acquiring and managing freestanding commercial properties that generate rental revenue under long-term net lease agreements with our commercial clients.

At March 31, 2023, our diversified portfolio consisted of:

• Owned or held interests in 12,492 properties;

• An occupancy rate of 99.0%, or 12,361 properties leased and 131 properties available for lease or sale;

• Clients doing business in 84 separate industries;

• Locations in all 50 United States ("U.S."), Puerto Rico, the United Kingdom ("U.K."), Spain, and Italy;

• Approximately 246.7 million square feet of leasable space;

• A weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of approximately 9.4 years;

• An average leasable space per property of approximately 19,750 square feet;

approximately 13,300 square feet per retail property and approximately 229,300 square feet per industrial property.

Of the 12,492 properties in the portfolio at March 31, 2023, 12,263, or 98.2%, are single-client properties, of which 12,134 were leased, and the remaining are multi–client properties.

At March 31, 2023, approximately 40.8% of our total portfolio annualized contractual rent comes from properties leased to our investment grade clients, their subsidiaries or affiliated companies.

At March 31, 2023, our top 20 clients (based on percentage of total portfolio annualized contractual rent) represented approximately 40.5% of our annualized rent and 12 of these clients have investment grade credit ratings or are subsidiaries or affiliates of investment grade companies.

Approximately 92% of our annualized retail contractual rent as of March 31, 2023, is derived from our clients with a service, non-discretionary, and/or low price point component to their business.

Unless otherwise specified, references to rental revenue in the Management's Discussion and Analysis of Financial Condition and Results of Operations are exclusive of reimbursements from clients for recoverable real estate taxes and operating expenses totaling $59.6 million and $44.0 million for the three months ended March 31, 2023, and 2022, respectively.

As of June 30, 2023, we owned or held interests in 13,118 properties located in all 50 U.S.

states, Puerto Rico, the United Kingdom ("U.K."), Spain, Italy, and Ireland, with approximately 255.5 million square feet of leasable space leased to clients doing business in 85 separate industries.

Of the 13,118 properties in our portfolio as of June 30, 2023, 12,882, or 98.2%, were single-client properties, of which 12,747 were leased, and the remaining were multi–client properties.

Our total portfolio of 13,118 properties as of June 30, 2023 had a weighted average remaining

lease term (excluding rights to extend a lease at the option of the client) of approximately 9.6 years.

Total portfolio annualized contractual rent on our leases as of June 30, 2023 was $3.76 billion.

As of June 30, 2023, approximately 39.7% of our total portfolio annualized contractual rent comes from properties leased to our investment grade clients, their subsidiaries or affiliated companies.

As of June 30, 2023, our top 20 clients (based on percentage of total portfolio annualized contractual rent) represented approximately 40.8% of our annualized rent and 11 of these clients have investment grade credit ratings or are subsidiaries or affiliates of investment grade companies.

Approximately 93% of our annualized retail contractual rent as of June 30, 2023, is derived from our clients with a service, non-discretionary, and/or low price point component to their business.

Unless otherwise specified, references to rental revenue in the Management's Discussion and Analysis of Financial Condition and Results of Operations are exclusive of reimbursements from clients for recoverable real estate taxes and operating expenses totaling $87.7 million and $41.0 million for the three months ended June 30, 2023, and 2022, respectively, and $147.3 million and $85.0 million during the six months ended June 30, 2023 and 2022, respectively.

RECENT DEVELOPMENTS

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We have continued our 54-year policy of paying monthly dividends.

In addition, we increased the dividend three times during 2023.

As of April 2023, we have paid 102 consecutive quarterly dividend increases and increased the dividend 120 times since our listing on the NYSE in 1994.

In addition, we increased the dividend four times during 2023.

As of July 2023, we have paid 103 consecutive quarterly dividend increases and increased the dividend 121 times since our listing on the NYSE in 1994.

The following table summarizes our dividend increases in 2023:

2023 Dividend increases

Declared Month

Paid Dividend

per share Increase

1st increase Dec 2022 Jan 2023 $0.2485 $0.0005

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3rd increase Mar 2023 Apr 2023 $0.2550 $0.0005

The dividends paid per share during the three months ended March 31, 2023, totaled approximately $0.7515, as compared to approximately $0.7395 during the three months ended March 31, 2022, an increase of $0.0120, or 1.6%.

The monthly dividend of $0.2550 per share represents a current annualized dividend of $3.06 per share, and an annualized dividend yield of 4.8% based on the last reported sale price of our common stock on the NYSE of $63.32 on March 31, 2023.

4th increase Jun 2023 Jul 2023 $0.2555 $0.0005

The dividends paid per share during the six months ended June 30, 2023, totaled approximately $1.5165, as compared to approximately $1.4805 during the six months ended June 30, 2022, an increase of $0.036, or 2.4%.

The monthly dividend of $0.2555 per share represents a current annualized dividend of $3.066 per share, and an annualized dividend yield of 5.1% based on the last reported sale price of our common stock on the NYSE of $59.79 on June 30, 2023.

Although we expect to continue our policy of paying monthly dividends, we cannot guarantee that we will maintain our current level of dividends, that we will continue our pattern of increasing dividends per share, or what our actual dividend yield will be in any future period.

Acquisitions During the Three Months Ended March 31, 2023

Below is a listing of our acquisitions in the U.S.

and Europe for the period indicated below:

Properties Leasable

(in thousands) Investment

($ in millions) Weighted

(Years) Initial Weighted

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 %

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 average cash lease yield is computed as follows:

estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs.

(2) None of our investments during the three months ended March 31, 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 investments of £3.8 million Sterling during the three months ended March 31, 2023, converted at the applicable exchange rate on the funding date.

(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.

Acquisitions During the Three and Six Months Ended June 30, 2023

During the three months ended June 30, 2023, we invested $3.1 billion in 710 properties and properties under development or expansion at an initial weighted average cash lease yield of 6.9% .

Of such properties, as of June 30, 2023, approximately 18% of the total annualized contractual rent of such properties was attributable to properties leased to investment grade clients.

During the six months ended June 30, 2023, we invested $4.8 billion in 997 properties and properties under development or expansion at an initial weighted average cash lease yield of 6.9% .

Of such properties, as of June 30, 2023, approximately 26% of the total annualized contractual rent of such properties was attributable to properties leased to investment grade clients.

See note 3, Investments in Real Estate, to the consolidated financial statements for further details.

Equity Capital Raising

During the three months ended June 30, 2023, we raised $2.2 billion of net proceeds from the sale of common stock, primarily through our At-The-Market (ATM) program, with a weighted average price of $61.89.

As of June 30, 2023, 4.9 million shares of common stock subject to forward sale confirmations have been executed but not settled.

See note 8, Issuances of Common Stock, for further details.

Note Issuances

In January 2023, we issued $500.0 million of 5.05% senior unsecured notes due January 2026 and $600.0 million of 4.85% senior unsecured notes due March 2030.

In July 2023, we issued €550.0 million of 4.875% senior unsecured notes due July 2030 and €550.0 million of 5.125% senior unsecured notes due July 2034.

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.

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 under our new term loan agreement, including $90.0 million, £705.0 million and €85.0 million in outstanding borrowings.

See note 5 , Term Loans, for further details.

In January 2023, we issued $500.0 million of 5.050% senior unsecured notes due January 2026 and $600.0 million of 4.85% senior unsecured notes due March 2030.

Portfolio Discussion

Leasing Results

At March 31, 2023, we had 131 properties available for lease or sale out of 12,492 properties in our portfolio, representing a 99.0% occupancy rate based on the number of properties in the portfolio.

At June 30, 2023, we had 137 properties available for lease or sale out of 13,118 properties in our portfolio, representing a 99.0% occupancy rate based on the number of properties in the portfolio.

Our property-level occupancy rates exclude properties with ancillary leases only, such as cell towers and billboards .

Below is a summary of our portfolio activity for the period indicated below:

Three months ended June 30, 2023

Properties available for lease at March 31, 2023

Lease expirations (1)

Re-leases to same client (174)

Re-leases to new client (8)

Vacant dispositions (28)

Properties available for lease at June 30, 2023

Six months ended June 30, 2023

Properties available for lease at December 31, 2022 126

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Vacant dispositions (54)

Properties available for lease at March 31, 2023

Properties available for lease at June 30, 2023

(1) Includes scheduled and unscheduled expirations (including leases rejected in bankruptcy), as well as future expirations resolved in the periods indicated above.

During the three months ended March 31, 2023, the new annualized contractual rent on re-leases was $36.1 million, as compared to the previous annual rent of $35.5 million on the same units, representing a rent recapture rate of 101.7% on the units re-leased.

We re-leased two units to new clients without a period of vacancy, and six units to new clients after a period of vacancy.

During the three months ended June 30, 2023, the new annualized contractual rent on re-leases was $51.7 million, as compared to the previous annual rent of $50.0 million on the same units, representing a rent recapture rate of 103.4% on the units re-leased.

We re-leased two units to new clients without a period of vacancy, and 11 units to new clients after a period of vacancy.

During the six months ended June 30, 2023, the new annualized contractual rent on re-leases was $87.8 million, as compared to the previous annual rent of $85.5 million on the same units, representing a rent recapture rate of 102.7% on the units re-leased.

We re-leased four units to new clients without a period of vacancy, and 17 units to new clients after a period of vacancy.

As part of our re-leasing costs, we pay leasing commissions to unrelated, third-party real estate brokers consistent with the commercial real estate industry standard, and sometimes provide rent concessions to our clients.

We do not consider the collective impact of the leasing commissions or rent concessions to our clients to be material to our financial position or results of operations.

Impact of COVID-19

Certain of our clients have been slower to recover economically from the effects of the COVID-19 pandemic (including those in the theater industry).

However, even in light of this, during 2023 we have continued to collect contractual rent across our total portfolio at levels that are consistent with pre-pandemic rent collection.

We cannot assure that our historical rent collections will be indicative of our future rental collections as the extent to which the COVID-19 pandemic (or future pandemics) will impact our operations and those of our clients in the future is not known and will depend on future developments.

The impact of the COVID-19 pandemic, or future pandemics, on us, our business, our clients, and the economy generally is discussed further in "Item 1A, Risk Factors" in Part I of our Annual Report on Form 10-K for the year ended December 31, 2022.

Anticipated Transition of Chief Financial Officer Role

On June 22, 2023, we announced the planned retirement of Christie Kelly as of Executive Vice President, Chief Financial Officer (CFO) and Treasurer, and the anticipated transition of that role to Jonathan Pong, currently the company's Senior Vice President, Head of Corporate Finance as part of our planned succession process, in each case, effective January 1, 2024.

Theater Industry Update

For the period from January 2023 through April 2023, we collected all of the contractual rent (1) across our theater portfolio.

As of March 31, 2023 , we had cumulative reserves of $33.0 million on properties leased to Cineworld Group plc and its affiliates ("Cineworld"), the parent of the entities that lease certain of our theater portfolios, including Regal Cinemas, which commenced Chapter 11 reorganization proceedings during September 2022.

As previously disclosed, Cineworld Group plc and its affiliates ("Cineworld") commenced Chapter 11 reorganization proceedings during September 2022.

As of June 30, 2023, we own 35 properties leased to Cineworld, which represent 1.1% of our total portfolio annualized contractual rent.

D uring the three months ended June 30, 2023, we collected approximately 99.0% of contractual rent across our entire theater portfolio.

Uncollected rent during the period was primarily related to unpaid contractual rent at properties leased to Cineworld, but subsequently rejected as part of the bankruptcy process.

We remain in negotiations with Cineworld regarding the terms and conditions of the leases at the properties Cineworld currently operates.

We expect to reach final resolution on these matters in 2023.

As of June 30, 2023, we had cumulative reserves of $31.4 million on properties leased to Cineworld with total receivables, net of reserves, of $12.9 million.

These reserves for Cineworld, representing a reduction of rental revenue, primarily relate to contractual rent and expense recoveries recorded during the COVID-19 pandemic in 2020, and during the fourth quarter of 2022, and exclude straight-line rent reserves.

Total receivables, net of reserves and excluding straight line rent receivables, from Cineworld and its affiliates were $14.1 million at March 31, 2023, which include both deferred contractual rent and deferred expense recoveries.

(1) We define contractual rent as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables.

Charged amounts have not been adjusted for any COVID-19 related rent relief granted and include contractual rent from any clients in bankruptcy.

Impact of Inflation

Leases generally provide for limited increases in rent as a result of fixed increases, increases in the consumer price index, or retail price index in the case of certain leases in the U.K.

(typically subject to ceilings), or increases in the clients’ sales volumes.

We expect that inflation will cause these lease provisions to result in rent increases over time.

During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation and other costs (including increases in employment and other fees and expenses).

Moreover, our strategic focus on the use of net lease agreements reduces our exposure to rising property expenses due to inflation because the client is responsible for property expenses.

Even though the utilization of net leases reduce our exposure to rising property expenses due to inflation, substantial inflationary pressures and increased costs may have an adverse impact on our clients if increases in their operating expenses exceed increases in revenue, which may adversely affect our clients' ability to pay rent.

Additionally, inflationary periods may cause us to experience increased costs of financing, make it difficult to refinance debt at attractive rates or at all, and may adversely affect the properties we can acquire if the cost of financing an acquisition is in excess of our anticipated earnings from such property, thereby limiting the properties that can be acquired.

Impact of Real Estate and Credit Markets

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LIQUIDITY AND CAPITAL RESOURCES

Capital Philosophy

As of June 30, 2023, we had approximately $3.5 billion of liquidity, which consists of cash and cash equivalents of approximately $253.7 million, including £113.9 million denominated in Sterling and €40.2 million denominated in Euro, and $3.3 billion of availability under our $4.25 billion unsecured revolving credit facility, after deducting $122.7 million in commercial paper borrowings under our commercial paper programs (comprised of a $1.5 billion U.S.

dollar-denominated unsecured commercial paper program and $1.5 billion, or foreign currency equivalent, Euro-denominated unsecured commercial paper program).

We use our unsecured revolving credit facility as a liquidity backstop for the repayment of the notes issued under these programs.

Our primary cash obligations, for the current year and subsequent years, are included in the “Material Cash Requirements” table, which is presented later in this section.

We expect to fund our operating expenses and other short-term liquidity requirements, including property acquisitions and development costs, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs, and cash distributions to common stockholders, primarily through cash provided by operating activities, borrowings under our revolving credit facility, short-term term loans, and under our commercial paper programs, and through public securities offerings.

As of June 30, 2023, there are approximately $1.1 billion of obligations becoming due through the remainder of 2023, which we expect to fund through a combination of the following:

• Cash and cash equivalents;

• Future cash flows from operations;

• Issuances of common stock or debt;

• Additional borrowings under our revolving credit facility and our term loan (after deducting outstanding borrowings under our commercial paper programs).

We believe that our cash and cash equivalents on hand, cash provided from operating activities, and borrowing capacity is sufficient to meet our liquidity needs for the next twelve months.

We intend, however, to use permanent or long-term capital to fund property acquisitions and to repay future borrowings under our credit facility and commercial paper programs.

Long-Term Liquidity Requirements

Our goal is to deliver dependable monthly dividends to our stockholders that increase over time.

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However, we cannot assure you that we will have access to the capital markets at all times and at terms that are acceptable to us.

Our primary cash obligations, for the current year and subsequent years, are included in the “Table of Obligations,” which is presented later in this section.

March 31, 2023, there are approximately $1.2 billion of obligations becoming due during 2023, which we expect to fund through a combination of the following:

• Cash and cash equivalents;

• Future cash flows from operations;

• Issuances of common stock or debt;

• Additional borrowings under our revolving credit facility (after deducting outstanding borrowings under our commercial paper programs).

We may choose to mitigate our financial exposure to exchange rate risk for properties acquired outside the U.S.

through the issuance of debt securities denominated in the same local currency and through currency derivatives.

We may leave a portion of our foreign cash flow unhedged to reinvest in additional properties in the same local currency.

Conservative Capital Structure

We believe that our stockholders are best served by a conservative capital structure.

Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios.

At March 31, 2023, our total outstanding borrowings of senior unsecured notes and bonds, term loans, mortgages payable, revolving credit facility and commercial paper were $18.7 billion, or approximately 30.5% of our total market capitalization of $61.5 billion.

We define our total market capitalization at March 31, 2023, as the sum of:

• Shares of our common stock outstanding of 673,206,775, plus total common units outstanding of 1,795,167, multiplied by the last reported sales price of our common stock on the NYSE of $63.32 per share on March 31, 2023, or $42.7 billion;

• Outstanding borrowings of $1.1 billion on our revolving credit facility, comprised of $770.0 million USD and £305.0 million Sterling borrowings;

• Outstanding borrowings of $157.5 million on our commercial paper programs, consisting entirely of €145.0 million of Euro-denominated borrowings;

• Outstanding mortgages payable of $842.1 million, excluding net mortgage premiums of $9.2 million and deferred financing costs of $0.7 million;

• Outstanding borrowings on our term loans of $1.3 billion, excluding deferred financing costs of $6.5 million;

• Outstanding senior unsecured notes and bonds of $15.3 billion, including Sterling-denominated notes of £2.6 billion, and excluding $133.3 million related to unamortized net premiums, deferred financing costs, and basis adjustment on interest rate swaps designated as fair value hedges.

Universal Shelf Registration

In June 2021, we filed a shelf registration statement with the SEC, which is effective for a term of three years and will expire in June 2024.

In accordance with SEC rules, the amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit.

The securities covered by this registration statement include (1) common stock, (2) preferred stock, (3) debt securities, (4) depositary shares representing fractional interests in shares of preferred stock, (5) warrants to purchase debt securities, common stock, preferred stock, or depositary shares, and (6) any combination of these securities.

We may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered.

The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

Equity Capital Raising

Under our At-the-Market ("ATM") Program, up to 120,000,000 shares of common stock may be offered and sold (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers’ transactions on the NYSE at prevailing market prices, at prices related to prevailing market prices or at negotiated prices or by any other methods permitted by applicable law.

We currently expect to fully physically cash 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.

During the three months ended March 31, 2023, we issued 12,664,478 shares and raised $796.2 million of net proceeds under the ATM programs.

With respect to forward sales pursuant to our ATM program, we do not initially receive any proceeds from any sale of shares of our common stock borrowed by a forward purchaser and sold through a forward seller.

As of March 31, 2023, there were 19,619,215 shares of common stock subject to forward sale agreements through our ATM program, with a weighted average initial price of $62.59 per share, representing approximately $1.2 billion in estimated net proceeds (assuming full physical settlement of all outstanding shares of common stock subject to such forward sale agreements and certain assumptions made with respect to settlement dates), which have been executed but not settled.

The weighted average forward price at March 31, 2023 was $62.17 per share, after price deduction and adjustments.

As of March 31, 2023, we had 45,081,312 shares remaining for future issuance under our ATM program.

Capitalization

As of June 30, 2023, our total market capitalization was $62.0 billion.

Total market capitalization consisted of $42.5 billion of common equity (based on the June 30, 2023 closing price on the NYSE of $59.79 and assuming the conversion of common units of Realty Income, L.P.) and total outstanding borrowings of $19.5 billion on our senior unsecured notes and bonds, term loans, mortgages payable, revolving credit facility and commercial paper (excluding unamortized deferred financing costs, discounts, and premiums).

Our total debt to market capitalization was 31.5% at June 30, 2023.

As of June 30, 2023, there were approximately 4.9 million shares of common stock subject to forward sale agreements through our ATM program, representing approximately $0.3 billion in expected net proceeds and a weighted average initial price of $59.33 per share, which have been executed at a weighted average price of $58.72 per share (assuming full physical settlement of all outstanding shares of common stock, subject to such forward sale agreements and certain assumptions made with respect to settlement dates), but not settled.

During the six months ended June 30, 2023, we settled approximately 48.1 million shares of common stock previously sold pursuant to forward sale agreements through our ATM program for approximately $3.0 billion of net proceeds.

Under our current ATM program, we may offer and sell up to 120.0 million 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.

As of June 30, 2023, we had 24.3 million 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.

Our Dividend Reinvestment and Stock Purchase Plan, (our "DRSPP") authorizes up to 26,000,000 common shares to be issued.

During the three months ended March 31, 2023, we issued 41,663 shares and raised approximately $2.7 million under our DRSPP.

At March 31, 2023, we had 11,118,162 shares remaining for future issuance under our DRSPP program.

Revolving 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 U.S.

Our revolving credit facility also has a $1.0 billion expansion feature, which is subject to obtaining lender commitments.

Under our revolving credit facility, our current investment grade credit ratings provide for USD borrowings at 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 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 EURIBOR, plus 0.725%, and a revolving credit facility fee of 0.125%, for all-in pricing of 0.85% over one-month EURIBOR.

The borrowing rate is subject to an interest rate floor and may change if our investment grade credit ratings change.

We also have other interest rate options available to us in different currencies.

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

At March 31, 2023, we had a borrowing capacity of $3.1 billion available on our revolving credit facility (subject to customary conditions to borrowings) and an outstanding balance of $1.1 billion, comprised of $770.0 million USD and £305.0 million Sterling borrowings.

The weighted average interest rate on borrowings under our revolving credit facility during the three months ended March 31, 2023, was 3.7% per annum.

Our revolving credit facility is subject to various leverage and interest coverage ration limitations, and as of March 31, 2023, we were in compliance with these covenants.

We expect to use our credit facility to acquire additional properties and for other general corporate purposes.

Any additional borrowings will increase our exposure to interest rate risk.

Commercial Paper 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 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.

At March 31, 2023, we had an outstanding balance of $157.5 million, consisting entirely of €145.0 million of Euro-denominated borrowings.

The weighted average interest rate on borrowings under our commercial paper programs was 3.5% for the three months ended March 31, 2023.

The commercial paper borrowings outstanding at March 31, 2023 matured in April 2023.

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.

We generally use our credit facility and commercial paper borrowings for the short-term financing of new property acquisitions.

Thereafter, we generally seek to refinance those borrowings with the net proceeds of long-term or more permanent financing, including the issuance of equity or debt securities.

We cannot assure you, however, that we will be able to obtain any such refinancing, or that market conditions prevailing at the time of the refinancing will enable us to issue equity or debt securities at acceptable terms.

We regularly review our credit facility and commercial paper programs and may seek to extend, renew or replace our credit facility and commercial paper programs, to the extent we deem appropriate.

Debt and Financing Activities

At June 30, 2023, our total outstanding borrowings of senior unsecured notes and bonds, term loans, mortgages payable, revolving credit facility and commercial paper were $19.5 billion, with a weighted average maturity of 5.9 years and a weighted average interest rate of 3.79%.

As of June 30, 2023, approximately 92% of our total debt was fixed rate debt.

See notes 4 through 7 to the consolidated financial statements for additional information about our outstanding debt, along with our debt financing activities during the six months ended June 30, 2023 below.

Note Issuances

During the six months ended June 30, 2023, we issued the following notes and bonds (in millions):

Note Issuance Date of Issuance Maturity Date Principal amount Price of par value Effective semi-annual yield to maturity

January 2023 January 2026 $ 500.0 99.618 % 5.189 %

January 2023 March 2030 $ 600.0 98.813 % 5.047 %

April 2023 December 2028 $ 400.0 98.949 % 4.912 %

April 2023 July 2033 $ 600.0 98.020 % 5.148 %

In July 2023, we issued €550.0 million of 4.875% senior unsecured notes due July 2030 (the “2030 Notes”), and €550.0 million of 5.125% senior unsecured notes due July 2034 (the “2034 Notes”).

The public offering price for the 2030 Notes was 99.421% of the principal amount for an effective annual yield to maturity of 4.975%, and the public offering price for the 2034 Notes was 99.506% of the principal amount for an effective annual yield to maturity of 5.185%.

New Term Loan

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 under our new term loan agreement, including $90.0 million, £705.0 million and €85.0 million in outstanding borrowings.

As of June 30, 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 swap, 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%.

As of March 31, 2023, we were in compliance with the covenants contained in the term loans.

Mortgage Debt

As of March 31, 2023, we had $842.1 million of mortgages payable, of which £30.6 million related to a Sterling-denominated mortgage.

Over a majority of our mortgages payable were assumed in connection with our merger with VEREIT, Inc.

in November 2021 or with our property acquisitions.

No mortgages were assumed during the three months ended March 31, 2023.

At March 31, 2023, we had net premiums totaling $9.2 million on these mortgages and deferred financing costs of $0.7 million.

We expect to pay off the mortgages payable as soon as prepayment penalties have declined to a level that would make it economically feasible to do so.

During the three months ended March 31, 2023, we made $1.2 million in principal payments.

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.

Notes Outstanding

As of March 31, 2023, our senior unsecured note and bond obligations had a total principal amount of $15.3 billion, including Sterling- denominated notes of £2.6 billion, and excluding $133.3 million related to unamortized net premiums, deferred financing costs, and basis adjustment on interest rate swaps designated as fair value hedges.

See note 7, Notes Payable, to our consolidated financial statements for the full list of senior unsecured notes and bonds, along with maturity dates.

Please note that this listing does not include the $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, which were issued in April 2023.

All of our outstanding notes and bonds have fixed interest rates and contain various covenants, with which we remained in compliance as of March 31, 2023.

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.

As of June 30, 2023, the effective interest rate, after giving effect to the interest rate swaps, was 5.0%.

The following is a summary of the key financial covenants for our senior unsecured notes, as defined and calculated per the terms of our senior notes and bonds.

These calculations, which are not based on accounting principles

generally accepted in the United States of America ("U.S.

These calculations, which are not based on accounting principles generally accepted in the United States of America ("U.S.

GAAP"), are presented to investors to show our ability to incur additional debt under the terms of our senior notes and bonds as well as to disclose our current compliance with such covenants and are not measures of our liquidity or performance.

The actual amounts as of March 31, 2023, are:

The actual amounts as of June 30, 2023, are:

Note Covenants

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(1) Our debt service coverage ratio is calculated on a pro forma basis for the preceding four-quarter period on the assumptions that:

(i) the incurrence of any debt (as defined in the covenants) incurred by us since the first day of such four-quarter period and the application of the proceeds therefrom (including to refinance other debt since the first day of such four-quarter period), (ii) the repayment or retirement of any of our debt since the first day of such four-quarter period, and (iii) any acquisition or disposition by us of any asset or group since the first day of such four quarters had in each case occurred on April 1, 2022 and subject to certain additional adjustments.

Such pro forma ratio has been prepared on the basis required by that debt service covenant, reflects various estimates and assumptions and is subject to other uncertainties, and therefore does not purport to reflect what our actual debt service coverage ratio would have been had transactions referred to in clauses (i), (ii) and (iii) of the preceding sentence occurred as of April 1, 2022, nor does it purport to reflect our debt service coverage ratio for any future period.

The following is our calculation of debt service and fixed charge coverage at March 31, 2023 (in thousands, for trailing twelve months):

(i) the incurrence of any debt (as defined in the covenants) incurred by us since the first day of such four-quarter period and the application of the proceeds therefrom (including to refinance other debt since the first day of such four-quarter period), (ii) the repayment or retirement of any of our debt since the first day of such four-quarter period, and (iii) any acquisition or disposition by us of any asset or group since the first day of such four quarters had in each case occurred on July 1, 2022 and subject to certain additional adjustments.

Such pro forma ratio has been prepared on the basis required by that debt service covenant, reflects various estimates and assumptions and is subject to other uncertainties, and therefore does not purport to reflect what our actual debt service coverage ratio would have been had transactions referred to in clauses (i), (ii) and (iii) of the preceding sentence occurred as of July 1, 2022, nor does it purport to reflect our debt service coverage ratio for any future period.

The following is our calculation of debt service and fixed charge coverage at June 30, 2023 (in thousands, for trailing twelve months):

Net income available to common stockholders

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Debt service and fixed charge coverage ratio

Cash Reserves

We are organized to operate as an equity REIT that acquires and leases properties and distributes to stockholders, in the form of monthly cash distributions, a substantial portion of our net cash flow generated from leases on our properties.

We intend to retain an appropriate amount of cash as working capital.

At March 31, 2023, we had cash and cash equivalents totaling $164.6 million, inclusive of £75.8 million denominated in Sterling and €30.2 million denominated in Euro.

We believe that our cash and cash equivalents on hand, cash provided from operating activities, and borrowing capacity is sufficient to meet our liquidity needs for the next twelve months.

We intend, however, to use permanent or long-term capital to fund property acquisitions and to repay future borrowings under our credit facility and commercial paper programs.

Credit Agency Ratings

The borrowing interest rates under our revolving credit facility are based upon our ratings assigned by credit rating agencies.

As of March 31, 2023, we were assigned the following investment grade corporate credit ratings on our senior unsecured notes and bonds:

As of June 30, 2023, we were assigned the following investment grade corporate credit ratings on our senior unsecured notes and bonds:

Moody’s Investors Service has assigned a rating of A3 with a “stable” outlook and Standard & Poor’s Ratings Group has assigned a rating of A- with a “stable” outlook.

In addition, we were assigned the following ratings on our commercial paper at March 31, 2023:

In addition, we were assigned the following ratings on our commercial paper at June 30, 2023:

Moody's Investors Service has assigned a rating of P-2 and Standard & Poor's Ratings Group has assigned a rating of A-2.

Based on our credit agency ratings as of March 31, 2023, interest rates under our credit facility for U.S.

0.8826% over SONIA, and for Euro Borrowings at one-month EURIBOR, plus 0.725%, and a revolving credit facility fee of 0.125%, for all-in pricing of 0.85% over one-month EURIBOR.

Based on our credit agency ratings as of June 30, 2023, interest rates under our credit facility for U.S.

borrowings would have been at the 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, for British Pound Sterling borrowings, at the 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 for Euro Borrowings at one-month EURIBOR, plus 0.725%, and a revolving credit facility fee of 0.125%, for all-in pricing of 0.85% over one-month EURIBOR.

In addition, our credit facility provides that the interest rates can range between:

(i) SOFR/SONIA/EURIBOR, plus 1.40% if our credit rating is lower than BBB-/Baa3 or our senior unsecured debt is unrated and (ii) SOFR/SONIA/EURIBOR, plus 0.70% if our credit rating is A/A2 or higher.

In addition, our credit facility provides for a facility commitment fee based on our credit ratings, which range from:

In addition, our credit facility provides for a facility commitment fee based on our credit ratings, which ranges from:

(i) 0.30% for a rating lower than BBB-/Baa3 or unrated, and (ii) 0.10% for a credit rating of A/A2 or higher.

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Moreover, a rating is not a recommendation to buy, sell or hold our debt securities, preferred stock or common stock.

Table of Obligations

The following table summarizes the maturity of each of our obligations as of March 31, 2023 (dollars in millions):

Year due Credit Facility and Commercial Paper Programs (1)

Senior Unsecured Notes and

Leases Paid by

Realty Income (5)

Material Cash Requirements

The following table summarizes the maturity of each of our obligations as of June 30, 2023 (dollars in millions):

Credit Facility and Commercial Paper (1)

Senior Unsecured Notes Term

Payable Interest (3)

Leases Paid by the Company (4)

Leases Paid by

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(1) The initial term of the credit facility expires in June 2026 and includes, at our option, two six-month extensions.

At March 31, 2023, there were $1.1 billion borrowings under our revolving credit facility.

Commercial paper programs outstanding at March 31, 2023 were $157.5 million, which matured in April 2023.

(2) Excludes $133.3 million related to unamortized net premiums, deferred financing costs, and basis adjustment on interest rate swaps designated as fair value hedges.

The table of obligations also excludes the April 2023 issuances of $400.0 million of senior unsecured notes due December 2028 and $600.0 million of senior unsecured notes due July 2033.

(3) Excludes deferred financing cost of $6.5 million.

(4) Excludes both non-cash net premiums recorded on the mortgages payable of $9.2 million and deferred financing costs of $0.7 million.

At June 30, 2023, there were $867.5 million borrowings under our revolving credit facility, and commercial paper programs outstanding were $122.7 million, which matured in July 2023.

(2) The maturity date for our 2023 multi-currency term loan assumes the two twelve-month extensions available at the company's option are fully exercised.

(3) Interest on the term loans, notes, bonds, mortgages payable, credit facility and commercial paper programs has been calculated based on outstanding balances at period end through their respective maturity dates.

Excludes interest on the April 2023 issuances of $400.0 million of senior unsecured notes due December 2028 and $600.0 million of senior unsecured notes due July 2033.

It excludes interest on the July 2023 issuances of €550.0 million of senior unsecured notes due July 2030 and €550.0 million of senior unsecured notes due July 2034.

(4) We currently pay the ground lessors directly for the rent under the ground leases.

(7) Our clients, who are generally sub-clients under ground leases, are responsible for paying the rent under these ground leases.

(5) Our clients, who are generally sub-tenants clients under ground leases, are responsible for paying the rent under these ground leases.

In the event our client fails to pay the ground lease rent, we are primarily responsible.

(6) “Other” consists of $764.9 million of commitments under construction contracts, and $15.2 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements.

Our credit facility, commercial paper programs, term loans, and notes payable obligations are unsecured.

Accordingly, we have not pledged any assets as collateral for these obligations.

DIVIDEND POLICY

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In 2022, our cash distributions to common stockholders totaled $1.81 billion, or approximately 95.3% of our estimated taxable income of $1.90 billion.

Certain measures are available to us to reduce or eliminate our tax exposure as a REIT, and accordingly, no provision for federal income taxes, other than our taxable REIT

subsidiaries (each, a "TRS"), has been made.

Certain measures are available to us to reduce or eliminate our tax exposure as a REIT, and accordingly, no provision for federal income taxes, other than our taxable REIT subsidiaries (each, a "TRS"), has been made.

Our estimated taxable income reflects non-cash deductions for depreciation and amortization.

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Furthermore, we believe our cash on hand and funds from operations are sufficient to support our current level of cash distributions to our stockholders.

We distributed $0.7515 per share to stockholders during the three months ended March 31, 2023, representing 76.7% of our diluted AFFO per share of $0.98.

We distributed $1.5165 per share to stockholders during the six months ended June 30, 2023, representing 76.6% of our diluted AFFO per share of $1.98.

Future distributions will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, FFO, Normalized FFO, AFFO, cash flow from operations, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, our debt service requirements, and any other factors the Board of Directors may deem relevant.

In addition, our credit facility contains financial covenants that could limit the amount of distributions payable by us in the event of a default, and which prohibit the payment of distributions on our common stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facility.

Distributions of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income, except to the extent that we recognize capital gains and declare a capital gains dividend, or that such amounts constitute “qualified dividend income” subject to a reduced rate of tax.

capital gains dividend, or that such amounts constitute “qualified dividend income” subject to a reduced rate of tax.

The maximum tax rate of non-corporate taxpayers for “qualified dividend income” is generally 20%.

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RESULTS OF OPERATIONS

The following is a comparison of our results of operations for the three months ended March 31, 2023 and 2022.

The following is a comparison of our results of operations for the three and six months ended June 30, 2023 and 2022.

Total Revenue

The following summarizes our total revenue (dollars in thousands):

Three months ended March 31,

2023 2022 Change

Three months ended

June 30, Six months ended

2023 2022 Change 2023 2022 Change

Rental (excluding reimbursable)

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Rental Revenue (excluding reimbursable)

The table below summarizes our rental revenue (excluding reimbursable, dollars in thousands):

Three months ended March 31,

Number of Properties Square Footage (1)

2023 2022 Change

The table below summarizes our rental revenue (excluding reimbursable) in the three and six months ended June 30, 2023 and 2022 (dollars in thousands):

Number of Properties Three Months Ended

June 30, Six months ended

2023 2022 Change 2023 2022 Change

Properties acquired during 2023 & 2022

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10,685 718,768 704,886 13,882 1,435,311 1,420,152 15,159

Orion Divestiture 92 10,093,123 — 413 (413)

Constant currency adjustment (2)

N/A N/A (1,619) 4,634 (6,253)

N/A (1,345) (937) (408) (5,258) 2,226 (7,484)

Properties sold during and prior to 2023

243 135 5,537 (5,402) 1,193 11,907 (10,714)

Straight-line rent and other non-cash adjustments N/A N/A 1,851 8,249 (6,398)

Straight-line rent and other non-cash adjustments N/A (7,912) 3,933 (11,845) (6,078) 12,188 (18,266)

Vacant rents, development and other (3)

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Other excluded revenue (4)

N/A N/A 3,241 1,709 1,532

N/A 767 4,094 (3,327) 4,008 6,216 (2,208)

Totals $ 907,551 $ 759,825 $ 147,726 $ 1,773,259 $ 1,515,383 $ 257,876

(1) Excludes 5,902,586 square feet from properties ground leased to clients and 2,679,071 square feet from properties with no land or building ownership.

(2) The same store rental revenue percentage increase for the three months ended March 31, 2023 as compared with the same period in the prior year is 0.2%.

(3) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as of March 31, 2023, of 1.24 British Pound Sterling ("GBP")/USD and 1.09 Euro ("EUR")/USD.

None of the properties in Italy met our same store pool definition for the periods presented.

(4) Relates to the aggregate of (i) rental revenue from properties (191 properties comprising 7,613,225 square feet) that were available for lease during part of 2023 or 2022, and (ii) rental revenue for properties (25 properties comprising 748,817 square feet) under development or completed developments that do not meet our same store pool definition for the periods presented.

(5) Primarily consists of reimbursements for tenant improvements and rental revenue that is not contractual base rent such as lease termination settlements.

(1) Same store rental revenue increased by 2.0% and 1.1% for the three and six months ended June 30, 2023 as compared to the same periods in 2022, respectively.

(2) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as of June 30, 2023, of 1.27 British Pound Sterling ("GBP")/USD and 1.09 Euro ("EUR")/USD.

None of the properties in Italy and Ireland met our same store pool definition for the periods presented.

(3) Relates to the aggregate of (i) rental revenue from 203 properties that were available for lease during part of 2023 or 2022, and (ii) rental revenue for 27 properties under development or completed developments that do not meet our same store pool definition for the periods presented.

(4) Primarily consists of reimbursements for tenant improvements and rental revenue that is not contractual base rent such as lease termination

For purposes of determining the same store rent property pool, we include all properties that were owned for the entire year-to-date period, for both the current and prior year, except for properties during the current or prior year that;

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Each of the exclusions from the same store pool are separately addressed within the applicable sentences above, explaining the changes in rental revenue for the period.

Of the 12,492 properties in the portfolio at March 31, 2023, 12,263, or 98.2%, are single-client properties and the remaining are multi-client properties.

Of the 12,263 single-client properties, 12,134, or 98.9%, were net leased at March 31, 2023.

Of the 13,827 in-place leases in the portfolio, which excludes 196 vacant units, 11,636, or 84.2%, were under leases that provide for increases in rents through:

• Base rent increases tied to inflation (typically subject to ceilings);

• Percentage rent based on a percentage of the clients’ gross sales;

• Fixed increases;

• A combination of two or more of the above rent provisions.

Rent based on a percentage of our client's gross sales, or percentage rent, was $4.1 million and $3.7 million for the three months ended March 31, 2023 and 2022, respectively.

base rent increases tied to inflation (typically subject to ceilings), percentage rent based on a percentage of the clients’ gross sales, fixed increases, or a combination of two or more of the aforementioned rent provisions.

Rent based on a percentage of our client's gross sales, or percentage rent, was $1.7 million in the three months ended June 30, 2023, $2.2 million for the three months ended June 30, 2022, $5.8 million for the six months ended June 30, 2023, and $6.0 million for the six months ended June 30, 2022.

Percentage rent represents less than 1.0% of rental revenue.

At March 31, 2023, our portfolio of 12,492 properties was 99.0% leased with 131 properties available for lease, as compared to 99.0% leased with 126 properties available for lease at December 31, 2022, and 98.6% leased with 156 properties available for lease at March 31, 2022.

At June 30, 2023, our portfolio of 13,118 properties was 99.0% leased with 137 properties available for lease, as compared to 99.0% leased with 126 properties available for lease at December 31, 2022, and 98.9% leased with 132 properties available for lease at June 30, 2022.

It has been our experience that approximately 1% to 4% of our property portfolio will be available for lease at any given time;

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A number of our leases provide for contractually obligated reimbursements from clients for recoverable real estate taxes and operating expenses.

Contractually obligated reimbursements by our clients increased by $15.6 million, which is proportional to overall portfolio growth.

Contractually obligated reimbursements by our clients increased by $46.8 million and $62.3 million for the three and six months ended June 30, 2023 as compared with the same periods in 2022, respectively, primarily due to higher recoverable real estate tax taxes from overall portfolio growth.

Other Revenue

Other revenue primarily relates to interest income recognized on financing receivables for certain leases with above-market terms.

Other revenue increased by $11.3 million due to a higher number of leases with above-market terms, which is proportional to overall portfolio growth.

Other revenue increased by $14.3 million and $25.6 million for the three and six months ended June 30, 2023 as compared to the same periods in 2022, respectively, due to a higher number of leases with above-market terms in recent acquisitions.

Total Expenses

The following summarizes our total expenses (dollars in thousands):

Three months ended March 31,

2023 2022 Change

The following summarizes our total expenses (in thousands):

Three months ended

June 30, Six months ended

2023 2022 Change 2023 2022 Change

Depreciation and amortization $ 472,278 $ 409,437 $ 62,841 $ 923,755 $ 813,199 $ 110,556

154,132 106,403 47,729

Interest 183,857 110,121 73,736 337,989 216,524 121,465

Property (excluding reimbursable) 6,965 11,205 (4,240) 16,781 19,540 (2,759)

Property (reimbursable) 87,738 40,975 46,763 147,319 84,982 62,337

59,580 44,003 15,577

General and administrative 36,829 34,139 2,690 70,996 66,838 4,158

Provisions for impairment 29,815 7,691 22,124 42,993 14,729 28,264

13,178 7,038 6,140

Merger and integration-related costs 341 2,729 (2,388) 1,648 9,248 (7,600)

Total expenses $ 817,823 $ 616,297 $ 201,526 $ 1,541,481 $ 1,225,060 $ 316,421

$ 723,658 $ 608,763 $ 114,895

Total revenue (1)

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General and administrative expenses as a percentage of total revenue (1)

4.0 % 4.4 % 3.9 % 4.4 %

Property expenses (excluding reimbursable) as a percentage of total revenue (1)

0.7 % 1.5 % 0.9 % 1.3 %

(1) Excludes rental revenue (reimbursable).

Depreciation and Amortization

Depreciation and amortization increased by $47.7 million primarily due to overall portfolio growth from acquisitions.

As discussed in the sections entitled “Funds from Operations ("FFO") Available to Common Stockholders and Normalized Funds from Operations ("Normalized FFO") Available to Common Stockholders" and “Adjusted Funds from Operations ("AFFO") Available to Common Stockholders,” depreciation and amortization is a non-cash item that is added back to net income available to common stockholders for our calculation of FFO, Normalized FFO, and AFFO.

Depreciation and amortization increased by $62.8 million and $110.6 million for the three and six months ended June 30, 2023 as compared to the same periods in 2022, respectively, primarily due to overall portfolio growth from acquisitions.

Interest Expense

The following is a summary of the components of our interest expense (dollars in thousands):

Three months ended March 31,

The following is a summary of the components of our interest expense (in thousands):

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Interest on our credit facility, commercial paper, term loans, notes, mortgages and interest rate swaps

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Amortization of debt origination and deferred financing costs 6,497 3,280 12,568 6,403

(Loss) gain on interest rate swaps (1,801) 722

(Gain) loss on interest rate swaps (1,799) 724 (3,600) 1,446

Amortization of net mortgage premiums (3,196) (3,530) (6,396) (7,091)

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Credit facility, commercial paper, term loans, mortgages and notes

Average outstanding balances (dollars in thousands) $ 18,658,173 $ 15,529,939

Average interest rates 3.59 % 3.07 %

The increase in interest expense for the three months ended March 31, 2023 is primarily due to the following:

(i) January 2023 issuances of $500.0 million and $600.0 million in principle of notes, (ii) the January 2023 issuance of our 2023 term loans, (iii) the October 2022 issuance of $750.0 million in principal of notes, (iv) the June 2022 issuance of £600 million in principal of Sterling denominated notes, and (v) the January 2022 issuance of £500 million in principal of Sterling-denominated notes as well as higher average balances and rates on the credit facility and commercial paper borrowings, all of which was partially offset by lower mortgage interest as a result of mortgage payoffs.

During the three months ended March 31, 2023, the weighted average interest rate on our principal borrowings consisted of:

• Revolving credit facility of $1.1 billion was 3.7%;

• Commercial paper of $157.5 million was 3.5%;

• Term loans of $1.3 billion was 4.6%;

• Mortgages payable of $842.1 million was 4.8%;

• Notes and bonds payable of $15.3 billion was 3.4%;

• Notes, bonds, mortgages, term loans, and credit facility and commercial paper of $18.7 billion was 3.6%.

Average outstanding balances $ 20,406,982 $ 15,944,510 $ 19,594,007 $ 15,629,159

Weighted average interest rates 3.84 % 3.08 % 3.71 % 3.10 %

Interest expense increased by $73.7 million and $121.5 million for the three and six months ended June 30, 2023 as compared to the same periods in 2022, primarily due to higher average debt and weighted average interest.

See notes to the accompanying consolidated financial statements additional information regarding our indebtedness.

Property Expenses (excluding reimbursable)

Property expenses (excluding reimbursable) consist of costs associated with properties available for lease, non-net-leased properties and general portfolio expenses.

Expenses related to properties available for lease and non-net-leased properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections and legal fees.

General portfolio costs include, but are not limited to, insurance, legal, property inspections, and title search fees.

Property expenses (excluding reimbursable) increased $1.5 million for the three months ended March 31, 2023 primarily due to our increased portfolio size, resulting in higher property taxes and insurance.

Property expenses (excluding reimbursable) consist of costs associated with properties available for lease, non-net-leased properties and general portfolio expenses and include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections and legal fees.

Property expenses (excluding reimbursable) decreased $4.2 million and $2.8 million for the three and six months ended June 30, 2023 as compared with the same periods in 2022, respectively, primarily due to our decrease in property tax expense.

Property Expenses (reimbursable)

Property expenses (reimbursable) consist of reimbursable property taxes and operating costs paid on behalf of our clients.

Property expenses (reimbursable) increased by $15.6 million for the three months ended March 31, 2023, which is proportional to overall portfolio growth.

Property expenses (reimbursable) increased by $46.8 million and $62.3 million for the three and six months ended June 30, 2023 as compared with the same periods in 2022, respectively, which is proportional to overall portfolio growth.

General and Administrative Expenses

General and administrative expenses are expenditures related to the operations of our company, including employee-related costs, professional fees, and other general overhead costs associated with running our business.

General and administrative expenses increased $1.5 million for the three months ended March 31, 2023, primarily due to higher payroll-related compensation costs associated with the growth of the company.

General and administrative expenses increased $2.7 million and $4.2 million for the three and six months ended June 30, 2023 as compared with the same periods in 2022, respectively, primarily due to higher payroll-related compensation costs associated with the growth of the company.

Provisions for Impairment

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

Three months ended March 31,

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Carrying value prior to impairment $ 97.0 $ 64.5 $ 125.5 $ 98.2

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Carrying value after impairment $ 67.2 $ 56.8 $ 82.5 $ 83.5

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.

Merger and Integration-Related Costs

Merger and integration-related costs consist of advisory fees, attorney fees, accountant fees, and 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.

We incurred approximately $1.3 million and $6.5 million of merger and integration-related transaction costs during the three months ended March 31, 2023, and 2022, respectively, in conjunction with our merger with VEREIT, Inc.

We incurred approximately $0.3 million and $1.6 million of merger and integration-related transaction costs during the three and six months ended June 30, 2023, respectively, compared to approximately $2.7 million and $9.2 million during the three and six months ended June 30, 2022, respectively, in conjunction with our merger with VEREIT, Inc.

in November 2021.

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

Three months ended March 31,

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Number of properties sold 29 70 55 104

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Gain on sales of real estate $ 7.8 $ 40.6 $ 12.1 $ 50.7

Foreign Currency and Derivative Gain (Loss), Net

Foreign Currency and Derivative (Loss) Gain, Net

We borrow in the functional currencies of the countries in which we invest.

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Derivative gain and loss primarily relates to mark-to-market adjustments on derivatives that do not qualify for hedge accounting and settlement of designated derivatives reclassified from AOCI.

Foreign currency and derivative gain, net for the three months ended March 31, 2022 was $10.3 million and primarily comprised of foreign currency gains related to the remeasurement of intercompany debt.

Equity in Income of Unconsolidated Entities

Equity in income of unconsolidated entities for the three months ended March 31, 2022, related to three equity method investments acquired in our merger with VEREIT, Inc.

Net foreign currency and derivative (loss) gain, net for the three and six months ended June 30, 2023 was a loss of $2.6 million and a gain of $7.8 million, respectively, primarily due to foreign currency fluctuations on undesignated foreign currency exchange swap agreements.

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 will not occur, $20.0 million gain was reclassified from AOCI.

The reclassification from AOCI was offset by $7.9 million in losses from the intercompany loan remeasurement on the final exchange.

Equity in Income and Impairment of Investment in Unconsolidated Entities

Equity in income of unconsolidated entities relates to three equity method investments acquired in our merger with VEREIT, Inc.

in November 2021, which were all sold during 2022.

The income for the three and six months ended June 30, 2023 is attributable to distributions in excess of our basis.

Following the sale of the properties, distributions primarily result from the release of holdbacks from property sales, refunds from taxing authorities and distributions of operating cash.

The loss for the three and six months ended June 30, 2022 is primarily driven by an other than temporary impairment of $7.8 million related to the sale of these investments.

Other Income, Net

Certain miscellaneous non-recurring revenue is included in other income, net.

The increase of $0.9 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was related to other non-recurring settlements.

Income taxes are for city and state income and franchise taxes, and for international income taxes accrued or paid by us and our subsidiaries.

The increase in income taxes for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, is primarily attributable to our increased volume of U.K.

investments, which contributed to higher U.K.

income taxes.

Net Income Available to Common Stockholders

The following summarizes our net income available to common stockholders (dollars in millions, except per share data):

Three months ended March 31,

2023 2022 % Change

Net income available to common stockholders

$ 225.0 $ 199.4 12.8 %

Net income per share (1)

$ 0.34 $ 0.34 0.0 %

(1) All per share amounts are presented on a diluted per common share basis.

The calculation to determine net income available to common stockholders includes provisions for impairment, gain from the sale of properties, and foreign currency gain and loss, which can vary from period to period based on timing and significantly impact net income available to common stockholders.

The increase of $0.2 million and $1.1 million for the three and six months ended June 30, 2023 as compared to the same periods in 2022, respectively, was primarily due to higher interest income earned on cash balances from an increase in interest rates.

Income taxes primarily consist of international income taxes accrued or paid by us and our subsidiaries, as well as to state and local taxes.

The decrease of $1.7 million and $0.8 million in income taxes for the three and six months ended June 30, 2023, as compared to the same periods in 2022, is primarily attributable to lower UK tax rates.

NON-GAAP FINANCIAL MEASURES

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate ("Adjusted EBITDA re" )

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Our definition of “Adjusted EBITDA re ” is generally consistent with the Nareit definition, other than our adjustments to remove foreign currency and derivative gain and loss, excluding gain and loss from the settlement of foreign currency forwards not designated as hedges (which is consistent with our previous calculations of "Adjusted EBITDA").

We define Adjusted EBITDA re , a non–GAAP financial measure, for the most recent quarter as earnings (net income) before (i) interest expense, including non-cash loss (gain) on swaps, (ii) income and franchise taxes, (iii) real estate depreciation and amortization, (iv) provisions for impairment, (v) merger and integration-related costs, (vi) gain on sales of real estate, (vii) foreign currency and derivative (gain) loss, net (as described in the Adjusted Funds from Operations section), and (viii) our proportionate share of interest expense and real estate depreciation and amortization from unconsolidated entities.

We define Adjusted EBITDA re , a non–GAAP financial measure, for the most recent quarter as earnings (net income) before (i) interest expense, including non-cash loss (gain) on swaps, (ii) income and franchise taxes, (iii) real estate depreciation and amortization, (iv) provisions for impairment, (v) merger and integration-related costs, (vi) gain on sales of real estate, (vii) foreign currency and derivative (gains) losses, net (as described in the Adjusted Funds from Operations section), and (viii) our proportionate share of adjustments from unconsolidated entities.

Our Adjusted EBITDA re may not be comparable to Adjusted EBITDA re reported by other companies or as defined by Nareit, and other companies may interpret or define Adjusted EBITDA re differently than we do.

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GAAP measure) to Adjusted EBITDA re and Annualized Pro Forma EBITDA re calculations for the period indicated below (dollars in thousands):

Three months ended March 31,

Three months ended

Net income $ 197,153 $ 223,822

183,857 110,121

Gain on extinguishment of debt — (127)

12,932 14,658

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Gain on sales of real estate (7,824) (40,572)

Foreign currency and derivative (gains) losses, net (10,322) 590

Proportionate share of adjustments for unconsolidated entities — 1,092

Foreign currency and derivative losses (gains), net 2,552 (7,480)

Gain on settlement of foreign currency forwards — 2,106

Proportionate share of adjustments from unconsolidated entities (411) 9,049

Quarterly Adjusted EBITDA re

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As described above, the Annualized Pro Forma Adjustments, which include transaction accounting adjustments in accordance with U.S.

GAAP, consist of adjustments to incorporate the Adjusted EBITDA re from properties we acquired or stabilized during the applicable quarter and remove Adjusted EBITDA re from properties we disposed of during the applicable quarter, giving pro forma effect to all transactions as if they occurred at the beginning of the period, consistent with the requirements of Article 11 of Regulation S-X.

The following table summarizes our Annualized Pro Forma Adjusted EBITDA re calculation for the period indicated below:

Three months ended March 31,

Dollars in thousands 2023 2022

GAAP, consist of adjustments to incorporate the Adjusted EBITDAre from properties we acquired or stabilized during the applicable quarter and remove Adjusted EBITDAre from properties we disposed of during the applicable quarter, giving pro forma effect to all transactions as if they occurred at the beginning of the period, consistent with the requirements of Article 11 of Regulation S-X.

The following table summarizes our Annualized Pro Forma Adjusted EBITDAre calculation for the period indicated below (dollars in thousands):

Three months ended

Annualized pro forma adjustments from properties acquired or stabilized $ 87,510 $ 56,048

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The following summarizes our FFO and Normalized FFO (dollars in millions, except per share data):

Three months ended March 31,

2023 2022 % Change

Three months ended

June 30, Six months ended

2023 2022 % Change 2023 2022 % Change

FFO available to common stockholders

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Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts):

Three months ended March 31,

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Net income available to common stockholders $ 195,415 $ 223,207 $ 420,431 $ 422,576

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The following summarizes our AFFO (dollars in millions, except per share data):

Three months ended March 31, % Change

Three months ended

June 30, Six months ended

2023 2022 % Change 2023 2022 % Change

AFFO available to common stockholders

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Three months ended March 31,

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Net income available to common stockholders $ 195,415 $ 223,207 $ 420,431 $ 422,576

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Normalized FFO available to common stockholders 688,326 611,544 1,373,924 1,219,479

Gain on extinguishment of debt — (127) — (127)

Amortization of share-based compensation 7,623 6,641 13,923 11,643

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Straight-line impact of cash settlement on interest rate swaps (3)

1,797 — 3,595 —

Leasing costs and commissions (5,032) (794) (5,476) (3,167)

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(1) See reconciling items for Normalized FFO presented under “Funds from Operations Available to Common Stockholders ("FFO") and Normalized Funds from Operations Available to Common Stockholders ("Normalized FFO")".

(2) Includes the amortization of premiums and discounts on notes payable and assumption of our mortgages payable, which are being amortized over the life of the applicable debt, and costs incurred and capitalized upon issuance and exchange of our notes payable, assumption of our mortgages payable and issuance of our term loans, which are also being amortized over the lives of the applicable debt.

(2) Includes the amortization of net premiums on notes payable and assumption of our mortgages payable, which are being amortized over the life of the applicable debt, and costs incurred and capitalized upon issuance and exchange of our notes payable, assumption of our mortgages payable and issuance of our term loans, which are also being amortized over the lives of the applicable debt.

No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included.

(3) Represents the straight-line amortization of $72.0 million gain realized upon the termination of $500.0 million in notional interest rate swaps, over the term of the $750.0 million of 5.625% senior unsecured notes due October 2032.

(4) Includes foreign currency gain and loss as a result of intercompany debt and remeasurement transactions, mark-to-market adjustments on investments and derivatives that do not qualify for hedge accounting, obligations related to financing lease liabilities, and adjustments allocable to noncontrolling interests.

(4) Includes foreign currency gain and loss as a result of intercompany debt and remeasurement transactions, mark-to-market adjustments on investments and derivatives that are non-cash in nature, straight-line payments from cross-currency swaps, obligations related to financing lease liabilities, and adjustments allocable to noncontrolling interests.

We believe the non-GAAP financial measure AFFO provides useful information to investors because it is a widely accepted industry measure of the operating performance of real estate companies that is used by industry analysts and investors who look at and compare those companies.

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PROPERTY PORTFOLIO INFORMATION

At March 31, 2023, out of the 12,492 properties that we owned or held interest in, 12,361 properties were leased under net lease agreements.

At June 30, 2023, out of the 13,118 properties that we owned or held interest in, 12,981 properties were leased under net lease agreements.

A net lease typically requires the client to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance.

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Percentage of Total Portfolio Annualized Contractual Rent by Industry (1)

Grocery stores 10.2% 10.0% 10.2% 9.8% 7.9%

Convenience Stores 11.1% 8.6% 9.1% 11.9% 12.3%

Grocery 9.9 10.0 10.2 9.8 7.9

Dollar Stores 7.1 7.4 7.5 7.6 7.9

Home Improvement 5.9 5.6 5.1 4.3 2.9

Restaurants - quick service 5.8 6.0 6.6 5.3 5.8

Drug Stores 5.8 5.7 6.6 8.2 8.8

Restaurants-Quick Service 5.5 6.0 6.6 5.3 5.8

Restaurants-Casual Dining 4.8 5.1 5.9 2.8 3.2

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(1) The presentation of Top 10 Industry Concentrations combines total portfolio contractual rent from the U.S.

Europe consists of properties in the U.K., starting in May 2019, in Spain, starting in September 2021, and in Italy, starting in October 2022.

Europe consists of properties in the U.K., starting in May 2019, in Spain, starting in September 2021, in Italy, starting in October 2022, and in Ireland, starting in June 2023.

Property Type Composition

The following table sets forth certain property type information regarding our property portfolio as of March 31, 2023 (dollars in thousands):

The following table sets forth certain property type information regarding our property portfolio as of June 30, 2023 (dollars in thousands):

Property Type

Properties Approximate

Square Feet (1)

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(1) Includes leasable building square footage.

Excludes 2,962 acres of leased land categorized as agriculture at March 31, 2023.

(2) "Other" includes 27 properties classified as agriculture, consisting of approximately 272,400 leasable square feet and $37.4 million in annualized contractual rent and ten properties classified as office, consisting of approximately 2.1 million leasable square feet and $27.1 million in annualized contractual rent.

Excludes 2,962 acres of leased land categorized as agriculture at June 30, 2023.

(2) "Other" includes 27 properties classified as agriculture, consisting of approximately 0.3 million leasable square feet and $37.4 million in annualized contractual rent and ten properties classified as office, consisting of approximately 2.1 million leasable square feet and $27.2 million in annualized contractual rent.

Client Diversification

The following table sets forth the 20 largest clients in our property portfolio, expressed as a percentage of total portfolio annualized contractual rent, which does not give effect to deferred rent, at March 31, 2023:

Client Number of

Percentage of Total Portfolio Annualized Contractual Rent (1)

Leases Percentage of Total Portfolio Annualized Contractual Rent (1)

Dollar General 1,579 3.8 %

Walgreens 362 3.8

7-Eleven 635 3.4

Dollar Tree / Family Dollar 1,162 3.3

7-Eleven 634 3.2

EG Group Limited 414 2.7

Wynn Resorts 1 2.7

LA Fitness 76 2.0

B&Q (Kingfisher) 45 1.9

Sainsbury's 35 1.9

LA Fitness 73 1.8

BJ's Wholesale Clubs 33 1.6

Lifetime Fitness 22 1.5

CVS Pharmacy 192 1.5

Wal-Mart / Sam's Club 67 1.5

Lifetime Fitness 21 1.5

Tractor Supply 184 1.4

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Lowe's 40 1.1

Kroger 36 1.1

Total 5,212 40.8 %

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Lease Expirations

The following table sets forth certain information regarding the timing of the lease term expirations in our portfolio (excluding rights to extend a lease at the option of the client) and their contribution to total portfolio annualized contractual rent as of March 31, 2023 (dollars in thousands):

Total Portfolio (1)

Leases Approximate

Total Portfolio Annualized Contractual Rent Percentage of Total Portfolio Annualized Contractual Rent

Retail Non-Retail

2023 290 4 2,399,900 $ 41,120 1.1 %

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Geographic Diversification

The following table sets forth certain geographic information regarding our property portfolio as of March 31, 2023 (dollars in thousands):

The following table sets forth certain geographic information regarding our property portfolio as of June 30, 2023 (dollars in thousands):

Percent Leased

Approximate Leasable Square Feet

Percentage of Total Portfolio Annualized Contractual Rent

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Italy 7 100 1,075,100 0.4

Ireland 2 100 294,200 0.1

Totals/average

13,118 99 % 255,469,400 100.0 %

IMPACT OF INFLATION

Leases generally provide for limited increases in rent as a result of fixed increases, increases in the consumer price index, or retail price index in the case of certain leases in the U.K.

(typically subject to ceilings), or increases in the clients’ sales volumes.

We expect that inflation will cause these lease provisions to result in rent increases over time.

Moreover, our use of net lease agreements tends to reduce our exposure to rising property expenses due to inflation because the client is responsible for property expenses.

Even though net leases reduce our exposure to rising property expenses due to inflation, substantial inflationary pressures and increased costs may have an adverse impact on our clients if increases in their operating expenses exceed increases in revenue, which may adversely affect our clients' ability to pay rent.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis