REALTY INCOME CORP 10-Q

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, including the documents incorporated by reference, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. When used in this quarterly report, the words “estimated,” “anticipated,” “expect,” “believe,” “intend,” “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 growth strategies and intentions to acquire or dispose of properties including the timing and terms), re-leases, re-development and speculative development of properties and expenditures related thereto; future operations and results; the announcement of operating results, strategy, plans, and the intentions of management; and trends in our business, including trends in the market for long-term net leases of freestanding, single-client properties. Forward-looking statements are subject to risks, uncertainties, and assumptions about Realty Income Corporation which may cause our actual future results to differ materially from expected results. Some of the factors that could cause actual results to differ materially are, among others, our continued qualification as a real estate investment trust; general domestic and foreign business, economic, or financial conditions; competition; fluctuating interest and currency rates; inflation and its impact on our clients and us; access to debt and equity capital markets and other sources of funding; continued volatility and uncertainty in the credit markets and broader financial markets; other risks inherent in the real estate business including our clients' defaults under leases, increased client bankruptcies, potential liability relating to environmental matters, illiquidity of real estate investments, and potential damages from natural disasters; impairments in the value of our real estate assets; changes in domestic and foreign income tax laws and rates; our clients' solvency; property ownership through joint ventures and partnerships which may limit control of the underlying investments; 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; the outcome of any legal proceedings to which we are a party or which may occur in the future; acts of terrorism and war; and the structure, timing and completion of the announced merger between us and Spirit Realty Capital, Inc., a Maryland corporation (“Spirit”) and any effects of the announcement, pendency or completion of the announced merger, including the anticipated benefits therefrom. Additional factors that may cause risks and uncertainties include those discussed in the sections entitled “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022. Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements are not guarantees of future plans and performance and speak only as of the date this quarterly report was filed with the Securities and Exchange Commission ("SEC"). Actual plans and operating results may differ materially from what is expressed or forecasted in this quarterly report and forecasts made in the forward-looking statements discussed in this quarterly report might not materialize. We do not undertake any obligation to update forward-looking statements or publicly release the results of any forward-looking statements that may be made to reflect events or circumstances after the date these statements were made. OVERVIEW Realty Income, The Monthly Dividend Company ® , is an S&P 500 company and member of the S&P 500 Dividend Aristocrats ® index for having increased its dividend every year for over 25 consecutive years. We invest in people and places to deliver dependable monthly dividends that increase over time. The Company is structured as a real estate investment trust ("REIT"), requiring us annually to distribute at least 90% of our taxable income (excluding net capital gains) in the form of dividends to its stockholders. The monthly dividends are supported by the cash flow generated from real estate owned under long-term net lease agreements with our commercial clients. Realty Income was founded in 1969 and listed on the New York Stock Exchange ("NYSE") in 1994 under the trading symbol "O". 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. As of September 30, 2023, we owned or held interests in 13,282 properties located in all 50 U.S. states, Puerto Rico, the United Kingdom ("U.K."), Spain, Italy, and Ireland, with approximately 262.6 million square feet of leasable space leased to clients doing business in 85 separate industries. Of the 13,282 properties in our portfolio as of September 30, 2023, 13,032, or 98.1%, were single-client properties, of which 12,875 were leased, and the remaining were multi–client properties. Our total portfolio of 13,282 properties as of September 30, 2023 had a weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of -28- Table of Contents approximately 9.7 years. Total portfolio annualized contractual rent (defined as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables) on our leases as of September 30, 2023 was $3.87 billion. As of September 30, 2023, approximately 39.0% of our total portfolio annualized contractual rent comes from properties leased to our investment grade clients, their subsidiaries or affiliated companies. As of September 30, 2023, our top 20 clients (based on percentage of total portfolio annualized contractual rent) represented approximately 40.9% of our annualized rent and 10 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 September 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 $61.3 million and $44.1 million for the three months ended September 30, 2023, and 2022, respectively, and $208.6 million and $129.0 million during the nine months ended September 30, 2023, and 2022, respectively. RECENT DEVELOPMENTS Increases in Monthly Dividends to Common Stockholders We have continued our 54-year history of paying monthly dividends. In addition, we increased the dividend five times during 2023. As of October 2023, we have paid 104 consecutive quarterly dividend increases and increased the dividend 122 times since our listing on the NYSE in 1994. The following table summarizes our dividend increases in 2023: 2023 Dividend increases Month Declared Month Paid Dividend per share Increase per share 1st increase Dec 2022 Jan 2023 $0.2485 $0.0005 2nd increase Feb 2023 Mar 2023 $0.2545 $0.0060 3rd increase Mar 2023 Apr 2023 $0.2550 $0.0005 4th increase Jun 2023 Jul 2023 $0.2555 $0.0005 5th increase Sep 2023 Oct 2023 $0.2560 $0.0005 The dividends paid per share during the nine months ended September 30, 2023, totaled approximately $2.2830, as compared to approximately $2.2230 during the nine months ended September 30, 2022, an increase of $0.06, or 2.7%. The monthly dividend of $0.2560 per share represents a current annualized dividend of $3.072 per share, and an annualized dividend yield of 6.2% based on the last reported sale price of our common stock on the NYSE of $49.94 on September 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 and Nine Months Ended September 30, 2023 During the three months ended September 30, 2023, we invested $2.0 billion in 289 properties and properties under development or expansion at an initial weighted average cash lease yield of 6.9%. Of such properties, as of September 30, 2023, approximately 20% of the total annualized contractual rent of such properties was attributable to properties leased to investment grade clients. During the nine months ended September 30, 2023, we invested $6.8 billion in 1,187 properties and properties under development or expansion at an initial weighted average cash lease yield of 6.9%. Of such properties, as of September 30, 2023, approximately 25% 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. -29- Table of Contents Equity Capital Raising In August 2023, we replaced our prior At-The-Market (ATM) program with a new ATM program, pursuant to which we may offer and sell up to 120.0 million shares of common stock. During the three months ended September 30, 2023, we raised $0.9 billion of net proceeds from the sale of common stock, primarily through our ATM program, with a weighted average price of $58.58. As of September 30, 2023, 13.3 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 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 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 September 30, 2023, we had 159 properties available for lease or sale out of 13,282 properties in our portfolio, representing a 98.8% 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, and properties with possession pending. Below is a summary of our portfolio activity for the period indicated below: Three months ended September 30, 2023 Properties available for lease at June 30, 2023 137 Lease expirations (1) 310 Re-leases to same client (257) Re-leases to new client (11) Vacant dispositions (20) Properties available for lease at September 30, 2023 159 Nine months ended September 30, 2023 Properties available for lease at December 31, 2022 126 Lease expirations (1) 718 Re-leases to same client (586) Re-leases to new client (25) Vacant dispositions (74) Properties available for lease at September 30, 2023 159 (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 September 30, 2023, the new annualized contractual rent on re-leases was $57.6 million, as compared to the previous annual rent of $53.9 million on the same units, representing a rent recapture rate of 106.9% on the units re-leased. We re-leased three units to new clients without a period of vacancy, and 10 units to new clients after a period of vacancy. During the nine months ended September 30, 2023, the new annualized contractual rent on re-leases was $145.4 million, as compared to the previous annual rent of $139.4 million on the same units, representing a rent recapture rate of 104.3% on the units re-leased. We re-leased seven units to new clients without a period of vacancy, and 27 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. -30- Table of Contents Agreement and Plan of Merger On October 29, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Saints MD Subsidiary, Inc., a Maryland corporation and our direct wholly owned subsidiary (“Merger Sub”), and Spirit Realty Capital, Inc., a Maryland corporation (“Spirit”). Pursuant to the terms and conditions of the Merger Agreement, upon the closing, Spirit will be merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation (the “Merger”). Pursuant to the terms and subject to the conditions of the Merger Agreement, at the date and time the Merger becomes effective, (i) each outstanding share of Spirit common stock, par value $0.05 per share (other than the Excluded Common Shares (as defined in the Merger Agreement)) will automatically be converted into 0.762 of a newly issued share our common stock, subject to adjustment as set forth in the Merger Agreement, and cash in lieu of fractional shares, and (ii) each outstanding share of Spirit’s 6.000% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share, will be converted into the right to receive one share of newly issued Realty Income 6.000% Series A Cumulative Redeemable Preferred Stock, having substantially the same terms as the Spirit Series A Preferred Stock. The Merger Agreement contains customary covenants, representations, and warranties, as well as certain termination rights for us and Spirit, in each case, as more fully described in the Merger Agreement. The consummation of the Merger is also subject to certain customary closing conditions, including receipt of the approval by the stockholders of Spirit, and certain customary termination rights. Investment in Bellagio Las Vegas In October 2023, we completed our previously announced $950 million acquisition of common and preferred interests from Blackstone Real Estate Trust, Inc. in a new joint venture that owns a 95% interest in the real estate of The Bellagio Las Vegas. The investment included approximately $300 million of common equity in the joint venture in exchange for an indirect interest of 21.9% in the property and a $650 million preferred equity interest in the joint venture with an expected rate of return of 8.1%. Cineworld Bankruptcy Resolution As previously disclosed, Cineworld Group plc and its affiliates ("Cineworld") commenced Chapter 11 reorganization proceedings during September 2022, at which time we owned 41 properties leased to Cineworld. In the second quarter of 2023, Cineworld rejected 6 leases as part of the bankruptcy process. On July 31, 2023, Cineworld emerged from Chapter 11 bankruptcy. As of September 30, 2023, we owned 35 properties leased to Cineworld, which represented 1.1% of our total portfolio's annual contractual rent. On October 1, 2023, we entered into a comprehensive restructuring agreement with Cineworld on the 35 properties we own. Pursuant to this agreement, Cineworld committed to long-term leases on 28 of the properties, with a weighted average lease term of approximately 10 years, while remaining on short-term leases with terms of one year or less on 7 of the properties. Of the 28 properties with long-term leases, the base rent recapture rate is 75%, which does not include percentage rent that was added to all properties and there were no tenant improvements or additional capital commitments made. In addition, the restructuring agreement amended certain terms on deferred rent obligations owed to us, including both full and partial forgiveness of deferred rent for certain properties. As these deferrals were accounted for on a cash basis or fully reserved for, there was no impact to our overall Cineworld receivables, net of reserves, as a result of these amendments and any recoveries beyond this will be recognized upon collection. 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 reduces 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 -31- Table of Contents 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 In the commercial real estate market, property prices generally continue to fluctuate. Likewise, during certain periods, including the current market, the global credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real estate and global credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2023, we had $4.5 billion of liquidity, which consists of cash and cash equivalents of $344.1 million, including £93.1 million denominated in Sterling and €47.9 million denominated in Euro, unsettled ATM forward equity of $749.3 million, and $3.4 billion of availability under our $4.25 billion unsecured revolving credit facility, after deducting $376.8 million in commercial paper borrowings under our commercial paper programs. 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. We expect to fund the next twelve months of obligations through a combination of the following: • Cash and cash equivalents; • Future cash flows from operations; • Issuances of common stock or debt; and • 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. Historically, we have met our principal short-term and long-term capital needs, including the funding of high-quality real estate acquisitions, investments in loans, property development, and capital expenditures by issuing common stock, preferred stock, long-term unsecured notes, and term loan borrowings. Over the long term, we believe that common stock should be the majority of our capital structure. We may issue common stock when we believe our share price is at a level that allows for the proceeds of an offering to be accretively invested into additional properties or to permanently finance properties that were initially financed by our revolving credit facility, commercial paper programs, or shorter-term debt securities. However, we cannot assure you that we will have access to the capital markets at all times and at terms that are acceptable to us. Capitalization As of September 30, 2023, our total market capitalization was $56.6 billion. Total market capitalization consisted of $36.2 billion of common equity (based on the September 30, 2023 closing price on the NYSE of $49.94 and assuming the conversion of common units of Realty Income, L.P.) and total outstanding borrowings of $20.4 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 36.0% at September 30, 2023. -32- Table of Contents ATM Program As of September 30, 2023, there were approximately 13.3 million shares of unsettled common stock subject to forward sale confirmations through our ATM program, representing approximately $749.3 million in expected net proceeds, which have been executed at a weighted average price of $56.47 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). During the nine months ended September 30, 2023, we settled approximately 63.2 million shares of common stock previously sold pursuant to forward sale agreements through our ATM program for approximately $3.9 billion of net proceeds. As of September 30, 2023, we had 102.7 million 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. Debt and Financing Activities At September 30, 2023, our total outstanding borrowings of senior unsecured notes and bonds, term loans, mortgages payable, revolving credit facility and commercial paper were $20.4 billion, with a weighted average maturity of 5.8 years and a weighted average interest rate of 3.8%. As of September 30, 2023, approximately 93% 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 nine months ended September 30, 2023 below. Note Issuances During the nine months ended September 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 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 % 4.700% Notes April 2023 December 2028 $ 400.0 98.949 % 4.912 % 4.900% Notes April 2023 July 2033 $ 600.0 98.020 % 5.148 % 4.875% Notes July 2023 July 2030 € 550.0 99.421 % 4.975 % 5.125% Notes July 2023 July 2034 € 550.0 99.506 % 5.185 % 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 September 30, 2023, we had $1.0 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. In conjunction with our 2023 term loans, we entered into interest rate swaps which fix our per annum interest rate. As of September 30, 2023, the effective interest rate, after giving effect to the interest rate swaps, was 5.0%. Covenants 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. 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 September 30, 2023, are: Note Covenants Required Actual Limitation on incurrence of total debt < 60% of adjusted assets 39.7 % Limitation on incurrence of secured debt < 40% of adjusted assets 1.7 % Debt service coverage (trailing 12 months) (1) > 1.5x 4.5x Maintenance of total unencumbered assets > 150% of unsecured debt 257.6 % (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 October 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 -33- Table of Contents (i), (ii) and (iii) of the preceding sentence occurred as of October 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 September 30, 2023 (in thousands, for trailing twelve months): Net income available to common stockholders $ 881,170 Plus: interest expense, excluding the amortization of deferred financing costs 630,215 Plus: provision for taxes 45,599 Plus: depreciation and amortization 1,857,495 Plus: provisions for impairment 69,282 Plus: pro forma adjustments 303,311 Less: gain on sales of real estate (29,022) Income available for debt service, as defined $ 3,758,050 Total pro forma debt service charge $ 843,250 Debt service and fixed charge coverage ratio 4.5 Credit Agency Ratings The borrowing interest rates under our revolving credit facility are based upon our ratings assigned by credit rating agencies. As of September 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 September 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 September 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 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. We also issue senior debt securities from time to time and our credit ratings can impact the interest rates charged in those transactions. If our credit ratings or ratings outlook change, our cost to obtain debt financing could increase or decrease. The credit ratings assigned to us could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that our ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover, a rating is not a recommendation to buy, sell or hold our debt securities, preferred stock or common stock. -34- Table of Contents Material Cash Requirements The following table summarizes the maturity of each of our obligations as of September 30, 2023 (dollars in millions): Credit Facility and Commercial Paper (1) Senior Unsecured Notes Term Loans (2) Mortgages Payable Interest (3) Ground Leases Paid by the Company (4) Ground Leases Paid by Our Clients (5) Other (6) Totals 2023 $ 376.8 $ — $ — $ 1.3 $ 169.4 $ 2.7 $ 7.8 $ 468.4 $ 1,026.4 2024 — 850.0 250.0 740.5 751.6 13.5 30.7 430.4 3,066.7 2025 — 1,050.0 — 42.4 671.1 12.0 30.0 20.0 1,825.5 2026 481.5 2,075.0 1,040.2 12.0 538.3 17.6 29.3 0.6 4,194.5 2027 — 1,993.1 — 22.3 464.0 9.4 26.4 — 2,515.2 Thereafter — 11,449.8 — 3.5 2,086.8 299.9 265.5 3.8 14,109.3 Totals $ 858.3 $ 17,417.9 $ 1,290.2 $ 822.0 $ 4,681.2 $ 355.1 $ 389.7 $ 923.2 $ 26,737.6 (1) The initial term of the credit facility expires in June 2026 and includes, at our option, two six-month extensions. At September 30, 2023, there were $481.5 million borrowings under our revolving credit facility, and commercial paper programs outstanding were $376.8 million, which matured in October 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. (4) We currently pay the ground lessors directly for the rent under the 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 $903.6 million of commitments under construction contracts, and $19.5 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements. DIVIDEND POLICY Distributions are paid monthly to holders of shares of our common stock. Distributions are paid monthly to the limited partners holding common units of Realty Income, L.P., each on a per unit basis that is equal to the amount paid per share to our common stockholders. In order to maintain our status as a REIT for federal income tax purposes, we generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our taxable income (excluding net capital gains), and we are subject to income tax to the extent we distribute less than 100% of our taxable income (including net capital gains). In 2022, our cash distributions to common stockholders totaled $1.81 billion, or approximately 97.8% of our taxable income of $1.85 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. Our taxable income reflects non-cash deductions for depreciation and amortization. Our taxable income is presented to show our compliance with REIT dividend requirements and is not a measure of our liquidity or operating performance. We intend to continue to make distributions to our stockholders that are sufficient to meet this dividend requirement and that will reduce or eliminate our exposure to income taxes. Furthermore, we believe our cash on hand and funds from operations are sufficient to support our current level of cash distributions to our stockholders. We distributed $2.2830 per share to stockholders during the nine months ended September 30, 2023, representing 76.4% of our diluted AFFO per share of $2.99. Future distributions will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, FFO, Normalized FFO, AFFO, cash flow from operations, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, our debt service requirements, and any other factors the Board of Directors may deem relevant. In addition, our credit facility contains financial covenants that could limit the amount of distributions payable by us in the event of a default, and which prohibit the payment of distributions on our common stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facility. Distributions of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income, except to the extent that we recognize capital gains and declare a capital gains dividend, or that such amounts constitute “qualified dividend income” subject to a reduced rate of tax. The maximum tax rate of non-corporate taxpayers for “qualified dividend income” is generally 20%. In general, -35- Table of Contents dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that certain holding requirements have been met with respect to the REIT’s stock and the REIT’s dividends are attributable to dividends received from certain taxable corporations (such as our TRSs) or to income that was subject to tax at the corporate or REIT level (for example, if we distribute taxable income that we retained and paid tax on in the prior taxable year). However, non-corporate stockholders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026. Distributions in excess of earnings and profits generally will first be treated as a non-taxable reduction in the stockholders’ basis in their stock, but not below zero. Distributions in excess of that basis generally will be taxable as a capital gain to stockholders who hold their shares as a capital asset. None of the distributions to our common stockholders, made or deemed to have been made in 2022, were classified as a return of capital for federal income tax purposes. RESULTS OF OPERATIONS The following is a comparison of our results of operations for the three and nine months ended September 30, 2023 and 2022. Total Revenue The following summarizes our total revenue (dollars in thousands): Three months ended September 30, Nine months ended September 30, 2023 2022 Change 2023 2022 Change Rental (excluding reimbursable) $ 947,549 $ 781,883 $ 165,666 $ 2,720,806 $ 2,297,272 $ 423,534 Rental (reimbursable) 61,313 44,063 17,250 208,634 129,039 79,595 Other 30,242 11,323 18,919 73,268 28,720 44,548 Total revenue $ 1,039,104 $ 837,269 $ 201,835 $ 3,002,708 $ 2,455,031 $ 547,677 Rental Revenue (excluding reimbursable) The table below summarizes our rental revenue (excluding reimbursable) in the three and nine months ended September 30, 2023 and 2022 (dollars in thousands): Number of Properties Three months ended September 30, Nine months ended September 30, 2023 2022 Change 2023 2022 Change Properties acquired during 2023 & 2022 2,391 $ 225,631 $ 52,214 $ 173,417 $ 546,147 $ 85,763 $ 460,384 Same store rental revenue (1) 10,577 716,015 700,869 15,146 2,140,980 2,107,396 33,584 Constant currency adjustment (2) N/A 3,848 (2,997) 6,845 6,560 4,462 2,098 Properties sold during and prior to 2023 265 522 11,313 (10,791) 3,434 25,676 (22,242) Straight-line rent and other non-cash adjustments N/A (10,151) 2,978 (13,129) (16,307) 15,010 (31,317) Vacant rents, development and other (3) 314 11,103 16,645 (5,542) 37,494 53,975 (16,481) Other excluded revenue (4) N/A 581 861 (280) 2,498 4,990 (2,492) Totals $ 947,549 $ 781,883 $ 165,666 $ 2,720,806 $ 2,297,272 $ 423,534 (1) Same store rental revenue increased by 2.2% and 1.6% for the three and nine months ended September 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 September 30, 2023, of 1.22 British Pound Sterling ("GBP")/USD and 1.06 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 287 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. -36- Table of Contents For purposes of determining the same store rent property pool, we include all properties that were owned for the entire year-to-date period, for both the current and prior year, except for properties during the current or prior year that; (i) were vacant at any time, (ii) were under development or redevelopment, or (iii) were involved in eminent domain and rent was reduced. 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 14,044 in-place leases in the portfolio, which excludes 276 vacant units, 11,644, or 82.9%, were under leases that provide for increases in rents through: base rent increases tied to inflation (typically subject to ceilings), percentage rent based on a percentage of the clients’ gross sales, fixed increases, or a combination of two or more of the aforementioned rent provisions. Rent based on a percentage of our client's gross sales, or percentage rent, was $2.2 million in the three months ended September 30, 2023, $2.3 million for the three months ended September 30, 2022, $8.0 million for the nine months ended September 30, 2023, and $8.3 million for the nine months ended September 30, 2022. Percentage rent represents less than 1.0% of rental revenue. At September 30, 2023, our portfolio of 13,282 properties was 98.8% leased with 159 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 131 properties available for lease at September 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; however, it is possible that the number of properties available for lease or sale could increase in the future, given the nature of economic cycles and other unforeseen global events. Rental Revenue (reimbursable) 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 $17.3 million and $79.6 million for the three and nine months ended September 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 $18.9 million and $44.5 million for the three and nine months ended September 30, 2023 as compared with 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 (in thousands): Three months ended September 30, Nine months ended September 30, 2023 2022 Change 2023 2022 Change Depreciation and amortization $ 495,566 $ 419,016 $ 76,550 $ 1,419,321 $ 1,232,215 $ 187,106 Interest 184,121 117,409 66,712 522,110 333,933 188,177 Property (excluding reimbursable) 9,668 8,656 1,012 26,447 28,202 (1,755) Property (reimbursable) 61,313 44,063 17,250 208,634 129,039 79,595 General and administrative 35,525 34,096 1,429 106,521 100,934 5,587 Provisions for impairment 16,808 1,650 15,158 59,801 16,379 43,422 Merger and integration-related costs 2,884 3,746 (862) 4,532 12,994 (8,462) Total expenses $ 805,885 $ 628,636 $ 177,249 $ 2,347,366 $ 1,853,696 $ 493,670 Total revenue (1) $ 977,791 $ 793,206 $ 2,794,074 $ 2,325,992 General and administrative expenses as a percentage of total revenue (1) 3.6 % 4.3 % 3.8 % 4.3 % Property expenses (excluding reimbursable) as a percentage of total revenue (1) 1.0 % 1.1 % 0.9 % 1.2 % (1) Excludes rental revenue (reimbursable). -37- Table of Contents Depreciation and Amortization Depreciation and amortization increased by $76.6 million and $187.1 million for the three and nine months ended September 30, 2023 as compared with 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 (in thousands): Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Interest on our credit facility, commercial paper, term loans, notes, mortgages and interest rate swaps $ 199,059 $ 131,160 $ 564,347 $ 376,448 Credit facility commitment fees 1,358 1,358 3,999 3,521 Amortization of debt origination and deferred financing costs 6,930 3,653 19,498 10,056 (Gain) loss on interest rate swaps (1,790) 734 (5,390) 2,180 Amortization of net mortgage premiums (3,201) (3,327) (9,597) (10,418) Amortization of net note premiums (14,989) (15,762) (45,647) (47,185) Capital lease obligation 378 382 1,183 1,060 Interest capitalized (3,624) (789) (6,283) (1,729) Interest expense $ 184,121 $ 117,409 $ 522,110 $ 333,933 Credit facility, commercial paper, term loans, mortgages and notes Average outstanding balances $ 20,249,836 $ 16,174,244 $ 19,685,182 $ 15,680,253 Weighted average interest rates 3.93 % 3.21 % 3.81 % 3.16 % Interest expense increased by $66.7 million and $188.2 million for the three and nine months ended September 30, 2023 as compared with 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 and include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections and legal fees. Property expenses (excluding reimbursable) increased by $1.0 million for the three months ended September 30, 2023 and decreased $1.8 million for the nine months ended September 30, 2023 as compared with the same periods in 2022, respectively, which was primarily impacted by 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 $17.3 million and $79.6 million for the three and nine months ended September 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 by $1.4 million and $5.6 million for the three and nine months ended September 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. -38- Table of Contents Provisions for Impairment The following table summarizes provisions for impairment during the periods indicated below (dollars in millions): Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Carrying value prior to impairment $ 37.5 $ 48.1 $ 161.4 $ 107.0 Less: total provisions for impairment (16.8) (1.7) (59.8) (16.4) Carrying value after impairment $ 20.7 $ 46.4 $ 101.6 $ 90.6 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 $2.9 million and $4.5 million of merger and integration-related transaction costs during the three and nine months ended September 30, 2023, respectively, compared to approximately $3.7 million and $13.0 million during the three and nine months ended September 30, 2022, respectively, in conjunction with our merger with VEREIT, Inc. in November 2021. Gain on Sales of Real Estate The following summarizes our property dispositions (dollars in millions): Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Number of properties sold 24 35 79 139 Net sales proceeds $ 32.3 $ 142.4 $ 92.8 $ 414.7 Gain on sales of real estate $ 7.6 $ 42.9 $ 19.7 $ 93.6 Foreign Currency and Derivative (Loss) Gain, Net We borrow in the functional currencies of the countries in which we invest. Net foreign currency gain and loss are primarily related to the remeasurement of intercompany debt from foreign subsidiaries. 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 Accumulated other comprehensive income ("AOCI"). Net foreign currency and derivative (loss) gain, net for the three and nine months ended September 30, 2023 was a loss of $2.8 million and a gain of $5.0 million, respectively, primarily due to foreign currency fluctuations related to the remeasurement of intercompany debt. 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 to 'Foreign currency and derivative (loss) gain, net' during the nine months ended September 30, 2022. 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 the third quarter of 2022. The loss for the three and nine months ended September 30, 2022 was primarily driven by an other than temporary impairment related to the sale of these investments. Following the sale of the properties, distributions primarily result from the release of hold backs from property sales, refunds from taxing authorities and distributions of operating cash. The income for the nine months ended September 30, 2023 is attributable to distributions in excess of our basis. -39- Table of Contents Other Income, Net Certain miscellaneous non-recurring revenue is included in other income, net. The increase of $5.0 million and $6.1 million for the three and nine months ended September 30, 2023 as compared with the same periods in 2022, respectively, was primarily due to higher interest income earned on money market accounts and an increase in gain on insurance proceeds from recoveries on property losses exceeding our carrying value. Income Taxes 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 increase of $1.2 million and $0.4 million in income taxes for the three and nine months ended September 30, 2023, as compared with the same periods in 2022, is primarily attributable to higher taxable income in the UK; partially offset by lower UK tax rates. NON-GAAP FINANCIAL MEASURES Adjusted Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate ("Adjusted EBITDA re" ) Nareit established an EBITDA metric for real estate companies (i.e., EBITDA for real estate, or EBITDA re ) it believed would provide investors with a consistent measure to help make investment decisions among REITs. Our definition of “Adjusted EBITDA re ” is generally consistent with the Nareit definition, other than our adjustments to remove foreign currency and derivative 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 EBITDAre, 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) gain on extinguishment of debt, (iv) real estate depreciation and amortization, (v) provisions for impairment, (vi) merger and integration-related costs, (vii) gain on sales of real estate, (viii) foreign currency and derivative gain and loss, net, (ix) gain on settlement of foreign currency forwards, and (x) our proportionate share of adjustments from unconsolidated entities. Our Adjusted EBITDAre may not be comparable to Adjusted EBITDAre reported by other companies or as defined by Nareit, and other companies may interpret or define Adjusted EBITDA re differently than we do. Management believes Adjusted EBITDA re to be a meaningful measure of a REIT’s performance because it provides a view of our operating performance, analyzes our ability to meet interest payment obligations before the effects of income tax, depreciation and amortization expense, provisions for impairment, gain on sales of real estate and other items, as defined above, that affect comparability, including the removal of non-recurring and non-cash items that industry observers believe are less relevant to evaluating the operating performance of a company. In addition, EBITDA re is widely followed by industry analysts, lenders, investors, rating agencies, and others as a means of evaluating the operational cash generating capacity of a company prior to servicing debt obligations. Management also believes the use of an annualized quarterly Adjusted EBITDA re metric, which we refer to as Annualized Adjusted EBITDA re , is meaningful because it represents our current earnings run rate for the period presented. Annualized Adjusted EBITDA re and Annualized Pro Forma Adjusted EBITDA re , as defined below, are also used to determine the vesting of performance share awards granted to executive officers. Annualized Adjusted EBITDA re should be considered along with, but not as an alternative to net income as a measure of our operating performance. We define Annualized Pro Forma Adjusted EBITDA re as Annualized Adjusted EBITDA re , subject to certain adjustments to incorporate Adjusted EBITDA re from properties we acquired or stabilized during the applicable quarter and to remove Adjusted EBITDA re from properties we disposed of during the applicable quarter, and include transaction accounting adjustments in accordance with U.S. GAAP, giving pro forma effect to all transactions as if they occurred at the beginning of the applicable period. Our calculation includes all adjustments consistent with the requirements to present Adjusted EBITDA re on a pro forma basis in accordance with Article 11 of Regulation S-X. The Annualized Pro Forma Adjustments are consistent with the debt service coverage ratio calculated under financial covenants for our senior unsecured notes. We believe Annualized Pro Forma Adjusted EBITDA re is a useful non-GAAP supplemental measure, as it excludes properties that were no longer owned at the balance sheet date and includes the annualized rent from properties acquired during the quarter. Management also uses our ratios of net debt-to-Annualized Adjusted EBITDA re and net debt-to Annualized Pro Forma Adjusted EBITDA re as measures of leverage in assessing our financial performance, which is calculated as net debt (which we define as total debt per the consolidated balance sheets, excluding deferred financing costs and net premiums and discounts, less cash and cash equivalents), divided by annualized quarterly Adjusted EBITDA re and annualized Pro Forma Adjusted EBITDA re , respectively. -40- Table of Contents The following is a reconciliation of net income (which we believe is the most comparable U.S. GAAP measure) to Adjusted EBITDA re and Annualized Pro Forma EBITDA re calculations for the period indicated below (dollars in thousands): Three months ended September 30, 2023 2022 Net income $ 233,877 $ 220,287 Interest 184,121 117,409 Gain on extinguishment of debt — (240) Income taxes 11,336 10,163 Depreciation and amortization 495,566 419,016 Provisions for impairment 16,808 1,650 Merger and integration-related costs 2,884 3,746 Gain on sales of real estate (7,572) (42,883) Foreign currency and derivative losses, net 2,813 22,893 Gain on settlement of foreign currency forwards — 2,784 Proportionate share of adjustments from unconsolidated entities — 662 Quarterly Adjusted EBITDA re $ 939,833 $ 755,487 Annualized Adjusted EBITDA re (1) $ 3,759,332 $ 3,021,948 Annualized Pro Forma Adjustments $ 74,503 $ 31,700 Annualized Pro Forma Adjusted EBITDA re $ 3,833,835 $ 3,053,648 Total debt per the consolidated balance sheets, excluding deferred financing costs and net premiums and discounts $ 20,388,406 $ 16,142,608 Less: Cash and cash equivalents (344,129) (187,745) Net Debt (2) $ 20,044,277 $ 15,954,863 Net Debt/Annualized Adjusted EBITDA re 5.3 x 5.3 x Net Debt/Annualized Pro Forma Adjusted EBITDA re 5.2 x 5.2 x (1) We calculate Annualized Adjusted EBITDA re by multiplying the Quarterly Adjusted EBITDA re by four. (2) Net Debt is total debt per our consolidated balance sheets, excluding deferred financing costs and net premiums and discounts, less cash and cash equivalents. 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 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 September 30, 2023 2022 Annualized pro forma adjustments from properties acquired or stabilized $ 79,141 $ 68,589 Annualized pro forma adjustments from properties disposed (4,638) (36,889) Annualized Pro forma Adjustments $ 74,503 $ 31,700 -41- Table of Contents FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS ("FFO") AND NORMALIZED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS ("Normalized FFO") We define FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trusts' definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus provisions for impairments of depreciable real estate assets, and reduced by gain on property sales. We define Normalized FFO, a non-GAAP financial measure, as FFO excluding merger and integration-related costs related to our merger with VEREIT, Inc. We define diluted FFO and diluted normalized FFO as FFO and normalized FFO adjusted for dilutive noncontrolling interests. The following summarizes our FFO and Normalized FFO (dollars in millions, except per share data): Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change FFO available to common stockholders $ 736.1 $ 597.2 23.3 % $ 2,108.4 $ 1,807.4 16.7 % FFO per share (1) $ 1.04 $ 0.97 7.2 % $ 3.09 $ 2.99 3.3 % Normalized FFO available to common stockholders $ 739.0 $ 600.9 23.0 % $ 2,113.0 $ 1,820.4 16.1 % Normalized FFO per share (1) $ 1.04 $ 0.97 7.2 % $ 3.10 $ 3.01 3.0 % (1) All per share amounts are presented on a diluted per common share basis. -42- Table of Contents The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable U.S. GAAP measure) to FFO and Normalized FFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts): Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Net income available to common stockholders $ 233,473 $ 219,567 $ 653,904 $ 642,143 Depreciation and amortization 495,566 419,016 1,419,321 1,232,215 Depreciation of furniture, fixtures and equipment (817) (511) (1,656) (1,478) Provisions for impairment 16,808 1,650 59,801 16,379 Gain on sales of real estate (7,572) (42,883) (19,675) (93,611) Proportionate share of adjustments for unconsolidated entities — 717 (465) 12,812 FFO adjustments allocable to noncontrolling interests (1,312) (402) (2,808) (1,075) FFO available to common stockholders $ 736,146 $ 597,154 $ 2,108,422 $ 1,807,385 FFO allocable to dilutive noncontrolling interests 1,375 985 4,166 2,569 Diluted FFO $ 737,521 $ 598,139 $ 2,112,588 $ 1,809,954 FFO available to common stockholders $ 736,146 $ 597,154 $ 2,108,422 $ 1,807,385 Merger and integration-related costs 2,884 3,746 4,532 12,994 Normalized FFO available to common stockholders $ 739,030 $ 600,900 $ 2,112,954 $ 1,820,379 Normalized FFO allocable to dilutive noncontrolling interests 1,375 985 4,166 2,569 Diluted Normalized FFO $ 740,405 $ 601,885 $ 2,117,120 $ 1,822,948 FFO per common share, basic and diluted $ 1.04 $ 0.97 $ 3.09 $ 2.99 Normalized FFO per common share, basic and diluted $ 1.04 $ 0.97 $ 3.10 $ 3.01 Distributions paid to common stockholders $ 543,343 $ 458,586 $ 1,555,679 $ 1,342,695 FFO available to common stockholders in excess of distributions paid to common stockholders $ 192,803 $ 138,568 $ 552,743 $ 464,690 Normalized FFO available to common stockholders in excess of distributions paid to common stockholders $ 195,687 $ 142,314 $ 557,275 $ 477,684 Weighted average number of common shares used for FFO and Normalized FFO: Basic 709,165 617,512 681,419 604,464 Diluted 711,338 619,201 683,925 605,958 We consider FFO and Normalized FFO to be appropriate supplemental measures of a REIT’s operating performance as they are based on a net income analysis of property portfolio performance that adds back items such as depreciation and impairments for FFO, and adds back merger and integration-related costs, for Normalized FFO. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. -43- Table of Contents ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS ("AFFO") We define AFFO, a non-GAAP measure, as FFO adjusted for unique revenue and expense items, which we believe are not as pertinent to the measurement of our ongoing operating performance. We define diluted AFFO as AFFO adjusted for dilutive noncontrolling interests. The following summarizes our AFFO (dollars in millions, except per share data): Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change AFFO available to common stockholders $ 721.4 $ 603.6 19.5 % $ 2,043.8 $ 1,767.4 15.6 % AFFO per share (1) $ 1.02 $ 0.98 4.1 % $ 2.99 $ 2.92 2.4 % (1) All per share amounts are presented on a diluted per common share basis. We consider AFFO to be an appropriate supplemental measure of our performance. Most companies in our industry use a similar measurement, but they may use the term “CAD” (for Cash Available for Distribution), “FAD” (for Funds Available for Distribution) or other terms. Our AFFO calculations may not be comparable to AFFO, CAD or FAD reported by other companies, and other companies may interpret or define such terms differently than we do. -44- Table of Contents The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable U.S. GAAP measure) to Normalized FFO and AFFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts): Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Net income available to common stockholders $ 233,473 $ 219,567 $ 653,904 $ 642,143 Cumulative adjustments to calculate Normalized FFO (1) 505,557 381,333 1,459,050 1,178,236 Normalized FFO available to common stockholders 739,030 600,900 2,112,954 1,820,379 Gain on extinguishment of debt — (240) — (367) Amortization of share-based compensation 6,231 5,099 20,154 16,742 Amortization of net debt premiums and deferred financing costs (2) (10,244) (16,728) (34,441) (50,772) Non-cash (gain) loss on interest rate swaps (1,790) 735 (5,390) 2,181 Straight-line impact of cash settlement on interest rate swaps (3) 1,797 — 5,392 — Leasing costs and commissions (1,392) (686) (6,868) (3,853) Recurring capital expenditures (52) (273) (190) (459) Straight-line rent and expenses, net (42,791) (29,628) (113,239) (85,004) Amortization of above and below-market leases, net 24,939 17,422 61,967 47,466 Proportionate share of adjustments for unconsolidated entities — (85) — (4,239) Other adjustments (4) 5,642 27,050 3,497 25,318 AFFO available to common stockholders $ 721,370 $ 603,566 $ 2,043,836 $ 1,767,392 AFFO allocable to dilutive noncontrolling interests 1,357 1,006 4,170 2,613 Diluted AFFO $ 722,727 $ 604,572 $ 2,048,006 $ 1,770,005 AFFO per common share: Basic $ 1.02 $ 0.98 $ 3.00 $ 2.92 Diluted $ 1.02 $ 0.98 $ 2.99 $ 2.92 Distributions paid to common stockholders $ 543,343 $ 458,586 $ 1,555,679 $ 1,342,695 AFFO available to common stockholders in excess of distributions paid to common stockholders $ 178,027 $ 144,980 $ 488,157 $ 424,697 Weighted average number of common shares used for computation per share: Basic 709,165 617,512 681,419 604,464 Diluted 711,338 619,201 683,925 605,958 (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 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 in October 2022, 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 are non-cash in nature, straight-line payments from cross-currency swaps, obligations related to financing lease liabilities, and adjustments allocable to noncontrolling interests. -45- Table of Contents We believe the non-GAAP financial measure AFFO provides useful information to investors because it is a widely accepted industry measure of the operating performance of real estate companies that is used by industry analysts and investors who look at and compare those companies. In particular, AFFO provides an additional measure to compare the operating performance of different REITs without having to account for differing depreciation assumptions and other unique revenue and expense items which are not pertinent to measuring a particular company’s on-going operating performance. Therefore, we believe that AFFO is an appropriate supplemental performance metric, and that the most appropriate U.S. GAAP performance metric to which AFFO should be reconciled is net income available to common stockholders. Presentation of the information regarding FFO, Normalized FFO, and AFFO is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO, Normalized FFO, and AFFO in the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO, Normalized FFO, and AFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as alternatives to net income as an indication of our performance. FFO, Normalized FFO, and AFFO should not be considered as alternatives to reviewing our cash flows from operating, investing, and financing activities. In addition, FFO, Normalized FFO, and AFFO should not be considered as measures of liquidity, our ability to make cash distributions, or our ability to pay interest payments. -46- Table of Contents PROPERTY PORTFOLIO INFORMATION At September 30, 2023, out of the 13,282 properties that we owned or held interest in, 13,123 properties were leased under net lease agreements. A net lease typically requires the client to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance. In addition, clients of our properties typically pay rent increases based on: (1) fixed increases, (2) increases tied to inflation (typically subject to ceilings), or (3) additional rent calculated as a percentage of the clients' gross sales above a specified level. We define total portfolio annualized contractual rent as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables, but excluding percentage rent and reimbursements from clients, as of the balance sheet date, multiplied by 12, excluding percentage rent. We believe total portfolio annualized contractual rent is a useful supplemental operating measure, as it excludes properties that were no longer owned at the balance sheet date and includes the annualized rent from properties acquired during the quarter. Total portfolio annualized contractual rent has not been reduced to reflect reserves recorded as adjustments to U.S. GAAP rental revenue in the periods presented and excludes unconsolidated entities. Top 10 Industry Concentrations We are engaged in a single business activity, which is the leasing of property to clients, generally on a net basis. That business activity spans various geographic boundaries and includes property types and clients engaged in various industries. Even though we have a single segment, we believe our investors continue to view diversification as a key component of our investment philosophy and so we believe it remains important to present certain information regarding our property portfolio classified according to the business of the respective clients, expressed as a percentage of our total portfolio annualized contractual rent: Percentage of Total Portfolio Annualized Contractual Rent by Industry (1) As of Sept 30, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Grocery 11.4% 10.0% 10.2% 9.8% 7.9% Convenience Stores 10.6 8.6 9.1 11.9 12.3 Dollar Stores 7.2 7.4 7.5 7.6 7.9 Drug Stores 5.9 5.7 6.6 8.2 8.8 Home Improvement 5.8 5.6 5.1 4.3 2.9 Restaurants-Quick Service 5.3 6.0 6.6 5.3 5.8 Restaurants-Casual 4.6 5.1 5.9 2.8 3.2 Automotive Service 4.2 4.0 3.2 2.7 2.6 Health and Fitness 4.1 4.4 4.7 6.7 7.0 General Merchandise 3.7 3.7 3.7 3.4 2.5 (1) The presentation of Top 10 Industry Concentrations combines total portfolio contractual rent from the U.S. and Europe. 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 September 30, 2023 (dollars in thousands): Property Type Number of Properties Approximate Leasable Square Feet (1) Total Portfolio Annualized Contractual Rent Percentage of Total Portfolio Annualized Contractual Rent Retail 12,879 172,641,300 $ 3,195,302 82.6 % Industrial 364 84,412,700 507,054 13.1 Gaming 1 3,096,700 100,000 2.6 Other (2) 38 2,411,200 64,947 1.7 Totals 13,282 262,561,900 $ 3,867,303 100.0 % (1) Includes leasable building square footage. Excludes 2,962 acres of leased land categorized as agriculture at September 30, 2023. (2) "Other" includes 27 properties classified as agriculture, consisting of approximately 0.3 million leasable square feet and $37.6 million in annualized contractual rent and 10 properties classified as office, consisting of approximately 2.1 million leasable square feet and $27.3 million in annualized contractual rent, as well as one land parcel under development. 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 September 30, 2023: Client Number of Leases Percentage of Total Portfolio Annualized Contractual Rent (1) Walgreens 369 3.9 % Dollar General 1,630 3.9 Dollar Tree / Family Dollar 1,195 3.3 7-Eleven 634 3.2 EG Group Limited 415 2.7 Wynn Resorts 1 2.6 FedEx 77 2.2 B&Q (Kingfisher) 50 1.8 Asda 37 1.8 Sainsbury's 35 1.7 LA Fitness 70 1.7 BJ's Wholesale Clubs 33 1.6 Lifetime Fitness 23 1.5 CVS Pharmacy 191 1.4 Wal-Mart / Sam's Club 67 1.4 Tractor Supply 186 1.3 Tesco 22 1.3 AMC Theaters 35 1.2 Red Lobster 200 1.2 Regal Cinemas (Cineworld) 35 1.1 Total 5,305 40.9 % (1) Amounts for each client are calculated independently; therefore, the individual percentages may not sum to the total. 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 September 30, 2023 (dollars in thousands): Total Portfolio (1) Expiring Leases Approximate Leasable Square Feet Total Portfolio Annualized Contractual Rent Percentage of Total Portfolio Annualized Contractual Rent Year Retail Non-Retail 2023 168 — 1,267,300 $ 22,077 0.6 % 2024 512 24 9,024,300 106,600 2.8 2025 915 37 14,702,100 210,874 5.5 2026 855 33 16,010,500 195,882 5.1 2027 1,411 37 22,307,500 288,821 7.5 2028 1,570 55 28,194,800 344,960 8.9 2029 1,139 28 24,476,500 296,603 7.7 2030 592 20 15,875,400 188,126 4.9 2031 549 40 23,361,100 263,672 6.8 2032 973 33 17,883,200 254,462 6.6 2033 735 19 16,522,300 208,445 5.4 2034 602 8 10,828,000 225,474 5.7 2035 440 4 5,854,700 117,369 2.9 2036 438 8 7,956,100 143,290 3.7 2037 515 9 8,748,900 136,136 3.5 2038-2143 2,206 69 36,778,400 864,512 22.4 Totals 13,620 424 259,791,100 $ 3,867,303 100.0 % (1) Leases on our multi-client properties are counted separately in the table above. This table excludes 276 vacant units. Geographic Diversification The following table sets forth certain geographic information regarding our property portfolio as of September 30, 2023 (dollars in thousands): Location Number of Properties Percent Leased Approximate Leasable Square Feet Percentage of Total Portfolio Annualized Contractual Rent Alabama 405 98 % 4,395,600 1.8 % Alaska 6 100 299,700 0.1 Arizona 254 99 4,000,600 1.8 Arkansas 260 93 2,817,700 1.0 California 353 99 12,452,300 5.4 Colorado 170 96 2,697,500 1.2 Connecticut 52 98 1,754,700 0.6 Delaware 24 100 141,100 0.1 Florida 886 99 10,557,200 5.2 Georgia 577 98 9,188,900 3.4 Hawaii 22 100 47,800 0.2 Idaho 27 100 189,100 0.1 Illinois 557 97 13,284,700 4.9 Indiana 428 97 8,200,500 2.5 Iowa 110 100 3,484,100 0.9 Kansas 195 97 4,691,500 1.0 Kentucky 377 99 6,342,100 1.6 Louisiana 355 99 5,289,700 1.9 Maine 85 99 1,208,700 0.6 Maryland 78 99 3,064,500 1.2 Massachusetts 207 99 6,664,300 4.6 Michigan 475 99 5,908,200 2.5 Minnesota 261 98 4,330,200 1.8 Mississippi 305 99 4,525,800 1.2 Missouri 394 99 5,467,600 1.9 Montana 24 100 223,100 0.1 Nebraska 81 99 1,131,600 0.3 Nevada 74 99 2,665,700 0.8 New Hampshire 54 98 667,300 0.5 New Jersey 145 97 2,277,000 1.5 New Mexico 110 100 1,354,200 0.6 New York 338 98 4,960,200 3.0 North Carolina 417 99 8,434,700 2.8 North Dakota 21 95 427,800 0.2 Ohio 716 98 16,067,600 4.0 Oklahoma 336 97 4,443,500 1.6 Oregon 42 100 650,400 0.3 Pennsylvania 344 97 6,226,800 2.3 Rhode Island 31 100 214,600 0.2 South Carolina 326 99 5,186,200 1.9 South Dakota 34 100 474,900 0.2 Tennessee 463 98 7,362,200 2.3 Texas 1,602 99 27,435,400 10.1 Utah 39 100 1,585,500 0.5 Vermont 18 100 173,500 0.1 Virginia 370 98 7,384,200 2.3 Washington 82 99 1,862,600 0.8 West Virginia 80 100 763,300 0.3 Wisconsin 289 100 6,608,900 2.0 Wyoming 23 100 157,700 0.1 Puerto Rico 6 100 59,400 * Ireland 4 100 311,500 0.1 Italy 7 100 1,075,100 0.4 Spain 54 100 3,960,100 0.9 United Kingdom 289 100 27,412,800 12.3 Totals/average 13,282 98 % 262,561,900 100.0 % • *Less than 0.1% IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS For information on the impact of new accounting standards on our business, see note 1, Basis of Presentation , to our Consolidated Financial Statements. CRITICAL ACCOUNTING POLICIES Our consolidated financial statements have been prepared in accordance with U.S. GAAP and are the basis for our discussion and analysis of financial condition and results of operations. Preparing our consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. We believe that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. There have been no material changes to the Critical Accounting Policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022. This summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in note 2, Summary of Significant Accounting Policies and Procedures and New Accounting Standards, to our consolidated financial statements in our Annual Report.