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; growth strategies and intentions to acquire or dispose of properties (including timing, partners, clients 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; settlement of shares of common stock sold pursuant to forward sale confirmations under our ATM program; dividends; and trends in our business, including trends in the market for long-term leases of freestanding, single-client properties. Forward-looking statements are subject to risks, uncertainties, and assumptions about the Company 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 (including the terms and partners of such funding); continued volatility and uncertainty in the credit markets and broader financial markets; other risks inherent in the real estate business including our clients' solvency, client 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; property ownership through joint ventures, partnerships and other arrangements which may limit control of the underlying investments; epidemics or pandemics including measures taken to limit their spread, the impacts on us, our business, our clients, 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 anticipated benefits from mergers and acquisitions including from the merger (the "Merger") with Spirit Realty Capital, Inc. ("Spirit"). 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, 2023. 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 (the "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 (NYSE: O), an S&P 500 company, is real estate partner to the world's leading companies. Founded in 1969, we invest in diversified commercial real estate and have a portfolio of over 15,450 properties in all 50 U.S. states, the U.K., and six other countries in Europe. We are known as "The Monthly Dividend Company ® ," and have a mission to deliver stockholders dependable monthly dividends that grow over time. Since our founding, we have declared 646 consecutive monthly dividends and are a member of the S&P 500 Dividend Aristocrats ® index for having increased our dividend for the last 25 consecutive years. As of March 31, 2024, we owned or held interests in 15,485 properties, with approximately 334.2 million square feet of leasable space leased to 1,552 clients doing business in 89 separate industries. Of the 15,485 properties in our portfolio as of March 31, 2024, 15,189, or 98.1%, were single-client properties, of which 14,978 were leased, and the remaining were multi–client properties. Our total portfolio of 15,485 properties as of March 31, 2024 had a weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of approximately 9.8 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 March 31, 2024 was $4.79 billion. -31- Table of Contents As of March 31, 2024, approximately 36.2% of our total portfolio annualized contractual rent comes from properties leased to our investment grade clients, their subsidiaries or affiliated companies. As of March 31, 2024, our top 20 clients (based on percentage of total portfolio annualized contractual rent) represented approximately 36.3% of our annualized rent and 10 of these clients have investment grade credit ratings or are subsidiaries or affiliates of investment grade companies. Approximately 91% of our annualized retail contractual rent as of March 31, 2024, 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 $72.7 million and $59.6 million for the three months ended March 31, 2024, and 2023, respectively. RECENT DEVELOPMENTS Closing of Spirit Merger On January 23, 2024, we closed on our previously announced stock-for-stock merger with Spirit (formerly NYSE: SRC). The Merger is further described in note 2, Merger with Spirit Realty Capital, Inc. , to the consolidated financial statements. We assumed the Spirit portfolio, which consisted of 2,018 U.S. retail, industrial and other properties across 49 states. Increases in Monthly Dividends to Common Stockholders We have continued our 55-year history of paying monthly dividends. In addition, we increased the dividend twice during 2024. As of April 2024, we have paid 106 consecutive quarterly dividend increases and increased the dividend 124 times since our listing on the NYSE in 1994. 2024 Dividend increases Month Declared Month Paid Monthly Dividend per share Increase per share 1st increase Dec 2023 Jan 2024 $ 0.2565 $ 0.0005 2nd increase Mar 2024 Apr 2024 $ 0.2570 $ 0.0005 The dividends paid per share during 2024 totaled $0.7695, as compared to $0.7515 during 2023, an increase of $0.018, or 2.4%. The monthly dividend of $0.257 per share represents a current annualized dividend of $3.084 per share, and an annualized dividend yield of 5.7% based on the last reported sale price of our common stock on the NYSE of $54.10 on March 31, 2024. 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. Investments During the Three Months Ended March 31, 2024 During the three months ended March 31, 2024, we invested $0.6 billion at an initial weighted average cash yield of 7.8%, in 153 properties and properties under development or expansion. See note 4 , Investments in Real Estate, to the consolidated financial statements for further details. Equity Capital Raising During the three months ended March 31, 2024, we raised $550.1 million of proceeds from the sale of common stock, at a weighted average price of $56.93 per share, primarily through proceeds from the sale of common stock through our ATM program. The ATM program issuances during the three months ended March 31, 2024 included 9.6 million shares issued pursuant to forward sale confirmations. As of March 31, 2024, 1.2 million shares of common stock subject to forward sale confirmations have been executed but not settled. See note 15 , Stockholders' Equity , to the consolidated financial statements for further details. Note Issuances In January 2024, we issued $450.0 million of 4.750% senior unsecured notes due February 2029 and $800.0 million of 5.125% senior unsecured notes due February 2034. In connection with the Merger, we also completed the $2.7 billion exchange in principal of outstanding notes issued by Spirit Realty, L.P. (“Spirit OP”). See note 10, Notes Payable , to the consolidated financial statements for further details. -32- Table of Contents Portfolio Discussion Leasing Results At March 31, 2024, we had 217 properties available for lease or sale out of 15,485 properties in our portfolio, which represents a 98.6% occupancy rate based on the number of properties in our portfolio. Our property-level occupancy rates exclude properties with ancillary leases only, such as cell towers and billboards, properties with possession pending, and include properties owned by unconsolidated joint ventures. Below is a summary of our portfolio activity for the periods indicated below: Three months ended March 31, 2024 Properties available for lease at December 31, 2023 193 Lease expirations (1) (2) 245 Re-leases to same client (166) Re-leases to new client (12) Vacant dispositions (43) Properties available for lease at March 31, 2024 217 (1) Includes scheduled and unscheduled expirations (including leases rejected in bankruptcy), as well as future expirations resolved in the periods indicated above. (2) Includes 26 properties acquired through the merger with Spirit in January 2024. During the three months ended March 31, 2024, the new annualized contractual rent on re-leases was $59.37 million, as compared to the previous annual rent of $56.91 million on the same units, representing a rent recapture rate of 104.3% on the units re-leased. We re-leased nine units to new clients without a period of vacancy, and seven 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 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. 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 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 Capital Markets In the commercial real estate market, property prices generally continue to fluctuate. Likewise, during certain periods, the global capital 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 capital markets carefully and, if required, will make decisions to adjust our business strategy accordingly. -33- Table of Contents LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2024, we had $4.0 billion of liquidity, which consists of cash and cash equivalents of $680.2 million, unsettled ATM forward equity of $62.9 million, and $3.2 billion of availability under our $4.25 billion unsecured revolving credit facility, net of $806.5 million of borrowing on the revolving credit facility and after deducting $216.0 million in 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; • Additional borrowings under our revolving credit facility (after deducting outstanding borrowings under our commercial paper programs); and • Investment dispositions and/or credit investment repayments. 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 to clients, property development, and capital expenditures by issuing common 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 March 31, 2024, our total market capitalization was $73.6 billion. Total market capitalization consisted of $47.2 billion of common equity (based on the March 31, 2024 closing price on the NYSE of $54.10 and assuming the conversion of 1.8 million common units of Realty Income, L.P.), aggregate liquidation value (based on a redemption price of $25.00 per share) of 6.000% Series A Cumulative Redeemable Preferred Stock of $0.2 billion, and total outstanding borrowings of $26.3 billion on our revolving credit facility, commercial paper, term loans, mortgages payable, senior unsecured notes and bonds, and our proportionate share of unconsolidated entities' debt (excluding unamortized deferred financing costs, discounts, and premiums). Our total debt and preferred stock to total market capitalization was 35.9% at March 31, 2024. Universal Shelf Registration On February 16, 2024, we filed a new shelf registration statement with the SEC, which is effective for a term of three years and will expire in February 2027. 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. -34- Table of Contents ATM Program As of March 31, 2024, there were approximately 1.2 million shares of unsettled common stock subject to forward sale confirmations through our ATM program, representing approximately $62.9 million in expected net proceeds, which have been executed at a weighted average price of $53.70 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 three months ended March 31, 2024, we settled approximately 9.6 million shares of common stock previously sold pursuant to forward sale agreements through our ATM program for approximately $543.5 million of net proceeds. As of March 31, 2024, we had 76.7 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 Financing Activities At March 31, 2024, our total outstanding borrowings of revolving credit facility, commercial paper, term loans, mortgages payable, and senior unsecured notes and bonds were $25.6 billion, with a weighted average maturity of 5.9 years and a weighted average interest rate of 3.9%. As of March 31, 2024, approximately 94% of our total debt was fixed rate debt. See notes 7 through 10 to the consolidated financial statements for additional information about our outstanding debt, along with our debt financing activities during the three months ended March 31, 2024 below. Note Issuances During the three months ended March 31, 2024, 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 4.750% Notes January 2024 February 2029 $ 450.0 99.23 % 4.923 % 5.125% Notes January 2024 February 2034 $ 800.0 98.91 % 5.265 % In connection with the Merger, we also completed the $2.7 billion exchange in principal of outstanding notes issued by Spirit OP. Note Repayment During the three months ended March 31, 2024, we repaid the following notes, plus accrued and unpaid interest upon maturity (in millions): Note Repayment Date of Issuance Maturity Date Principal amount 4.600% Notes February 2014 February 2024 $ 500.0 Term Loans In January 2024, in connection with our merger with Spirit, we entered into an amended and restated term loan agreement (which replaced Spirit's then-existing term loans with various lenders). The amended and restated term loan agreements are fixed through interest rate swaps at a weighted average interest rate of 3.9%. Pursuant to the amended and restated term loan agreement, we borrowed $800.0 million in aggregate total borrowings, $300.0 million of which matures in August 2025 and $500.0 million of which matures in August 2027 (the “$800 million term loan agreement”). We also entered into an amended and restated term loan agreement pursuant to which we borrowed $500.0 million in aggregate total borrowings which matures in June 2025 (the “$500 million term loan agreement”). Our 2023 term loan agreement allows us to incur up to an aggregate of $1.5 billion in multi-currency borrowings. As of March 31, 2024, we had $1.1 billion in multi-currency borrowings, including $90.0 million, £705.0 million, and €85.0 million in outstanding borrowings. The 2023 term loans mature in January 2025, with one remaining twelve-month maturity extension available 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 January 2024, we entered into interest rate swaps which fix our per annum interest rate at 4.9% until term loan maturity in January 2026. Term Loan Redemption During the three months ended March 31, 2024, we repaid our $250.0 million senior unsecured term loan in full upon maturity. Mortgages Repaid During the three months ended March 31, 2024, we made $621.2 million in principal payments, including the full repayment of two mortgages for $620.0 million. -35- Table of Contents 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 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, 2024, are: Note Covenants Required Actual Limitation on incurrence of total debt < 60% of adjusted assets 41.0 % Limitation on incurrence of secured debt < 40% of adjusted assets 0.4 % Debt service coverage (trailing 12 months) (1) > 1.5x 4.5x Maintenance of total unencumbered assets > 150% of unsecured debt 242.5 % (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, 2023 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, 2023, 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, 2024 (in thousands, for trailing twelve months): Net income attributable to the Company $ 779,575 Plus: interest expense, excluding the amortization of deferred financing costs 790,738 Plus: provision for taxes 55,573 Plus: depreciation and amortization 2,024,763 Plus: provisions for impairment 157,227 Plus: pro forma adjustments 733,626 Less: gain on sales of real estate (37,963) Income available for debt service, as defined $ 4,503,539 Total pro forma debt service charge $ 999,283 Debt service coverage ratio 4.5x Fixed Charge Coverage Ratio The fixed charge coverage ratio is calculated in exactly the same manner as the debt service coverage ratio, except that preferred stock dividends are also added to the denominator. Similar to the debt service coverage ratio, we consider the fixed charge coverage ratio to be an appropriate supplemental measure of a company’s ability to make its interest and preferred stock dividend payments. Our calculations of both debt service and fixed charge coverage ratios may be different from the calculations used by other companies and, therefore, comparability may be limited. The presentation of debt service and fixed charge coverage ratios should not be considered alternatives to any U.S. GAAP operating performance measures. Below is our calculation of fixed charges at March 31, 2024 (in thousands, for the trailing twelve months): Income available for debt service, as defined 4,513,889 Pro forma debt service charge plus preferred stock dividends 1,009,633 Fixed charge coverage ratio 4.5x 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, 2024, 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, 2024: Moody's Investors Service has assigned a rating of P-2 and Standard & Poor's Ratings Group has assigned a rating of A-2. -36- Table of Contents Based on our credit agency ratings as of March 31, 2024, interest rates under our credit facility for U.S. borrowings would have been at the Secured Overnight Financing Rate ("SOFR"), plus 0.725% with a SOFR adjustment charge of 0.10% and a revolving credit facility fee of 0.125%, for all-in drawn pricing of 0.95% over SOFR, for British Pound Sterling borrowings, at the Sterling Overnight Indexed Average (“SONIA”), plus 0.725% with a SONIA adjustment charge of 0.0326% and a revolving credit facility fee of 0.125%, for all-in drawn pricing of 0.8826% over SONIA, and for Euro Borrowings at one-month Euro Interbank Offered Rate (“EURIBOR”), plus 0.725%, and a revolving credit facility fee of 0.125%, for all-in drawn 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. Material Cash Requirements The following table summarizes the maturity of each of our obligations as of March 31, 2024 (dollars in millions): Credit Facility and Commercial Paper (1) Unsecured Term Loans (2) Mortgages Payable Senior Unsecured Notes and Bonds Interest (3) Ground Leases Paid by the Company (4) Ground Leases Paid by Our Clients (5) Other (6) Totals 2024 $ 216.0 $ — $ 119.3 $ 350.0 $ 736.3 $ 10.0 $ 24.1 $ 536.2 $ 1,991.9 2025 — 800.0 43.7 1,050.0 928.3 13.6 32.1 88.4 2,956.1 2026 806.5 1,073.0 12.0 2,375.0 771.9 19.3 32.4 8.8 5,098.9 2027 — 500.0 22.3 2,321.5 668.7 10.8 32.4 0.3 3,556.0 2028 — — 1.3 2,499.8 564.8 10.6 27.4 — 3,103.9 Thereafter — — 2.4 13,405.8 2,508.9 311.3 364.8 3.8 16,597.0 Totals $ 1,022.5 $ 2,373.0 $ 201.0 $ 22,002.1 $ 6,178.9 $ 375.6 $ 513.2 $ 637.5 $ 33,303.8 (1) The initial term of the credit facility expires in June 2026 and includes, at our option, two six-month extensions. At March 31, 2024, there were $806.5 million of outstanding borrowings under our revolving credit facility. Commercial paper programs outstanding were $216.0 million at March 31, 2024, which mature between April 2024 and May 2024. (2) The maturity date for our 2023 term loans assumes a twelve-month extension available at the company's option is exercised. (3) Interest on the commercial paper programs, term loans, mortgages payable, and senior unsecured notes and bonds 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-tenant 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 $536.1 million of commitments under construction contracts, and $101.4 million for tenant improvements, re-leasing costs, recurring capital expenditures, and non-recurring building improvements. Investments in Unconsolidated Entities As of March 31, 2024, our pro-rata share of secured debt of unconsolidated entities was approximately $659.2 million. -37- Table of Contents 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 2023, our cash distributions to common stockholders totaled $2.11 billion, or approximately 115.9% of estimated taxable income of $1.82 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 estimated taxable income reflects non-cash deductions for depreciation and amortization. Our estimated taxable income is presented to show our compliance with REIT dividend requirements and is not a measure of our liquidity or operating performance. We intend to continue to make distributions to our stockholders that are sufficient to meet this dividend requirement and that will reduce or eliminate our exposure to income taxes. Furthermore, we believe our cash on hand and funds from operations are sufficient to support our current level of cash distributions to our stockholders. We distributed $0.7695 per share to stockholders during the three months ended March 31, 2024, representing 74.8% of our diluted Adjusted Funds from Operations Available to Common Stockholders ("AFFO") per share of $1.03. The preferred stockholders receive cumulative distributions at a rate of 6.000% per annum on the $25.00 per share liquidation preference (equivalent to $1.50 per annum per share). Dividends on our preferred stock are current. Future distributions will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, Funds from Operations Available to Common Stockholders ("FFO"), Normalized Funds from Operations Available to Common Stockholders ("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 or preferred stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facility. Distributions of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income, except to the extent that we recognize capital gains and declare a capital gains dividend, or that such amounts constitute “qualified dividend income” subject to a reduced rate of tax. The maximum tax rate of non-corporate taxpayers for “qualified dividend income” is generally 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that certain holding requirements have been met with respect to the REIT’s stock and the REIT’s dividends are attributable to dividends received from certain taxable corporations (such as our 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. Approximately 6.8% of the distributions to our common stockholders, made or deemed to have been made in 2023, were classified as a return of capital for federal income tax purposes. -38- Table of Contents RESULTS OF OPERATIONS The following is a comparison of our results of operations for the three months ended March 31, 2024 and 2023. Total Revenue The following summarizes our total revenue (dollars in thousands): Three months ended March 31, 2024 2023 Change Rental (excluding reimbursable) $ 1,135,454 $ 865,709 $ 269,745 Rental (reimbursable) 72,715 59,580 13,135 Other 52,316 19,110 33,206 Total revenue $ 1,260,485 $ 944,399 $ 316,086 Rental Revenue (excluding reimbursable) The table below summarizes our rental revenue (excluding reimbursable) for the three months ended March 31, 2024 and 2023 (dollars in thousands): Number of Properties Three months ended March 31, 2024 2023 Change Properties acquired during 2024 & 2023 3,409 $ 272,586 $ 6,839 $ 265,747 Same store rental revenue (1) 11,716 843,453 837,053 6,400 Constant currency adjustment (2) N/A 504 (3,352) 3,856 Properties sold during and prior to 2024 174 351 4,440 (4,089) Straight-line rent and other non-cash adjustments N/A 695 1,851 (1,156) Vacant rents, development and other (3) 360 17,676 16,683 993 Other excluded revenue (4) N/A 189 2,195 (2,006) Totals $ 1,135,454 $ 865,709 $ 269,745 (1) The same store rental revenue percentage increase for the three months ended March 31, 2024 as compared to the same period in 2023 is 0.8%. (2) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as of March 31, 2024. None of the properties in France, Germany, Ireland or Portugal met our same store pool definition for the periods presented. In addition, the same store pool excludes properties assumed on January 23, 2024 as a result of our merger with Spirit. (3) Relates to the aggregate of (i) rental revenue from 318 properties that were available for lease during part of 2024 or 2023, and (ii) rental revenue for 42 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 settlements. 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 16,414 in-place leases in the portfolio, which excludes 315 vacant units, 13,558, or 82.6%, 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 $5.3 million and $4.1 million for the three months ended March 31, 2024 and 2023, respectively, which represents less than 1% of rental revenue. At March 31, 2024, our portfolio of 15,485 properties was 98.6% leased with 217 properties available for lease or sale, as compared to 98.6% leased with 193 properties available for lease at December 31, 2023, and 99.0% leased with 131 properties available for lease at March 31, 2023. 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. -39- Table of Contents Rental Revenue (reimbursable) A number of our leases provide for contractually obligated reimbursements from clients for recoverable real estate taxes and operating expenses. The increase in contractually obligated reimbursements by our clients for the three months ended March 31, 2024 as compared with the same period in 2023 is primarily due to higher recoverable real estate taxes and higher recoverable common area maintenance expenses from overall portfolio growth. Other Revenue Other revenue primarily relates to interest income recognized on financing receivables for certain leases with above-market terms and interest income recognized on client loans and preferred equity investments. The increase in other revenue for the three months ended March 31, 2024 as compared with the same period in 2023 is primarily due to higher interest income on financing receivables of $12.6 million driven by an increase in recent sale-leaseback transactions with above-market lease terms, in addition to an increase of $20.4 million from interest income earned on loans and preferred equity investments. Total Expenses The following summarizes our total expenses (in thousands): Three months ended March 31, 2024 2023 Change Depreciation and amortization $ 581,064 $ 451,477 $ 129,587 Interest 240,614 154,132 86,482 Property (excluding reimbursable) 16,646 9,817 6,829 Property (reimbursable) 72,715 59,580 13,135 General and administrative 40,842 34,167 6,675 Provisions for impairment 89,489 13,178 76,311 Merger and integration-related costs 94,104 1,307 92,797 Total expenses $ 1,135,474 $ 723,658 $ 411,816 Total revenue (1) $ 1,187,770 $ 884,819 General and administrative expenses as a percentage of total revenue (1) 3.4 % 3.9 % Property expenses (excluding reimbursable) as a percentage of total revenue (1) 1.4 % 1.1 % (1) Excludes rental revenue (reimbursable). Depreciation and Amortization The increase in depreciation and amortization for the three months ended March 31, 2024 as compared with the same period in 2023 is 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 March 31, 2024 2023 Interest on our credit facility, commercial paper, term loans, mortgages, senior unsecured notes and bonds, and interest rate swaps $ 243,102 $ 167,966 Credit facility commitment fees 1,343 1,328 Amortization of debt origination and deferred financing costs 5,819 6,071 Gain on interest rate swaps (1,800) (1,801) Amortization of net mortgage premiums and discounts (122) (3,200) Amortization of net note premiums and discounts (4,150) (15,532) Capital lease obligation 431 403 Interest capitalized (4,009) (1,103) Interest expense $ 240,614 $ 154,132 Credit facility, commercial paper, term loans, mortgages and senior unsecured notes and bonds Average outstanding balances $ 24,663,786 $ 18,658,173 Weighted average interest rates 4.03 % 3.59 % -40- Table of Contents The increase in interest expense for the three months ended March 31, 2024 as compared with the same period in 2023 is primarily due to higher average debt and weighted average interest. See notes to the accompanying consolidated financial statements for 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. The increase in property expenses (excluding reimbursable) for the three months ended March 31, 2024 as compared with the same period in 2023 is primarily impacted by higher property taxes, repairs and maintenance, and property insurance. Property Expenses (reimbursable) Property expenses (reimbursable) consist of reimbursable property taxes and operating costs paid on behalf of our clients. The increase in property expenses (reimbursable) for the three months ended March 31, 2024 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. The increase in general and administrative expenses for the three months ended March 31, 2024 as compared with the same period in 2023 is primarily due to higher payroll-related compensation costs associated with the growth of the company. Provisions for Impairment Provisions for impairment consist of impairment on long-lived assets and allowances for credit losses on financing receivables and loans. The increase in impairment for the three months ended March 31, 2024 as compared with the same period in 2023 is primarily due to two office properties which were acquired and retained in our merger with VEREIT, Inc. ("VEREIT") in 2021, summarized in the following table (dollars in millions): Three months ended March 31, 2024 2023 Carrying value prior to impairment $ 191.1 $ 35.6 Less: total provisions for impairment (1) (88.2) (13.2) Carrying value after impairment $ 102.9 $ 22.4 (1) Excludes provision for current expected credit loss of $1.3 million at March 31, 2024. 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. In conjunction with our merger with Spirit, we incurred merger-related transaction costs of $94.1 million during the three months ended March 31, 2024, primarily consisting of employee severance, post-combination share-based compensation, transfer taxes, and various professional fees directly attributable to the Merger. For the three months ended March 31, 2023, we incurred $1.3 million of merger and integration-related transaction costs in conjunction with our VEREIT merger in November 2021. Gain on Sales of Real Estate The following summarizes our property dispositions (dollars in millions): -41- Table of Contents Three months ended March 31, 2024 2023 Number of properties sold 46 26 Net sales proceeds $ 95.6 $ 28.6 Gain on sales of real estate $ 16.6 $ 4.3 Foreign Currency and Derivative 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 are primarily related 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"). Foreign currency and derivative gain, net was $4.0 million and $10.3 million, for the three months ended March 31, 2024 and 2023, respectively, primarily due to foreign currency fluctuations related to the remeasurement of intercompany debt. Equity in (Losses) Earnings of Unconsolidated Entities Equity in (losses) earnings for the three months ended March 31, 2024 primarily relates to investments made in two unconsolidated joint ventures during the fourth quarter of 2023. See note 5, Investments in Unconsolidated Entities , to the consolidated financial statements for further details. Other Income, Net Certain miscellaneous non-recurring revenue is included in 'other income, net'. The increase of $2.7 million for the three months ended March 31, 2024 as compared with the same period in 2023 is primarily due to an increase in miscellaneous revenue. Income Taxes Income taxes primarily consist of international income taxes accrued or paid by us and our subsidiaries, as well as state and local taxes. The increase in income taxes for the three months ended March 31, 2024 as compared with the same period in 2023 is primarily attributable to higher taxable income in the U.K. -42- Table of Contents 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/Annualized Adjusted EBITDA re, Net Debt/Annualized Pro Forma Adjusted EBITDA re, Net Debt and Preferred/Annualized Adjusted EBITDA re, and Net Debt and Preferred/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, but including our proportionate share of debt from unconsolidated entities, less cash and cash equivalents), divided by annualized quarterly Adjusted EBITDA re and annualized Pro Forma Adjusted EBITDA re , respectively. -43- 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 periods indicated below (dollars in thousands): Three months ended March 31, 2024 2023 Net income $ 133,899 $ 226,122 Interest 240,614 154,132 Income taxes 15,502 11,950 Depreciation and amortization 581,064 451,477 Provisions for impairment 89,489 13,178 Merger and integration-related costs 94,104 1,307 Gain on sales of real estate (16,574) (4,279) Foreign currency and derivative gain, net (4,046) (10,322) Proportionate share of adjustments from unconsolidated entities 15,236 — Quarterly Adjusted EBITDA re $ 1,149,288 $ 843,565 Annualized Adjusted EBITDA re (1) $ 4,597,152 $ 3,374,260 Annualized Pro Forma Adjustments $ 82,199 $ 83,015 Annualized Pro Forma Adjusted EBITDA re $ 4,679,351 $ 3,457,275 Total debt per the consolidated balance sheets, excluding deferred financing costs and net premiums and discounts $ 25,598,604 $ 18,748,217 Proportionate share of unconsolidated entities debt, excluding deferred financing costs 659,190 — Less: Cash and cash equivalents (680,159) (164,576) Net Debt (2) $ 25,577,635 $ 18,583,641 Preferred Stock 167,394 — Net Debt and Preferred Stock $ 25,745,029 $ 18,583,641 Net Debt/Annualized Adjusted EBITDA re (3) 5.6 x 5.5 x Net Debt/Annualized Pro Forma Adjusted EBITDA re 5.5 x 5.4 x Net Debt and Preferred/ Annualized Adjusted EBITDA re 5.6 x 5.5 x Net Debt and Preferred/ Annualized Pro Forma Adjusted EBITDA re 5.5 x 5.4 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, but including our proportionate share of debt from unconsolidated entities, 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 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 (dollars in thousands): Three months ended March 31, 2024 2023 Annualized pro forma adjustments from properties acquired or stabilized $ 83,152 $ 85,835 Annualized pro forma adjustments from properties disposed (953) (2,820) Annualized Pro forma Adjustments $ 82,199 $ 83,015 -44- 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. 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 March 31, 2024 2023 % Change FFO available to common stockholders $ 785.7 $ 684.3 14.8 % FFO per common share (1) $ 0.94 $ 1.03 (8.7) % Normalized FFO available to common stockholders $ 879.8 $ 685.6 28.3 % Normalized FFO per common share (1) $ 1.05 $ 1.04 1.0 % (1) All per share amounts are presented on a diluted per common share basis. -45- 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 March 31, 2024 2023 Net income available to common stockholders $ 129,696 $ 225,016 Depreciation and amortization 581,064 451,477 Depreciation of furniture, fixtures and equipment (623) (542) Provisions for impairment of real estate 88,197 13,178 Gain on sales of real estate (16,574) (4,279) Proportionate share of adjustments for unconsolidated entities 4,674 — FFO adjustments allocable to noncontrolling interests (751) (559) FFO available to common stockholders $ 785,683 $ 684,291 FFO allocable to dilutive noncontrolling interests 1,340 1,420 Diluted FFO $ 787,023 $ 685,711 FFO available to common stockholders $ 785,683 $ 684,291 Merger and integration-related costs 94,104 1,307 Normalized FFO available to common stockholders $ 879,787 $ 685,598 Normalized FFO allocable to dilutive noncontrolling interests 1,340 1,420 Diluted Normalized FFO $ 881,127 $ 687,018 FFO per common share: Basic $ 0.94 $ 1.04 Diluted $ 0.94 $ 1.03 Normalized FFO per common share, basic and diluted $ 1.05 $ 1.04 Distributions paid to common stockholders $ 636,499 $ 497,245 FFO available to common stockholders in excess of distributions paid to common stockholders $ 149,184 $ 187,046 Normalized FFO available to common stockholders in excess of distributions paid to common stockholders $ 243,288 $ 188,353 Weighted average number of common shares used for FFO and Normalized FFO: Basic 834,940 660,462 Diluted 837,037 663,034 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. -46- 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 March 31, 2024 2023 % Change AFFO available to common stockholders $ 862.9 $ 650.7 32.6 % AFFO per common share (1) $ 1.03 $ 0.98 5.1 % (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. -47- 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 March 31, 2024 2023 Net income available to common stockholders $ 129,696 $ 225,016 Cumulative adjustments to calculate Normalized FFO (1) 750,091 460,582 Normalized FFO available to common stockholders 879,787 685,598 Amortization of share-based compensation 9,252 6,300 Amortization of net debt discounts (premiums) and deferred financing costs (2) 4,201 (13,688) Non-cash gain on interest rate swaps (1,800) (1,801) Non-cash change in allowance for credit losses 1,292 — Straight-line impact of cash settlement on interest rate swaps (3) 1,797 1,797 Leasing costs and commissions (927) (444) Recurring capital expenditures — (53) Straight-line rent and expenses, net (44,860) (36,485) Amortization of above and below-market leases, net 14,274 17,358 Proportionate share of adjustments for unconsolidated entities 920 — Other adjustments (4) (1,065) (7,854) AFFO available to common stockholders $ 862,871 $ 650,728 AFFO allocable to dilutive noncontrolling interests 1,359 1,431 Diluted AFFO $ 864,230 $ 652,159 AFFO per common share: Basic $ 1.03 $ 0.99 Diluted $ 1.03 $ 0.98 Distributions paid to common stockholders $ 636,499 $ 497,245 AFFO available to common stockholders in excess of distributions paid to common stockholders $ 226,372 $ 153,483 Weighted average number of common shares used for computation per share: Basic 834,940 660,462 Diluted 837,037 663,034 (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 and discounts on notes payable and assumption of our mortgages payable, which are being amortized over the life of the applicable debt, and costs incurred and capitalized upon issuance and exchange of our notes payable, assumption of our mortgages payable and issuance of our term loans, which are also being amortized over the lives of the applicable debt. No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included. (3) 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 non-cash foreign currency losses (gains) from remeasurement to USD, 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. 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. -48- Table of Contents Presentation of the information regarding FFO, Normalized FFO, and AFFO is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO, Normalized FFO, and AFFO in the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO, Normalized FFO, and AFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as alternatives to net income as an indication of our performance. FFO, Normalized FFO, and AFFO should not be considered as alternatives to reviewing our cash flows from operating, investing, and financing activities. In addition, FFO, Normalized FFO, and AFFO should not be considered as measures of liquidity, our ability to make cash distributions, or our ability to pay interest payments. PROPERTY PORTFOLIO INFORMATION At March 31, 2024, out of the 15,485 properties that we owned or held interests in, 15,268 properties were primarily 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, as of the balance sheet date, multiplied by 12, excluding percentage rent, interest income on loans and preferred equity investments, and including our pro rata share of such revenues from properties owned by unconsolidated joint ventures. 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. 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 As of Mar 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Grocery 10.1% 11.4% 10.0% 10.2% 9.8% Convenience Stores 9.5 10.2 8.6 9.1 11.9 Dollar Stores 6.5 7.1 7.4 7.5 7.6 Home Improvement 6.1 5.9 5.6 5.1 4.3 Drug Stores 5.0 5.5 5.7 6.6 8.2 Restaurants-Quick Service 4.9 5.2 6.0 6.6 5.3 Automotive Service 4.6 4.3 4.0 3.2 2.7 Health and Fitness 4.4 3.9 4.4 4.7 6.7 Restaurants-Casual Dining 4.3 4.4 5.1 5.9 2.8 General Merchandise 3.4 3.7 3.7 3.7 3.4 Property Type Composition The following table sets forth certain property type information regarding our property portfolio as of March 31, 2024 (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 14,859 210,272,700 $ 3,812,484 79.6 % Industrial 558 114,205,300 704,234 14.7 Gaming (2) 2 5,053,400 159,695 3.3 Other (3) 66 4,692,500 110,994 2.4 Totals 15,485 334,223,900 $ 4,787,407 100.0 % (1) Excludes 2,962 acres of leased land categorized as agriculture at March 31, 2024. (2) Includes our pro rata share of leasable square feet of properties owned by unconsolidated joint ventures. (3) "Other" primarily includes 27 properties classified as agriculture with $38.1 million in annualized contractual rent, 14 properties classified as office with $43.3 million in annualized contractual rent, and 21 properties classified as country club with $22.1 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, 2024: Client Number of Leases Percentage of Total Portfolio Annualized Contractual Rent (1) Dollar General 1,760 3.4 % Walgreens 403 3.4 Dollar Tree / Family Dollar 1,380 3.1 7-Eleven 634 2.6 EG Group Limited 415 2.1 Wynn Resorts 1 2.1 FedEx 83 2.0 Lifetime Fitness 36 1.9 BJ's Wholesale Club 44 1.6 (B&Q) Kingfisher 52 1.6 Asda 38 1.6 Sainsbury's 36 1.5 CVS Pharmacy 216 1.3 LA Fitness 68 1.3 MGM (Bellagio) 1 1.2 Walmart / Sam's Club 72 1.2 Tractor Supply 207 1.2 Tesco 23 1.2 AMC Theaters 39 1.1 Red Lobster 216 1.1 Total 5,724 36.3 % (1) Amounts for each client are calculated independently; therefore, the individual percentages may not sum to the total. Excludes non-rental contractual income on loans and preferred equity investments. 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, 2024 (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 2024 360 7 3,767,500 $ 50,508 1.1 % 2025 935 35 13,951,000 210,427 4.4 2026 943 45 19,759,300 235,324 4.9 2027 1,576 46 26,854,100 344,787 7.2 2028 1,848 70 36,219,600 450,427 9.4 2029 1,707 46 32,219,300 399,869 8.4 2030 691 32 20,133,300 233,524 4.9 2031 616 51 27,244,000 300,712 6.3 2032 1,117 46 22,081,200 302,160 6.3 2033 931 26 21,829,200 267,861 5.6 2034 731 26 16,051,300 278,726 5.8 2035 564 23 10,261,400 182,437 3.8 2036 577 23 10,704,200 183,067 3.7 2037 578 23 12,263,500 165,706 3.5 2038 358 24 12,410,700 139,597 2.9 2039-2143 2,231 128 44,849,100 1,042,275 21.8 Totals 15,763 651 330,598,700 $ 4,787,407 100.0 % (1) Leases on our multi-client properties are counted separately in the table above. This table excludes 315 vacant units. Geographic Diversification The following table sets forth certain geographic information regarding our property portfolio as of March 31, 2024 (dollars in thousands): Location Number of Properties Percent Leased Approximate Leasable Square Feet Percentage of Total Portfolio Annualized Contractual Rent Alabama 501 98 % 5,879,700 1.8 % Alaska 16 100 622,800 0.2 Arizona 298 99 4,978,400 2.0 Arkansas 311 100 3,530,800 1.0 California 381 100 14,101,700 5.0 Colorado 200 98 3,825,800 1.2 Connecticut 59 98 2,664,400 0.6 Delaware 25 100 264,100 0.1 Florida 1,039 99 13,489,000 5.2 Georgia 727 98 12,026,500 3.7 Hawaii 22 100 47,800 0.2 Idaho 41 98 408,000 0.2 Illinois 611 98 14,641,700 4.5 Indiana 473 98 12,345,400 2.5 Iowa 128 98 4,439,200 0.8 Kansas 217 96 5,600,400 1.0 Kentucky 426 99 6,991,800 1.5 Louisiana 382 100 5,978,600 1.8 Maine 113 100 1,311,700 0.6 Maryland 90 98 4,428,300 1.2 Massachusetts 216 99 7,564,100 4.0 Michigan 572 98 8,687,100 2.6 Minnesota 293 99 5,737,000 1.8 Mississippi 359 98 5,554,200 1.2 Missouri 453 98 6,897,200 1.9 Montana 29 100 390,100 0.2 Nebraska 90 99 1,348,900 0.3 Nevada 75 100 4,615,400 1.9 New Hampshire 69 97 1,299,400 0.5 New Jersey 158 96 2,735,000 1.3 New Mexico 144 100 2,149,500 0.7 New York 369 99 6,609,600 2.8 North Carolina 497 98 10,206,900 2.7 North Dakota 25 96 537,900 0.2 Ohio 814 98 21,654,600 4.2 Oklahoma 397 100 5,595,200 1.5 Oregon 46 100 765,300 0.3 Pennsylvania 371 98 7,383,000 2.1 Rhode Island 34 100 343,900 0.2 South Carolina 397 99 6,380,800 1.9 South Dakota 39 97 545,200 0.2 Tennessee 571 98 9,735,100 2.5 Texas 1,907 99 36,339,100 10.5 Utah 57 100 2,618,700 0.6 Vermont 19 100 175,300 0.1 Virginia 415 99 8,934,300 2.2 Washington 89 98 1,959,200 0.7 West Virginia 105 100 1,078,000 0.4 Wisconsin 324 100 8,560,600 1.9 Wyoming 25 100 203,100 0.1 Puerto Rico 6 100 59,400 * U.S. Virgin Islands 1 100 38,000 * France 28 100 1,406,800 0.3 Germany 4 100 189,900 * Ireland 4 100 311,200 0.1 Italy 31 100 2,329,400 0.6 Portugal 4 100 142,300 * Spain 90 100 6,772,600 1.3 United Kingdom 298 100 28,794,500 11.1 Totals/average 15,485 100 % 334,223,900 100.0 % • *Less than 0.1% IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS For information on the impact of new accounting standards on our business, see note 1, Summary of Significant Accounting Policies , 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, 2023. This summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in note 1, Summary of Significant Accounting Policies and Procedures and New Accounting Standards, to our consolidated financial statements in our Annual Report.