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 geographies, 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 At-the-Market ("ATM") Program; dividends, including the amount, timing and payment of dividends related thereto; 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 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 649 consecutive monthly dividends and are a member of the S&P 500 Dividend Aristocrats ® index for having increased our dividend for the last 29 consecutive years. As of June 30, 2024, we owned or held interests in 15,450 properties, with approximately 335.3 million square feet of leasable space leased to 1,551 clients doing business in 90 separate industries. Of the 15,450 properties in our portfolio as of June 30, 2024, 15,154, or 98.1%, were single-client properties, and the remaining were multi–client properties. Our total portfolio of 15,450 properties as of June 30, 2024 had a weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of approximately 9.6 years. Total portfolio annualized contractual rent (defined as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables) on our leases as of June 30, 2024 was $4.85 billion. -31- Table of Contents As of June 30, 2024, approximately 36.0% of our total portfolio annualized contractual rent comes from properties leased to our investment grade clients, their subsidiaries or affiliated companies. As of June 30, 2024, our top 20 clients (based on percentage of total portfolio annualized contractual rent) represented approximately 36.2% 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 June 30, 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 $80.6 million and $87.7 million for the three months ended June 30, 2024, and 2023, respectively, and $153.3 million and $147.3 million for the six months ended June 30, 2024 and 2023, respectively. RECENT DEVELOPMENTS Increases in Monthly Dividends to Common Stockholders We have continued our 55-year history of paying monthly dividends. In addition, we have increased the dividend four times during 2024. As of July 2024, we have paid 107 consecutive quarterly dividend increases and increased the dividend 126 times since our listing on the New York Stock Exchange (“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 3rd increase May 2024 Jun 2024 $ 0.2625 $ 0.0055 4th increase Jun 2024 Jul 2024 $ 0.2630 $ 0.0005 The dividends paid per share during the six months ended June 30, 2024 totaled $1.5460, as compared to $1.5165 during the six months ended June 30, 2023, an increase of $0.030, or 1.9%. The monthly dividend of $0.2630 per share represents a current annualized dividend of $3.156 per share, and an annualized dividend yield of 6.0% based on the last reported sale price of our common stock on the NYSE of $52.82 on June 30, 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 and Six Months Ended June 30, 2024 During the three months ended June 30, 2024, we invested $0.8 billion at an initial weighted average cash yield of 7.9%, including an investment in 120 properties, properties under development or expansion, and an investment in a loan. During the six months ended June 30, 2024, we invested $1.4 billion at an initial weighted average cash yield of 7.8%, including an investment in 198 properties, properties under development or expansion, and an investment in a loan. See notes 4 , Investments in Real Estate, 5 , Investments in Unconsolidated Entities, and 6, Investments in Loans, to the consolidated financial statements for further details. 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. -32- Table of Contents Portfolio Discussion Leasing Results At June 30, 2024, we had 185 properties available for lease or sale out of 15,450 properties in our portfolio, which represents a 98.8% 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, and 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 June 30, 2024 Properties available for lease at March 31, 2024 217 Lease expirations (1) 185 Re-leases to same client (144) Re-leases to new client (9) Vacant dispositions (64) Properties available for lease at June 30, 2024 185 Six months ended June 30, 2024 Properties available for lease at December 31, 2023 193 Lease expirations (1) 430 Re-leases to same client (310) Re-leases to new client (21) Vacant dispositions (107) Properties available for lease at June 30, 2024 185 (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 June 30, 2024, the new annualized contractual rent on re-leases was $33.73 million, as compared to the previous annual rent of $31.91 million on the same units, representing a rent recapture rate of 105.7% on the units re-leased. We re-leased five units to new clients without a period of vacancy, and eight units to new clients after a period of vacancy. During the six months ended June 30, 2024, the new annualized contractual rent on re-leases was $93.09 million, as compared to the previous annual rent of $88.82 million on the same units, representing a rent recapture rate of 104.8% on the units re-leased. We re-leased 14 units to new clients without a period of vacancy, and 15 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. Disposition Strategy During the six months ended June 30, 2024, we sold 122 properties with total net proceeds received of $201.9 million. Our disposition strategy aims at further enhancing our portfolio and maximizing portfolio returns through the sale of select assets. It remains a function of our proactive investment management approach, supported by several data-driven tools including our predictive analytics platform. Appointment of New Chief Accounting Officer ("CAO") Effective June 27, 2024, Neale Redington assumed his role as our Senior Vice President and CAO. 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. -33- Table of Contents 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. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2024, we had $3.8 billion of liquidity, which consists of cash and cash equivalents of $442.8 million, unsettled ATM forward equity of $247.8 million, and $3.1 billion of availability under our $4.25 billion unsecured revolving credit facility, net of $846.6 million of borrowing on the revolving credit facility and after deducting $302.2 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 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); • Short-term loans; • Investment dispositions; • Credit investment repayments; and • Public securities offerings. 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 June 30, 2024, our total market capitalization was $72.6 billion. Total market capitalization consisted of $46.1 billion of common equity (based on the June 30, 2024 closing price on the NYSE of $52.82 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 -34- Table of Contents outstanding borrowings of $26.4 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 36.5% at June 30, 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. ATM Program As of June 30, 2024, there were approximately 4.7 million shares of unsettled common stock subject to forward sale confirmations through our ATM program, representing approximately $247.8 million in expected net proceeds, which have been executed at a weighted average price of $52.87 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 six months ended June 30, 2024, we settled approximately 9.6 million shares of common stock previously sold pursuant to forward sale agreements through our ATM program for approximately $543.3 million of net proceeds. As of June 30, 2024, we had 73.2 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 June 30, 2024, our total outstanding borrowings of revolving credit facility, commercial paper, term loans, mortgages payable, and senior unsecured notes and bonds were $25.7 billion, with a weighted average maturity of 5.6 years and a weighted average interest rate of 3.9%. As of June 30, 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 six months ended June 30, 2024 below. Note Issuances During the six months ended June 30, 2024, we issued the following notes and bonds (in millions): 2024 Issuances 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 six months ended June 30, 2024, we repaid the following notes, plus accrued and unpaid interest upon maturity (in millions): Note Repayment Date of Repayment Maturity Date Principal amount 4.600% Notes February 2014 February 2024 $ 500.0 In July 2024, we repaid $350.0 million of outstanding 3.875% senior unsecured notes, plus accrued and unpaid interest, upon maturity. Term Loan Issuances 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 -35- Table of Contents 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”). Term Loan Redemption During the six months ended June 30, 2024, we repaid our $250.0 million senior unsecured term loan in full upon maturity. Mortgage Repayments During the six months ended June 30, 2024, we made $622.4 million in principal payments, including the full repayment of two mortgages for $620.0 million. 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 June 30, 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 4.7x Maintenance of total unencumbered assets > 150% of unsecured debt 242.9 % (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 July 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 July 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 June 30, 2024 (in thousands, for trailing twelve months): Net income attributable to the Company $ 843,548 Plus: interest expense, excluding the amortization of deferred financing costs 854,618 Plus: provision for taxes 58,284 Plus: depreciation and amortization 2,158,056 Plus: provisions for impairment 230,036 Plus: pro forma adjustments 619,867 Less: gain on sales of real estate (55,291) Income available for debt service, as defined $ 4,709,118 Total pro forma debt service charge $ 1,004,180 Debt service coverage ratio 4.7x 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 June 30, 2024 (in thousands, for the trailing twelve months): Income available for debt service, as defined $ 4,719,467 Pro forma debt service charge plus preferred stock dividends $ 1,014,530 Fixed charge coverage ratio 4.7x -36- Table of Contents Credit Agency Ratings The borrowing interest rates under our revolving credit facility are based upon our ratings assigned by credit rating agencies. As of June 30, 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 June 30, 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. Based on our credit agency ratings as of June 30, 2024, interest rates under our credit facility for U.S. borrowings would have been at SOFR, plus 0.725% with a SOFR adjustment charge of 0.10% and a revolving credit facility fee of 0.125%, for all-in drawn pricing of 0.95% over SOFR, for GBP borrowings, at SONIA, plus 0.725% with a SONIA adjustment charge of 0.0326% and a revolving credit facility fee of 0.125%, for all-in drawn pricing of 0.8826% over SONIA, and for EUR Borrowings at one-month 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 June 30, 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 $ 302.2 $ — $ 118.1 $ 350.0 (7) $ 571.5 $ 7.0 $ 15.9 $ 285.3 $ 1,650.0 2025 — 800.0 43.7 1,050.0 933.3 13.7 31.9 151.0 3,023.6 2026 846.6 1,072.0 12.0 2,375.0 773.7 19.4 32.3 41.3 5,172.3 2027 — 500.0 22.3 2,321.3 668.2 12.9 30.5 4.4 3,559.6 2028 — — 1.3 2,499.8 564.3 10.6 27.4 — 3,103.4 Thereafter — — 2.4 13,395.6 2,506.8 311.8 362.9 3.4 16,582.9 Totals $ 1,148.8 $ 2,372.0 $ 199.8 $ 21,991.7 $ 6,017.8 $ 375.4 $ 500.9 $ 485.4 $ 33,091.8 (1) The initial term of the credit facility expires in June 2026 and includes, at our option, two six-month extensions. At June 30, 2024, there were $846.6 million of outstanding borrowings under our revolving credit facility. Commercial paper programs outstanding were $302.2 million at June 30, 2024, which matured in July 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 $393.9 million of commitments under construction contracts, and $91.5 million for tenant improvements, re-leasing costs, recurring capital expenditures, and non-recurring building improvements. (7) In July 2024, we repaid $350.0 million of outstanding 3.875% senior unsecured notes, plus accrued and unpaid interest, upon maturity. Investments in Unconsolidated Entities As of June 30, 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 real estate investment trust ("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 $1.5460 per share to stockholders during the six months ended June 30, 2024, representing 74.0% of our diluted Adjusted Funds from Operations Available to Common Stockholders ("AFFO") per share of $2.09. 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 and six months ended June 30, 2024 and 2023. Total Revenue The following summarizes our total revenue (dollars in thousands): Three months ended June 30, Six months ended June 30, 2024 2023 Change 2024 2023 Change Rental (excluding reimbursable) $ 1,204,160 $ 907,551 $ 296,609 $ 2,339,615 $ 1,773,259 $ 566,356 Rental (reimbursable) 80,568 87,738 (7,170) 153,282 147,319 5,963 Other 54,715 23,916 30,799 107,031 43,026 64,005 Total revenue $ 1,339,443 $ 1,019,205 $ 320,238 $ 2,599,928 $ 1,963,604 $ 636,324 Rental Revenue (excluding reimbursable) The table below summarizes the increase in rental revenue (excluding reimbursable) in the three and six months ended June 30, 2024 compared to the same periods in 2023 (dollars in thousands): Three months ended June 30, Six months ended June 30, Number of Properties 2024 2023 Change Number of Properties 2024 2023 Change Properties acquired during 2024 & 2023 1,490 $ 159,184 $ 57,071 $ 102,113 3,444 $ 596,455 $ 59,800 $ 536,655 Same store rental revenue (1) 13,602 1,000,440 998,178 2,262 11,671 1,680,412 1,673,082 7,330 Constant currency adjustment (2) N/A (39) (632) 593 N/A 708 (3,883) 4,591 Properties sold during and prior to 2024 417 1,850 10,123 (8,273) 250 3,670 11,991 (8,321) Straight-line rent and other non-cash adjustments N/A 4,919 444 4,475 N/A 5,633 (6,013) 11,646 Vacant rents, development and other (3) 358 21,938 23,848 (1,910) 335 36,680 36,365 315 Other excluded revenue (4) N/A 15,868 (278) 16,146 N/A 16,057 1,917 14,140 Less: Spirit rental revenue (5) N/A — (181,203) 181,203 N/A — — — Totals $ 1,204,160 $ 907,551 $ 296,609 $ 2,339,615 $ 1,773,259 $ 566,356 (1) The same store rental revenue percentage increased by 0.2% and 0.4% for the three and six months ended June 30, 2024 as compared with the same periods in 2023, respectively. (2) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as of June 30, 2024. None of the properties in France, Germany, Ireland or Portugal met our same store pool definition for the periods presented. (3) Relates to the aggregate of (i) rental revenue from 302 and 288 properties that were available for lease during part of 2024 or 2023 for the three and six months ended June 30, 2024, and (ii) rental revenue for 56 and 47 properties under development or completed developments that do not meet our same store pool definition for the periods presented three and six months ended June 30, 2024. (4) Primarily consists of lease termination fees of $16.3 million and $16.8 million for the three and six months ended June 30, 2024, respectively, recognized as reimbursements for tenant improvements and rental revenue. (5) Amounts for the three months ended June 30, 2023 represent rental revenue from Spirit properties, which were not included in our financial statements prior to the close of the merger on January 23, 2024. -39- 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. Beginning with the second quarter of 2024, properties acquired through the merger with Spirit were considered under each element of our Same Store Pool criteria, except for the requirement that the property be owned for the full comparative period. If the property was owned by Spirit for the full comparative period and each of the other criteria were met, the property was included in our Same Store Pool. 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 16,424 in-place leases in the portfolio, which excludes 279 vacant units, 13,545, or 82.5%, 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 clients' gross sales, or percentage rent, was $2.4 million and $1.7 million for the three months ended June 30, 2024 and 2023, respectively, and $7.7 million and $5.8 million for the six months ended June 30, 2024 and 2023, respectively. Percentage rent represents less than 1.0% of rental revenue. At June 30, 2024, our portfolio of 15,450 properties was 98.8% leased with 185 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 137 properties available for lease at June 30, 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. 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 for the three months ended June 30, 2024 decreased by $7.2 million as compared with the same period in 2023, primarily due to lower real estate taxes from a modification of tax remittance terms with one of our clients in the prior year period. For the six months ended June 30, 2024, contractually obligated reimbursements increased $6.0 million as compared with the same period in 2023, primarily due to the growth of our portfolio due to acquisitions. 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. Other revenue increased by $30.8 million and $64.0 million for the three and six months ended June 30, 2024 as compared with the same periods in 2023, respectively, primarily due to an increase of $24.0 million and $44.1 million from interest income earned on loans and preferred equity investments for the three and six months ended June 30, 2024, respectively, in addition to higher interest income on financing receivables of $6.3 million and $18.9 million for three and six months ended June 30, 2024, respectively, driven by an increase in recent sale-leaseback transactions with above-market lease terms. -40- Table of Contents Total Expenses The following summarizes our total expenses (in thousands): Three months ended June 30, Six months ended June 30, 2024 2023 Change 2024 2023 Change Depreciation and amortization $ 605,570 $ 472,278 $ 133,292 $ 1,186,634 $ 923,755 $ 262,879 Interest 246,931 183,857 63,074 487,545 337,989 149,556 Property (excluding reimbursable) 19,283 6,965 12,318 35,930 16,781 19,149 Property (reimbursable) 80,568 87,738 (7,170) 153,282 147,319 5,963 General and administrative 45,070 36,829 8,241 85,912 70,996 14,916 Provisions for impairment 96,458 29,815 66,643 185,947 42,993 142,954 Merger and integration-related costs 2,754 341 2,413 96,858 1,648 95,210 Total expenses $ 1,096,634 $ 817,823 $ 278,811 $ 2,232,108 $ 1,541,481 $ 690,627 Total revenue (1) $ 1,258,875 $ 931,467 $ 2,446,646 $ 1,816,285 General and administrative expenses as a percentage of total revenue (1) 3.6 % 4.0 % 3.5 % 3.9 % Property expenses (excluding reimbursable) as a percentage of total revenue (1) 1.5 % 0.7 % 1.5 % 0.9 % (1) Excludes rental revenue (reimbursable). Depreciation and Amortization Depreciation and amortization increased by $133.3 million and $262.9 million for the three and six months ended June 30, 2024 as compared with the same periods in 2023, respectively, primarily due to the Merger with Spirit and the acquisition of properties in 2024 and 2023. Interest Expense The following is a summary of the components of our interest expense (in thousands): Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 Interest on our credit facility, commercial paper, term loans, mortgages, senior unsecured notes and bonds, and interest rate swaps $ 250,129 $ 197,321 $ 493,233 $ 365,287 Credit facility commitment fees 1,343 1,313 2,686 2,642 Amortization of debt origination and deferred financing costs 5,874 6,497 11,693 12,568 Gain on interest rate swaps (1,799) (1,799) (3,600) (3,600) Amortization of net mortgage premiums and discounts 54 (3,196) (69) (6,396) Amortization of net note premiums and discounts 26 (15,125) (4,125) (30,657) Capital lease obligation 533 402 964 805 Interest capitalized (9,229) (1,556) (13,237) (2,660) Interest expense $ 246,931 $ 183,857 $ 487,545 $ 337,989 Credit facility, commercial paper, term loans, mortgages and senior unsecured notes and bonds Average outstanding balances $ 25,445,195 $ 20,406,982 $ 25,048,044 $ 19,594,007 Weighted average interest rates 4.02 % 3.84 % 4.03 % 3.71 % Interest expense increased by $63.1 million and $149.6 million for the three and six months ended June 30, 2024 as compared with the same periods in 2023, respectively, primarily due to the following: (i) issuance of EUR-denominated notes in July 2023, (ii) issuance of GBP-denominated notes in December 2023, (iii) issuance of USD notes in January 2024, (iv) non-cash interest expense related to the discount of Spirit notes assumed in the merger, and (v) higher average balances and interest rates on the credit facility and commercial paper borrowings, all of which were partially offset by an increase in capitalized interest. See notes to the accompanying consolidated financial statements for additional information regarding our indebtedness. -41- Table of Contents 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 $12.3 million and $19.1 million for the three and six months ended June 30, 2024 as compared with the same periods in 2023, respectively, and was 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. Property expenses (reimbursable) decreased by $7.2 million and increased by $6.0 million for the three and six months ended June 30, 2024 as compared with the same periods in 2023, respectively, consistent with changes in our contractually obligated reimbursements billed. 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 $8.2 million and $14.9 million for the three and six months ended June 30, 2024 as compared with the same periods in 2023, respectively, primarily due to higher employee costs compared to the prior year. Provisions for Impairment Provisions for impairment consist of impairment on long-lived assets and allowances for credit losses on financing receivables and loans. Provisions for impairment for the three and six months ended June 30, 2024 relate primarily to two office properties which were acquired and retained in our merger with VEREIT, Inc. ("VEREIT") in 2021, 17 properties leased to clients in bankruptcies, as well as certain properties that are more likely than not to be sold in the next twelve months, summarized in the following table (dollars in millions): Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 Carrying value prior to impairment $ 281.9 $ 97.0 $ 443.9 $ 125.5 Less: total provisions for impairment (1) (87.2) (29.8) (175.4) (43.0) Carrying value after impairment $ 194.7 $ 67.2 $ 268.5 $ 82.5 Number of properties: Classified as held for sale 24 — 26 1 Classified as held for investment 41 7 50 8 Sold 33 27 53 47 (1) Excludes provision for current expected credit loss of $9.3 million and $10.5 million for the three and six months ended June 30, 2024, respectively. 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. During the three and six months ended June 30, 2024, we incurred $2.8 million and $96.9 million, respectively, of merger-related transaction costs primarily related to Spirit, which largely consisted of employee severance, post-combination share-based compensation, transfer taxes, and various professional fees directly attributable to the Merger. For the three and six months ended June 30, 2023, we incurred $0.3 million and $1.6 million of merger and integration-related transaction costs, respectively, in conjunction with our merger with VEREIT in November 2021. -42- Table of Contents Gain on Sales of Real Estate The following summarizes our property dispositions (dollars in millions): Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 Number of properties sold 76 29 122 55 Net sales proceeds $ 106.3 $ 31.9 $ 201.9 $ 60.5 Gain on sales of real estate $ 25.2 $ 7.8 $ 41.7 $ 12.1 Foreign Currency and Derivative Gain (Loss), 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 (loss), net for the three and six months ended June 30, 2024 was a gain of $0.5 million and $4.6 million, respectively, primarily due to derivative gains reclassified from AOCI and undesignated foreign currency swaps offsetting losses on remeasurement of net foreign denominated liabilities. Foreign currency and derivative gain (loss), net was a loss of $2.6 million for the three months ended June 30, 2023 and a gain of $7.8 million for the six months ended June 30, 2023, respectively, primarily due to foreign currency fluctuations related to the remeasurement of intercompany debt as well as on undesignated foreign currency exchange swap agreements. Equity in Earnings of Unconsolidated Entities Equity in earnings for the three and six months ended June 30, 2024 primarily relates to our share of earnings in joint ventures that we made investments in during the fourth quarter of 2023. Equity in earnings for the three and six months ended June 30, 2023 is attributable to distributions in excess of our basis related to three equity method investments acquired in our merger with VEREIT in November of 2021, all of which were sold in 2022. Following the sale of the properties, distributions primarily resulted from the release of holdbacks from property sales, refunds from taxing authorities and distributions of operating cash. Other Income, Net Certain miscellaneous non-recurring revenue is included in 'other income, net'. The increase of $3.1 million and $5.8 million for the three and six months ended June 30, 2024 as compared with the same periods in 2023, respectively, is primarily due to an increase in interest earned on cash and cash equivalents attributable to higher rates and average balances. 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 of $2.7 million and $6.3 million in income taxes for the three and six months ended June 30, 2024 as compared with the same periods in 2023, respectively, is primarily attributable to higher taxable income in the U.K. -43- 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. 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 investments 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. -44- 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 June 30, 2024 2023 Net income $ 260,968 $ 197,153 Interest 246,931 183,857 Income taxes 15,642 12,932 Depreciation and amortization 605,570 472,278 Provisions for impairment 96,458 29,815 Merger and integration-related costs 2,754 341 Gain on sales of real estate (25,153) (7,824) Foreign currency and derivative (gain) loss, net (511) 2,552 Proportionate share of adjustments from unconsolidated entities 16,911 (411) Quarterly Adjusted EBITDA re $ 1,219,570 $ 890,693 Annualized Adjusted EBITDA re (1) $ 4,878,280 $ 3,562,772 Annualized Pro Forma Adjustments $ 33,813 $ 87,712 Annualized Pro Forma Adjusted EBITDA re $ 4,912,093 $ 3,650,484 Total debt per the consolidated balance sheets, excluding deferred financing costs and net premiums and discounts $ 25,712,293 $ 19,538,466 Proportionate share of unconsolidated entities debt, excluding deferred financing costs 659,190 — Less: Cash and cash equivalents (442,820) (253,693) Net Debt (2) $ 25,928,663 $ 19,284,773 Preferred Stock 167,394 — Net Debt and Preferred Stock $ 26,096,057 $ 19,284,773 Net Debt/Annualized Adjusted EBITDA re (3) 5.3 x 5.4 x Net Debt/Annualized Pro Forma Adjusted EBITDA re 5.3 x 5.3 x Net Debt and Preferred/ Annualized Adjusted EBITDA re 5.3 x 5.4 x Net Debt and Preferred/ Annualized Pro Forma Adjusted EBITDA re 5.3 x 5.3 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 investments 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 June 30, 2024 2023 Annualized pro forma adjustments from investments acquired or stabilized $ 39,329 $ 87,510 Annualized pro forma adjustments from investments disposed (5,516) 202 Annualized Pro Forma Adjustments $ 33,813 $ 87,712 -45- 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 June 30, Six months ended June 30, 2024 2023 % Change 2024 2023 % Change FFO available to common stockholders $ 929.1 $ 688.0 35.0 % $ 1,714.8 $ 1,372.3 25.0 % FFO per common share (1) $ 1.07 $ 1.02 4.9 % $ 2.01 $ 2.05 (2.0) % Normalized FFO available to common stockholders $ 931.9 $ 688.3 35.4 % $ 1,811.7 $ 1,373.9 31.9 % Normalized FFO per common share (1) $ 1.07 $ 1.02 4.9 % $ 2.12 $ 2.06 2.9 % (1) All per share amounts are presented on a diluted per common share basis. -46- 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 June 30, Six months ended June 30, 2024 2023 2024 2023 Net income available to common stockholders $ 256,804 $ 195,415 $ 386,500 $ 420,431 Depreciation and amortization 605,570 472,278 1,186,634 923,755 Depreciation of furniture, fixtures and equipment (610) (297) (1,233) (839) Provisions for impairment of real estate 87,204 29,815 175,401 42,993 Gain on sales of real estate (25,153) (7,824) (41,727) (12,103) Proportionate share of adjustments for unconsolidated entities 6,380 (465) 11,054 (465) FFO adjustments allocable to noncontrolling interests (1,062) (937) (1,813) (1,496) FFO available to common stockholders $ 929,133 $ 687,985 $ 1,714,816 $ 1,372,276 FFO allocable to dilutive noncontrolling interests 1,595 1,371 2,935 2,791 Diluted FFO $ 930,728 $ 689,356 $ 1,717,751 $ 1,375,067 FFO available to common stockholders $ 929,133 $ 687,985 $ 1,714,816 $ 1,372,276 Merger and integration-related costs 2,754 341 96,858 1,648 Normalized FFO available to common stockholders $ 931,887 $ 688,326 $ 1,811,674 $ 1,373,924 Normalized FFO allocable to dilutive noncontrolling interests 1,595 1,371 2,935 2,791 Diluted Normalized FFO $ 933,482 $ 689,697 $ 1,814,609 $ 1,376,715 FFO per common share: Basic $ 1.07 $ 1.02 $ 2.01 $ 2.06 Diluted $ 1.07 $ 1.02 $ 2.01 $ 2.05 Normalized FFO per common share, basic and diluted $ 1.07 $ 1.02 $ 2.12 $ 2.06 Distributions paid to common stockholders $ 676,215 $ 515,091 $ 1,312,714 $ 1,012,336 FFO available to common stockholders in excess of distributions paid to common stockholders $ 252,918 $ 172,894 $ 402,102 $ 359,940 Normalized FFO available to common stockholders in excess of distributions paid to common stockholders $ 255,672 $ 173,235 $ 498,960 $ 361,588 Weighted average number of common shares used for FFO and Normalized FFO: Basic 870,319 674,109 852,621 667,357 Diluted 872,520 676,388 854,806 669,903 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. -47- 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 June 30, Six months ended June 30, 2024 2023 % Change 2024 2023 % Change AFFO available to common stockholders $ 921.1 $ 671.7 37.1 % $ 1,783.9 $ 1,322.5 34.9 % AFFO per common share (1) $ 1.06 $ 1.00 6.0 % $ 2.09 $ 1.98 5.6 % (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. -48- 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 June 30, Six months ended June 30, 2024 2023 2024 2023 Net income available to common stockholders $ 256,804 $ 195,415 $ 386,500 $ 420,431 Cumulative adjustments to calculate Normalized FFO (1) 675,083 492,911 1,425,174 953,493 Normalized FFO available to common stockholders 931,887 688,326 1,811,674 1,373,924 Amortization of share-based compensation 7,267 7,623 16,519 13,923 Amortization of net debt discounts (premiums) and deferred financing costs (2) 799 (10,509) 5,000 (24,197) Non-cash gain on interest rate swaps (1,799) (1,799) (3,600) (3,600) Non-cash change in allowance for credit losses 9,254 — 10,546 — Straight-line impact of cash settlement on interest rate swaps (3) 1,797 1,797 3,595 3,595 Leasing costs and commissions (2,129) (5,032) (3,056) (5,476) Recurring capital expenditures (52) (85) (52) (138) Straight-line rent and expenses, net (47,587) (33,963) (92,447) (70,448) Amortization of above and below-market leases, net 13,806 19,670 28,080 37,028 Proportionate share of adjustments for unconsolidated entities (538) — 382 — Other adjustments (4) 8,369 5,709 7,304 (2,145) AFFO available to common stockholders $ 921,074 $ 671,737 $ 1,783,945 $ 1,322,466 AFFO allocable to dilutive noncontrolling interests 1,587 1,382 2,946 2,813 Diluted AFFO $ 922,661 $ 673,119 $ 1,786,891 $ 1,325,279 AFFO per common share, basic and diluted $ 1.06 $ 1.00 $ 2.09 $ 1.98 Distributions paid to common stockholders $ 676,215 $ 515,091 $ 1,312,714 $ 1,012,336 AFFO available to common stockholders in excess of distributions paid to common stockholders $ 244,859 $ 156,646 $ 471,231 $ 310,130 Weighted average number of common shares used for computation per share: Basic 870,319 674,109 852,621 667,357 Diluted 872,520 676,388 854,806 669,903 (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. -49- 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 June 30, 2024, out of the 15,450 properties that we owned or held interests in, 15,265 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 Jun 30, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Grocery 10.2% 11.4% 10.0% 10.2% 9.8% Convenience Stores 9.4 10.2 8.6 9.1 11.9 Dollar Stores 6.6 7.1 7.4 7.5 7.6 Home Improvement 5.9 5.9 5.6 5.1 4.3 Drug Stores 4.9 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 4.5 3.9 4.4 4.7 6.7 Restaurants-Casual Dining 4.2 4.4 5.1 5.9 2.8 General Merchandise 3.3 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 June 30, 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 14,819 210,755,000 $ 3,844,629 79.4 % Industrial 560 114,395,100 705,061 14.5 Gaming 2 5,053,400 159,695 3.3 Other (2) 69 5,095,200 136,647 2.8 Totals 15,450 335,298,700 $ 4,846,032 100.0 % (1) Represents leasable building square footage and includes our portfolio of unconsolidated joint ventures based on ownership percentage. Excludes 2,962 acres of leased land categorized as agriculture at June 30, 2024. (2) "Other" primarily includes 15 properties classified as office with $45.7 million in annualized contractual rent, 27 properties classified as agriculture with $38.1 million in annualized contractual rent, three properties classified as data centers with $25.8 million in annualized contractual rent, and 21 properties classified as country clubs with $23.2 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 or interest earned on loans and preferred equity investments, at June 30, 2024: Client Number of Leases Percentage of Total Portfolio Annualized Contractual Rent (1) Dollar General 1,758 3.4 % Walgreens 400 3.3 Dollar Tree / Family Dollar 1,389 3.1 7-Eleven 639 2.6 EG Group Limited 415 2.2 Wynn Resorts 1 2.1 Lifetime Fitness 38 2.0 FedEx 82 2.0 BJ's Wholesale Club 44 1.6 (B&Q) Kingfisher 51 1.6 Asda 38 1.6 Sainsbury's 36 1.5 CVS Pharmacy 215 1.3 LA Fitness 67 1.3 Tesco 24 1.2 MGM (Bellagio) 1 1.2 Walmart / Sam's Club 72 1.2 Tractor Supply 207 1.2 AMC Theaters 39 1.1 Red Lobster 211 1.0 Total 5,727 36.2 % (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 June 30, 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 198 2 1,906,300 $ 25,309 0.5 % 2025 905 35 13,451,800 203,941 4.2 2026 940 45 19,793,500 234,538 4.8 2027 1,571 47 26,739,300 343,952 7.1 2028 1,844 70 36,163,700 450,787 9.3 2029 1,794 48 33,308,900 416,913 8.6 2030 718 32 20,611,900 239,901 5.0 2031 625 52 27,552,500 306,810 6.3 2032 1,119 46 22,130,500 303,035 6.3 2033 941 26 22,015,700 270,419 5.6 2034 783 28 16,950,500 309,509 6.4 2035 571 23 10,304,100 184,183 3.8 2036 579 23 10,715,500 184,975 3.8 2037 578 23 12,218,200 166,054 3.4 2038 360 24 12,425,500 140,052 2.9 2039-2143 2,245 129 45,380,200 1,065,654 22.0 Totals 15,771 653 331,668,100 $ 4,846,032 100.0 % (1) Leases on our multi-client properties are counted separately in the table above. This table excludes 279 vacant units. Geographic Diversification The following table sets forth certain geographic information regarding our property portfolio as of June 30, 2024 (dollars in thousands): Location Number of Properties Percent Leased Approximate Leasable Square Feet Percentage of Total Portfolio Annualized Contractual Rent Alabama 502 99 % 5,920,300 1.8 % Alaska 16 100 622,800 0.2 Arizona 296 100 4,966,100 1.9 Arkansas 311 100 3,534,900 1.0 California 380 100 14,097,900 5.0 Colorado 200 98 3,933,800 1.1 Connecticut 59 98 2,664,400 0.6 Delaware 25 100 264,100 0.1 Florida 1,036 99 13,491,700 5.2 Georgia 725 98 12,011,000 3.6 Hawaii 22 100 47,800 0.2 Idaho 41 98 408,000 0.2 Illinois 604 98 14,822,900 4.5 Indiana 468 99 12,317,300 2.5 Iowa 127 98 4,434,300 0.8 Kansas 215 97 5,579,400 1.0 Kentucky 427 99 7,004,000 1.5 Louisiana 382 100 5,978,600 1.7 Maine 112 100 1,300,500 0.6 Maryland 90 98 4,428,300 1.2 Massachusetts 215 100 7,560,600 4.0 Michigan 571 99 8,679,400 2.6 Minnesota 292 99 5,732,200 1.8 Mississippi 358 99 5,548,000 1.2 Missouri 452 98 6,888,500 1.8 Montana 30 100 400,500 0.2 Nebraska 90 99 1,356,700 0.3 Nevada 75 100 4,615,400 1.9 New Hampshire 68 99 1,284,700 0.5 New Jersey 158 96 2,735,000 1.3 New Mexico 144 99 2,149,500 0.7 New York 376 99 6,814,100 2.9 North Carolina 493 98 10,179,600 2.7 North Dakota 25 96 537,900 0.2 Ohio 814 98 21,661,600 4.1 Oklahoma 394 99 5,582,700 1.5 Oregon 46 100 765,300 0.3 Pennsylvania 368 98 7,393,000 2.1 Rhode Island 34 100 343,900 0.2 South Carolina 395 99 6,372,500 1.9 South Dakota 39 97 545,200 0.2 Tennessee 570 99 9,760,200 2.5 Texas 1,900 99 36,298,700 10.5 Utah 57 100 2,618,700 0.6 Vermont 19 100 175,300 0.1 Virginia 413 99 9,131,600 2.6 Washington 89 97 1,959,200 0.7 West Virginia 105 100 1,078,000 0.4 Wisconsin 323 100 8,555,900 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 5 100 423,400 0.2 Italy 33 100 2,431,300 0.6 Portugal 5 100 142,300 * Spain 90 100 6,772,600 1.2 United Kingdom 302 100 29,079,900 11.2 Totals/average 15,450 99 % 335,298,700 100.0 % • *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, to our consolidated financial statements in our Annual Report.