REALTY INCOME CORP 10-Q

Item 1: Financial Statements REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited) September 30, 2024 December 31, 2023 ASSETS Real estate held for investment, at cost: Land $ 17,140,719 $ 14,929,310 Buildings and improvements 40,608,341 34,657,094 Total real estate held for investment, at cost 57,749,060 49,586,404 Less accumulated depreciation and amortization ( 7,066,449 ) ( 6,072,118 ) Real estate held for investment, net 50,682,611 43,514,286 Real estate and lease intangibles held for sale, net 60,467 31,466 Cash and cash equivalents 396,956 232,923 Accounts receivable, net 835,328 710,536 Lease intangible assets, net 6,600,058 5,017,907 Goodwill 4,932,199 3,731,478 Investment in unconsolidated entities 1,224,974 1,172,118 Other assets, net 3,736,173 3,368,643 Total assets $ 68,468,766 $ 57,779,357 LIABILITIES AND EQUITY Distributions payable $ 233,139 $ 195,222 Accounts payable and accrued expenses 880,122 738,526 Lease intangible liabilities, net 1,676,549 1,406,853 Other liabilities 863,683 811,650 Line of credit payable and commercial paper 427,546 764,390 Term loans, net 2,428,279 1,331,841 Mortgages payable, net 197,522 821,587 Notes payable, net 23,092,216 18,602,319 Total liabilities $ 29,799,056 $ 24,672,388 Commitments and contingencies (note 20) Stockholders’ equity: Common stock and paid in capital, par value $ 0.01 per share, 1,300,000 shares authorized, 875,197 and 752,460 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively $ 46,505,688 $ 39,629,709 Distributions in excess of net income ( 8,151,359 ) ( 6,762,136 ) Accumulated other comprehensive income 103,463 73,894 Total stockholders’ equity $ 38,457,792 $ 32,941,467 Noncontrolling interests 211,918 165,502 Total equity $ 38,669,710 $ 33,106,969 Total liabilities and equity $ 68,468,766 $ 57,779,357 The accompanying notes to consolidated financial statements are an integral part of these statements. -2- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (in thousands, except per share amounts) (unaudited) Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 REVENUE Rental (including reimbursable) $ 1,271,153 $ 1,008,862 $ 3,764,050 $ 2,929,440 Other 59,762 30,242 166,793 73,268 Total revenue 1,330,915 1,039,104 3,930,843 3,002,708 EXPENSES Depreciation and amortization 602,339 495,566 1,788,973 1,419,321 Interest 261,261 184,121 748,806 522,110 Property (including reimbursable) 92,154 70,981 281,366 235,081 General and administrative 41,869 35,525 127,781 106,521 Provisions for impairment 96,920 16,808 282,867 59,801 Merger, transaction, and other costs 8,610 2,884 105,468 4,532 Total expenses 1,103,153 805,885 3,335,261 2,347,366 Gain on sales of real estate 50,563 7,572 92,290 19,675 Foreign currency and derivative (loss) gain, net ( 1,672 ) ( 2,813 ) 2,885 4,957 Equity in earnings of unconsolidated entities 5,087 — 5,440 411 Other income, net 4,739 7,235 16,293 12,985 Income before income taxes 286,479 245,213 712,490 693,370 Income taxes ( 15,355 ) ( 11,336 ) ( 46,499 ) ( 36,218 ) Net income 271,124 233,877 665,991 657,152 Net income attributable to noncontrolling interests ( 1,639 ) ( 404 ) ( 4,831 ) ( 3,248 ) Net income attributable to the Company 269,485 233,473 661,160 653,904 Preferred stock dividends ( 2,588 ) — ( 7,763 ) — Excess of redemption value over carrying value of preferred shares redeemed ( 5,116 ) — ( 5,116 ) — Net income available to common stockholders $ 261,781 $ 233,473 $ 648,281 $ 653,904 Amounts available to common stockholders per common share: Net income, basic and diluted $ 0.30 $ 0.33 $ 0.75 $ 0.96 Weighted average common shares outstanding: Basic 870,665 709,165 858,679 681,419 Diluted 872,052 709,543 859,462 682,129 Net income available to common stockholders $ 261,781 $ 233,473 $ 648,281 $ 653,904 Total other comprehensive income (loss) Foreign currency translation adjustment 74,615 ( 61,401 ) 59,797 ( 3,605 ) Unrealized (loss) gain on derivatives, net ( 46,474 ) 7,193 ( 30,228 ) ( 1,379 ) Total other comprehensive income (loss) $ 28,141 $ ( 54,208 ) $ 29,569 $ ( 4,984 ) Comprehensive income available to common stockholders $ 289,922 $ 179,265 $ 677,850 $ 648,920 The accompanying notes to consolidated financial statements are an integral part of these statements. -3- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (in thousands) (unaudited) Three months ended September 30, 2024, and 2023 Shares of preferred stock Preferred stock and paid in capital Shares of common stock Common stock and paid in capital Distributions in excess of net income Accumulated other comprehensive income Total stockholders’ equity Non-controlling interests Total equity Balance, June 30, 2024 6,900 $ 167,394 870,848 $ 46,230,789 $ ( 7,724,318 ) $ 75,322 $ 38,581,793 $ 165,277 $ 38,747,070 Net income — — — — 269,485 — 269,485 1,639 271,124 Other comprehensive income — — — — — 28,141 28,141 — 28,141 Distributions paid and payable — — — — ( 691,410 ) ( 691,410 ) ( 2,740 ) ( 694,150 ) Share issuances, net of costs — — 4,354 269,272 — — 269,272 — 269,272 Contributions by noncontrolling interests — — — — — — — 489 489 Issuance of common partnership units — — — ( 768 ) — — ( 768 ) 47,253 46,485 Preferred shares redeemed ( 6,900 ) ( 167,394 ) — — ( 5,116 ) — ( 5,116 ) — ( 5,116 ) Share-based compensation, net — — ( 5 ) 6,395 — — 6,395 — 6,395 Balance, September 30, 2024 — $ — 875,197 $ 46,505,688 $ ( 8,151,359 ) $ 103,463 $ 38,457,792 $ 211,918 $ 38,669,710 Balance, June 30, 2023 — $ — 708,773 $ 37,149,380 $ ( 6,102,226 ) $ 96,057 $ 31,143,211 $ 167,932 $ 31,311,143 Net income — — — — 233,473 — 233,473 404 233,877 Other comprehensive loss — — — — — ( 54,208 ) ( 54,208 ) — ( 54,208 ) Distributions paid and payable — — — — ( 547,781 ) — ( 547,781 ) ( 2,497 ) ( 550,278 ) Share issuances, net of costs — — 15,122 876,253 — — 876,253 — 876,253 Contributions by noncontrolling interests — — — — — — — 435 435 Share-based compensation, net — — ( 1 ) 6,196 — — 6,196 — 6,196 Balance, September 30, 2023 — $ — 723,894 $ 38,031,829 $ ( 6,416,534 ) $ 41,849 $ 31,657,144 $ 166,274 $ 31,823,418 Nine months ended September 30, 2024 and 2023 Shares of preferred stock Preferred stock and paid in capital Shares of common stock Common stock and paid in capital Distributions in excess of net income Accumulated other comprehensive income Total stockholders’ equity Non-controlling interests Total equity Balance, December 31, 2023 — $ — 752,460 $ 39,629,709 $ ( 6,762,136 ) $ 73,894 $ 32,941,467 $ 165,502 $ 33,106,969 Net income — — — — 661,160 — 661,160 4,831 665,991 Other comprehensive income — — — — — 29,569 29,569 — 29,569 Distributions paid and payable — — — — ( 2,045,267 ) — ( 2,045,267 ) ( 7,438 ) ( 2,052,705 ) Share issuances, net of costs — — 14,073 818,724 — — 818,724 — 818,724 Shares issued with merger 6,900 167,394 108,308 6,043,641 — — 6,043,641 — 6,043,641 Contributions by noncontrolling interests — — — — — — — 1,770 1,770 Issuance of common partnership units — — — ( 768 ) — — ( 768 ) 47,253 46,485 Preferred shares redeemed ( 6,900 ) ( 167,394 ) — — ( 5,116 ) — ( 5,116 ) — ( 5,116 ) Share-based compensation, net — — 356 14,382 — — 14,382 — 14,382 Balance, September 30, 2024 — $ — 875,197 $ 46,505,688 $ ( 8,151,359 ) $ 103,463 $ 38,457,792 $ 211,918 $ 38,669,710 Balance December 31, 2022 — $ — 660,300 $ 34,159,509 $ ( 5,493,193 ) $ 46,833 $ 28,713,149 $ 130,140 $ 28,843,289 Net income — — — — 653,904 — 653,904 3,248 657,152 Other comprehensive loss — — — — — ( 4,984 ) ( 4,984 ) — ( 4,984 ) Distributions paid and payable — — — — ( 1,577,245 ) — ( 1,577,245 ) ( 7,108 ) ( 1,584,353 ) Share issuances, net of costs — — 63,348 3,858,347 — — 3,858,347 — 3,858,347 Contributions by noncontrolling interests — — — — — — — 39,994 39,994 Share-based compensation, net — — 246 13,973 — — 13,973 — 13,973 Balance, September 30, 2023 — $ — 723,894 $ 38,031,829 $ ( 6,416,534 ) $ 41,849 $ 31,657,144 $ 166,274 $ 31,823,418 The accompanying notes to consolidated financial statements are an integral part of these statements. -4- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine months ended September 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 665,991 $ 657,152 Adjustments to net income: Depreciation and amortization 1,788,973 1,419,321 Amortization of share-based compensation 47,671 20,154 Non-cash revenue adjustments ( 95,324 ) ( 51,272 ) Amortization of net premiums on mortgages payable ( 18 ) ( 9,597 ) Amortization of net premiums on notes payable ( 3,883 ) ( 45,647 ) Amortization of deferred financing costs 17,694 19,498 Foreign currency and unrealized derivative (gain) loss, net ( 33,582 ) 10,188 Non-cash interest expense (income) 9,179 ( 5,390 ) Gain on sales of real estate ( 92,290 ) ( 19,675 ) Equity in earnings of unconsolidated entities ( 5,440 ) ( 411 ) Distributions on common equity from unconsolidated entities 15,608 — Provisions for impairment 282,867 59,801 Change in assets and liabilities Accounts receivable and other assets 40,338 ( 17,538 ) Accounts payable, accrued expenses and other liabilities ( 36,471 ) 161,527 Net cash provided by operating activities 2,601,313 2,198,111 CASH FLOWS FROM INVESTING ACTIVITIES Investment in real estate ( 1,611,794 ) ( 6,702,140 ) Improvements to real estate, including leasing costs ( 85,204 ) ( 47,107 ) Investment in unconsolidated entities ( 57,014 ) — Investment in loans ( 377,490 ) — Proceeds from sales of real estate 451,365 92,772 Return of investment from unconsolidated entities — 3,927 Proceeds from note receivable 51,562 — Insurance proceeds received 2,418 15,177 Non-refundable escrow deposits ( 38,750 ) ( 1,188 ) Net cash acquired in merger 93,683 — Net cash used in investing activities ( 1,571,224 ) ( 6,638,559 ) CASH FLOWS FROM FINANCING ACTIVITIES Cash distributions to common stockholders ( 1,999,858 ) ( 1,555,679 ) Cash distributions to preferred stockholders ( 7,763 ) — Borrowings on line of credit and commercial paper programs 24,698,502 33,021,401 Payments on line of credit and commercial paper programs ( 25,079,449 ) ( 34,909,165 ) Proceeds from term loan — 1,029,383 Principal payment on term loan ( 250,000 ) — Proceeds from notes payable issued 2,657,925 3,263,294 Principal payment on notes payable ( 849,999 ) — Principal payments on mortgages payable ( 626,321 ) ( 20,842 ) Proceeds from common stock offerings, net 809,910 3,849,963 Proceeds from dividend reinvestment and stock purchase plan 8,814 8,382 Redemption of preferred stock ( 172,510 ) — Distributions to noncontrolling interests ( 7,185 ) ( 5,585 ) Net receipts on derivative settlements — 2,191 Debt issuance costs ( 59,285 ) ( 35,014 ) Other items, including shares withheld upon vesting ( 8,591 ) ( 6,181 ) Net cash (used in) provided by financing activities ( 885,810 ) 4,642,148 Effect of exchange rate changes on cash and cash equivalents 11,423 2,083 Net increase in cash, cash equivalents and restricted cash 155,702 203,783 Cash, cash equivalents and restricted cash, beginning of period 292,175 226,881 Cash, cash equivalents and restricted cash, end of period $ 447,877 $ 430,664 For supplemental disclosures, see note 19 , S upplemental Disclosures of Cash Flow Information . The accompanying notes to consolidated financial statements are an integral part of these statements. -5- Table of Contents REALTY INCOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2024 (unaudited) 1. Summary of Significant Accounting Policies Realty Income Corporation (“Realty Income,” the “Company,” “we,” “our” or “us”), a Maryland corporation, is an S&P 500 company and real estate partner to the world's leading companies. The Company was founded in 1969 and our shares of common stock trade on the New York Stock Exchange ("NYSE") under the symbol “O”. As of September 30, 2024, we owned or held interests in a diversified portfolio of 15,457 properties located in all 50 states of the United States ("U.S."), the United Kingdom ("U.K."), and six other countries in Europe, with approximately 336.6 million square feet of leasable space. In January 2024, we completed our merger with Spirit Realty Capital, Inc. (“Spirit”). For more details, please see note 2 , Merger with Spirit Realty Capital, Inc. Basis of Presentation . These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Intercompany accounts and transactions are eliminated in consolidation. The U.S. dollar ("USD") is our reporting currency. Unless otherwise indicated, all dollar amounts are expressed in USD. For our consolidated subsidiaries whose functional currency is not the USD, we translate their financial statements into USD at the time we consolidate those subsidiaries’ financial statements. Generally, assets and liabilities are translated at the exchange rate in effect at the balance sheet date. The resulting translation adjustments are included in 'Accumulated other comprehensive income' ("AOCI") on our consolidated balance sheets. Certain balance sheet items, primarily equity and capital-related accounts, are reflected at the historical exchange rate. Income statement accounts are translated using the average exchange rate for the period. We and certain of our consolidated subsidiaries have intercompany and third-party debt that is not denominated in our functional currency. When the debt is remeasured to the functional currency of the entity, a gain or loss can result. The resulting adjustment is reflected in 'Foreign currency and derivative (loss) gain, net' in our consolidated statements of income and comprehensive income. In the statement of cash flows, cash flows denominated in foreign currencies are translated using the exchange rates in effect at the time of the respective cash flows or at average exchange rates for the period, depending on the nature of the cash flow items. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented have been included. Operating results for the three and nine months ended September 30, 2024 are not necessarily an indication of the results that may be expected for the entire year. Readers of this quarterly report should refer to our audited consolidated financial statements for the year ended December 31, 2023, which are included in our 2023 Annual Report on Form 10-K , as certain disclosures that would substantially duplicate those contained in the audited financial statements have not been included in this report. Principles of Consolidation. These consolidated financial statements include the accounts of Realty Income and all other entities in which we have a controlling financial interest. We evaluate whether we have a controlling financial interest in an entity in accordance with Accounting Standards Codification ("ASC") 810, Consolidation. Voting interest entities ("VOEs") are entities considered to have sufficient equity at risk and which the equity holders have the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. We consolidate voting interest entities in which we have a controlling financial interest, which we typically have through holding of a majority of the entity’s voting equity interests. Variable interest entities ("VIEs") are entities that lack sufficient equity at risk or where the equity holders either do not have the obligation to absorb losses, do not have the right to receive residual returns, do not have the right to make decisions about the entity’s activities, or some combination of the above. A controlling financial interest in a VIE is present when an entity has a variable interest, or a combination of variable interests, that provides the entity with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially -6- Table of Contents be significant to the VIE. An entity that meets both conditions above is deemed the primary beneficiary and consolidates the VIE. We reassess our initial evaluation of whether an entity is a VIE when certain reconsideration events occur. We reassess our determination of whether we are the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances. At September 30, 2024, we are considered the primary beneficiary of Realty Income, L.P. and certain investments, including investments in joint ventures. Below is a summary of selected financial data of such consolidated VIEs, included on our consolidated balance sheets at September 30, 2024 and December 31, 2023 (in thousands): September 30, 2024 December 31, 2023 Net real estate $ 2,907,604 $ 2,866,272 Total assets $ 3,549,127 $ 3,588,720 Total liabilities $ 154,092 $ 134,366 The portion of a consolidated entity not owned by us is recorded as a noncontrolling interest. Noncontrolling interests are reflected on our consolidated balance sheets as a component of equity. Noncontrolling interests that were created or assumed as part of a business combination or asset acquisition were recognized at fair value as of the date of the transaction (see note 11, Noncontrolling Interests ). Use of Estimates. The consolidated financial statements were prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Segment Reporting. We report our results in a single reportable segment, which reflects how our chief operating decision maker allocates resources and assesses our performance. Income Taxes. We have elected to be taxed as a real estate investment trust ("REIT"), under the Internal Revenue Code of 1986, as amended. We believe we have qualified and continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income. Assuming our dividends equal or exceed our taxable net income in the U.S., we generally will not be required to pay U.S. income taxes on such income. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of our taxable REIT subsidiaries ("TRS"). A TRS is a subsidiary of a REIT that is subject to federal, state and local income taxes, as applicable. Our use of TRS entities enables us to engage in certain business activities while complying with the REIT qualification requirements and to retain any income generated by these businesses for reinvestment without the requirement to distribute those earnings. For our international territories, we are liable for taxes in the U.K. and Spain. Accordingly, provisions have been made for U.K. and Spain income taxes. Therefore, the income taxes recorded on our consolidated statements of income and comprehensive income represent amounts accrued or paid by Realty Income and its subsidiaries for U.S. income taxes on our TRS entities, city and state income and franchise taxes, and income taxes for the U.K. and Spain. Earnings and profits that determine the taxability of distributions to stockholders differ from net income reported for financial reporting purposes primarily due to differences in the estimated useful lives and methods used to compute depreciation and the carrying value (basis) of the investments in properties for tax purposes, among other things. We regularly analyze our various international, federal and state filing positions and only recognize the income tax effect in our financial statements when certain criteria regarding uncertain income tax positions have been met. We believe that our income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities. Therefore, no provisions for uncertain tax positions have been recorded on our consolidated financial statements. Lease Revenue Recognition and Accounts Receivable. The majority of our leases are accounted for as operating leases. Under this method, leases that have fixed and d eterminable rent increases are recognized on a straight-line basis over the lease term. Any rental revenue contingent upon a client’s sales, or percentage rent, is recognized only after such client exceeds its sales breakpoint. Rental increases based upon changes in the consumer price indices are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements. Contractually obligated rental revenue from our clients for recoverable real estate taxes and operating expenses are included in contractually obligated reimbursements by our clients, a component of rental revenue, in the period when such costs are incurred. Taxes and operating expenses paid directly by our clients are recorded on a net basis. -7- Table of Contents Other revenue includes certain property-related revenue not included in rental revenue and interest income recognized on financing receivables for above-market leases acquired through sale-leaseback transactions. We assess the probability of collecting substantially all of the lease payments to which we are entitled under the original lease contract as required under ASC 842, Leases . We assess the collectability of our future lease payments based on an analysis of creditworthiness, economic trends and other facts and circumstances related to the applicable clients. If we conclude the collection of substantially all of the lease payments under a lease is less than probable, rental revenue recognized for that lease is limited to cash received going forward, existing operating lease receivables, including those related to straight-line rental revenue, must be written off as an adjustment to rental revenue, and no further operating lease receivables are recorded for that lease until such future determination is made that substantially all lease payments under that lease are now considered probable. If we subsequently conclude that the collection of substantially all lease payments under a lease is probable, a reversal of lease receivables previously written off is recognized. Loans Receivable . We hold our loans receivable for long-term investment. We recognize interest income on loans receivable using the effective-interest method. Direct costs associated with originating loans, along with any premium or discount, are deferred and amortized as an adjustment to interest income over the term of the loan using the effective interest method. When management identifies the full recovery of the contractually specified payments of principal and interest of a loan is less than probable, we evaluate the expected loss amount and place it on non-accrual status. We made the accounting policy election to record accrued interest on our loan portfolio separate from our loan receivable and other lending investments. These loans and the related interest receivable are presented in 'Other assets, net' on our consolidated balance sheets. Financing Receivables. For properties we acquire that qualify as sale-leaseback transactions and the purchase price is in excess of the fair value of the real estate acquired, the difference is accounted for as financing receivables, presented within 'Other assets, net' on our consolidated balance sheets. Rent payments are allocated between rental income and the financing receivable. Interest income on the financing receivable is recognized using the interest rate implicit in the leaseback and presented within 'Other' revenue in our consolidated statement of income and comprehensive income. Allowance for Credit Losses . The allowance for credit losses, which is recorded as a reduction to loans receivable and financing receivable within 'Other assets, net' on our consolidated balance sheets, is measured using a probability of default method based on our clients' respective credit ratings, our historical experience, and the expected value of the underlying collateral upon its repossession. If we determine a financing receivable no longer shares risk characteristics with other financing receivables in the pool, we evaluate the financing receivable for expected credit losses on an individual basis. Included in our model are factors that incorporate forward-looking information. Changes in our allowance for credit losses are presented in 'Provisions for impairment' in our consolidated statements of income and comprehensive income. The following summarizes the activity within the allowance for credit losses related to loans and financing receivable for the nine months ended September 30, 2024 (in millions): Loans Receivable Financing Receivable Total Allowance for credit losses at December 31, 2023 $ 2.5 $ 2.4 $ 4.9 Provision for credit losses (1) 4.5 69.8 74.3 Initial allowance for PCD assets (2) 1.8 — 1.8 Write-offs (3) ( 1.8 ) — ( 1.8 ) Foreign currency remeasurement 0.4 — 0.4 Allowance for credit losses at September 30, 2024 $ 7.4 $ 72.2 $ 79.6 (1) During the nine months ended September 30, 2024, provisions for credit losses on loans receivable were primarily attributable to loans acquired during 2024. The increase in provision for credit losses on financing receivables is primarily due to a client in the convenience store industry that has defaulted on their lease payments and was fully reserved for as of September 30, 2024. (2) Includes the recognition of an initial expected credit loss of $ 1.8 million for a purchased credit deteriorated ("PCD") loan we acquired in conjunction with our merger with Spirit. (3) Includes a reduction due to the sale of a PCD loan in September 2024. -8- Table of Contents Merger, Transaction, and Other Costs. Merger, transaction, and other costs include (i) merger-related transaction costs, primarily consisting of employee severance, post-combination share-based compensation, transfer taxes, and various professional fees directly attributable to a merger, (ii) organization costs for potential strategic ventures and business lines, (iii) corporate facilities lease termination costs, and (iv) other costs that do not align with the ongoing operations of our business. During the three and nine months ended September 30, 2024, we incurred $ 8.6 million and $ 105.5 million, respectively, of merger, transaction, and other costs consisting primarily of $ 2.9 million and $ 99.8 million, respectively, of transaction and integration-related costs related to Spirit and $ 5.1 million for each of the respective periods related to the lease termination of a legacy corporate facility. Recent Accounting Standards Not Yet Adopted. In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes , to enhance income tax disclosures, provide more information about tax risks and opportunities present in worldwide operations, and to disaggregate existing income tax disclosures. The guidance is effective for annual periods beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. We are currently evaluating the impact on our financial statement disclosures. In November 2023, FASB issued Accounting Standards Update ASU 2023-07, Segment Reporting , establishing improvements to reportable segments disclosures to enhance segment reporting under Topic 280. This ASU aims to change how public entities identify and aggregate operating segments and apply quantitative thresholds to determine their reportable segments. This ASU also requires public entities that operate as a single reportable segment to provide all segment disclosures in Topic 280, not just entity level disclosures. The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024 and the amendments should be applied retrospectively to all periods presented in the financial statements. We are currently evaluating the impact on our financial statement disclosures. 2. Merger with Spirit Realty Capital, Inc. On October 29, 2023, we entered into an Agreement and Plan of Merger (as amended, or the “Merger Agreement”) with Saints MD Subsidiary, Inc., (“Merger Sub”) a Maryland corporation and direct wholly owned subsidiary of Realty Income and Spirit, a Maryland corporation. On January 23, 2024, we completed our merger with Spirit. Pursuant to the terms and subject to the conditions of the Merger Agreement, Spirit merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation (the “Merger”). At the effective time of the Merger (the “Effective Time”), (i) each outstanding share of Spirit common stock, par value $ 0.05 per share, automatically converted into 0.762 (the “Exchange Ratio”) of a newly issued share of our common stock, subject to adjustments as set forth in the Merger Agreement, and cash in lieu of fractional shares, and (ii) each outstanding share of Spirit’s 6.000 % Series A Cumulative Redeemable Preferred Stock, par value $ 0.01 per share, converted into the right to receive one share of newly issued Realty Income 6.000 % Series A Cumulative Redeemable Preferred Stock (“Realty Income Series A preferred stock”), having substantially the same terms as the Spirit Series A Preferred Stock. Immediately prior to the Effective Time, each award of outstanding restricted Spirit common stock and Spirit performance share award was cancelled and converted into Realty Income common stock, using the Exchange Ratio. For more details, see note 16, Series A Preferred Stock. The primary reason for the merger was to expand our size, scale and diversification, in order to further position us as the real estate partner of choice for large net lease transactions. -9- Table of Contents Our merger with Spirit has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations , with Realty Income as the accounting acquirer, which requires, among other things, that the assets acquired, and liabilities assumed be recognized at their acquisition date fair value. The fair value of the consideration transferred on the date of the acquisition is as follows (in thousands, except share and per share data): Shares of Spirit common stock exchanged (1) 142,136,567 Exchange Ratio 0.762 Shares of Realty Income common stock issued 108,308,064 Opening price of Realty Income common stock on January 23, 2024 $ 55.80 Fair value of Realty Income common stock issued to the former holders of Spirit common stock $ 6,043,590 Shares of Realty Income Series A preferred stock issued in exchange for Spirit Series A preferred stock 6,900,000 Opening price of Realty Income Series A preferred stock on January 23, 2024 $ 24.26 Fair value of Realty Income Series A preferred stock issued to the former holders of Spirit Series A preferred stock $ 167,394 Cash paid for fractional shares $ 51 Less: Fair value of Spirit restricted stock and performance awards attributable to post-combination costs (2) $ ( 24,751 ) Consideration transferred $ 6,186,284 (1) Includes 142,136,567 shares of Spirit common stock outstanding as of January 23, 2024, which were converted into Realty Income common stock at the Effective Time at an Exchange Ratio of 0.762 per share of Spirit common stock. The portion of the converted unvested Spirit Restricted Stock Awards related to post-combination expense is removed in footnote (2) below. (2) Represents the fair value of fully vested Spirit restricted stock and performance share awards that were accelerated and converted into Realty Income common stock at the Effective Time, reflecting the value attributable to post-combination services. Spirit restricted stock and performance share awards are included in Spirit's outstanding common stock as of the merger date. The fair value attributable to pre-combination services was $ 41.7 million and is included in the consideration transferred above. A. Preliminary Purchase Price Allocation The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands): At Acquisition Date As Reported March 31, 2024 Measurement Period Adjustments At Acquisition Date As Reported September 30, 2024 ASSETS Land $ 1,853,895 $ 3,247 $ 1,857,142 Buildings and improvements 4,859,162 90,314 4,949,476 Total real estate held for investment 6,713,057 93,561 6,806,618 Real estate and lease intangibles held for sale 35,650 ( 1,583 ) 34,067 Cash and cash equivalents 93,683 — 93,683 Accounts receivable 12,959 ( 145 ) 12,814 Lease intangible assets (1) 2,214,615 ( 32,804 ) 2,181,811 Goodwill 1,259,864 ( 59,143 ) 1,200,721 Other assets (2) 174,672 ( 1,881 ) 172,791 Total assets acquired $ 10,504,500 $ ( 1,995 ) $ 10,502,505 LIABILITIES Accounts payable and accrued expenses $ 56,407 $ ( 1,934 ) $ 54,473 Lease intangible liabilities (3) 378,369 ( 203 ) 378,166 Other liabilities 101,954 142 102,096 Term loans 1,300,000 — 1,300,000 Notes payable 2,481,486 — 2,481,486 Total liabilities assumed $ 4,318,216 $ ( 1,995 ) $ 4,316,221 Net assets acquired, at fair value $ 6,186,284 $ — $ 6,186,284 Total purchase price $ 6,186,284 $ — $ 6,186,284 (1) The weighted average amortization period for acquired lease intangible assets is 10.8 years. (2) Includes $ 53.9 million of gross contractual loans receivable, the fair value of which was $ 47.1 million, and we expect to collect substantially all of the loans receivable as of the acquisition date. (3) The weighted average amortization period for acquired lease intangible liabilities is 8.2 years. -10- Table of Contents The assessment of fair value is considered preliminary and is based on a valuation prepared by the Company with assistance of a third-party valuation specialist. We are in the process of finalizing our review of the inputs used in the valuation to ensure accuracy and procedures are performed within our policy. Accordingly, certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, loss contingencies, and goodwill are subject to change. We expect to complete our purchase accounting assessment in the fourth quarter of 2024. Measurement period adjustments are recorded in the period in which they are determined, as if they had been completed at the acquisition date. The measurement period adjustments recorded in the nine months ended September 30, 2024 resulted from updated valuations related to real estate assets and liabilities, in addition to loans receivable. The adjustments were determined based on additional information that existed at the acquisition date but was not contemplated in our initial fair value assessment and resulted in a decrease to goodwill of $ 59.1 million. A preliminary estimate of approximately $ 1.20 billion has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. The recognized goodwill is attributable to expected synergies and benefits arising from the merger transaction, including anticipated financing and corporate overhead cost savings. None of the goodwill recognized is expected to be deductible for tax purposes. B. Merger, transaction, and other costs In conjunction with our merger with Spirit, we incurred $ 2.9 million and $ 99.8 million of merger-related transaction costs during the three and nine months ended September 30, 2024, respectively, primarily consisting of employee severance, post-combination share-based compensation, transfer taxes, and various professional fees directly attributable to the Merger. C. Unaudited Pro Forma Financial Information The following unaudited pro forma information presents a summary of our combined results of operations for the nine months ended September 30, 2024 and three and nine months ended September 30, 2023, respectively, as if our merger with Spirit had occurred on January 1, 2023 (in millions, except per share data). The following pro forma financial information is not necessarily indicative of the results of operations had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses. Three months ended September 30, Nine months ended September 30, 2023 2024 2023 Total revenues $ 1,239.3 $ 3,978.8 $ 3,595.3 Net income $ 250.5 $ 759.4 $ 673.3 Basic and diluted earnings per share $ 0.31 $ 0.88 $ 0.85 Our consolidated results of operations for the three and nine months ended September 30, 2024 include $ 202.8 million and $ 563.8 million of revenues, respectively, and $ 40.2 million and $ 96.0 million of net income, respectively, associated with the results of operations of Spirit from the merger closing date of January 23, 2024 to September 30, 2024. -11- Table of Contents 3. Supplemental Detail for Certain Components of Consolidated Balance Sheets (in thousands): A. Accounts receivable, net, consist of the following at: September 30, 2024 December 31, 2023 Straight-line rent receivables, net $ 662,569 $ 516,692 Client receivables, net 172,759 193,844 $ 835,328 $ 710,536 B. Lease intangible assets, net, consist of the following at: September 30, 2024 December 31, 2023 In-place leases $ 7,393,345 $ 5,500,404 Above-market leases 2,225,473 1,811,400 Accumulated amortization of in-place leases ( 2,318,087 ) ( 1,746,377 ) Accumulated amortization of above-market leases ( 702,732 ) ( 549,319 ) Other items 2,059 1,799 $ 6,600,058 $ 5,017,907 C. Other assets, net, consist of the following at: September 30, 2024 December 31, 2023 Financing receivables, net $ 1,500,862 $ 1,570,943 Right of use asset - financing leases, net 671,831 706,837 Right of use asset - operating leases, net 624,939 594,712 Loan receivable, net 622,593 205,339 Prepaid expenses 58,520 33,252 Value-added tax receivable 49,412 100,672 Non-refundable escrow deposits 38,750 200 Restricted escrow deposits 37,317 6,247 Interest receivable 25,712 6,139 Derivative assets and receivables - at fair value 15,524 21,170 Impounds related to mortgages payable 13,604 53,005 Corporate assets, net 12,576 12,948 Credit facility origination costs, net 8,564 12,264 Investment in sales type lease 6,120 6,056 Other items 49,849 38,859 $ 3,736,173 $ 3,368,643 D. Accounts payable and accrued expenses consist of the following at: September 30, 2024 December 31, 2023 Notes payable - interest payable $ 245,089 $ 218,811 Derivative liabilities and payables - at fair value 158,024 119,620 Property taxes payable 104,752 78,809 Accrued costs on properties under development 78,833 65,967 Accrued income taxes 77,287 61,070 Accrued property expenses 63,912 54,208 Value-added tax payable 55,676 64,885 Accrued merger-related costs 18,786 4,551 Mortgages, term loans, and credit line - interest payable 4,239 8,580 Other items 73,524 62,025 $ 880,122 $ 738,526 E. Lease intangible liabilities, net, consist of the following at: September 30, 2024 December 31, 2023 Below-market leases $ 2,120,722 $ 1,728,027 Accumulated amortization of below-market leases ( 444,173 ) ( 321,174 ) $ 1,676,549 $ 1,406,853 F. Other liabilities consist of the following at: September 30, 2024 December 31, 2023 Lease liability - operating leases $ 458,545 $ 425,213 Rent received in advance and other deferred revenue 317,206 312,195 Lease liability - financing leases 55,262 44,345 Security deposits 31,008 28,250 Other acquisition liabilities 1,662 1,647 $ 863,683 $ 811,650 -12- Table of Contents 4. Investments in Real Estate A. Acquisitions of Real Estate Below is a summary of our acquisitions for the nine months ended September 30, 2024: Number of Properties Leasable Square Feet (in thousands) Investment ($ in millions) Weighted Average Lease Term (Years) Initial Weighted Average Cash Lease Yield (1) Acquisitions - U.S. 87 2,370 $ 414.3 13.4 7.5 % Acquisitions - Europe 29 2,457 744.4 6.8 7.8 % Total acquisitions 116 4,827 $ 1,158.7 9.1 7.7 % Properties under development (2) 182 6,306 548.9 15.6 7.4 % Total (3) 298 11,133 $ 1,707.6 11.1 7.6 % (1) The initial weighted average cash lease yield for a property is generally computed as estimated contractual first year cash net operating income, which, in the case of a net leased property, is equal to the aggregate cash base rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a client could default on the payment of contractual rent (defined as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables), we cannot provide assurance that the actual return on the funds invested will remain at the percentages listed above. Contractual net operating income used in the calculation of initial weighted average cash lease yield includes approximately $ 1.2 million received as settlement credits as reimbursement of free rent periods for the nine months ended September 30, 2024. In the case of a property under development or expansion, the contractual lease rate is generally fixed such that rent varies based on the actual total investment in order to provide a fixed rate of return. When the lease does not provide for a fixed rate of return on a property under development or expansion, the initial weighted average cash lease yield is computed as follows: estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs. (2) Includes £ 50.6 million of Sterling-denominated investments, and € 38.9 million of Euro-denominated investments, converted at the applicable exchange rates on the funding dates. (3) Our clients occupying the new properties are 84.9 % retail and 15.1 % industrial based on net operating income. Approximately 28 % of the net operating income generated from acquisitions during the nine months ended September 30, 2024 was from investment grade rated clients, their subsidiaries, or affiliated companies at the date of acquisition. The aggregate purchase price of the assets acquired during the nine months ended September 30, 2024 has been allocated as follows (in millions): Acquisitions - USD Acquisitions - Sterling Acquisitions - Euro Land $ 117.1 £ 134.2 € 15.5 Buildings and improvements 413.1 302.2 41.6 Lease intangible assets (1) 87.5 97.0 12.3 Other assets (2) 13.8 — — Lease intangible liabilities (3) ( 32.5 ) ( 5.5 ) ( 2.5 ) $ 599.0 £ 527.9 € 66.9 (1) The weighted average amortization period for acquired lease intangible assets is 8.8 years. (2) USD-denominated other assets consist entirely of financing receivables with above-market terms. (3) The weighted average amortization period for acquired lease intangible liabilities is 10.6 years. The aggregate purchase price of the assets acquired during the nine months ended September 30, 2024 included contingent consideration obligations related to leasing activities for a multi-tenant property acquired. At September 30, 2024, we had accrued $ 15.7 million for remaining amounts deemed probable and estimable. The properties acquired during the nine months ended September 30, 2024 generated total revenue and net income of $ 34.2 million and $ 10.8 million, respectively. B. Investments in Existing Properties During the nine months ended September 30, 2024, we capitalized costs of $ 84.7 million on existing properties in our portfolio, consisting of $ 78.6 million for non-recurring building improvements, $ 5.9 million for re-leasing costs, and $ 0.2 million for recurring capital expenditures. In comparison, during the nine months ended September 30, 2023, we capitalized costs of $ 43.6 million on existing properties in our portfolio, consisting of $ 36.5 million for non-recurring building improvements, $ 6.9 million for re-leasing costs, and $ 0.2 million for recurring capital expenditures. C. Properties with Existing Leases The value of the in-place and above-market leases is recorded to 'Lease intangible assets, net' on our consolidated balance sheets, and the value of the below-market leases is recorded to 'Lease intangible liabilities, net' on our consolidated balance sheets. -13- Table of Contents The values of the in-place leases are amortized as depreciation and amortization expense. The amounts amortized to expense for all of our in-place leases, for the nine months ended September 30, 2024, and 2023 were $ 652.8 million and $ 489.2 million, respectively. The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue in our consolidated statements of income and comprehensive income. The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for the nine months ended September 30, 2024, and 2023 were $ 26.1 million and $ 48.6 million, respectively. If a lease was to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense, as appropriate. The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at September 30, 2024 (dollars in thousands): Net increase (decrease) to rental revenue Increase to amortization expense 2024 $ ( 9,108 ) $ 211,751 2025 ( 34,482 ) 781,553 2026 ( 37,215 ) 685,034 2027 ( 38,012 ) 586,735 2028 ( 30,989 ) 497,501 Thereafter 303,614 2,312,684 Totals $ 153,808 $ 5,075,258 D. Gain on Sales of Real Estate The following table summarizes our properties sold during the periods indicated below (dollars in millions): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Number of properties 92 24 214 79 Net sales proceeds $ 249.5 $ 32.3 $ 451.4 $ 92.8 Gain on sales of real estate $ 50.6 $ 7.6 $ 92.3 $ 19.7 5. Investments in Unconsolidated Entities The following is a summary of our investments in unconsolidated entities as of September 30, 2024 and December 31, 2023 (dollars in thousands): Ownership % Number of Properties Carrying Amount (1) of Investment as of Investment As of September 30, 2024 September 30, 2024 December 31, 2023 Bellagio Las Vegas Joint Venture - Common Equity Interest 21.9 % 1 $ 278,944 $ 296,097 Bellagio Las Vegas Joint Venture - Preferred Equity Interest n/a n/a 650,000 650,000 Data Center Joint Venture 80.0 % 2 296,030 226,021 Total investment in unconsolidated entities $ 1,224,974 $ 1,172,118 (1) The total carrying amount of the investments was greater than the underlying equity in net assets (i.e., basis difference) by $ 7.7 million as of September 30, 2024. The basis difference is primarily attributable to capitalized interest for the data center joint venture development funding. A. Bellagio Las Vegas Joint Venture Interests The joint venture we formed with Blackstone Real Estate Income Trust owns a 95.0 % interest in the real estate of The Bellagio Las Vegas. We made an initial investment in October 2023, including $ 301.4 million of common equity for an indirect interest of 21.9 % in the property and a $ 650.0 million preferred equity interest. During the nine months ended September 30, 2024, we recognized interest income of $ 39.5 million for 8.1 % preferential cumulative distributions within 'Other' revenue in our consolidated statements of income and comprehensive income. The unconsolidated entity had total debt outstanding of $ 3.0 billion as of September 30, 2024, all of which was non-recourse to us with limited customary exceptions. -14- Table of Contents B. Data Center Joint Venture We own an 80.0 % equity interest in the joint venture that we formed with Digital Realty Trust. As we do not control this VOE, we account for it under the equity method. This joint venture owns and operates two data centers. Our maximum exposure to loss associated with this joint venture is limited to our equity investment and our pro rata share of the remaining $ 35.4 million of estimated development costs for the first phase of the project. 6. Investments in Loans The following table presents information about our loans as of September 30, 2024 and December 31, 2023 (dollars in thousands): September 30, 2024 Maturity Date Amortized Cost Allowance Carrying Amount (1) Senior Secured Notes Receivable October 2029 - May 2030 $ 586,414 $ ( 6,476 ) $ 579,938 Mortgage Loans September 2038 33,500 — 33,500 Unsecured Loan December 2026 10,053 ( 898 ) 9,155 Total $ 629,967 $ ( 7,374 ) $ 622,593 December 31, 2023 Maturity Date Amortized Cost Allowance Carrying Amount (1) Senior Secured Note Receivable October 2029 $ 174,337 $ ( 2,498 ) $ 171,839 Mortgage Loan September 2038 33,500 — 33,500 Total $ 207,837 $ ( 2,498 ) $ 205,339 (1) The total carrying amount of the investment in loans excludes accrued interest of $ 23.5 million and $ 3.4 million as of September 30, 2024 and December 31, 2023, respectively, which is recorded to 'Other assets, net' on our consolidated balance sheets. A . Senior Secured Notes Receivable In May 2024, we acquired a GBP-denominated senior secured note, maturing in May 2030, with a principal amount of £ 300.0 million, equivalent to $ 402.1 million as of September 30, 2024. The interest only note bears interest at a fixed rate of 8.125 % and is callable at par beginning in May 2026. In September 2024, our interest in a loan with a carrying amount of $ 5.3 million, which was acquired in conjunction with our merger with Spirit, was transferred to a third-party buyer. As a result of this transfer, we recorded a loss of $ 1.5 million, presented in 'Other income, net' in our consolidated statements of income and comprehensive income. 7. Revolving Credit Facility and Commercial Paper Programs A. Credit Facility We have a $ 4.25 billion unsecured revolving multi-currency credit facility that matures in June 2026, includes two six-month extensions that can be exercised at our option, and allows us to borrow in up to 14 currencies, including USD. Our revolving credit facility also has a $ 1.0 billion expansion option, which is subject to obtaining lender commitments. Under our revolving credit facility, our investment grade credit ratings at September 30, 2024 provide for USD borrowings at Secured Overnight Financing Rate ("SOFR"), plus 0.725 % with a SOFR adjustment charge of 0.10 % and a revolving credit facility fee of 0.125 %, for all-in pricing of 0.95 % over SOFR, GBP at the Sterling Overnight Indexed Average (“SONIA”), plus 0.725 % with a SONIA adjustment charge of 0.0326 % and a revolving credit facility fee of 0.125 %, for all-in pricing of 0.8826 % over SONIA, and Euro ("EUR") borrowings at one-month Euro Interbank Offered Rate (“EURIBOR”), plus 0.725 %, and a revolving credit facility fee of 0.125 %, for all-in pricing of 0.85 % over one-month EURIBOR. As of September 30, 2024, we had a borrowing capacity of $ 3.82 billion available on our revolving credit facility (subject to customary conditions to borrowing) and an outstanding balance of $ 0.4 billion, including £ 0.3 billion GBP and € 6.0 million EUR borrowings. There was no outstanding balance at December 31, 2023. The weighted average interest rate on outstanding borrowings under our revolving credit facility was 5.4 % and 4.8 % during the nine months ended September 30, 2024, and 2023, respectively. At September 30, 2024, our weighted average interest rate on borrowings outstanding under our revolving credit facility was 5.7 %. Our revolving credit facility is subject to various leverage and interest coverage ratio limitations, and at September 30, 2024, we were in compliance with the covenants under our revolving credit facility. As of September 30, 2024, credit facility origination costs of $ 8.6 million are included in 'Other assets, net', as compared to $ 12.3 million at December 31, 2023, on our consolidated balance sheets. These costs are being amortized over the remaining term of our revolving credit facility. -15- Table of Contents B. Commercial Paper Programs We have a USD-denominated unsecured commercial paper program, under which we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding of $ 1.5 billion, as well as a EUR-denominated unsecured commercial paper program, which permits us to issue additional unsecured commercial notes up to a maximum aggregate amount of $ 1.5 billion (or foreign currency equivalent). Our EUR-denominated unsecured commercial paper program may be issued in USD or various foreign currencies, including but not limited to, EUR, GBP, Swiss Francs, Yen, Canadian Dollars, and Australian Dollars, in each case, pursuant to customary terms in the European commercial paper market. The commercial paper ranks pari passu in right of payment with all of our other unsecured senior indebtedness outstanding, exclusive of unexchanged VEREIT, Inc. (“VEREIT”) and Spirit bonds, including borrowings under our revolving credit facility, our term loans and our outstanding senior unsecured notes (and is structurally subordinated to all our subsidiary debt). Proceeds from commercial paper borrowings are used for general corporate purposes. As of September 30, 2024, we have no outstanding borrowings under our commercial paper programs, as compared to $ 764.4 million outstanding commercial paper borrowings, including € 583.0 million of EUR borrowings, at December 31, 2023. The weighted average interest rate on outstanding borrowings under our commercial paper programs was 4.6 % and 4.7 % for the nine months ended September 30, 2024, and 2023, respectively. We use our $ 4.25 billion revolving credit facility as a liquidity backstop for the repayment of the notes issued under the commercial paper programs. The commercial paper borrowings generally carry a term of less than a year. We review our credit facility and commercial paper programs and may seek to extend, renew, or replace our credit facility and commercial paper programs, to the extent we deem appropriate. 8. 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”). In January 2023, we entered into our 2023 term loan agreement, which allows us to incur up to an aggregate of $ 1.5 billion in multi-currency borrowings. As of September 30, 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 GBP-denominated loans, and EURIBOR for EUR-denominated loans. In January 2024, we entered into interest rate swaps which fix our per annum interest rate at 4.9 % until January 2026, which is the term loan maturity date if our remaining extension option is exercised. Deferred financing costs were $ 1.4 million at September 30, 2024 and are included net of the term loans principal balance, as compared to $ 0.1 million related to our 2023 term loans at December 31, 2023, on our consolidated balance sheets. These costs are being amortized over the remaining term of the term loans. As of September 30, 2024, we were in compliance with the covenants contained in the term loans. 9. Mortgages Payable During the nine months ended September 30, 2024, we made $ 626.3 million in principal payments, including the full repayment of three mortgages for $ 622.7 million. No mortgages were assumed during the nine months ended September 30, 2024. Assumed mortgages are secured by the properties on which the debt was placed and are considered non-recourse debt with limited customary exceptions which vary from loan to loan. Our mortgages contain customary covenants, such as limiting our ability to further mortgage each applicable property or to discontinue insurance coverage without the prior consent of the lender. At September 30, 2024, we were in compliance with these covenants. -16- Table of Contents The following table summarizes our mortgages payable as of September 30, 2024 and December 31, 2023 (dollars in millions): As Of Number of Properties (1) Weighted Average Stated Interest Rate (2) Weighted Average Effective Interest Rate (3) Weighted Average Remaining Years Until Maturity Remaining Principal Balance Unamortized Premium (Discount) and Deferred Financing Costs Balance, net Mortgage Payable Balance September 30, 2024 48 4.3 % 4.6 % 0.8 $ 198.1 $ ( 0.6 ) $ 197.5 December 31, 2023 131 4.8 % 3.3 % 0.4 $ 822.4 $ ( 0.8 ) $ 821.6 (1) At September 30, 2024, there were 13 mortgages on 48 properties and at December 31, 2023, there were 16 mortgages on 131 properties. With the exception of one GBP-denominated mortgage which is paid quarterly, the mortgages require monthly payments with principal payments due at maturity. At September 30, 2024 and December 31, 2023, all mortgages were at fixed interest rates. (2) Stated interest rates ranged from 3.0 % to 6.9 % at September 30, 2024 and December 31, 2023, respectively. (3) Effective interest rates ranged from 2.8 % to 6.8 % and 0.5 % to 6.6 % at September 30, 2024 and December 31, 2023, respectively. The following table summarizes the maturity of mortgages payable as of September 30, 2024, excluding $ 0.6 million related to unamortized net discounts and deferred financing costs (dollars in millions): Year of Maturity Principal 2024 $ 114.2 2025 46.0 2026 12.0 2027 22.3 2028 1.3 Thereafter 2.3 Totals $ 198.1 10. Notes Payable A. General At September 30, 2024, our senior unsecured notes and bonds are USD-denominated, GBP-denominated, and EUR-denominated. Foreign-denominated notes are converted at the applicable exchange rate on the balance sheet date. The carrying value within the table below includes a portion of certain outstanding notes that have been assumed in both current and historical mergers that were not exchanged for new notes issued by Realty Income. We expect to fund the next twelve months of obligations through a combination of the following: (i) cash and cash equivalents, (ii) future cash flows from operations, (iii) issuances of common stock, debt, or other securities offerings, (iv) additional borrowings under our revolving credit facility, (v) short term loans, and (vi) asset dispositions and/or credit investment repayments. The following are sorted by maturity date (in thousands): Maturity Dates Principal (Currency Denomination) Carrying Value (USD) as of September 30, 2024 December 31, 2023 4.600 % Notes due 2024 February 6, 2024 $ 499,999 $ — $ 499,999 3.875 % Notes due 2024 July 15, 2024 $ 350,000 — 350,000 3.875 % Notes due 2025 April 15, 2025 $ 500,000 500,000 500,000 4.625 % Notes due 2025 November 1, 2025 $ 549,997 549,997 549,997 5.050 % Notes due 2026 January 13, 2026 $ 500,000 500,000 500,000 0.750 % Notes due 2026 March 15, 2026 $ 325,000 325,000 325,000 4.875 % Notes due 2026 June 1, 2026 $ 599,997 599,997 599,997 4.450 % Notes due 2026 (1) September 15, 2026 $ 299,968 299,968 — 4.125 % Notes due 2026 October 15, 2026 $ 650,000 650,000 650,000 1.875 % Notes due 2027 (2) January 14, 2027 £ 250,000 335,075 318,450 3.000 % Notes due 2027 January 15, 2027 $ 600,000 600,000 600,000 3.200 % Notes due 2027 (1) January 15, 2027 $ 299,984 299,984 — 1.125 % Notes due 2027 (2) July 13, 2027 £ 400,000 536,120 509,520 3.950 % Notes due 2027 August 15, 2027 $ 599,873 599,873 599,873 3.650 % Notes due 2028 January 15, 2028 $ 550,000 550,000 550,000 -17- Table of Contents Maturity Dates Principal (Currency Denomination) Carrying Value (USD) as of September 30, 2024 December 31, 2023 3.400 % Notes due 2028 January 15, 2028 $ 599,816 599,816 599,816 2.100 % Notes due 2028 (1) March 15, 2028 $ 449,994 449,994 — 2.200 % Notes due 2028 June 15, 2028 $ 499,959 499,959 499,959 4.700 % Notes due 2028 December 15, 2028 $ 400,000 400,000 400,000 4.750 % Notes due 2029 February 15, 2029 $ 450,000 450,000 — 3.250 % Notes due 2029 June 15, 2029 $ 500,000 500,000 500,000 4.000 % Notes due 2029 (1) July 15, 2029 $ 399,999 399,999 — 5.000 % Notes due 2029 (2) October 15, 2029 £ 350,000 469,105 — 3.100 % Notes due 2029 December 15, 2029 $ 599,291 599,291 599,291 3.400 % Notes due 2030 (1) January 15, 2030 $ 500,000 500,000 — 4.850 % Notes due 2030 March 15, 2030 $ 600,000 600,000 600,000 3.160 % Notes due 2030 June 30, 2030 £ 140,000 187,642 178,332 4.875 % Notes due 2030 (2) July 6, 2030 € 550,000 613,415 607,915 1.625 % Notes due 2030 (2) December 15, 2030 £ 400,000 536,120 509,520 3.250 % Notes due 2031 January 15, 2031 $ 950,000 950,000 950,000 3.200 % Notes due 2031 (1) February 15, 2031 $ 449,995 449,995 — 5.750 % Notes due 2031 (2) December 5, 2031 £ 300,000 402,090 382,140 2.700 % Notes due 2032 (1) February 15, 2032 $ 350,000 350,000 — 3.180 % Notes due 2032 June 30, 2032 £ 345,000 462,404 439,461 5.625 % Notes due 2032 October 13, 2032 $ 750,000 750,000 750,000 2.850 % Notes due 2032 December 15, 2032 $ 699,655 699,655 699,655 1.800 % Notes due 2033 March 15, 2033 $ 400,000 400,000 400,000 1.750 % Notes due 2033 (2) July 13, 2033 £ 350,000 469,105 445,830 4.900 % Notes due 2033 July 15, 2033 $ 600,000 600,000 600,000 5.125 % Notes due 2034 February 15, 2034 $ 800,000 800,000 — 2.730 % Notes due 2034 May 20, 2034 £ 315,000 422,194 401,247 5.125 % Notes due 2034 (2) July 6, 2034 € 550,000 613,415 607,915 5.875 % Bonds due 2035 March 15, 2035 $ 250,000 250,000 250,000 3.390 % Notes due 2037 June 30, 2037 £ 115,000 154,135 146,487 6.000 % Notes due 2039 (2) December 5, 2039 £ 450,000 603,135 573,210 5.250 % Notes due 2041 (2) September 4, 2041 £ 350,000 469,105 — 2.500 % Notes due 2042 (2) January 14, 2042 £ 250,000 335,075 318,450 4.650 % Notes due 2047 March 15, 2047 $ 550,000 550,000 550,000 5.375 % Notes due 2054 September 1, 2054 $ 500,000 500,000 — Total principal amount $ 23,381,663 $ 18,562,064 Unamortized net (discounts) premiums, deferred financing costs, and cumulative basis adjustment on fair value hedges (3) ( 289,447 ) 40,255 $ 23,092,216 $ 18,602,319 (1) In connection with our merger with Spirit, we completed our debt exchange offer to exchange all outstanding notes issued by Spirit Realty, L.P. ("Spirit OP") on January 23, 2024 for new notes issued by Realty Income. Prior to the completion of our merger with Spirit on January 23, 2024, these notes were not the obligation of Realty Income. Additional details regarding the exchange offers are provided in the Note Exchange Offers Associated with our Merger with Spirit section below. (2) Interest paid annually. Interest on the remaining senior unsecured notes and bond obligations included in the table is paid semi-annually. (3) As a result of our merger with Spirit, the carrying values of the senior notes exchanged were adjusted to fair value. In conjunction with the pricing of our senior unsecured notes due January 2026, we entered into three-year , fixed-to-variable interest rate swaps, which are accounted for as fair value hedges. See note 13, Derivative Instruments for further details. -18- Table of Contents The following table summarizes the maturity of our notes and bonds payable as of September 30, 2024, excluding unamortized net discounts, deferred financing costs, and basis adjustments on interest rate swaps designated as fair value hedges (dollars in millions): Year of Maturity Principal 2024 $ — 2025 1,050.0 2026 2,375.0 2027 2,371.1 2028 2,499.8 Thereafter 15,085.8 Totals $ 23,381.7 As of September 30, 2024, the weighted average interest rate on our notes and bonds payable was 3.8 %, and the weighted average remaining years until maturity was 6.9 years. Interest incurred on all of the notes and bonds was $ 211.4 million and $ 159.7 million for the three months ended September 30, 2024, and 2023, respectively, and $ 618.0 million and $ 434.1 million for the nine months ended September 30, 2024, and 2023, respectively. Our outstanding notes and bonds are unsecured; accordingly, we have not pledged any assets as collateral for these or any other obligations. All of these notes and bonds contain various covenants, including: (i) a limitation on incurrence of any debt which would cause our debt to total adjusted assets ratio to exceed 60 %; (ii) a limitation on incurrence of any secured debt which would cause our secured debt to total adjusted assets ratio to exceed 40 %; (iii) a limitation on incurrence of any debt which would cause our debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of total unencumbered assets not less than 150 % of our outstanding unsecured debt. At September 30, 2024, we were in compliance with these covenants. B. Note Issuances During the nine months ended September 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 % 5.375 % Notes August 2024 September 2054 $ 500.0 98.37 % 5.486 % 5.000 % Notes September 2024 October 2029 £ 350.0 99.14 % 5.199 % 5.250 % Notes September 2024 September 2041 £ 350.0 96.21 % 5.601 % C. Note Exchange Offers Associated with our Merger with Spirit As part of our merger with Spirit, Realty Income exchanged the following notes issued by Spirit OP, a wholly owned subsidiary of the Company with notes of identical terms issued by Realty Income (in millions): Series of Spirit Notes Tenders and Consents Received as of the Expiration Date Percentage of Total Outstanding Principal Amount of Such Series of Spirit Notes 4.450 % Notes due September 2026 $ 291.7 97.24 % 3.200 % Notes due January 2027 $ 292.7 97.56 % 2.100 % Notes due March 2028 $ 443.8 98.62 % 4.000 % Notes due July 2029 $ 391.7 97.93 % 3.400 % Notes due January 2030 $ 484.5 96.91 % 3.200 % Notes due February 2031 $ 445.0 98.90 % 2.700 % Notes due February 2032 $ 347.6 99.31 % -19- Table of Contents To induce holders of the Spirit OP notes to participate in the exchange, Realty Income offered noteholders electing to exchange their notes a cash payment equal to 10 basis points of the note principal amount held. Across the various note classes, Realty Income had a success rate of approximately 98.1 % on the exchange, resulting in a cash payment of $ 2.7 million to participating noteholders. The exchange was accounted for as a modification of the existing Spirit OP notes assumed in our merger with Spirit . The interest rate, interest payment dates, redemption terms and maturity of each series of Realty Income notes issued by Realty Income in the exchange offers were the same as those of the corresponding series of Spirit notes exchanged. With respect to the notes originally issued by Spirit OP that remained outstanding, we amended the indenture governing such notes to, among other things, eliminate substantially all of the restrictive covenants in such indenture. 11. Noncontrolling Interests As of September 30, 2024, we have eight entities with noncontrolling interests that we consolidate, including an operating partnership, Realty Income, L.P., and interests in consolidated property partnerships not wholly-owned by us. The following table represents the change in the carrying value of all noncontrolling interests through September 30, 2024 (in thousands): Realty Income, L.P. units (1) Other Noncontrolling Interests Total Carrying value at December 31, 2023 $ 114,072 $ 51,430 $ 165,502 Contributions — 1,770 1,770 Distributions ( 4,627 ) ( 2,811 ) ( 7,438 ) Allocation of net income 4,287 544 4,831 Issuance of common partnership units (2) 54,643 ( 7,390 ) 47,253 Carrying value at September 30, 2024 $ 168,375 $ 43,543 $ 211,918 (1) 2,681,808 and 1,795,167 units were outstanding as of September 30, 2024 and December 31, 2023, respectively. (2) In July 2024, a joint venture partner converted their interests in two consolidated property partnerships into 156,621 common partnership units in Realty Income, LP and recorded the excess over carrying value of $ 0.8 million as a reduction to common stock and paid in capital. In September 2024, we completed the acquisition of 42 properties by paying cash and by issuing 730,020 common partnership units in Realty Income, LP. At September 30, 2024, we are considered the primary beneficiary of Realty Income, L.P. and other VIEs. For further information, see note 1, Summary of Significant Accounting Policies . 12. Fair Value Measurements Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASC 820, Fair Value Measurements and Disclosures , sets forth a fair value hierarchy that categorizes inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs. Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. • Level 1 – Quoted market prices in active markets for identical assets and liabilities • Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other market-corroborated inputs • Level 3 – Inputs that are unobservable and significant to the overall fair value measurement We evaluate our hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from period to period. Changes in the type of inputs may result in a reclassification for certain assets. We have not historically had changes in classifications and do not expect that changes in classifications between levels will be frequent. -20- Table of Contents The following tables present the carrying values and estimated fair values of financial instruments as of September 30, 2024 and December 31, 2023 (in millions): September 30, 2024 Hierarchy Level Carrying Value Level 1 Level 2 Level 3 Assets: Loans receivable $ 622.6 $ — $ 628.8 $ 35.3 Derivative assets 15.5 — 15.5 — Total assets $ 638.1 $ — $ 644.3 $ 35.3 Liabilities: Mortgages payable $ 198.1 $ — $ — $ 196.3 Notes and bonds payable 23,381.7 — 21,480.6 1,023.1 Derivative liabilities 158.0 — 158.0 — Total liabilities $ 23,737.8 $ — $ 21,638.6 $ 1,219.4 December 31, 2023 Hierarchy Level Carrying Value Level 1 Level 2 Level 3 Assets: Loans receivable $ 205.3 $ — $ 171.8 $ 33.5 Derivative assets 21.2 — 21.2 — Total assets $ 226.5 $ — $ 193.0 $ 33.5 Liabilities: Mortgages payable $ 822.4 $ — $ — $ 814.5 Notes and bonds payable 18,562.1 — 16,620.8 982.9 Derivative liabilities 119.6 — 119.6 — Total liabilities $ 19,504.1 $ — $ 16,740.4 $ 1,797.4 A. Financial Instruments Not Measured at Fair Value on our Consolidated Balance Sheets The fair value of short-term financial instruments such as cash and cash equivalents, accounts receivable, escrow deposits, accounts payable, distributions payable, line of credit payable and commercial paper borrowings, and other liabilities approximate their carrying value in the accompanying consolidated balance sheets, due to their short-term nature. The aggregate fair value of our term loans approximates carrying value due to the frequent repricing of the variable interest rate charged on the borrowing. The following table reflects the carrying amounts and estimated fair values of our financial instruments not measured at fair value on our consolidated balance sheets (in millions): September 30, 2024 December 31, 2023 Carrying value Fair value Carrying value Fair value Mortgages payable (1) $ 198.1 $ 196.3 $ 822.4 $ 814.5 Notes and bonds payable (1) $ 23,381.7 $ 22,503.7 $ 18,562.1 $ 17,603.7 (1) Excludes non-cash net premiums and discounts as well as deferred financing costs recorded on mortgages payable. Excludes non-cash net premiums and discounts, deferred financing costs, and the cumulative basis adjustment on fair value hedges recorded on notes payable. The estimated fair values of our mortgages payable and private senior notes payable have been calculated by discounting the future cash flows using an interest rate based upon the relevant forward interest rate curve, plus an applicable credit-adjusted spread. Because this methodology includes unobservable inputs that reflect our own internal assumptions and calculations, the measurement of estimated fair values related to our mortgages payable and private senior notes payable are categorized as level 3 of the fair value hierarchy. The estimated fair values of our publicly-traded senior notes and bonds payable are based upon indicative market prices and recent trading activity of our senior notes and bonds payable. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values related to our notes and bonds payable is categorized as level 2 of the fair value hierarchy. -21- Table of Contents B. Financial Instruments Measured at Fair Value on a Recurring Basis For derivative assets and liabilities, we may utilize interest rate swaps, interest rate swaptions, and forward-starting swaps to manage interest rate risk, and cross-currency swaps, currency exchange swaps, and foreign currency forwards to manage foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, spot and forward rates, as well as option volatility . Derivative fair values also include credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although we have determined that the majority of the inputs used to value our derivatives fall within level 2 on the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize level three inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by ourselves and our counterparties. However, at September 30, 2024, and December 31, 2023, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety are classified as level 2. For more details on our derivatives, see note 13, Derivative Instruments . C. Items Measured at Fair Value on a Non-Recurring Basis Impairment of Real Estate Investments Certain financial and nonfinancial assets and liabilities are measured at fair value on a non-recurring basis and are subject to fair value adjustments only under certain circumstances, such as when an impairment write-down occurs. Depending on impairment triggering events during the applicable period, impairments are typically recorded for properties sold, in the process of being sold, vacant, in bankruptcy, or experiencing difficulties with collection of rent. The following table summarizes our provisions for impairment on real estate investments during the periods indicated below (in millions): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Carrying value prior to impairment $ 133.8 $ 37.5 $ 488.7 $ 161.4 Less: total provisions for impairment of real estate (1) ( 33.1 ) ( 16.8 ) ( 208.6 ) ( 59.8 ) Carrying value after impairment $ 100.7 $ 20.7 $ 280.1 $ 101.6 Number of properties: Classified as held for sale 11 — 13 — Classified as held for investment 26 9 93 18 Sold 24 23 59 66 (1) Real estate assets that were deemed to be impaired for the nine months ended September 30, 2024 primarily relate to two office properties which were acquired and retained in our merger with VEREIT in 2021, 23 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. The valuation of impaired assets is determined using valuation techniques including discounted cash flow analysis, analysis of recent comparable sales transactions and purchase offers received from third parties, which are level 3 inputs. We may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of such real estate. Estimating future cash flows is highly subjective and estimates can differ materially from actual results. -22- Table of Contents 13. Derivative Instruments In the normal course of business, our operations are exposed to economic risks from interest rates and foreign currency exchange rates. We may enter into derivative financial instruments to offset these underlying economic risks. Derivatives Designated as Hedging Instruments - Cash Flow Hedges We enter into foreign currency forward contracts to sell GBP and EUR and buy USD to hedge the foreign currency risk associated with interest payments on intercompany loans denominated in GBP and EUR. Forward points on the forward contracts are included in the assessment of hedge effectiveness. We also execute variable-to-fixed interest rate swaps to add stability to interest expense and to manage our exposure to interest rate movements associated with our term loans and may also enter into interest rate swaption agreements. Derivatives Designated as Hedging Instruments - Fair Value Hedges Periodically, we enter into and designate fixed-to-floating interest rate swaps to manage interest rate risk by managing our mix of fixed-rate and variable-rate debt. These swaps involve the receipt of fixed-rate amounts for variable interest rate payments over the life of the swaps without exchange of the underlying principal amount. We also designate some of our cross-currency swaps as fair value hedges as we use them to hedge foreign currency risk associated with changes in spot rates on foreign-denominated debt. For these hedging instruments, we have elected to exclude the change in fair value of the cross-currency swaps related to both time value and cross-currency basis spread from the assessment of hedge effectiveness (the "excluded component"). Changes in the fair value of the cross-currency swaps attributable to these excluded components are recorded to other comprehensive income and subsequently recognized in 'Foreign currency and derivative (loss) gain, net' on a systematic and rational basis, as net cash settlements and interest accruals on the respective cross currency swaps occur, over the remaining life of the hedging instruments. Derivatives Designated as Hedging Instruments - Net Investment Hedges To mitigate the foreign currency exchange rate variations associated with our investment in EUR-denominated foreign operations, we may enter into derivative instruments, such as cross-currency swaps that qualify as net investment hedges under the criteria prescribed in accordance with ASC Topic 815-20, Hedging - General . We use the spot method of assessing hedge effectiveness and apply the consistent election to the excluded component by recognizing changes in the fair value of the hedging instruments attributable to the excluded component in the same manner as described above. Any difference between the change in the fair value of the excluded components and the amounts recognized in earnings is reported in other comprehensive income as part of the foreign cumulative translation adjustment. The gain or loss on the portion of the derivative instruments included in the assessment of effectiveness is reported in other comprehensive income as part of the 'Foreign currency translation adjustment' line item, to the extent the relationship is highly effective. If our net investment changes during a reporting period, the hedge relationship will be assessed for whether a de-designation is warranted (only if the hedge notional amount is outside of prescribed tolerance). Further, certain EUR-denominated bonds and borrowings under our Revolving Credit Facility and Term Loans (all as defined in notes 7 and 8 , respectively) may be also designated as, and are effective as, net investment hedges. Changes in the value of such borrowings, related to changes in the spot rates, will be recorded in the same manner as foreign currency translation adjustments. As of September 30, 2024, the total principal amount of foreign currency debt obligations designated as net investment hedges was $ 60.1 million. Derivatives Not Designated as Hedging Instruments We enter into foreign currency exchange swap agreements to reduce the effects of currency exchange rate fluctuations between the USD, our reporting currency, and GBP and EUR. These derivative contracts generally mature within one year and are not designated as hedge instruments for accounting purposes. As the currency exchange swap is not accounted for as a hedging instrument, the change in fair value is recorded in earnings through the caption entitled 'Foreign currency and derivative (loss) gain, net' in our consolidated statements of income and comprehensive income. -23- Table of Contents The following table summarizes the terms and fair values of our derivative financial instruments at September 30, 2024 and December 31, 2023 (dollars in millions): Derivative Type Number of Instruments (1) Notional Amount as of Weighted Average Strike Rate (2) Maturity Date (3) Fair Value - asset (liability) as of Derivatives Designated as Hedging Instruments September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023 Interest rate swaps (4) 12 $ 2,680.0 $ 1,630.0 3.71 % Jun 2025 - Aug 2027 $ 13.9 $ 0.3 Interest rate swaptions (5) — — 1,000.0 — — 2.6 Cross-currency swaps - Fair Value 3 320.0 320.0 (6) Oct 2032 ( 59.5 ) ( 59.8 ) Cross-currency swaps - Net Investment 3 280.0 280.0 (7) Oct 2032 ( 52.8 ) ( 53.2 ) Foreign currency forwards 31 357.6 162.3 (8) Oct 2024 - Jun 2026 ( 15.2 ) 2.7 $ 3,637.6 $ 3,392.3 $ ( 113.6 ) $ ( 107.4 ) Derivatives not Designated as Hedging Instruments Currency exchange swaps 3 $ 1,251.0 $ 1,810.6 (9) Oct 2024 $ ( 28.9 ) $ 8.9 $ 1,251.0 $ 1,810.6 $ ( 28.9 ) $ 8.9 Total of all Derivatives $ 4,888.6 $ 5,202.9 $ ( 142.5 ) $ ( 98.5 ) (1) This column represents the number of instruments outstanding as of September 30, 2024. (2) Weighted average strike rate is calculated using the notional value as of September 30, 2024. (3) This column represents maturity dates for instruments outstanding as of September 30, 2024. (4) During the nine months ended September 30, 2024, we entered into five variable-to-fixed interest rate swaps when we extended maturity of the 2023 term loans and designated them as cash flow hedges. We also designated five variable-to-fixed interest rate swaps we acquired from Spirit as cash flow hedges to mitigate the interest rate risk associated with the term loans we assumed in conjunction with our merger with Spirit. The acquisition date fair value of these derivatives was $ 35.1 million in total and will be reclassified from AOCI to interest expense over the remaining life of the term loans. (5) There were six interest swaptions equal to $ 1 billion in notional entered into in March 2023, of which $ 800 million was terminated in January 2024 in connection with a senior unsecured note issuance. A total termination premium of $ 3.4 million we received was deferred in other comprehensive income and will be recognized in interest expense over the 10-year tenor of the notes due 2034. The remaining swaption of the $ 200 million notional expired in January 2024. (6) USD fixed rate of 5.625 % and EUR weighted average fixed rate of 4.681 %. (7) USD fixed rate of 5.625 % and EUR weighted average fixed rate of 4.716 %. (8) Weighted average forward GBP-USD exchange rate of 1.28 . (9) Weighted average exchange rates of 0.84 for EUR-GBP and 1.31 for GBP-USD. We measure our derivatives at fair value and include the balances within 'Other assets, net' and 'Accounts payable and accrued expenses' on our consolidated balance sheets. We have agreements with each of our derivative counterparties containing provisions under which we could be declared in default on our derivative obligations if repayment of our indebtedness is accelerated by the lender due to our default. -24- Table of Contents The following table summarizes the amount of unrealized gain (loss) on derivatives and foreign currency translation adjustments in other comprehensive income (in thousands): Three months ended September 30, Nine months ended September 30, Derivatives in Cash Flow Hedging Relationships 2024 2023 2024 2023 Interest rate swaps $ ( 30,051 ) $ ( 7,172 ) $ ( 18,206 ) $ ( 5,328 ) Foreign currency forwards ( 17,414 ) 3,156 ( 17,947 ) ( 6,039 ) Interest rate swaptions 640 15,126 2,284 18,679 Total derivatives in cash flow hedging relationships $ ( 46,825 ) $ 11,110 $ ( 33,869 ) $ 7,312 Derivatives in Fair Value Hedging Relationships Cross-currency swaps - Fair Value $ 351 $ ( 3,917 ) $ 3,641 $ ( 8,691 ) Total derivatives in fair value hedging relationships $ 351 $ ( 3,917 ) $ 3,641 $ ( 8,691 ) Total unrealized (loss) gain on derivatives, net $ ( 46,474 ) $ 7,193 $ ( 30,228 ) $ ( 1,379 ) Derivatives and Non-derivatives in Net Investment Hedging Relationships Cross-currency swaps - Net Investment $ ( 12,715 ) $ — $ ( 1,094 ) $ — Foreign currency debt ( 2,232 ) — ( 2,232 ) — Total unrealized loss recorded in foreign currency translation adjustment $ ( 14,947 ) $ — $ ( 3,326 ) $ — The following table summarizes the amount of gain (loss) on derivatives reclassified from AOCI (in thousands): Three months ended September 30, Nine months ended September 30, Derivatives in Cash Flow Hedging Relationships Location of Gain Recognized in Income 2024 2023 2024 2023 Interest rate swaps Interest $ 8,316 $ 5,316 $ 25,836 $ 10,055 Foreign currency forwards Foreign currency and derivative (loss) gain, net 739 1,662 4,419 3,985 Interest rate swaptions Interest 82 ( 2,250 ) ( 827 ) ( 4,609 ) Total derivatives in cash flow hedging relationships $ 9,137 $ 4,728 $ 29,428 $ 9,431 Derivatives in Fair Value Hedging Relationships Cross-currency swaps - Fair Value Foreign currency and derivative (loss) gain, net $ 98 $ 570 $ 1,097 $ 1,054 Total derivatives in fair value hedging relationships $ 98 $ 570 $ 1,097 $ 1,054 Derivatives in Net Investment Hedging Relationships Cross-currency swaps - Net Investment (excluded component) Foreign currency and derivative (loss) gain, net $ 549 $ — $ 2,356 $ — Total derivatives in net investment hedging relationships $ 549 $ — $ 2,356 $ — Net increase to net income $ 9,784 $ 5,298 $ 32,881 $ 10,485 We expect to reclassify $ 5.5 million from AOCI as a decrease to interest expense relating to interest rate swaps and $ 11.4 million from AOCI to foreign currency gain relating to foreign currency forwards within the next twelve months. -25- Table of Contents The following table details our foreign currency and derivative gains (losses), net included in income (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Realized foreign currency and derivative (loss) gain, net: (Loss) gain on the settlement of undesignated derivatives $ ( 34,164 ) $ 11,432 $ ( 54,548 ) $ 10,106 Gain on the settlement of designated derivatives reclassified from AOCI 1,386 2,233 7,872 5,039 (Loss) gain on the settlement of transactions with third parties ( 18 ) 410 ( 33 ) 1,685 Total realized foreign currency and derivative (loss) gain, net $ ( 32,796 ) $ 14,075 $ ( 46,709 ) $ 16,830 Unrealized foreign currency and derivative (loss) gain, net: (Loss) gain on the change in fair value of undesignated derivatives $ ( 28,915 ) $ 12,910 $ ( 23,369 ) $ 4,734 Gain (loss) on remeasurement of certain assets and liabilities 60,039 ( 29,798 ) 72,963 ( 16,607 ) Total unrealized foreign currency and derivative gain (loss), net $ 31,124 $ ( 16,888 ) $ 49,594 $ ( 11,873 ) Total foreign currency and derivative (loss) gain, net $ ( 1,672 ) $ ( 2,813 ) $ 2,885 $ 4,957 14. Lessor Operating Leases At September 30, 2024, we owned or held interests in 15,457 properties. Of the 15,457 properties, 15,156 , or 98.1 %, are single-client properties, and the remaining are multi-client properties. At September 30, 2024, 196 properties were available for lease or sale. The majority of our leases are accounted for as operating leases. At September 30, 2024, most of the properties in our portfolio were leased under net lease agreements where our client pays or reimburses us for property taxes and assessments and carries insurance coverage for public liability, property damage, fire, and extended coverage. Rent based on a percentage of our clients' gross sales, or percentage rent, for the three months ended September 30, 2024, and 2023 was $ 3.1 million, and $ 2.2 million, respectively. Percentage rent for the nine months ended September 30, 2024, and 2023 was $ 10.8 million, and $ 8.0 million, respectively. No individual client’s rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the nine months ended September 30, 2024, and 2023. 15. Stockholders' Equity A. Common Stock We pay monthly distributions to our common stockholders. The following is a summary of monthly distributions paid per common share for the periods indicated below: Nine months ended September 30, Month 2024 2023 January $ 0.2565 $ 0.2485 February 0.2565 0.2485 March 0.2565 0.2545 April 0.2570 0.2550 May 0.2570 0.2550 June 0.2625 0.2550 July 0.2630 0.2555 August 0.2630 0.2555 September 0.2630 0.2555 Total $ 2.3350 $ 2.2830 At September 30, 2024, a distribution of $ 0.2635 per common share was payable and was paid in October 2024. -26- Table of Contents B. At-the-Market ("ATM") Program Under our current ATM program, which we entered into in August 2023, we may offer and sell up to 120.0 million shares of common stock (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers' transactions on the NYSE under the ticker symbol "O" at prevailing market prices or at negotiated prices. Upon settlement, subject to certain exceptions, we may elect, in our sole discretion, to cash settle or net share settle all or any portion of our obligations under any forward sale agreement, in which cases we may not receive any proceeds (in the case of cash settlement) or will not receive any proceeds (in the case of net share settlement), and we may owe cash (in the case of cash settlement) or shares of our common stock (in the case of net share settlement) to the relevant forward purchaser. As of September 30, 2024, we had 56.7 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. The following table outlines common stock issuances pursuant to our ATM programs (dollars in millions, shares in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Shares of common stock issued under the ATM program (1) 4,309 15,070 13,913 63,210 Gross proceeds $ 268.4 $ 883.0 $ 815.3 $ 3,880.4 Sales agents' commissions and other offering expenses ( 1.8 ) ( 9.7 ) ( 5.4 ) ( 30.4 ) Net proceeds $ 266.6 $ 873.3 $ 809.9 $ 3,850.0 (1) During the three and nine months ended September 30, 2024, 16.5 million and 24.6 million shares were sold, respectively, and 4.3 million and 13.9 million and shares were settled pursuant to forward sale confirmations. In addition, as of September 30, 2024, 16.8 million shares of common stock subject to forward sale confirmations have been executed, but not settled, at a weighted average initial gross price of $ 57.58 per share. We currently expect to fully settle forward sale agreements outstanding by December 31, 2024, representing $ 958.1 million in net proceeds, for which the weighted average forward price at September 30, 2024 was $ 56.88 per share. C. Dividend Reinvestment and Stock Purchase Plan ("DRSPP") Our DRSPP provides our common stockholders with a convenient and economical method of purchasing our common stock and reinvesting their distributions. It also allows our current stockholders to buy additional shares of common stock by reinvesting all or a portion of their distributions. Our DRSPP authorizes up to 26.0 million common shares to be issued. At September 30, 2024, we had 10.8 million shares remaining for future issuance under our DRSPP program. The following table outlines common stock issuances pursuant to our DRSPP program (dollars in millions, shares in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Shares of common stock issued under the DRSPP program 44 52 159 138 Gross proceeds $ 2.6 $ 3.0 $ 8.8 $ 8.4 16. Series A Preferred Stock As part of the Merger Agreement with Spirit, each outstanding share of Spirit’s 6.000 % Series A Cumulative Redeemable Preferred Stock, par value $ 0.01 per share, converted into the right to receive one share of newly issued Realty Income 6.000 % Series A Cumulative Redeemable Preferred Stock, having substantially the same terms as the Spirit Series A Preferred Stock, resulting in 6.9 million shares of Realty Income Series A Preferred Stock issued. In September 2024, we redeemed all 6.9 million shares of Realty Income Series A preferred stock outstanding. The shares were redeemed at redemption value of $ 25.00 per share, plus accrued and unpaid dividends to September 30, 2024. The excess of the $ 25.00 liquidation price per share over the carrying value of Realty Income Series A preferred stock redeemed resulted in a loss on redemption of $ 5.1 million for the three months ended September 30, 2024. -27- Table of Contents 17. Common Stock Incentive Plan This note should be read in conjunction with the more complete discussion of the Realty Income 2021 Incentive Award Plan (the “2021 Plan”), included in note 19 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023. The amount of share-based compensation costs recognized in 'General and administrative' in our consolidated statements of income and comprehensive income was $ 6.4 million and $ 6.2 million during the three months ended September 30, 2024, and 2023, respectively, and $ 22.9 million and $ 20.2 million during the nine months ended September 30, 2024, and 2023, respectively. In connection with the Merger, each outstanding Spirit restricted stock award and performance share award was cancelled and converted into Realty Income common stock, using the Exchange Ratio in accordance with the Merger Agreement. The issuance is excluded from the sections below, as the awards were not granted under the 2021 Plan. The aggregate fair value of fully vested Spirit awards converted into Realty Income common stock was $ 66.5 million, of which i.) $ 41.7 million related to pre-combination services and is included in the consideration transferred in the merger and ii.) $ 24.8 million of expense was recognized in January in merger, transaction, and other costs related to the value attributable to post-combination services. For more details, please see note 2, Merger with Spirit Realty Capital, Inc. A. Restricted Stock and Restricted Stock Units During the nine months ended September 30, 2024, we granted 343,890 shares of common stock under the 2021 Plan. This included 44,000 total shares of restricted stock granted to the independent members of our Board of Directors, 4,000 of which were granted to a new member in the first quarter of 2024, and the remaining 40,000 shares of which were granted in connection with our annual awards in May 2024. The vesting schedule for these shares is up to three-years , based on each director's years of service, and is subject to the director’s continued service through each applicable vesting date. Our restricted stock awards granted to employees vest over a service period not exceeding four-years . During the nine months ended September 30, 2024, we also granted 30,538 restricted stock units, all of which vest over a four-year service period. As of September 30, 2024, the remaining unamortized share-based compensation expense related to restricted stock awards and units totaled $ 23.8 million, which is being amortized on a straight-line basis over the service period of each applicable award. The amount of share-based compensation is based on the fair value of the stock at the grant date. We define the grant date as the date the recipient and Realty Income have a mutual understanding of the key terms and conditions of the award, and the recipient of the grant begins to benefit from, or be adversely affected by, subsequent changes in the price of the shares. B. Performance Shares During the nine months ended September 30, 2024, we granted 274,358 performance shares, as well as dividend equivalent rights, to our executive officers. The performance shares are earned based on our Total Shareholder Return (“TSR”) performance relative to select industry indices and peer groups as well as achievement of certain operating metrics, and vest 50 % after the end of the three-year performance period and the remaining 50 % on January 1 of the following year, subject to continued service. As of September 30, 2024, the remaining share-based compensation expense related to the performance shares totaled $ 22.5 million. The performance shares are being recognized on a tranche-by-tranche basis over the service period. The fair value of the performance shares was estimated on the date of grant using a Monte Carlo Simulation model. -28- Table of Contents 18. Net Income per Common Share The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation (shares in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Weighted average shares used for the basic net income per share computation 870,665 709,165 858,679 681,419 Incremental shares from share-based compensation 525 378 442 360 Dilutive effect of forward ATM offerings 862 — 341 350 Weighted average shares used for diluted net income per share computation 872,052 709,543 859,462 682,129 Unvested shares from share-based compensation that were anti-dilutive 72 309 151 243 Weighted average partnership common units convertible to common shares that were anti-dilutive 1,922 1,795 1,838 1,795 Weighted average forward ATM offerings that were anti-dilutive 488 535 477 460 19. Supplemental Disclosures of Cash Flow Information The following table summarizes our supplemental cash flow information during the periods indicated below (in thousands): Nine months ended September 30, 2024 2023 Supplemental disclosures: Cash paid for interest $ 732,123 $ 501,162 Cash paid for income taxes $ 29,818 $ 11,462 Non-cash activities: Net decrease in fair value of derivatives $ ( 44,050 ) $ ( 51,386 ) Term loans assumed at fair value $ 1,300,000 $ — Notes payable assumed at fair value $ 2,481,486 $ — Increase in noncontrolling interests from property acquisitions $ — $ 39,156 Issuance/conversion of common partnership units of Realty Income, L.P. (1) $ 47,253 $ — (1) See note 11, Noncontrolling Interests for further details. The following table provides a reconciliation of cash and cash equivalents reported on our consolidated balance sheets to the total of the cash, cash equivalents, and restricted cash reported within our consolidated statements of cash flows (in thousands): September 30, 2024 September 30, 2023 Cash and cash equivalents shown in the consolidated balance sheets $ 396,956 $ 344,129 Restricted escrow deposits (1) 37,317 41,311 Impounds related to mortgages payable (1) 13,604 45,224 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 447,877 $ 430,664 (1) Included within 'other assets, net' on our consolidated balance sheets (see note 3, Supplemental Detail for Certain Components of Consolidated Balance Sheets ). These amounts consist of cash that we are legally entitled to, but that is not immediately available to us. As a result, these amounts were considered restricted as of the dates presented. -29- Table of Contents 20. Commitments and Contingencies In the ordinary course of business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated financial position or results of operations. At September 30, 2024, we had commitments of $ 77.8 million, which primarily relate to tenant improvements, re-leasing costs, recurring capital expenditures, and non-recurring building improvements. In addition, as of September 30, 2024, we had committed $ 394.9 million under construction contracts related to development projects, which have estimated rental revenue commencement dates between November 2024 and July 2025. 21. Subsequent Events A. Dividends In October 2024, we declared a dividend of $ 0.2635 per share to our common stockholders, which will be paid in November 2024. B. ATM Forward Offerings As of November 4, 2024, ATM forward agreements for a total of 17.0 million shares remain unsettled with total expected net proceeds of approximately $ 968.7 million, of which 0.2 million shares were executed in October 2024. -30- Table of Contents