REALTY INCOME CORP 10-Q

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, including the documents incorporated by reference, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. When used in this quarterly report, the words “estimated,” “anticipated,” “expect,” “believe,” “intend,” “continue,” “should,” “may,” “likely,” “plans,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements include discussions of our business and portfolio; growth strategies and intentions to acquire or dispose of properties (including geographies, timing, partners, clients and terms); re-leases, re-development and speculative development of properties and expenditures related thereto; future operations and results; the announcement of operating results, strategy, plans, and the intentions of management; settlement of shares of common stock sold pursuant to forward sale confirmations under our At-the-Market (“ATM”) Program; dividends, including the amount, timing and payments of dividends related thereto; and trends in our business, including trends in the market for long-term leases of freestanding, single-client properties. Forward-looking statements are subject to risks, uncertainties, and assumptions about us which may cause our actual future results to differ materially from expected results. Some of the factors that could cause actual results to differ materially are, among others, our continued qualification as a real estate investment trust; general domestic and foreign business, economic, or financial conditions; competition; fluctuating interest and currency rates; inflation and its impact on our clients and us; access to debt and equity capital markets and other sources of funding (including the terms and partners of such funding); continued volatility and uncertainty in the credit markets and broader financial markets; other risks inherent in the real estate business including our clients' solvency, client defaults under leases, increased client bankruptcies, potential liability relating to environmental matters, illiquidity of real estate investments, and potential damages from natural disasters; impairments in the value of our real estate assets; changes in domestic and foreign income tax laws and rates; property ownership through joint ventures, partnerships and other arrangements which may limit control of the underlying investments; epidemics or pandemics including measures taken to limit their spread, the impacts on us, our business, our clients, and the economy generally; the loss of key personnel; the outcome of any legal proceedings to which we are a party or which may occur in the future; acts of terrorism and war; and the anticipated benefits from mergers and acquisitions including from the merger (the “Merger”) with Spirit Realty Capital, Inc. (“Spirit”). Additional factors that may cause risks and uncertainties include those discussed in the sections entitled “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K , for the year ended December 31, 2023. Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements are not guarantees of future plans and performance and speak only as of the date this quarterly report was filed with the Securities and Exchange Commission (the “SEC”). Actual plans and operating results may differ materially from what is expressed or forecasted in this quarterly report and forecasts made in the forward-looking statements discussed in this quarterly report might not materialize. We do not undertake any obligation to update forward-looking statements or publicly release the results of any forward-looking statements that may be made to reflect events or circumstances after the date these statements were made. OVERVIEW Realty Income (NYSE: O), an S&P 500 company, is real estate partner to the world's leading companies. Founded in 1969, we invest in diversified commercial real estate and have a portfolio of over 15,450 properties in all 50 U.S. states, the U.K., and six other countries in Europe. We are known as “The Monthly Dividend Company ® ,” and have a mission to invest in people and places to deliver dependable monthly dividends that increase over time. Since our founding, we have declared 652 consecutive monthly dividends and are a member of the S&P 500 Dividend Aristocrats ® index for having increased our dividend for the last 30 consecutive years. As of September 30, 2024, we owned or held interests in 15,457 properties, with approximately 336.6 million square feet of leasable space leased to 1,552 clients doing business in 90 separate industries. Of the 15,457 properties in our portfolio as of September 30, 2024, 15,156, or 98.1%, were single-client properties, and the remaining were multi–client properties. Our total portfolio of 15,457 properties as of September 30, 2024 had a weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of approximately 9.4 years. Total portfolio annualized contractual rent (defined as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables) on our leases as of September 30, 2024 was $4.93 billion. -31- Table of Contents As of September 30, 2024, approximately 32.1% of our total portfolio annualized contractual rent comes from properties leased to our investment grade clients, their subsidiaries or affiliated companies. As of September 30, 2024, our top 20 clients (based on percentage of total portfolio annualized contractual rent) represented approximately 35.9% of our annualized rent and 10 of these clients have investment grade credit ratings or are subsidiaries or affiliates of investment grade companies. Approximately 91% of our annualized retail contractual rent as of September 30, 2024, is derived from our clients with a service, non-discretionary, and/or low price point component to their business. Unless otherwise specified, references to rental revenue in the Management's Discussion and Analysis of Financial Condition and Results of Operations are exclusive of reimbursements from clients for recoverable real estate taxes and operating expenses totaling $74.3 million and $61.3 million for the three months ended September 30, 2024, and 2023, respectively, and $227.6 million and $208.6 million for the nine months ended September 30, 2024 and 2023, respectively. RECENT DEVELOPMENTS Increases in Monthly Dividends to Common Stockholders We have continued our 55-year history of paying monthly dividends. In addition, we have increased the dividend five times during 2024. As of October 2024, we have paid 108 consecutive quarterly dividend increases and increased the dividend 127 times since our listing on the New York Stock Exchange (“NYSE”) in 1994. 2024 Dividend increases Month Declared Month Paid Monthly Dividend per share Increase per share 1st increase Dec 2023 Jan 2024 $ 0.2565 $ 0.0005 2nd increase Mar 2024 Apr 2024 $ 0.2570 $ 0.0005 3rd increase May 2024 Jun 2024 $ 0.2625 $ 0.0055 4th increase Jun 2024 Jul 2024 $ 0.2630 $ 0.0005 5th increase Sep 2024 Oct 2024 $ 0.2635 $ 0.0005 The dividends paid per share during the nine months ended September 30, 2024 totaled $2.3350, as compared to $2.2830 during the nine months ended September 30, 2023, an increase of $0.052, or 2.3%. The monthly dividend of $0.2635 per share represents a current annualized dividend of $3.162 per share, and an annualized dividend yield of 5.0% based on the last reported sale price of our common stock on the NYSE of $63.42 on September 30, 2024. Although we expect to continue our policy of paying monthly dividends, we cannot guarantee that we will maintain our current level of dividends, that we will continue our pattern of increasing dividends per share, or what our actual dividend yield will be in any future period. Investments During the Three and Nine Months Ended September 30, 2024 During the three months ended September 30, 2024, we invested $0.7 billion at an initial weighted average cash yield of 7.4%, including an investment in 169 properties and properties under development or expansion. During the nine months ended September 30, 2024, we invested $2.1 billion at an initial weighted average cash yield of 7.7%, including an investment in 300 properties, properties under development or expansion, and an investment in a loan. See notes 4 , Investments in Real Estate, 5 , Investments in Unconsolidated Entities, and 6, Investments in Loans, to the consolidated financial statements for further details. Equity Capital Raising During the three months ended September 30, 2024, we raised $271.0 million of proceeds from the sale of common stock, at a weighted average price of $62.25 per share, primarily through proceeds from the sale of common stock through our ATM program. The ATM program issuances during the three months ended September 30, 2024 included 4.3 million shares issued pursuant to forward sale confirmations. As of September 30, 2024, 16.8 million shares of common stock subject to forward sale confirmations have been executed but not settled. See note 15 , Stockholders' Equity , to the consolidated financial statements for further details. Note Issuances In September 2024, we issued £350.0 million of 5.000% senior unsecured notes due October 2029 and £350.0 million of 5.250% senior unsecured notes due September 2041. In August 2024, we issued $500.0 million of 5.375% senior unsecured notes due September 2054. See note 10, Notes Payable , to the consolidated financial statements for further details. -32- Table of Contents Closing of Spirit Merger On January 23, 2024, we closed on our previously announced stock-for-stock merger with Spirit (formerly NYSE: SRC). The Merger is further described in note 2, Merger with Spirit Realty Capital, Inc. , to the consolidated financial statements. Redemption of Preferred Stock On September 30, 2024, we redeemed all 6.9 million shares outstanding of our 6.000% Series A Preferred Stock (“Realty Income Series A preferred stock”), which was converted from Spirit's outstanding preferred stock in connection with the Merger, at a redemption price of $25.00 per share, plus accrued and unpaid dividends. For more details, see note 16, Series A Preferred Stock. Client Update As part of the initial purchase price allocation for the acquisition of a sale-leaseback in the convenience store industry, we recorded financing receivables for the excess of the purchase price over the fair value. Following lease payment default by the tenant and our evaluation of recoverability, we recorded a provision for impairment of $63.9 million for the three months ended September 30, 2024, and $69.8 million for the nine months ended September 30, 2024, which accounted for a dilution impact of $0.07 and $0.08 per share, respectively, to our net income and funds from operations (“FFO”). At September 30, 2024, the tenant's financing receivable balance has been fully reserved. Portfolio Discussion Leasing Results At September 30, 2024, we had 196 properties available for lease or sale out of 15,457 properties in our portfolio, which represents a 98.7% occupancy rate based on the number of properties in our portfolio. Our property-level occupancy rates exclude properties with ancillary leases only, such as cell towers and billboards, and properties with possession pending, and include properties owned by unconsolidated joint ventures. Below is a summary of our portfolio activity for the periods indicated below: Three months ended September 30, 2024 Properties available for lease at June 30, 2024 185 Lease expirations (1) 212 Re-leases to same client (131) Re-leases to new client (11) Vacant dispositions (59) Properties available for lease at September 30, 2024 196 Nine months ended September 30, 2024 Properties available for lease at December 31, 2023 193 Lease expirations (1) 642 Re-leases to same client (441) Re-leases to new client (32) Vacant dispositions (166) Properties available for lease at September 30, 2024 196 (1) Includes scheduled and unscheduled expirations (including leases rejected in bankruptcy), as well as future expirations resolved in the periods indicated above. During the three months ended September 30, 2024, the new annualized contractual rent on re-leases was $38.41 million, as compared to the previous annual rent of $36.57 million on the same units, representing a rent recapture rate of 105.0% on the units re-leased. We re-leased two units to new clients without a period of vacancy, and 14 units to new clients after a period of vacancy. During the nine months ended September 30, 2024, the new annualized contractual rent on re-leases was $131.50 million, as compared to the previous annual rent of $125.39 million on the same units, representing a rent recapture rate of 104.9% on the units re-leased. We re-leased 16 units to new clients without a period of vacancy, and 29 units to new clients after a period of vacancy. As part of our re-leasing costs, we pay leasing commissions to unrelated, third-party real estate brokers consistent with the commercial real estate industry standard, and sometimes provide rent concessions to our clients. We do not consider the collective impact of the leasing commissions or rent concessions to our clients to be material to our financial position or results of operations. -33- Table of Contents Disposition Strategy During the nine months ended September 30, 2024, we sold 214 properties with total net proceeds received of $451.4 million. Our disposition strategy aims at further enhancing our portfolio and maximizing portfolio returns through the sale of select assets. It remains a function of our proactive investment management approach, supported by several data-driven tools including our predictive analytics platform. Impact of Inflation Leases generally provide for limited increases in rent as a result of fixed increases, increases in the consumer price index, or retail price index in the case of certain leases in the U.K. (typically subject to ceilings), or increases in the clients’ sales volumes. We expect that inflation will cause these lease provisions to result in rent increases over time. During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation and other costs. Moreover, our strategic focus on the use of net lease agreements reduces our exposure to rising property expenses due to inflation because the client is responsible for property expenses. Even though the utilization of net leases reduces our exposure to rising property expenses due to inflation, substantial inflationary pressures and increased costs may have an adverse impact on our clients if increases in their operating expenses exceed increases in revenue, which may adversely affect our clients' ability to pay rent. Additionally, inflationary periods may cause us to experience increased costs of financing, make it difficult to refinance debt at attractive rates or at all, and may adversely affect the properties we can acquire if the cost of financing an acquisition is in excess of our anticipated earnings from such property, thereby limiting the properties that can be acquired. Impact of Real Estate and Capital Markets In the commercial real estate market, property prices generally continue to fluctuate. Likewise, during certain periods, the global capital markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real estate and global capital markets carefully and, if required, will make decisions to adjust our business strategy accordingly. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2024, we had $5.2 billion of liquidity, which consists of cash and cash equivalents of $397.0 million, unsettled ATM forward equity of $958.1 million, and $3.8 billion of availability under our $4.25 billion unsecured revolving credit facility, net of $427.5 million of borrowing on the revolving credit facility. We use our unsecured revolving credit facility as a liquidity backstop for the repayment of the notes issued under our commercial paper programs. Our primary cash obligations, for the current year and subsequent years, are included in the “Material Cash Requirements” table, which is presented later in this section. We expect to fund our operating expenses and other short-term liquidity requirements, including property acquisitions and development costs, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs, and cash distributions to common stockholders, primarily through a combination of the following: • Cash and cash equivalents; • Future cash flows from operations; • Issuances of common stock or debt, or other securities offerings; • Additional borrowings under our revolving credit facility (after deducting outstanding borrowings under our commercial paper programs); • Short-term loans; • Asset dispositions; and • Credit investment repayments In addition to these sources of liquidity, we are exploring various capital diversification initiatives, including the establishment of a third-party private capital open-end fund. We believe that our cash and cash equivalents on hand, cash provided from operating activities, and borrowing capacity is sufficient to meet our liquidity needs for the next twelve months. We intend, however, to use permanent or long-term capital to fund property acquisitions and to repay future borrowings under our credit facility and commercial paper programs. Long-Term Liquidity Requirements Our goal is to deliver dependable monthly dividends to our stockholders that increase over time. Historically, we have met our principal short-term and long-term capital needs, including the funding of high-quality real estate acquisitions, investments in loans to clients, property development, and capital expenditures by issuing common -34- Table of Contents stock, long-term unsecured notes, and term loan borrowings. Over the long term, we believe that common stock should be the majority of our capital structure. We may issue common stock when we believe our share price is at a level that allows for the proceeds of an offering to be accretively invested into additional properties or to permanently finance properties that were initially financed by our revolving credit facility, commercial paper programs, or shorter-term debt securities. However, we cannot assure you that we will have access to the capital markets at all times and at terms that are acceptable to us. Capitalization As of September 30, 2024, our total capitalization was $82.8 billion. Total capitalization consisted of $55.7 billion of common equity (based on the September 30, 2024 closing price on the NYSE of $63.42 and assuming the conversion of 2.7 million common units of Realty Income, L.P.), and total outstanding borrowings of $27.1 billion on our revolving credit facility, term loans, mortgages payable, senior unsecured notes and bonds, and our proportionate share of unconsolidated entities' debt (excluding unamortized deferred financing costs, discounts, and premiums). Our total debt to capitalization was 32.7% at September 30, 2024. Universal Shelf Registration On February 16, 2024, we filed a new shelf registration statement with the SEC, which is effective for a term of three years and will expire in February 2027. In accordance with SEC rules, the amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit. The securities covered by this registration statement include (1) common stock, (2) preferred stock, (3) debt securities, (4) depositary shares representing fractional interests in shares of preferred stock, (5) warrants to purchase debt securities, common stock, preferred stock, or depositary shares, and (6) any combination of these securities. We may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. ATM Program As of September 30, 2024, there were approximately 16.8 million shares of unsettled common stock subject to forward sale confirmations through our ATM program, representing approximately $958.1 million in expected net proceeds, which have been executed at a weighted average price of $56.88 per share (assuming full physical settlement of all outstanding shares of common stock, subject to such forward sale agreements and certain assumptions made with respect to settlement dates). During the nine months ended September 30, 2024, we settled approximately 13.9 million shares of common stock previously sold pursuant to forward sale agreements through our ATM program for approximately $809.9 million of net proceeds. 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. Debt Financing Activities At September 30, 2024, our total outstanding borrowings of revolving credit facility, commercial paper, term loans, mortgages payable, and senior unsecured notes and bonds were $26.4 billion, with a weighted average maturity of 6.2 years and a weighted average interest rate of 3.9%. As of September 30, 2024, approximately 96% of our total debt was fixed rate debt. See notes 7 through 10 to the consolidated financial statements for additional information about our outstanding debt, along with our debt financing activities during the nine months ended September 30, 2024 below. 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 % In connection with the Merger, we also completed the $2.7 billion exchange in principal of outstanding notes issued by Spirit Realty, L.P. (“Spirit OP”). See note 10, Notes Payable , to the consolidated financial statements for further details. -35- Table of Contents Note Repayments During the nine months ended September 30, 2024, we repaid the following notes, plus accrued and unpaid interest upon maturity (in millions): Note Repayment Date of Issuance Maturity Date Principal amount 4.600% Notes February 2014 February 2024 $ 500.0 3.875% Notes June 2014 July 2024 $ 350.0 Term Loan Issuances In January 2024, in connection with our merger with Spirit, we entered into an amended and restated term loan agreement (which replaced Spirit's then-existing term loans with various lenders). The amended and restated term loan agreements are fixed through interest rate swaps at a weighted average interest rate of 3.9%. Pursuant to the amended and restated term loan agreement, we borrowed $800.0 million in aggregate total borrowings, $300.0 million of which matures in August 2025 and $500.0 million of which matures in August 2027 (the “$800 million term loan agreement”). We also entered into an amended and restated term loan agreement pursuant to which we borrowed $500.0 million in aggregate total borrowings which matures in June 2025 (the “$500 million term loan agreement”). Term Loan Redemption During the nine months ended September 30, 2024, we repaid our $250.0 million senior unsecured term loan in full upon maturity. Mortgage Repayments 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. Covenants The following is a summary of the key financial covenants for our senior unsecured notes, as defined and calculated per the terms of our senior notes and bonds. These calculations, which are not based on accounting principles generally accepted in the United States of America ("U.S. GAAP"), are presented to investors to show our ability to incur additional debt under the terms of our senior notes and bonds as well as to disclose our current compliance with such covenants and are not measures of our liquidity or performance. The actual amounts as of September 30, 2024, are: Note Covenants Required Actual Limitation on incurrence of total debt < 60% of adjusted assets 41.5 % Limitation on incurrence of secured debt < 40% of adjusted assets 0.4 % Debt service and fixed charge coverage (trailing 12 months) (1) > 1.5x 4.6x Maintenance of total unencumbered assets > 150% of unsecured debt 239.9 % (1) Our debt service coverage ratio is calculated on a pro forma basis for the preceding four-quarter period on the assumptions that: (i) the incurrence of any debt (as defined in the covenants) incurred by us since the first day of such four-quarter period and the application of the proceeds therefrom (including to refinance other debt since the first day of such four-quarter period), (ii) the repayment or retirement of any of our debt since the first day of such four-quarter period, and (iii) any acquisition or disposition by us of any asset or group since the first day of such four quarters had in each case occurred on October 1, 2023 and subject to certain additional adjustments. Such pro forma ratio has been prepared on the basis required by that debt service covenant, reflects various estimates and assumptions and is subject to other uncertainties, and therefore does not purport to reflect what our actual debt service coverage ratio would have been had transactions referred to in clauses (i), (ii) and (iii) of the preceding sentence occurred as of October 1, 2023, nor does it purport to reflect our debt service coverage ratio for any future period. Fixed charge coverage is calculated in the same manner as the debt service coverage. The following is our calculation of debt service and fixed charge coverage at September 30, 2024 (in thousands, for trailing twelve months): Net income attributable to the Company $ 918,853 Plus: interest expense, excluding the amortization of deferred financing costs 932,897 Plus: provision for taxes 64,838 Plus: depreciation and amortization 2,264,829 Plus: provisions for impairment 268,325 Plus: pro forma adjustments 371,396 Less: gain on sales of real estate (98,282) Income available for debt service, as defined $ 4,722,856 Total pro forma debt service charge $ 1,030,535 Debt service and fixed charge coverage ratio 4.6x -36- Table of Contents Credit Agency Ratings The borrowing interest rates under our revolving credit facility are based upon our ratings assigned by credit rating agencies. As of September 30, 2024, we were assigned the following investment grade corporate credit ratings on our senior unsecured notes and bonds: Moody’s Investors Service has assigned a rating of A3 with a “stable” outlook and Standard & Poor’s Ratings Group has assigned a rating of A- with a “stable” outlook. In addition, we were assigned the following ratings on our commercial paper at September 30, 2024: Moody's Investors Service has assigned a rating of P-2 and Standard & Poor's Ratings Group has assigned a rating of A-2. Based on our credit agency ratings as of September 30, 2024, interest rates under our credit facility for U.S. borrowings would have been at the Secured Overnight Financing Rate ("SOFR"), plus 0.725% with a SOFR adjustment charge of 0.10% and a revolving credit facility fee of 0.125%, for all-in drawn pricing of 0.95% over SOFR, for GBP borrowings, at the Sterling Overnight Indexed Average (“SONIA”), plus 0.725% with a SONIA adjustment charge of 0.0326% and a revolving credit facility fee of 0.125%, for all-in drawn pricing of 0.8826% over SONIA, and for 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 drawn pricing of 0.85% over one-month EURIBOR. In addition, our credit facility provides that the interest rates can range between: (i) SOFR/SONIA/EURIBOR, plus 1.40% if our credit rating is lower than BBB-/Baa3 or our senior unsecured debt is unrated and (ii) SOFR/SONIA/EURIBOR, plus 0.70% if our credit rating is A/A2 or higher. In addition, our credit facility provides for a facility commitment fee based on our credit ratings, which ranges from: (i) 0.30% for a rating lower than BBB-/Baa3 or unrated, and (ii) 0.10% for a credit rating of A/A2 or higher. We also issue senior debt securities from time to time and our credit ratings can impact the interest rates charged in those transactions. If our credit ratings or ratings outlook change, our cost to obtain debt financing could increase or decrease. The credit ratings assigned to us could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that our ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover, a rating is not a recommendation to buy, sell or hold our debt securities, preferred stock or common stock. Material Cash Requirements The following table summarizes the maturity of each of our obligations as of September 30, 2024 (dollars in millions): Credit Facility and Commercial Paper (1) Unsecured Term Loans (2) Mortgages Payable Senior Unsecured Notes and Bonds Interest (3) Ground Leases Paid by the Company (4) Ground Leases Paid by Our Clients (5) Other (6) Totals 2024 $ — $ — $ 114.2 $ — $ 244.4 $ 3.7 $ 7.9 $ 178.0 $ 548.2 2025 — 800.0 46.0 1,050.0 993.8 12.5 31.8 217.3 3,151.4 2026 427.5 1,129.7 12.0 2,375.0 847.4 17.6 32.3 85.1 4,926.6 2027 — 500.0 22.3 2,371.1 753.3 11.1 30.4 4.6 3,692.8 2028 — — 1.3 2,499.8 647.9 8.8 27.4 — 3,185.2 Thereafter — — 2.3 15,085.8 3,605.9 311.8 361.5 3.4 19,370.7 Totals $ 427.5 $ 2,429.7 $ 198.1 $ 23,381.7 $ 7,092.7 $ 365.5 $ 491.3 $ 488.4 $ 34,874.9 (1) The initial term of the credit facility expires in June 2026 and includes, at our option, two six-month extensions. At September 30, 2024, there were $427.5 million of outstanding borrowings under our revolving credit facility. (2) The maturity date for our 2023 term loans assumes a twelve-month extension available at the company's option is exercised. (3) Interest on the commercial paper programs, term loans, mortgages payable, and senior unsecured notes and bonds has been calculated based on outstanding balances at period end through their respective maturity dates. (4) We currently pay the ground lessors directly for the rent under the ground leases. (5) Our clients, who are generally sub-tenant clients under ground leases, are responsible for paying the rent under these ground leases. In the event our client fails to pay the ground lease rent, we are primarily responsible. (6) “Other” consists of $394.9 million of commitments under construction contracts, $77.8 million for tenant improvements, re-leasing costs, recurring capital expenditures, and non-recurring building improvements, and $15.7 million for contingent consideration obligations related to leasing activities for a multi-tenant property acquired. Investments in Unconsolidated Entities As of September 30, 2024, our pro-rata share of secured debt of unconsolidated entities was approximately $659.2 million. -37- Table of Contents DIVIDEND POLICY Distributions are paid monthly to holders of shares of our common stock. Distributions are paid monthly to the limited partners holding common units of Realty Income, L.P., each on a per unit basis that is equal to the amount paid per share to our common stockholders (subject to the adjustment factor applicable to those units at the time of such distribution). In order to maintain our status as a real estate investment trust ("REIT") for federal income tax purposes, we generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our taxable income (excluding net capital gains), and we are subject to income tax to the extent we distribute less than 100% of our taxable income (including net capital gains). In 2023, our cash distributions to common stockholders totaled $2.11 billion, or approximately 134.4% of our taxable income of $1.57 billion. Certain measures are available to us to reduce or eliminate our tax exposure as a REIT, and accordingly, no provision for U.S. federal income taxes, other than our taxable REIT subsidiaries (each, a "TRS"), has been made. Our taxable income reflects non-cash deductions for depreciation and amortization. Our taxable income is presented to show our compliance with REIT dividend requirements and is not a measure of our liquidity or operating performance. We intend to continue to make distributions to our stockholders that are sufficient to meet this dividend requirement and that will reduce or eliminate our exposure to income taxes. Furthermore, we believe our cash on hand and funds from operations are sufficient to support our current level of cash distributions to our stockholders. We distributed $2.3350 per share to stockholders during the nine months ended September 30, 2024, representing 74.4% of our diluted Adjusted Funds from Operations Available to Common Stockholders ("AFFO") per share of $3.14. Future distributions will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, FFO, Normalized Funds from Operations Available to Common Stockholders ("Normalized FFO"), AFFO, cash flow from operations, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, our debt service requirements, and any other factors the Board of Directors may deem relevant. In addition, our credit facility contains financial covenants that could limit the amount of distributions payable by us in the event of a default, and which prohibit the payment of distributions on our common stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facility. Distributions of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income, except to the extent that we recognize capital gains and declare a capital gains dividend, or that such amounts constitute “qualified dividend income” subject to a reduced rate of tax. The maximum tax rate of non-corporate taxpayers for “qualified dividend income” is generally 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that certain holding requirements have been met with respect to the REIT’s stock and the REIT’s dividends are attributable to dividends received from certain taxable corporations (such as our TRSs) or to income that was subject to tax at the corporate or REIT level (for example, if we distribute taxable income that we retained and paid tax on in the prior taxable year). However, non-corporate stockholders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017, and before January 1, 2026. Distributions in excess of earnings and profits generally will first be treated as a non-taxable reduction in the stockholders’ basis in their stock, but not below zero. Distributions in excess of that basis generally will be taxable as a capital gain to stockholders who hold their shares as a capital asset. Approximately 6.8% of the distributions to our common stockholders, made or deemed to have been made in 2023, were classified as a return of capital for federal income tax purposes. -38- Table of Contents RESULTS OF OPERATIONS The following is a comparison of our results of operations for the three and nine months ended September 30, 2024 and 2023. Total Revenue The following summarizes our total revenue (in millions): Three months ended September 30, Nine months ended September 30, 2024 2023 Change 2024 2023 Change Rental (excluding reimbursable) $ 1,196.8 $ 947.6 $ 249.2 $ 3,536.4 $ 2,720.8 $ 815.6 Rental (reimbursable) 74.3 61.3 13.0 227.6 208.6 19.0 Other 59.8 30.2 29.6 166.8 73.3 93.5 Total revenue $ 1,330.9 $ 1,039.1 $ 291.8 $ 3,930.8 $ 3,002.7 $ 928.1 Rental Revenue (excluding reimbursable) The table below summarizes the increase in rental revenue (excluding reimbursable) in the three and nine months ended September 30, 2024 compared to the same periods in 2023 (dollars in thousands): Three months ended September 30, Number of Properties 2024 2023 Change Properties acquired during 2024 & 2023 1,587 $ 173,350 $ 101,936 $ 71,414 Same store rental revenue (1) 13,499 1,001,871 999,634 2,237 Constant currency adjustment (2) N/A (4,636) (6,623) 1,987 Properties sold during and prior to 2024 493 1,144 12,773 (11,629) Straight-line rent and other non-cash adjustments N/A 799 (2,523) 3,322 Vacant rents, development and other (3) 371 24,448 25,188 (740) Other excluded revenue (4) N/A (171) 690 (861) Less: Spirit rental revenue (5) N/A — (183,525) 183,525 Totals $ 1,196,805 $ 947,550 $ 249,255 Nine months ended September 30, Number of Properties 2024 2023 Change Properties acquired during 2024 & 2023 3,538 $ 941,640 $ 155,379 $ 786,261 Same store rental revenue (1) 11,574 2,518,545 2,511,272 7,273 Constant currency adjustment (2) N/A (21,486) (22,048) 562 Properties sold during and prior to 2024 351 12,345 31,037 (18,692) Straight-line rent and other non-cash adjustments N/A 6,046 (17,109) 23,155 Vacant rents, development and other (3) 345 63,442 59,758 3,684 Other excluded revenue (4) N/A 15,888 2,517 13,371 Totals $ 3,536,420 $ 2,720,806 $ 815,614 (1) The same store rental revenue percentage increased by 0.2% and 0.3% for the three and nine months ended September 30, 2024 as compared with the same periods in 2023, respectively. (2) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as of September 30, 2024. None of the properties in France, Germany, Ireland or Portugal met our same store pool definition for the periods presented. (3) Relates to the aggregate of (i) rental revenue from 312 and 295 properties that were available for lease during part of 2024 or 2023 for the three and nine months ended September 30, 2024, and (ii) rental revenue for 59 and 50 properties under development or completed developments that do not meet our same store pool definition for the periods presented three and nine months ended September 30, 2024. (4) "Other excluded revenue" primarily consists of reimbursements for tenant improvements and rental revenue that is not contractual base rent such as lease termination settlements. (5) Amounts for the three months ended September 30, 2023 represent rental revenue from Spirit properties, which were not included in our financial statements prior to the close of the merger on January 23, 2024. -39- Table of Contents For purposes of determining the same store rent property pool, we include all properties that were owned for the entire year-to-date period, for both the current and prior year, except for properties during the current or prior year that; (i) were vacant at any time, (ii) were under development or redevelopment, or (iii) were involved in eminent domain and rent was reduced. Beginning with the second quarter of 2024, properties acquired through the merger with Spirit were considered under each element of our Same Store Pool criteria, except for the requirement that the property be owned for the full comparative period. If the property was owned by Spirit for the full comparative period and each of the other criteria were met, the property was included in our Same Store Pool. Accordingly, Spirit properties have been included in the Same Store Pool for the quarter and have been excluded for the year-to-date calculation. Each of the exclusions from the same store pool are separately addressed within the applicable sentences above, explaining the changes in rental revenue for the period. Of the 16,490 in-place leases in the portfolio, 13,544, or 82.1%, were under leases that provide for increases in rents through: base rent increases tied to inflation (typically subject to ceilings), percentage rent based on a percentage of the clients’ gross sales, fixed increases, or a combination of two or more of the aforementioned rent provisions. Rent based on a percentage of our clients' gross sales, or percentage rent, was $3.1 million and $2.2 million for the three months ended September 30, 2024 and 2023, respectively, and $10.8 million and $8.0 million for the nine months ended September 30, 2024 and 2023, respectively. Percentage rent represents less than 1.0% of rental revenue. At September 30, 2024, our portfolio of 15,457 properties was 98.7% leased with 196 properties available for lease or sale, as compared to 98.6% leased with 193 properties available for lease at December 31, 2023, and 98.8% leased with 159 properties available for lease at September 30, 2023. It has been our experience that approximately 1% to 4% of our property portfolio will be available for lease at any given time; however, it is possible that the number of properties available for lease or sale could increase in the future, given the nature of economic cycles and other unforeseen global events. Rental Revenue (reimbursable) A number of our leases provide for contractually obligated reimbursements from clients for recoverable real estate taxes and operating expenses. Contractually obligated reimbursements by our clients increased by $13.0 million and $19.0 million for the three and nine months ended September 30, 2024, primarily due to the growth of our portfolio due to acquisitions, partially offset by lower taxes for the nine months ended September 30, 2024 due to a modification of tax remittance terms with one of our clients in 2023. Other Revenue The following summarizes our total other revenue (in millions): Three months ended September 30, Nine months ended September 30, 2024 2023 Change 2024 2023 Change Interest income on financing receivables $ 31.3 $ 29.9 $ 1.4 $ 92.7 $ 72.5 $ 20.2 Interest income on loans and preferred equity investments 27.7 — 27.7 71.8 — 71.8 Other 0.8 0.3 0.5 2.3 0.8 1.5 $ 59.8 $ 30.2 $ 29.6 $ 166.8 $ 73.3 93.5 -40- Table of Contents Total Expenses The following summarizes our total expenses (dollars in millions): Three months ended September 30, Nine months ended September 30, 2024 2023 Change 2024 2023 Change Depreciation and amortization $ 602.3 $ 495.6 $ 106.7 $ 1,789.0 $ 1,419.3 $ 369.7 Interest 261.3 184.1 77.2 748.8 522.1 226.7 Property (excluding reimbursable) 17.9 9.7 8.2 53.7 26.5 27.2 Property (reimbursable) 74.3 61.3 13.0 227.6 208.6 19.0 General and administrative 41.9 35.5 6.4 127.8 106.5 21.3 Provisions for impairment 96.9 16.8 80.1 282.9 59.8 223.1 Merger, transaction, and other costs 8.6 2.9 5.7 105.5 4.5 101.0 Total expenses $ 1,103.2 $ 805.9 $ 297.3 $ 3,335.3 $ 2,347.3 $ 988.0 Total revenue (1) $ 1,256.6 $ 977.8 $ 3,703.2 $ 2,794.1 General and administrative expenses as a percentage of total revenue (1) 3.3 % 3.6 % 3.5 % 3.8 % Property expenses (excluding reimbursable) as a percentage of total revenue (1) 1.4 % 1.0 % 1.5 % 0.9 % (1) Excludes rental revenue (reimbursable). Depreciation and Amortization Depreciation and amortization increased by $106.7 million and $369.7 million for the three and nine months ended September 30, 2024 as compared with the same periods in 2023, respectively, primarily due to the merger with Spirit, the acquisitions of properties in 2023 and 2024; partially offset by property dispositions. The Spirit merger contributed an additional $111.2 million and $303.9 million of depreciation and amortization for the three and nine months ended September 30, 2024, respectively. Interest Expense The following is a summary of the components of our interest expense (dollars in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Interest on our credit facility, commercial paper, term loans, mortgages, senior unsecured notes and bonds, and interest rate swaps $ 258,877 $ 199,059 $ 752,109 $ 564,347 Credit facility commitment fees 1,358 1,358 4,043 3,999 Amortization of debt origination and deferred financing costs 6,001 6,930 17,694 19,498 Gain on interest rate swaps (968) (1,790) (4,567) (5,390) Amortization of net mortgage premiums and discounts 51 (3,201) (18) (9,597) Amortization of net note premiums and discounts 242 (14,989) (3,883) (45,647) Capital lease obligation 532 378 1,497 1,183 Interest capitalized (4,832) (3,624) (18,069) (6,283) Interest expense $ 261,261 $ 184,121 $ 748,806 $ 522,110 Credit facility, commercial paper, term loans, mortgages and senior unsecured notes and bonds Average outstanding balances $ 26,240,556 $ 20,249,836 $ 25,708,806 $ 19,685,182 Weighted average interest rates 4.03 % 3.93 % 3.99 % 3.81 % Interest expense increased by $77.2 million and $226.7 million for the three and nine months ended September 30, 2024 as compared with the same periods in 2023, respectively, primarily due to an increase in average borrowings and weighted average interest rates, primarily due to issuance of senior notes at higher fixed interest rates, partially offset by an increase in capitalized interest driven by an increase in development. See notes to the accompanying consolidated financial statements for additional information regarding our indebtedness. -41- Table of Contents Property Expenses (excluding reimbursable) Property expenses (excluding reimbursable) consist of costs associated with properties available for lease, non-net-leased properties and general portfolio expenses and include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections and legal fees. Property expenses (excluding reimbursable) increased by $8.2 million and $27.2 million for the three and nine months ended September 30, 2024 as compared with the same periods in 2023, respectively, primarily due to a higher number of properties available for lease compared with the same periods in 2023, in addition to acquisitions in 2023 and 2024 in which the lease terms do not obligate the tenant to pay certain expenses, which resulted in higher repairs and maintenance costs, property insurance and taxes. Property Expenses (reimbursable) Property expenses (reimbursable) consist of reimbursable property taxes and operating costs paid on behalf of our clients. Property expenses (reimbursable) increased by $13.0 million and $19.0 million for the three and nine months ended September 30, 2024 as compared with the same periods in 2023. General and Administrative Expenses General and administrative expenses increased by $6.4 million and $21.3 million for the three and nine months ended September 30, 2024 as compared with the same periods in 2023, respectively, primarily due to higher employee costs of $4.6 million and $14.5 million, respectively, and higher professional fees of $1.7 million and $3.7 million, respectively. Provisions for Impairment The following table summarizes our provisions for impairment during the periods indicated below (in millions): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Provisions for impairment of real estate (1) $ 33.1 $ 16.8 $ 208.6 $ 59.8 Provision for credit losses (2) 63.8 — 74.3 — Provisions for impairment $ 96.9 $ 16.8 $ 282.9 $ 59.8 (1) See note 12 , Fair Value Measurements , to the consolidated financial statements for further details. (2) See note 1, Summary of Significant Accounting Policies , to the consolidated financial statements for further details. Merger, Transaction, and Other Costs 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 of $2.9 million and $99.8 million, respectively of transaction and integration-related costs related to Spirit, which largely consisted of employee severance, post-combination share-based compensation, transfer taxes, and various professional fees directly attributable to the Merger, as well as $5.1 million for each of the respective periods related to the lease termination of a legacy corporate facility. For the three and nine months ended September 30, 2023, we incurred $2.9 million and $4.5 million of merger, transaction, and other costs, respectively, in conjunction with our merger with VEREIT in November 2021. Gain on Sales of Real Estate The following summarizes our property dispositions (dollars in millions): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Number of properties sold 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 Foreign Currency and Derivative Gain (Loss), Net We borrow in the functional currencies of the countries in which we invest. Net foreign currency gain and loss are primarily related to the remeasurement of intercompany debt from foreign subsidiaries. Derivative gain and loss are primarily related to mark-to-market adjustments on derivatives that do not qualify for hedge accounting and settlement of designated derivatives reclassified from Accumulated Other Comprehensive Income ("AOCI"). -42- Table of Contents Foreign currency and derivative (loss) gain, net increased by $1.1 million and decreased by $2.1 million for the three and nine months ended September 30, 2024 as compared with the same periods in 2023, respectively, primarily due to fluctuations in foreign currency rates related to remeasurement of intercompany debt. Equity in Earnings of Unconsolidated Entities Equity in earnings of unconsolidated entities was $5.1 million and $5.4 million for the three and nine months ended September 30, 2024, respectively, compared to $0.4 million for the nine months ended September 30, 2023. There was no equity in earnings for the three months ended September 30, 2023. The increase in equity in earnings of unconsolidated entities is due to an increase in our joint venture investments. Other Income, Net Other income, net decreased by $2.5 million for the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to a loss of $1.5 million on the sale of a loan, lower insurance proceeds, partially offset by higher interest income on short-term investments. Other income, net increased by $3.3 million for the nine months ended September 30, 2024 as compared with the same period in 2023, primarily due to higher interest income on short-term investments, partially offset by lower insurance proceeds compared to the prior year. Income Taxes Income taxes primarily consist of international income taxes accrued or paid by us and our subsidiaries, as well as state and local taxes. The increase of $4.0 million and $10.3 million in income taxes for the three and nine months ended September 30, 2024 as compared with the same periods in 2023, respectively, is primarily attributable to higher taxable income in the U.K. Preferred Stock Dividends The increase in preferred stock dividends of $2.6 million and $7.8 million for the three and nine months ended September 30, 2024, respectively, as compared with the same period in 2023, is due to the issuance of Realty Income Series A Preferred Stock in connection with the Spirit merger. Excess of Redemption Value over Carrying Value of Preferred Shares Redeemed In September 2024, we redeemed all 6.9 million of Realty Income Series A Preferred Stock outstanding. 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 and nine months ended September 30, 2024. -43- Table of Contents NON-GAAP FINANCIAL MEASURES Adjusted Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate ("Adjusted EBITDA re ") Nareit established an EBITDA metric for real estate companies (i.e., EBITDA for real estate, or EBITDA re ) it believed would provide investors with a consistent measure to help make investment decisions among REITs. Our definition of “Adjusted EBITDA re ” is generally consistent with the Nareit definition, other than our adjustment to remove foreign currency and derivative gain and loss and merger, transaction, and other costs. We define Adjusted EBITDAre, a non-GAAP financial measure, for the most recent quarter as earnings (net income) before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) provisions for impairment, (v) merger, transaction, and other costs, (vi) gain on sales of real estate, (vii) foreign currency and derivative gain and loss, net, and (viii) our proportionate share of adjustments from unconsolidated entities. Our Adjusted EBITDAre may not be comparable to Adjusted EBITDAre reported by other companies or as defined by Nareit, and other companies may interpret or define Adjusted EBITDA re differently than we do. Management believes Adjusted EBITDA re to be a meaningful measure of a REIT’s performance because it provides a view of our operating performance, analyzes our ability to meet interest payment obligations before the effects of income tax, depreciation and amortization expense, provisions for impairment, gain on sales of real estate and other items, as defined above, that affect comparability, including the removal of non-recurring and non-cash items that industry observers believe are less relevant to evaluating the operating performance of a company. In addition, EBITDA re is widely followed by industry analysts, lenders, investors, rating agencies, and others as a means of evaluating the operational cash generating capacity of a company prior to servicing debt obligations. Management also believes the use of an annualized quarterly Adjusted EBITDA re metric, which we refer to as Annualized Adjusted EBITDA re , is meaningful because it represents our current earnings run rate for the period presented. Annualized Adjusted EBITDA re and Annualized Pro Forma Adjusted EBITDA re , as defined below, are also used to determine the vesting of performance share awards granted to executive officers. Annualized Adjusted EBITDA re should be considered along with, but not as an alternative to net income as a measure of our operating performance. We define Annualized Pro Forma Adjusted EBITDA re as Annualized Adjusted EBITDA re , subject to certain adjustments to incorporate Adjusted EBITDA re from investments we acquired or stabilized during the applicable quarter and to remove Adjusted EBITDA re from investments we disposed of during the applicable quarter, and include transaction accounting adjustments in accordance with U.S. GAAP, giving pro forma effect to all transactions as if they occurred at the beginning of the applicable period. Our calculation includes all adjustments consistent with the requirements to present Adjusted EBITDA re on a pro forma basis in accordance with Article 11 of Regulation S-X. The Annualized Pro Forma Adjustments are consistent with the debt service coverage ratio calculated under financial covenants for our senior unsecured notes. We believe Annualized Pro Forma Adjusted EBITDA re is a useful non-GAAP supplemental measure, as it excludes properties that were no longer owned at the balance sheet date and includes the annualized rent from properties acquired during the quarter. Management also uses our ratios of Net Debt/Annualized Adjusted EBITDA re and Net Debt/Annualized Pro Forma Adjusted EBITDA re as measures of leverage in assessing our financial performance, which is calculated as net debt (which we define as total debt per the consolidated balance sheets, excluding deferred financing costs and net premiums and discounts, but including our proportionate share of debt from unconsolidated entities, less cash and cash equivalents), divided by annualized quarterly Adjusted EBITDA re and annualized Pro Forma Adjusted EBITDA re , respectively. -44- Table of Contents The following is a reconciliation of net income (which we believe is the most comparable U.S. GAAP measure) to Adjusted EBITDA re and Annualized Pro Forma EBITDA re calculations for the periods indicated below (dollars in thousands): Three months ended September 30, 2024 2023 Net income $ 271,124 $ 233,877 Interest 261,261 184,121 Income taxes 15,355 11,336 Depreciation and amortization 602,339 495,566 Provisions for impairment 96,920 16,808 Merger, transaction, and other costs 8,610 2,884 Gain on sales of real estate (50,563) (7,572) Foreign currency and derivative loss, net 1,672 2,813 Proportionate share of adjustments from unconsolidated entities 20,340 — Quarterly Adjusted EBITDA re $ 1,227,058 $ 939,833 Annualized Adjusted EBITDA re (1) $ 4,908,232 $ 3,759,332 Annualized Pro Forma Adjustments $ 29,347 $ 74,503 Annualized Pro Forma Adjusted EBITDA re $ 4,937,579 $ 3,833,835 Total debt per the consolidated balance sheets, excluding deferred financing costs and net premiums and discounts $ 26,437,045 $ 20,388,406 Proportionate share of unconsolidated entities debt, excluding deferred financing costs 659,190 — Less: Cash and cash equivalents (396,956) (344,129) Net Debt (2) $ 26,699,279 $ 20,044,277 Net Debt/Annualized Adjusted EBITDA re 5.4 x 5.3 x Net Debt/Annualized Pro Forma Adjusted EBITDA re 5.4 x 5.2 x (1) We calculate Annualized Adjusted EBITDA re by multiplying the Quarterly Adjusted EBITDA re by four. (2) Net Debt is total debt per our consolidated balance sheets, excluding deferred financing costs and net premiums and discounts, but including our proportionate share of debt from unconsolidated entities, less cash and cash equivalents. As described above, the Annualized Pro Forma Adjustments, which include transaction accounting adjustments in accordance with U.S. GAAP, consist of adjustments to incorporate the Adjusted EBITDA re from investments we acquired or stabilized during the applicable quarter and remove Adjusted EBITDA re from investments we disposed of during the applicable quarter, giving pro forma effect to all transactions as if they occurred at the beginning of the period, consistent with the requirements of Article 11 of Regulation S-X. The following table summarizes our Annualized Pro Forma Adjusted EBITDA re calculation for the period indicated below (dollars in thousands): Three months ended September 30, 2024 2023 Annualized pro forma adjustments from investments acquired or stabilized $ 32,378 $ 79,141 Annualized pro forma adjustments from investments disposed (3,031) (4,638) Annualized Pro Forma Adjustments $ 29,347 $ 74,503 -45- Table of Contents FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS ("FFO") AND NORMALIZED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS ("Normalized FFO") We define FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trusts' definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus provisions for impairments of depreciable real estate assets, and reduced by gain on property sales. We define Normalized FFO, a non-GAAP financial measure, as FFO excluding merger, transaction, and other costs. We define diluted FFO and diluted normalized FFO as FFO and normalized FFO adjusted for dilutive noncontrolling interests. The following summarizes our FFO and Normalized FFO (dollars in millions, except per share data): Three months ended September 30, Nine months ended September 30, 2024 2023 % Change 2024 2023 % Change FFO available to common stockholders $ 854.9 $ 736.1 16.1 % $ 2,569.7 $ 2,108.4 21.9 % FFO per common share (1) $ 0.98 $ 1.04 (5.8) % $ 2.99 $ 3.09 (3.2) % Normalized FFO available to common stockholders $ 863.5 $ 739.0 16.8 % $ 2,675.2 $ 2,113.0 26.6 % Normalized FFO per common share (1) $ 0.99 $ 1.04 (4.8) % $ 3.11 $ 3.10 0.3 % (1) All per share amounts are presented on a diluted per common share basis. -46- Table of Contents The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable U.S. GAAP measure) to FFO and Normalized FFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Net income available to common stockholders $ 261,781 $ 233,473 $ 648,281 $ 653,904 Depreciation and amortization 602,339 495,566 1,788,973 1,419,321 Depreciation of furniture, fixtures and equipment (672) (817) (1,905) (1,656) Provisions for impairment of real estate 33,151 16,808 208,552 59,801 Gain on sales of real estate (50,563) (7,572) (92,290) (19,675) Proportionate share of adjustments for unconsolidated entities 9,652 — 20,706 (465) FFO adjustments allocable to noncontrolling interests (762) (1,312) (2,575) (2,808) FFO available to common stockholders $ 854,926 $ 736,146 $ 2,569,742 $ 2,108,422 FFO allocable to dilutive noncontrolling interests 1,467 1,375 4,402 4,166 Diluted FFO $ 856,393 $ 737,521 $ 2,574,144 $ 2,112,588 FFO available to common stockholders $ 854,926 $ 736,146 $ 2,569,742 $ 2,108,422 Merger, transaction, and other costs (1) 8,610 2,884 105,468 4,532 Normalized FFO available to common stockholders $ 863,536 $ 739,030 $ 2,675,210 $ 2,112,954 Normalized FFO allocable to dilutive noncontrolling interests 1,467 1,375 4,402 4,166 Diluted Normalized FFO $ 865,003 $ 740,405 $ 2,679,612 $ 2,117,120 FFO per common share, basic and diluted: $ 0.98 $ 1.04 $ 2.99 $ 3.09 Normalized FFO per common share: Basic $ 0.99 $ 1.04 $ 3.12 $ 3.10 Diluted $ 0.99 $ 1.04 $ 3.11 $ 3.10 Distributions paid to common stockholders $ 687,144 $ 543,343 $ 1,999,858 $ 1,555,679 FFO available to common stockholders in excess of distributions paid to common stockholders $ 167,782 $ 192,803 $ 569,884 $ 552,743 Normalized FFO available to common stockholders in excess of distributions paid to common stockholders $ 176,392 $ 195,687 $ 675,352 $ 557,275 Weighted average number of common shares used for FFO and Normalized FFO: Basic 870,665 709,165 858,679 681,419 Diluted 873,974 711,338 861,300 683,925 (1) 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. We consider FFO and Normalized FFO to be appropriate supplemental measures of a REIT’s operating performance as they are based on a net income analysis of property portfolio performance that adds back items such as depreciation and impairments for FFO, and adds back merger, transaction, and other costs, for Normalized FFO. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. -47- Table of Contents ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS ("AFFO") We define AFFO, a non-GAAP measure, as FFO adjusted for unique revenue and expense items, which we believe are not as pertinent to the measurement of our ongoing operating performance. We define diluted AFFO as AFFO adjusted for dilutive noncontrolling interests. The following summarizes our AFFO (dollars in millions, except per share data): Three months ended September 30, Nine months ended September 30, 2024 2023 % Change 2024 2023 % Change AFFO available to common stockholders $ 915.6 $ 721.4 26.9 % $ 2,699.5 $ 2,043.8 32.1 % AFFO per common share (1) $ 1.05 $ 1.02 2.9 % $ 3.14 $ 2.99 5.0 % (1) All per share amounts are presented on a diluted per common share basis. We consider AFFO to be an appropriate supplemental measure of our performance. Most companies in our industry use a similar measurement, but they may use the term “CAD” (for Cash Available for Distribution), “FAD” (for Funds Available for Distribution) or other terms. Our AFFO calculations may not be comparable to AFFO, CAD or FAD reported by other companies, and other companies may interpret or define such terms differently than we do. -48- Table of Contents The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable U.S. GAAP measure) to Normalized FFO and AFFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts). Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported AFFO. Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Net income available to common stockholders $ 261,781 $ 233,473 $ 648,281 $ 653,904 Cumulative adjustments to calculate Normalized FFO (1) 601,755 505,557 2,026,929 1,459,050 Normalized FFO available to common stockholders 863,536 739,030 2,675,210 2,112,954 Excess of redemption value over carrying value of preferred shares redeemed 5,116 — 5,116 — Amortization of share-based compensation 6,401 6,231 22,920 20,154 Amortization of net debt discounts (premiums) and deferred financing costs 4,861 (10,244) 9,861 (34,441) Amortization of acquired interest rate swap value (2) 3,711 — 10,225 — Non-cash change in allowance for credit losses 63,769 — 74,315 — Leasing costs and commissions (2,841) (1,392) (5,897) (6,868) Recurring capital expenditures (151) (52) (203) (190) Straight-line rent and expenses, net (43,930) (42,791) (136,377) (113,239) Amortization of above and below-market leases, net 12,973 24,939 41,053 61,967 Proportionate share of adjustments for unconsolidated entities (2,152) — (1,770) — Other adjustments (3) 4,279 5,649 5,064 3,499 AFFO available to common stockholders $ 915,572 $ 721,370 $ 2,699,517 $ 2,043,836 AFFO allocable to dilutive noncontrolling interests 1,467 1,357 4,413 4,170 Diluted AFFO $ 917,039 $ 722,727 $ 2,703,930 $ 2,048,006 AFFO per common share: Basic $ 1.05 $ 1.02 $ 3.14 $ 3.00 Diluted $ 1.05 $ 1.02 $ 3.14 $ 2.99 Distributions paid to common stockholders $ 687,144 $ 543,343 $ 1,999,858 $ 1,555,679 AFFO available to common stockholders in excess of distributions paid to common stockholders $ 228,428 $ 178,027 $ 699,659 $ 488,157 Weighted average number of common shares used for computation per share: Basic 870,665 709,165 858,679 681,419 Diluted 873,974 711,338 861,300 683,925 (1) See reconciling items for Normalized FFO presented under “Funds from Operations Available to Common Stockholders ("FFO") and Normalized Funds from Operations Available to Common Stockholders ("Normalized FFO")". (2) Includes the amortization of the purchase price allocated to interest rate swaps acquired in the Spirit merger. (3) Includes non-cash foreign currency losses (gains) from remeasurement to USD, mark-to-market adjustments on investments and derivatives that are non-cash in nature, straight-line payments from cross-currency swaps, obligations related to financing lease liabilities, adjustments allocable to noncontrolling interests, and gains and losses on the sale of loans receivable. We believe the non-GAAP financial measure AFFO provides useful information to investors because it is a widely accepted industry measure of the operating performance of real estate companies that is used by industry analysts and investors who look at and compare those companies. In particular, AFFO provides an additional measure to compare the operating performance of different REITs without having to account for differing depreciation assumptions and other unique revenue and expense items which are not pertinent to measuring a particular company’s on-going operating performance. Therefore, we believe that AFFO is an appropriate supplemental performance metric, and that the most appropriate U.S. GAAP performance metric to which AFFO should be reconciled is net income available to common stockholders. -49- Table of Contents Presentation of the information regarding FFO, Normalized FFO, and AFFO is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO, Normalized FFO, and AFFO in the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO, Normalized FFO, and AFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as alternatives to net income as an indication of our performance. FFO, Normalized FFO, and AFFO should not be considered as alternatives to reviewing our cash flows from operating, investing, and financing activities. In addition, FFO, Normalized FFO, and AFFO should not be considered as measures of liquidity, our ability to make cash distributions, or our ability to pay interest payments. PROPERTY PORTFOLIO INFORMATION At September 30, 2024, most of the properties in our portfolio were leased under net lease agreements. A net lease typically requires the client to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance. In addition, clients of our properties typically pay rent increases based on: (1) fixed increases, (2) increases tied to inflation (typically subject to ceilings), or (3) additional rent calculated as a percentage of the clients' gross sales above a specified level. We define total portfolio annualized contractual rent as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables, as of the balance sheet date, multiplied by 12, excluding percentage rent, interest income on loans and preferred equity investments, and including our pro rata share of such revenues from properties owned by unconsolidated joint ventures. We believe total portfolio annualized contractual rent is a useful supplemental operating measure, as it excludes properties that were no longer owned at the balance sheet date and includes the annualized rent from properties acquired during the quarter. Total portfolio annualized contractual rent has not been reduced to reflect reserves recorded as adjustments to U.S. GAAP rental revenue in the periods presented. Top 10 Industry Concentrations We are engaged in a single business activity, which is the leasing of property to clients, generally on a net basis. That business activity spans various geographic boundaries and includes property types and clients engaged in various industries. Even though we have a single segment, we believe our investors continue to view diversification as a key component of our investment philosophy and so we believe it remains important to present certain information regarding our property portfolio classified according to the business of the respective clients, expressed as a percentage of our total portfolio annualized contractual rent: Percentage of Total Portfolio Annualized Contractual Rent by Industry As of Sept 30, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Grocery 10.4% 11.4% 10.0% 10.2% 9.8% Convenience Stores 9.4 10.2 8.6 9.1 11.9 Dollar Stores 6.5 7.1 7.4 7.5 7.6 Home Improvement 6.0 5.9 5.6 5.1 4.3 Restaurants-Quick Service 4.9 5.2 6.0 6.6 5.3 Drug Stores 4.8 5.5 5.7 6.6 8.2 Automotive Service 4.5 4.3 4.0 3.2 2.7 Health and Fitness 4.4 3.9 4.4 4.7 6.7 Restaurants-Casual Dining 4.2 4.4 5.1 5.9 2.8 General Merchandise 3.3 3.7 3.7 3.7 3.4 Property Type Composition The following table sets forth certain property type information regarding our property portfolio as of September 30, 2024 (dollars in thousands): Property Type Number of Properties Approximate Leasable Square Feet (1) Total Portfolio Annualized Contractual Rent Percentage of Total Portfolio Annualized Contractual Rent Retail 14,822 211,007,300 $ 3,912,022 79.4 % Industrial 564 115,466,200 720,977 14.6 Gaming 2 5,053,400 159,695 3.2 Other (2) 69 5,103,300 138,489 2.8 Totals 15,457 336,630,200 $ 4,931,183 100.0 % (1) Represents leasable building square footage and includes our portfolio of unconsolidated joint ventures based on ownership percentage. Excludes 2,962 acres of leased land categorized as agriculture at September 30, 2024. (2) "Other" primarily includes 15 properties classified as office with $46.0 million in annualized contractual rent, 27 properties classified as agriculture with $38.3 million in annualized contractual rent, three properties classified as data centers with $25.9 million in annualized contractual rent, and 21 properties classified as country clubs with $24.4 million in annualized contractual rent, as well as one land parcel under development. Client Diversification The following table sets forth the 20 largest clients in our property portfolio, expressed as a percentage of total portfolio annualized contractual rent, which does not give effect to deferred rent or interest earned on loans and preferred equity investments, at September 30, 2024: Client Number of Leases Percentage of Total Portfolio Annualized Contractual Rent (1) Dollar General 1,763 3.3 % Walgreens 400 3.3 Dollar Tree / Family Dollar 1,387 3.1 7-Eleven 640 2.5 EG Group Limited 414 2.1 Wynn Resorts 1 2.1 Lifetime Fitness 38 2.0 FedEx 82 1.9 Asda 39 1.6 (B&Q) Kingfisher 51 1.6 Sainsbury's 37 1.6 BJ's Wholesale Club 44 1.6 Tesco 25 1.3 CVS Pharmacy 213 1.2 LA Fitness 66 1.2 Tractor Supply 207 1.2 MGM (Bellagio) (2) 1 1.2 AMC Theaters 39 1.1 Walmart / Sam's Club 63 1.0 Home Depot 38 1.0 Total 5,548 35.9 % (1) Amounts for each client are calculated independently; therefore, the individual percentages may not sum to the total. (2) Represents our proportionate share of the common equity ownership in the unconsolidated joint venture. Lease Expirations The following table sets forth certain information regarding the timing of the lease term expirations in our portfolio (excluding rights to extend a lease at the option of the client) and their contribution to total portfolio annualized contractual rent as of September 30, 2024 (dollars in thousands): Total Portfolio (1) Expiring Leases Approximate Leasable Square Feet Total Portfolio Annualized Contractual Rent Percentage of Total Portfolio Annualized Contractual Rent Year Retail Non-Retail 2024 112 1 1,089,400 $ 12,764 0.3 % 2025 826 32 12,005,400 188,669 3.8 2026 944 47 20,173,600 240,372 4.9 2027 1,578 47 26,730,800 349,659 7.1 2028 1,854 68 35,912,800 455,218 9.2 2029 1,830 49 33,919,000 432,418 8.8 2030 810 34 21,894,300 260,092 5.3 2031 632 52 27,607,900 311,038 6.3 2032 1,116 46 22,026,400 305,996 6.2 2033 950 27 22,187,000 276,567 5.6 2034 781 30 17,937,100 321,736 6.5 2035 575 23 10,154,400 182,197 3.7 2036 591 23 10,949,800 190,455 3.9 2037 579 23 12,278,600 168,785 3.4 2038 370 24 12,585,800 143,166 2.9 2039-2143 2,286 130 45,955,900 1,092,051 22.1 Totals 15,834 656 333,408,200 $ 4,931,183 100.0 % (1) Leases on our multi-client properties are counted separately in the table above. Geographic Diversification The following table sets forth certain geographic information regarding our property portfolio as of September 30, 2024 (dollars in thousands): Location Number of Properties Percent Leased Approximate Leasable Square Feet Percentage of Total Portfolio Annualized Contractual Rent Alabama 502 99 % 5,916,500 1.8 % Alaska 16 100 622,800 0.2 Arizona 294 100 4,955,400 1.9 Arkansas 310 99 3,526,400 1.0 California 382 100 14,240,100 5.0 Colorado 206 98 3,945,400 1.2 Connecticut 59 98 2,664,400 0.6 Delaware 25 100 264,100 0.1 Florida 1,035 99 13,481,400 5.1 Georgia 721 98 11,909,700 3.6 Hawaii 22 100 47,800 0.1 Idaho 41 98 408,000 0.2 Illinois 600 98 14,795,000 4.4 Indiana 466 98 12,249,000 2.4 Iowa 126 98 4,373,600 0.8 Kansas 216 98 5,584,400 1.0 Kentucky 436 99 7,001,300 1.5 Louisiana 380 100 5,929,200 1.7 Maine 112 100 1,300,500 0.6 Maryland 95 99 4,417,800 1.2 Massachusetts 216 100 7,802,000 3.9 Michigan 569 98 8,664,900 2.6 Minnesota 292 99 5,732,200 1.7 Mississippi 355 99 5,505,200 1.2 Missouri 446 99 6,795,400 1.8 Montana 30 100 400,500 0.2 Nebraska 89 100 1,342,000 0.3 Nevada 75 100 4,615,400 1.9 New Hampshire 69 99 1,287,700 0.5 New Jersey 157 97 2,693,900 1.3 New Mexico 146 99 2,149,500 0.7 New York 378 99 6,833,500 2.8 North Carolina 491 98 10,114,300 2.6 North Dakota 25 100 537,900 0.2 Ohio 818 97 22,452,700 4.1 Oklahoma 403 97 5,705,900 1.5 Oregon 44 98 757,200 0.3 Pennsylvania 365 99 7,363,400 2.0 Rhode Island 34 100 343,900 0.2 South Carolina 389 99 6,163,600 1.8 South Dakota 40 98 612,300 0.2 Tennessee 578 99 9,796,700 2.5 Texas 1,888 99 36,121,000 10.3 Utah 57 100 2,618,700 0.6 Vermont 19 100 175,300 0.1 Virginia 415 99 9,144,300 2.6 Washington 85 98 1,898,900 0.7 West Virginia 105 100 1,081,500 0.4 Wisconsin 320 100 8,553,800 1.9 Wyoming 25 100 203,100 0.1 Puerto Rico 6 100 59,400 * U.S. Virgin Islands 1 100 38,000 * France 28 100 1,406,800 0.3 Germany 4 100 189,900 * Ireland 11 100 444,200 0.2 Italy 34 100 2,492,600 0.7 Portugal 5 100 142,300 * Spain 91 100 6,772,600 1.3 United Kingdom 310 100 29,984,900 12.1 Totals/average 15,457 99 % 336,630,200 100.0 % • *Less than 0.1% IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS For information on the impact of new accounting standards on our consolidated financial statements, see note 1, Summary of Significant Accounting Policies , to our Consolidated Financial Statements. CRITICAL ACCOUNTING POLICIES Our consolidated financial statements have been prepared in accordance with U.S. GAAP and are the basis for our discussion and analysis of financial condition and results of operations. Preparing our consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. We believe that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. There have been no material changes to the Critical Accounting Policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023. This summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in note 1, Summary of Significant Accounting Policies, to our consolidated financial statements in our Annual Report.