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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2021, or

☐ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-13374

REALTY INCOME CORPORATION

(Exact name of registrant as specified in its charter)

Maryland	33-0580106
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification Number)

11995 El Camino Real, San Diego, California 92130

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: (858) 284-5000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange On Which Registered
Common Stock, $0.01 Par Value	O	New York Stock Exchange
1.125% Notes due 2027	O27A	New York Stock Exchange
1.625% Notes due 2030	O30	New York Stock Exchange
1.750% Notes due 2033	O33A	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒     No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," “accelerated filer,” "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐    No  ☒

There were 389,388,286 shares of common stock outstanding as of July 30, 2021.

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REALTY INCOME CORPORATION

Index to Form 10-Q

June 30, 2021

PART I.	FINANCIAL INFORMATION	Page
Item 1:	Financial Statements
	Consolidated Balance Sheets	2
	Consolidated Statements of Income and Comprehensive Income	3
	Consolidated Statements of Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Forward-Looking Statements	26
	The Company	27
	Recent Developments	30
	Liquidity and Capital Resources	36
	Results of Operations	41
	Funds from Operations Available to Common Stockholders (FFO) and Normalized Funds from Operations Available to Common Stockholders (Normalized FFO)	50
	Adjusted Funds from Operations Available to Common Stockholders (AFFO)	52
	Property Portfolio Information	54
	Impact of Inflation	59
	Impact of Recent Accounting Pronouncements	59
	Other Information	59
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4:	Controls and Procedures	60
PART II.	OTHER INFORMATION
Item 1A:	Risk Factors	61
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 6:	Exhibits	62
SIGNATURE		65

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PART 1. FINANCIAL INFORMATION

Item 1.    Financial Statements

REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share and share count data)

	June 30, 2021		December 31, 2020
ASSETS	(unaudited)
Real estate held for investment, at cost:
Land	$	6,975,008	$	6,318,926
Buildings and improvements	15,700,846		14,696,712
Total real estate held for investment, at cost	22,675,854		21,015,638
Less accumulated depreciation and amortization	(3,775,540)		(3,549,486)
Real estate held for investment, net	18,900,314		17,466,152
Real estate and lease intangibles held for sale, net	39,540		19,004
Cash and cash equivalents	231,164		824,476
Accounts receivable, net	327,920		285,701
Lease intangible assets, net	1,969,793		1,710,655
Other assets, net	516,210		434,297
Total assets	$	21,984,941	$	20,740,285
LIABILITIES AND EQUITY
Distributions payable	$	90,455	$	85,691
Accounts payable and accrued expenses	259,805		241,336
Lease intangible liabilities, net	319,495		321,198
Other liabilities	276,120		256,863
Line of credit payable and commercial paper	1,285,306		—
Term loan, net	249,457		249,358
Mortgages payable, net	300,574		300,360
Notes payable, net	7,330,050		8,267,749
Total liabilities	10,111,262		9,722,555
Commitments and contingencies
Stockholders’ equity:
Common stock and paid in capital, par value $0.01 per share, 740,200,000 shares authorized, 380,174,042 and 361,303,445 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively	15,827,231		14,700,050
Distributions in excess of net income	(3,968,333)		(3,659,933)
Accumulated other comprehensive loss	(19,366)		(54,634)
Total stockholders’ equity	11,839,532		10,985,483
Noncontrolling interests	34,147		32,247
Total equity	11,873,679		11,017,730
Total liabilities and equity	$	21,984,941	$	20,740,285

The accompanying notes to consolidated financial statements are an integral part of these statements.

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REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(dollars in thousands, except per share data) (unaudited)

	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
REVENUE
Rental (including reimbursable)	$	460,256	$	410,201	$	899,621	$	822,358
Other	4,026		4,435		7,465		6,619
Total revenue	464,282		414,636		907,086		828,977
EXPENSES
Depreciation and amortization	187,789		168,328		365,774		332,913
Interest	73,674		77,841		146,749		153,766
Property (including reimbursable)	31,734		26,452		60,233		52,058
General and administrative	21,849		19,063		42,645		40,027
Provisions for impairment	17,246		13,869		19,966		18,347
Merger-related costs	13,298		—		13,298		—
Total expenses	345,590		305,553		648,665		597,111
Gain on sales of real estate	14,901		1,323		23,302		39,829
Foreign currency and derivative gains (losses), net	400		502		1,204		(1,062)
Loss on extinguishment of debt	—		—		(46,473)		(9,819)
Income before income taxes	133,993		110,908		236,454		260,814
Income taxes	(9,225)		(2,838)		(15,450)		(5,601)
Net income	124,768		108,070		221,004		255,213
Net income attributable to noncontrolling interests	(289)		(246)		(585)		(562)
Net income available to common stockholders	$	124,479	$	107,824	$	220,419	$	254,651
Amounts available to common stockholders per common share:
Net Income:
Basic and diluted	$	0.33	$	0.31	$	0.59	$	0.75
Weighted average common shares outstanding:
Basic	374,236,424		343,515,406		372,879,165		340,061,487
Diluted	374,341,023		343,685,259		372,971,744		340,281,265
Other comprehensive income:
Net income available to common stockholders	$	124,479	$	107,824	$	220,419	$	254,651
Foreign currency translation adjustment	(49)		22		(308)		414
Unrealized gain (loss) on derivatives, net	(10,833)		(10,534)		35,576		(36,396)
Comprehensive income available to common stockholders	$	113,597	$	97,312	$	255,687	$	218,669

The accompanying notes to consolidated financial statements are an integral part of these statements.

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REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY 

(dollars in thousands) (unaudited)

Three Months Ended June 30, 2021 and 2020

	Shares of common stock	Common stock and paid in capital		Distributions in excess of net income		Accumulated other comprehensive loss		Total stockholders’ equity		Noncontrolling interests		Total equity
Balance, March 31, 2021	373,509,822	$	15,371,016	$	(3,827,660)	$	(8,484)	$	11,534,872	$	32,141	$	11,567,013
Net income	—	—		124,479		—		124,479		289		124,768
Other comprehensive loss	—	—		—		(10,882)		(10,882)		—		(10,882)
Distributions paid and payable	—	—		(265,152)		—		(265,152)		(389)		(265,541)
Share issuances, net of costs	6,629,021	452,355		—		—		452,355		—		452,355
Contributions by noncontrolling interests	—	—		—		—		—		2,106		2,106
Share-based compensation, net	35,199	3,860		—		—		3,860		—		3,860
Balance, June 30, 2021	380,174,042	$	15,827,231	$	(3,968,333)	$	(19,366)	$	11,839,532	$	34,147	$	11,873,679
Balance, March 31, 2020	343,402,030	$	13,604,055	$	(3,173,468)	$	(42,572)	$	10,388,015	$	29,624	$	10,417,639
Net Income	—	—		107,824		—		107,824		246		108,070
Other comprehensive loss	—	—		—		(10,512)		(10,512)		—		(10,512)
Distributions paid and payable	—	—		(240,944)		—		(240,944)		(400)		(241,344)
Share issuances, net of costs	1,555,966	96,996		—		—		96,996		—		96,996
Share-based compensation, net	65,425	3,070		—		—		3,070		—		3,070
Balance, June 30, 2020	345,023,421	$	13,704,121	$	(3,306,588)	$	(53,084)	$	10,344,449	$	29,470	$	10,373,919

Six Months Ended June 30, 2021 and 2020

	Shares of common stock	Common stock and paid in capital		Distributions in excess of net income		Accumulated other comprehensive income (loss)		Total stockholders’ equity		Noncontrolling interests		Total equity
Balance, December 31, 2020	361,303,445	$	14,700,050	$	(3,659,933)	$	(54,634)	$	10,985,483	$	32,247	$	11,017,730
Net Income	—	—		220,419		—		220,419		585		221,004
Other comprehensive income	—	—		—		35,268		35,268		—		35,268
Distributions paid and payable	—	—		(528,819)		—		(528,819)		(791)		(529,610)
Share issuances, net of costs	18,747,415	1,124,576		—		—		1,124,576		—		1,124,576
Contributions by noncontrolling interests	—	—		—		—		—		2,106		2,106
Share-based compensation, net	123,182	2,605		—		—		2,605		—		2,605
Balance, June 30, 2021	380,174,042	$	15,827,231	$	(3,968,333)	$	(19,366)	$	11,839,532	$	34,147	$	11,873,679
Balance, December 31, 2019	333,619,106	$	12,873,849	$	(3,082,291)	$	(17,102)	$	9,774,456	$	29,702	$	9,804,158
Net income	—	—		254,651		—		254,651		562		255,213
Other comprehensive loss	—	—		—		(35,982)		(35,982)		—		(35,982)
Distributions paid and payable	—	—		(478,948)		—		(478,948)		(794)		(479,742)
Share issuances, net of costs	11,280,466	827,772		—		—		827,772		—		827,772
Share-based compensation, net	123,849	2,500		—		—		2,500		—		2,500
Balance, June 30, 2020	345,023,421	$	13,704,121	$	(3,306,588)	$	(53,084)	$	10,344,449	$	29,470	$	10,373,919

The accompanying notes to consolidated financial statements are an integral part of these statements.

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REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands) (unaudited)

	Six months ended June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	221,004	$	255,213
Adjustments to net income:
Depreciation and amortization	365,774		332,913
Amortization of share-based compensation	8,169		10,400
Non-cash revenue adjustments	(8,233)		(1,507)
Loss on extinguishment of debt	46,473		9,819
Amortization of net premiums on mortgages payable	(485)		(710)
Amortization of deferred financing costs	5,352		4,916
Loss on interest rate swaps	1,447		1,992
Foreign currency and derivative (gains) losses, net	(1,204)		1,062
Gain on sales of real estate	(23,302)		(39,829)
Provisions for impairment on real estate	19,966		18,347
Change in assets and liabilities
Accounts receivable and other assets	(67,970)		(61,091)
Accounts payable, accrued expenses and other liabilities	14,143		(16,881)
Net cash provided by operating activities	581,134		514,644
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in real estate	(2,102,042)		(632,174)
Improvements to real estate, including leasing costs	(3,997)		(4,710)
Proceeds from sales of real estate	91,616		133,643
Purchase of short-term investment	—		(300,000)
Insurance and other proceeds received	—		108
Non-refundable escrow deposits	(11,153)		—
Net cash used in investing activities	(2,025,576)		(803,133)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash distributions to common stockholders	(524,056)		(474,294)
Borrowings on line of credit and commercial paper program	5,403,699		2,324,409
Payments on line of credit and commercial paper program	(4,097,909)		(2,385,859)
Principal payment on term loan	—		(250,000)
Proceeds from notes and bonds payable issued	—		593,922
Principal payment on notes payable	(950,000)		(250,000)
Principal payments on mortgages payable	(42,590)		(14,730)
Payments upon extinguishment of debt	(47,235)		(9,445)
Proceeds from common stock offerings, net	669,295		728,883
Proceeds from dividend reinvestment and stock purchase plan	5,322		4,815
Proceeds from At-the-Market (ATM) program, net	449,959		94,076
Distributions to noncontrolling interests	(791)		(794)
Net receipts on derivative settlements	1,650		2,421
Debt issuance costs	—		(5,526)
Other items, including shares withheld upon vesting	(5,564)		(7,901)
Net cash provided by financing activities	861,780		349,977
Effect of exchange rate changes on cash and cash equivalents	(1,032)		(2,175)
Net (decrease) increase in cash, cash equivalents and restricted cash	(583,694)		59,313
Cash, cash equivalents and restricted cash, beginning of period	850,679		71,005
Cash, cash equivalents and restricted cash, end of period	$	266,985	$	130,318

For supplemental disclosures, see note 18.

The accompanying notes to consolidated financial statements are an integral part of these statements.

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REALTY INCOME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

(unaudited)

1.Basis of Presentation

The consolidated financial statements of Realty Income Corporation (“Realty Income”, the “Company”, “we”, “our” or “us”) were prepared from our books and records without audit and include all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented. Readers of this quarterly report should refer to our audited consolidated financial statements for the year ended December 31, 2020, which are included in our 2020 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. Unless otherwise indicated, all dollar amounts are expressed in United States (U.S.) dollars.

At June 30, 2021 we owned 6,761 properties, located in all 50 U.S. states, Puerto Rico and the United Kingdom (U.K.), consisting of approximately 118.3 million leasable square feet.

2.Summary of Significant Accounting Policies and Procedures

Principles of Consolidation. The accompanying consolidated financial statements include the accounts of Realty Income and other subsidiaries for which we make operating and financial decisions (i.e., control), after elimination of all material intercompany balances and transactions. We consolidate entities that we control and record a noncontrolling interest for the portion that we do not own. Noncontrolling interest that was created or assumed as part of a business combination or asset acquisition was recognized at fair value as of the date of the transaction (see note 11). We have no unconsolidated investments.

Federal Income Taxes. We have elected to be taxed as a real estate investment trust, or 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, we generally will not be required to pay federal corporate 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. 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 city and state income and franchise taxes and for U.K. income taxes.

Lease Revenue Recognition and Accounts Receivable. The COVID-19 pandemic and the measures taken to limit its spread are negatively impacting the economy across many industries, including the industries in which some of our clients operate. These impacts may continue as the duration and severity of the pandemic increases. As a result, we have closely monitored the collectability of our accounts receivable and continue to evaluate the potential impacts of the COVID-19 pandemic and the measures taken to limit its spread on our business and industry segments as the situation continues to evolve and more information becomes available.

We must continue to assess the probability of collecting substantially all of the lease payments to which we are entitled under the original lease contract as required under Topic 842, Leases. If a company concludes collection of substantially all 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 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.

The majority of concessions granted to our clients during 2020 and the six months ended June 30, 2021 as a result of the COVID-19 pandemic have been rent deferrals with the original lease term unchanged. We currently anticipate future concessions to be similar. In accordance with the guidance provided by the Financial Accounting Standards Board (FASB) staff, we have elected to account for these leases as if the right of deferral existed in the lease contract and therefore continue to recognize lease revenue in accordance with the lease contract in effect. In limited circumstances, the undiscounted cash flows resulting from deferrals granted increased significantly from original lease terms, which required us to account for these as lease modifications, and resulted in an insignificant impact to rental revenue for six months ended June 30, 2021. Similarly, rent abatements granted, which are also accounted

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for as lease modifications, impacted our rental revenue by an insignificant amount for the six months ended June 30, 2021.

Unless otherwise specified, references to reserves recorded as a reduction of rental revenue include amounts reserved for in the current period, as well as unrecognized contractual rental revenue and unrecognized straight-line rental revenue for leases accounted for on a cash basis. The following table summarizes reserves recorded as a reduction of rental revenue (dollars in millions):

	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Rental revenue reserves	$	7.5	$	6.4	$	15.8	$	7.4
Straight-line rent reserves	0.7		2.1		1.2		2.8
Total rental revenue reserves	$	8.2	$	8.5	$	17.0	$	10.2

As of June 30, 2021, other than the information related to the reserves recorded to date, we do not have any further client specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable. However, since the conversations regarding rent collections for our clients affected by the COVID-19 pandemic are ongoing and we do not currently know the types of future concessions, if any, that will ultimately be granted, there may be impacts in future periods that could change this assessment as the situation continues to evolve and as more information becomes available.

Newly Issued Accounting Standards. In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, 2020 and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. We are currently evaluating the impact that the expected market transition from LIBOR to alternative references rates will have on our financial statements as well as the applicability of the aforementioned expedients and exceptions provided in ASU 2020-04.

Reclassification. For the three months ended June 30, 2021, we began presenting 'Income taxes,' which was previously presented in 'Expenses,' below a newly captioned subtotal for 'Income before income taxes' within our consolidated statements of income and comprehensive income. Prior year amounts have been reclassified to conform to the current year presentation.

3.Agreement and Plan of Merger

On April 29, 2021, we entered into an Agreement and Plan of Merger, as amended, or the Merger Agreement, with VEREIT, Inc., or VEREIT, its operating partnership, VEREIT Operating Partnership, L.P., or VEREIT OP, and two newly formed wholly-owned subsidiaries of us. Pursuant to the terms of the Merger Agreement, (i) one of the newly formed subsidiaries of us will merge with and into VEREIT OP, with VEREIT OP as the surviving entity, which we refer to as the Partnership Merger, and (ii) immediately thereafter, VEREIT will merge with and into the other newly formed subsidiary of us, with our subsidiary as the surviving corporation, which we refer to as the Merger and, together with the Partnership Merger, the Mergers.

Pursuant to the terms of the Merger Agreement and subject to the terms thereof, upon the consummation of the Mergers, (i) each outstanding share of VEREIT common stock, and each outstanding common partnership unit of VEREIT OP owned by any of its partners other than VEREIT, Realty Income or their respective affiliates, will automatically be converted into 0.705 of a newly issued share of our common stock, subject to possible adjustment as provided in the Merger Agreement, (ii) each outstanding Series F preferred partnership unit of VEREIT OP owned by a partner other than VEREIT shall be converted into the right to receive $25.00, plus the accumulated and unpaid distributions described in the Merger Agreement, and (iii) each outstanding Series F preferred partnership unit of VEREIT OP owned by VEREIT will remain outstanding as a preferred partnership unit and each outstanding common partnership unit of VEREIT OP owned by VEREIT, Realty Income or their respective affiliates will remain outstanding as a common partnership unit in the surviving entity of VEREIT OP. Immediately prior to the Mergers, VEREIT will issue a redemption notice to redeem each share of issued and outstanding VEREIT Series F preferred stock at its redemption price in accordance with its terms.

In connection with the Mergers, we and VEREIT intend to contribute some or all of our office real estate properties to a newly formed, wholly owned subsidiary, which we refer to as OfficeCo, and, following the Mergers, for us to

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distribute the outstanding voting shares of common stock of OfficeCo to our stockholders (including former VEREIT stockholders who receive shares of our common stock in the Mergers) on a pro rata basis, which we refer to as the Spin-Off. Following the consummation of the Spin-Off, we and VEREIT intend for OfficeCo to operate as a separate, publicly-traded REIT. Subject to the terms and conditions of the Merger Agreement, we and VEREIT may also or alternatively seek to sell some or all of the office real estate properties in connection with the closing of the Mergers or choose to retain some or all of the OfficeCo properties.

The Merger Agreement contains customary covenants, representations, and warranties, as well as certain termination rights for VEREIT and us, in each case, as more fully described in the Merger Agreement. The consummation of the Mergers is also subject to certain customary closing conditions, including receipt of the approval by our stockholders and the stockholders of VEREIT. In addition, we will not be obligated to consummate the Mergers before January 29, 2022 unless the Spin-Off is ready, in all respects, to be consummated contemporaneously with the closing of the Mergers. If this condition is not satisfied or waived by us by January 29, 2022, and all other conditions to closing have been satisfied, the parties will be obligated to close the Mergers, regardless of whether the Spin-Off is ready to be consummated. Likewise, the Spin-Off is subject to various conditions and uncertainties and we and VEREIT may elect to sell some or all of the applicable office properties before the Spin-Off and we may elect not to proceed with the Spin-Off at all.

In connection with the Merger, we have filed a registration statement on Form S-4 (File No. 333-256772), declared effective by the SEC on June 29, 2021, that includes a joint proxy statement of Realty Income and VEREIT. Realty Income and VEREIT have each scheduled special meetings of their respective stockholders to be held on August 12, 2021 in connection with the Mergers and related transactions. Realty Income stockholders will be asked to consider and vote on a proposal to approve the issuance of Realty Income common stock in the Mergers pursuant to the Merger Agreement. VEREIT stockholders will be asked to consider and vote on a proposal to approve the Merger, on the terms and subject to the conditions of the Merger Agreement and a proposal to approve, by advisory (non-binding) vote, the compensation that may be paid or become payable to the named executive officers of VEREIT in connection with the Merger.

A.    Merger-related Costs
In conjunction with our proposed acquisition of VEREIT, we incurred approximately $13.3 million of merger-related transaction costs during the three and six months ended June 30, 2021. The merger-related costs incurred to date primarily consist of advisory fees, attorney fees, accountant fees and SEC filing fees.

In addition, we have engaged service providers, including investment banks and advisors, to help us negotiate the terms of the Merger and to advise us on other merger-related matters. In connection with these services, we expect to be required to pay success-based fees to the extent that certain conditions, including the closing of the Merger and consummation of the Spin-Off and/or sale of OfficeCo business, are met. As of June 30, 2021, we expect to incur approximately $18.0 million of such success fees. As closing of the Merger has not occurred, no such amounts have been paid or accrued through June 30, 2021. If closing of the Merger does not occur, we would not expect to be required to pay these fees.

B.    Litigation Relating to the Mergers
To date, purported stockholders of VEREIT filed 12 lawsuits challenging disclosures related to the Merger (Stein v. VEREIT, Inc., et. al., Case No. 1:21-cv-01409 (D. Ct. Md., June 7, 2021) (the “Stein Complaint”); Bowles v. VEREIT, Inc., et. al., Case No. 1:21-cv-00845 (D. Ct. Del., June 10, 2021) (the “Bowles Complaint”); Leach v. VEREIT, Inc., et. al., Case No. 1:21-cv-05270 (D. Ct. S.D.N.Y., June 14, 2021) (the “Leach Complaint”); Jenkins v. VEREIT, Inc., et. al., Case No. 1:21-cv-05286 (D. Ct. S.D.N.Y., June 15, 2021) (the “Jenkins Complaint”); Tacka v. VEREIT, Inc., et. al., Case No. 1:21-cv-05357 (D. Ct. S.D.N.Y., June 17, 2021) (the “Tacka Complaint”); Congregation Zichron Moishe v. VEREIT, Inc., et. al., Case No. 1:21-cv-01729 (D. Ct. Colo., June 24, 2021) (the “Congregation Zichron Moishe Complaint”); Mishra v. VEREIT, Inc., et al., Case No. 1:21-cv-01758 (D. Colo. June 28, 2021) (the “Mishra Complaint”); Walker v. VEREIT, Inc., et. al., Case No. 1:21-cv-01791 (D. Ct. Colo. July 1, 2021) (the “Walker Complaint”); Ciccotelli v. VEREIT, Inc., et. al., Case No. 2:21-cv-02983 (D. Ct. E.D. Pa. July 2, 2021) (the “Ciccotelli Complaint”); Upton v. VEREIT, Inc., et. al., Case No. 1:21-cv-06129 (D. Ct. S.D.N.Y July 16, 2021) (the “Upton Complaint”); Matten v. VEREIT, Inc., et al., Case No. 1:21-cv-06212 (S.D.N.Y. July 21, 2021) (the “Matten Complaint”); and Halberstam v. VEREIT, Inc., et al., Case No. 1:21-cv-02000 (D. Colo. July 23, 2021 (the “Halberstam Complaint”)). Purported stockholders of Realty Income filed one lawsuit challenging the disclosures related to the Merger (Boyko v. Realty Income Corp., et. al., Case No. 1:21-cv-01653 (D. Ct. Colo., June 16, 2021) (the “Boyko Complaint,” and collectively, the “Complaints”)). A stockholder of Realty Income also sent the Company a demand disclosure letter on June 30, 2021 (the “Demand Letter”).

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The Stein, Leach, Tacka, Matten and Halberstam Complaints name VEREIT and the members of the VEREIT board of directors as defendants. The Congregation Zichron Moishe, Mishra, Walker and Upton Complaints name VEREIT, VEREIT OP, and the members of the VEREIT board of directors as defendants. The Bowles and Ciccotelli Complaints name VEREIT, the members of the VEREIT board of directors, VEREIT OP, Realty Income, Merger Sub 1 and Merger Sub 2 as defendants. The Jenkins Complaint names VEREIT, the members of the VEREIT board of directors, Realty Income, Merger Sub 1 and Merger Sub 2 as defendants. The Boyko Complaint names Realty Income and the members of the Realty Income board of directors as defendants. The Demand Letter is addressed to Realty Income and the members of the Realty Income board of directors.

The Complaints each allege generally that the entities and individual defendants named in such Complaint violated Section 14(a) and Rule 14a-9 promulgated thereunder and that the individual defendants violated Section 20(a) of the Exchange Act by preparing and disseminating a registration statement that misstates or omits certain allegedly material information. The Demand Letter includes similar allegations. Furthermore, the Jenkins Complaint also alleges that: (1) members of the VEREIT board of directors breached their fiduciary duties by entering into the transactions contemplated by the Merger Agreement through a flawed and unfair process and by failing to disclose all material information to VEREIT’s stockholders; and (2) VEREIT, Realty Income, Merger Sub 1 and Merger Sub 2 each aided and abetted such breach of fiduciary duty by the VEREIT board of directors.

Each Complaint seeks, among other things, injunctive relief enjoining the consummation of the Merger, if the Merger is consummated, rescission or rescissory damages and an award of the plaintiff’s costs, including attorneys’ and experts’ fees. The defendants believe that all of the claims asserted in the Complaints are without merit and intend to defend against them vigorously. On July 30, 2021, VEREIT filed a Form 8-K containing supplemental disclosures regarding the Mergers and related transactions in response to allegations set forth in the Complaints and the Demand letter. We have determined that there is a reasonable possibility that we and/or VEREIT will incur losses associated with the Complaints and Demand letter, though the amount of the reasonably possible loss or range of losses is not expected to be material. Accordingly, no accrual for merger-related litigation matters has been recorded as of June 30, 2021. However, litigation is inherently uncertain and there can be no assurance regarding the likelihood that the defendants’ defense of the actions will be successful. The outcome of these lawsuits can’t be predicted and could have a significant impact on the timing or our ability to close the Merger. Additional lawsuits arising out of the Mergers may also be filed in the future.

4.Supplemental Detail for Certain Components of Consolidated Balance Sheets (dollars in thousands):

A.	Accounts Receivable, net, consist of the following at:	June 30, 2021		December 31, 2020
	Straight-line rent receivables, net	$	195,860	$	174,074
	Client receivables, net	132,060		111,627
		$	327,920	$	285,701

B.	Lease intangible assets, net, consist of the following at:	June 30, 2021		December 31, 2020
	In-place leases	$	1,978,479	$	1,840,704
	Accumulated amortization of in-place leases	(695,394)		(744,375)
	Above-market leases	951,483		866,567
	Accumulated amortization of above-market leases	(264,775)		(252,241)
		$	1,969,793	$	1,710,655

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C.	Other assets, net, consist of the following at:	June 30, 2021		December 31, 2020
	Financing receivables	$	165,604	$	131,291
	Right of use asset - operating leases, net	108,112		112,049
	Right of use asset - financing leases	103,474		118,585
	Derivative assets and receivables - at fair value	43,068		10
	Restricted escrow deposits	34,636		21,220
	Goodwill	14,017		14,180
	Prepaid expenses	13,225		11,795
	Non-refundable escrow deposits	12,153		1,000
	Corporate assets, net	8,344		8,598
	Credit facility origination costs, net	5,993		7,705
	Impounds related to mortgages payable	1,185		4,983
	Other items	6,399		2,881
		$	516,210	$	434,297

D.	Accounts payable and accrued expenses consist of the following at:	June 30, 2021		December 31, 2020
	Notes payable - interest payable	$	83,966	$	83,219
	Derivative liabilities and payables - at fair value	64,207		73,356
	Property taxes payable	23,897		23,413
	Accrued costs on properties under development	21,208		12,685
	Accrued income taxes	11,064		5,182
	Merger-related costs	8,944		—
	Value-added tax payable	6,450		8,077
	Mortgages, term loans, credit line - interest payable and interest rate swaps	1,261		1,044
	Other items	38,808		34,360
		$	259,805	$	241,336

E.	Lease intangible liabilities, net, consist of the following at:	June 30, 2021		December 31, 2020
	Below-market leases	$	462,898	$	460,895
	Accumulated amortization of below-market leases	(143,403)		(139,697)
		$	319,495	$	321,198

F.	Other liabilities consist of the following at:	June 30, 2021		December 31, 2020
	Rent received in advance and other deferred revenue	$	153,020	$	130,231
	Lease liability - operating leases, net	110,826		114,559
	Lease liability - financing leases	6,410		6,256
	Security deposits	5,864		5,817
		$	276,120	$	256,863

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5. Investments in Real Estate

We acquire land, buildings and improvements necessary for the successful operations of commercial clients.

A.    Acquisitions During the Six Months Ended June 30, 2021 and 2020

Below is a summary of our acquisitions for the six months ended June 30, 2021:

	Number of Properties	Leasable Square Feet	Investment ($ in thousands)		Weighted Average Lease Term (Years)	Initial Average Cash Lease Yield (1)
Six months ended June 30, 2021 (2)
Acquisitions - U.S. (in 29 states)	173	4,484,715	$	1,052,333	13.7	5.5	%
Acquisitions - U.K. (3)	41	3,133,460	994,783		9.8	5.6	%
Total acquisitions	214	7,618,175	$	2,047,116	11.8	5.5	%
Properties under development - U.S.	40	2,015,992	114,798		15.6	5.7	%
Total (4)	254	9,634,167	$	2,161,914	12.0	5.5	%

(1)The initial 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, 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 average cash yield for the six months ended June 30, 2021 includes approximately $850,000 received as settlement credits for four properties acquired as reimbursement of free rent periods.

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 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)None of our investments during the six months ended June 30, 2021 caused any one client to be 10% or more of our total assets at June 30, 2021. All of our investments in acquired properties during the six months ended June 30, 2021 are 100% leased at the acquisition date.

(3)Represents investments of £715.1 million Sterling during the six months ended June 30, 2021, converted at the applicable exchange rate on the date of acquisition.

(4)Our clients occupying the new properties operate in 28 industries, and are 75.8% retail and 24.2% industrial, based on rental revenue. Approximately 47% of the rental revenue generated from acquisitions during the six months ended June 30, 2021 is from investment grade rated clients, their subsidiaries or affiliated companies.

The acquisitions during the six months ended June 30, 2021, which had no associated contingent consideration, were allocated as follows (amounts in millions):

	Acquisitions - U.S.		Acquisitions - U.K.
Six months ended June 30, 2021	(USD)		(£ Sterling)
Land (1)	$	383.6	£	217.6
Buildings and improvements	538.6		370.6
Lease intangible assets (2)	173.2		132.4
Other assets (3)	38.5		—
Lease intangible liabilities (4)	(14.1)		(5.2)
Other liabilities (5)	(21.5)		(0.3)
	$	1,098.3	£	715.1

(1) U.K. land includes £1.3 million of right of use assets under long-term ground leases.

(2) The weighted average amortization period for acquired lease intangible assets is 12.6 years.

(3) U.S. other assets consists of financing receivables with above-market terms and a right-of-use asset accounted for as a finance lease.

(4) The weighted average amortization period for acquired lease intangible liabilities is 14.0 years.

(5) U.S. other liabilities consists entirely of deferred rent on certain below-market leases. U.K. other liabilities consists entirely of a GBP mortgage premium.

The properties acquired during the six months ended June 30, 2021 generated total revenues of $24.9 million and net income of $6.1 million during the six months ended June 30, 2021.

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Below is a summary of our acquisitions for the six months ended June 30, 2020:

	Number of Properties	Leasable Square Feet	Investment ($ in thousands)		Weighted Average Lease Term (Years)	Initial Average Cash Lease Yield
Six months ended June 30, 2020 (1)
Acquisitions - U.S. (in 25 states)	80	1,851,346	$	412,584	14.4	6.5	%
Acquisitions - U.K. (2)	6	488,310	223,751		11.8	5.3	%
Total acquisitions	86	2,339,656	$	636,335	13.6	6.1	%
Properties under development - U.S.	8	179,662	3,869		10.5	8.8	%
Total (3)	94	2,519,318	$	640,204	13.6	6.1	%