Table of Contents

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, 2022, 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
1.875% Notes due 2027	O27B	New York Stock Exchange
1.625% Notes due 2030	O30	New York Stock Exchange
1.750% Notes due 2033	O33A	New York Stock Exchange
2.500% Notes due 2042	O42	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

Table of Contents

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 617,577,455 shares of common stock outstanding as of July 29, 2022.

Table of Contents

REALTY INCOME CORPORATION

Index to Form 10-Q

June 30, 2022

PART I.	FINANCIAL INFORMATION	Page
Item 1:	Financial Statements (Unaudited)
	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	31
	The Company	32
	Recent Developments	35
	Liquidity and Capital Resources	39
	Results of Operations	47
	Funds from Operations Available to Common Stockholders (FFO) and Normalized Funds from Operations Available to Common Stockholders (Normalized FFO)	56
	Adjusted Funds from Operations Available to Common Stockholders (AFFO)	58
	Property Portfolio Information	60
	Impact of Inflation	65
	Impact of Recent Accounting Pronouncements	65
	Other Information	65
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	65
Item 4:	Controls and Procedures	66
PART II.	OTHER INFORMATION
Item 1A:	Risk Factors	67
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 6:	Exhibits	68
SIGNATURE		71

-1-

Table of Contents

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, 2022		December 31, 2021
ASSETS	(unaudited)
Real estate held for investment, at cost:
Land	$	11,605,933	$	10,753,750
Buildings and improvements	26,101,185		25,155,178
Total real estate held for investment, at cost	37,707,118		35,908,928
Less accumulated depreciation and amortization	(4,387,878)		(3,949,798)
Real estate held for investment, net	33,319,240		31,959,130
Real estate and lease intangibles held for sale, net	66,336		30,470
Cash and cash equivalents	172,849		258,579
Accounts receivable, net	500,384		426,768
Lease intangible assets, net	5,154,994		5,275,304
Goodwill	3,731,478		3,676,705
Investment in unconsolidated entities	113,562		140,967
Other assets, net	1,893,075		1,369,579
Total assets	$	44,951,918	$	43,137,502
LIABILITIES AND EQUITY
Distributions payable	$	153,966	$	146,919
Accounts payable and accrued expenses	353,573		351,128
Lease intangible liabilities, net	1,346,648		1,308,221
Other liabilities	740,357		759,197
Line of credit payable and commercial paper	1,169,121		1,551,376
Term loan, net	249,656		249,557
Mortgages payable, net	947,112		1,141,995
Notes payable, net	13,588,606		12,499,709
Total liabilities	18,549,039		18,008,102
Commitments and contingencies
Stockholders’ equity:
Common stock and paid in capital, par value $0.01 per share, 1,300,000,000 and 740,200,000 shares authorized, 617,564,272 and 591,261,991 shares issued and outstanding as of June 30, 2022, and December 31, 2021, respectively	31,303,383		29,578,212
Distributions in excess of net income	(4,999,150)		(4,530,571)
Accumulated other comprehensive income	22,379		4,933
Total stockholders’ equity	26,326,612		25,052,574
Noncontrolling interests	76,267		76,826
Total equity	26,402,879		25,129,400
Total liabilities and equity	$	44,951,918	$	43,137,502

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

-2-

Table of Contents

REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

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

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
REVENUE
Rental (including reimbursable)	$	800,800	$	460,256	$	1,600,365	$	899,621
Other	9,619		3,042		17,397		5,931
Total revenue	810,419		463,298		1,617,762		905,552
EXPENSES
Depreciation and amortization	409,437		187,789		813,199		365,774
Interest	110,121		73,674		216,524		146,749
Property (including reimbursable)	52,180		31,734		104,522		60,233
General and administrative	34,139		21,849		66,838		42,645
Provisions for impairment	7,691		17,246		14,729		19,966
Merger and integration-related costs	2,729		13,298		9,248		13,298
Total expenses	616,297		345,590		1,225,060		648,665
Gain on sales of real estate	40,572		14,901		50,728		23,302
Foreign currency and derivative gain, net	7,480		400		6,890		1,204
Gain (loss) on extinguishment of debt	127		—		127		(46,473)
Equity in income and impairment of investment in unconsolidated entities	(6,627)		—		(5,673)		—
Other income, net	2,806		984		4,658		1,534
Income before income taxes	238,480		133,993		449,432		236,454
Income taxes	(14,658)		(9,225)		(25,639)		(15,450)
Net income	223,822		124,768		423,793		221,004
Net income attributable to noncontrolling interests	(615)		(289)		(1,217)		(585)
Net income available to common stockholders	$	223,207	$	124,479	$	422,576	$	220,419
Amounts available to common stockholders per common share:
Net Income, basic and diluted	$	0.37	$	0.33	$	0.71	$	0.59
Weighted average common shares outstanding:
Basic	601,672,201		374,236,424		597,778,173		372,879,165
Diluted	602,030,666		374,341,023		598,140,702		372,971,744
Other comprehensive income:
Net income available to common stockholders	$	223,207	$	124,479	$	422,576	$	220,419
Foreign currency translation adjustment	(48,992)		(49)		(59,698)		(308)
Unrealized gain (loss) on derivatives, net	33,454		(10,833)		77,144		35,576
Comprehensive income available to common stockholders	$	207,669	$	113,597	$	440,022	$	255,687

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

-3-

Table of Contents

REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY 

(dollars in thousands) (unaudited)

Three months ended June 30, 2022, and 2021

	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, March 31, 2022	601,566,581	$	30,236,374	$	(4,772,112)	$	37,917	$	25,502,179	$	76,546	$	25,578,725
Net income	—	—		223,207		—		223,207		615		223,822
Other comprehensive loss	—	—		—		(15,538)		(15,538)		—		(15,538)
Distributions paid and payable	—	—		(450,245)		—		(450,245)		(894)		(451,139)
Share issuances, net of costs	15,961,222	1,060,529		—		—		1,060,529		—		1,060,529
Share-based compensation, net	36,469	6,480		—		—		6,480		—		6,480
Balance, June 30, 2022	617,564,272	$	31,303,383	$	(4,999,150)	$	22,379	$	26,326,612	$	76,267	$	26,402,879
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	—	—		—		—		—		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
Six months ended June 30, 2022 and 2021
	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, 2021	591,261,991	$	29,578,212	$	(4,530,571)	$	4,933	$	25,052,574	$	76,826	$	25,129,400
Net income	—	—		422,576		—		422,576		1,217		423,793
Other comprehensive income	—	—		—		17,446		17,446		—		17,446
Distributions paid and payable	—	—		(891,155)		—		(891,155)		(1,776)		(892,931)
Share issuances, net of costs	26,133,030	1,720,573		—		—		1,720,573		—		1,720,573
Share-based compensation, net	169,251	4,598		—		—		4,598		—		4,598
Balance, June 30, 2022	617,564,272	$	31,303,383	$	(4,999,150)	$	22,379	$	26,326,612	$	76,267	$	26,402,879
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

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

-4-

Table of Contents

REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands) (unaudited)

	Six months ended June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	423,793	$	221,004
Adjustments to net income:
Depreciation and amortization	813,199		365,774
Amortization of share-based compensation	11,643		8,169
Non-cash revenue adjustments	(25,332)		(8,233)
(Gain) loss on extinguishment of debt	(127)		46,473
Amortization of net premiums on mortgages payable	(7,091)		(485)
Amortization of net premiums on notes payable	(31,423)		(138)
Amortization of deferred financing costs	7,081		5,490
Loss on interest rate swaps	1,446		1,447
Foreign currency and derivative gain, net	(6,890)		(1,204)
Gain on sales of real estate	(50,728)		(23,302)
Equity in income and impairment of investment in unconsolidated entities	5,673		—
Distributions from unconsolidated entities	1,490		—
Provisions for impairment on real estate	14,729		19,966
Change in assets and liabilities
Accounts receivable and other assets	134,019		(67,970)
Accounts payable, accrued expenses and other liabilities	(34,921)		14,143
Net cash provided by operating activities	1,256,561		581,134
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in real estate	(3,166,063)		(2,102,042)
Improvements to real estate, including leasing costs	(29,654)		(3,997)
Proceeds from sales of real estate	272,245		91,616
Return of investment from unconsolidated entities	746		—
Insurance proceeds received	16,046		—
Non-refundable escrow deposits	(13,815)		(11,153)
Net cash used in investing activities	(2,920,495)		(2,025,576)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash distributions to common stockholders	(884,109)		(524,056)
Borrowings on line of credit and commercial paper program	9,366,868		5,403,699
Payments on line of credit and commercial paper program	(9,724,268)		(4,097,909)
Proceeds from notes and bonds payable issued	1,405,691		—
Principal payment on notes payable	—		(950,000)
Principal payments on mortgages payable	(225,951)		(42,590)
Payments upon extinguishment of debt	—		(47,235)
Proceeds from dividend reinvestment and stock purchase plan	5,731		5,322
Proceeds from common stock offerings, net	1,712,696		1,119,254
Distributions to noncontrolling interests	(1,776)		(791)
Net receipts on derivative settlements	7,474		1,650
Debt issuance costs	(27,272)		—
Other items, including shares withheld upon vesting	(4,899)		(5,564)
Net cash provided by financing activities	1,630,185		861,780
Effect of exchange rate changes on cash and cash equivalents	(24,955)		(1,032)
Net decrease in cash, cash equivalents and restricted cash	(58,704)		(583,694)
Cash, cash equivalents and restricted cash, beginning of period	332,369		850,679
Cash, cash equivalents and restricted cash, end of period	$	273,665	$	266,985

For supplemental disclosures, see note 16.

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

-5-

Table of Contents

REALTY INCOME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(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, 2021, which are included in our 2021 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. The U.S. Dollar (“USD”) is our reporting currency. Unless otherwise indicated, all dollar amounts are expressed in United States USD.

For our consolidated subsidiaries whose functional currency is not the U.S. dollar, we translate their financial statements into U.S. dollars at the time we consolidate those subsidiaries’ financial statements. Generally, assets and liabilities are translated at the exchange rate in effect at the balance sheet date. The resulting translation adjustments are included in 'Accumulated other comprehensive income', or AOCI, in the consolidated balance sheets. Certain balance sheet items, primarily equity and capital-related accounts, are reflected at the historical exchange rate. Income statement accounts are translated using the average exchange rate for the period.

We and certain of our consolidated subsidiaries have intercompany and third-party debt that is not denominated in our functional currency. When the debt is remeasured to the functional currency of the entity, a gain or loss can result. The resulting adjustment is reflected in 'Foreign currency and derivative gain, net' in the consolidated statements of income and comprehensive income.

At June 30, 2022, we owned 11,427 properties, located in all 50 U.S. states, Puerto Rico, the United Kingdom (U.K.), and Spain, consisting of approximately 218.5 million leasable square feet.

2.Summary of Significant Accounting Policies and Procedures and New Accounting Standards

Principles of Consolidation. These consolidated financial statements include the accounts of Realty Income and all other entities in which we have a controlling financial interest. We evaluate whether we have a controlling financial interest in an entity in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation.

Voting interest entities are entities considered to have sufficient equity at risk and which the equity holders have the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. We consolidate voting interest entities in which we have a controlling financial interest, which we typically have through holding of a majority of the entity’s voting equity interests.

Variable interest entities (“VIEs”) are entities that lack sufficient equity at risk or where the equity holders either do not have the obligation to absorb losses, do not have the right to receive residual returns, do not have the right to make decisions about the entity’s activities, or some combination of the above. A controlling financial interest in a VIE is present when an entity has a variable interest, or a combination of variable interests, that provides the entity with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. An entity that meets both conditions above is deemed the primary beneficiary and consolidates the VIE. We reassess our initial evaluation of whether an entity is a VIE when certain reconsideration events occur. We reassess our determination of whether we are the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances.

The portion of a consolidated entity not owned by us is recorded as a noncontrolling interest. Noncontrolling interests are reflected on our consolidated balance sheets as a component of equity. Noncontrolling 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, Noncontrolling Interests).

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

-6-

Table of Contents

operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income. Assuming our dividends equal or exceed our taxable net income in the US, we generally will not be required to pay U.S. income taxes on such income. However, we are liable for taxes in the United Kingdom and Spain. Accordingly, a provision has been made for U.K. and Spain income taxes, as well as U.S. income taxes on our taxable REIT subsidiaries, but no provision was made for U.S. income taxes for our U.S. REIT parent.

Lease Revenue Recognition and Accounts Receivable. The COVID-19 pandemic and the measures taken to limit its spread have negatively impacted 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 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. We assess the collectability of our future lease payments based on an analysis of creditworthiness, economic trends (including trends arising from the COVID-19 pandemic) and other facts and circumstances related to the applicable clients. If we conclude the 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, including those related to straight-line rental revenue, must be written off as an adjustment to rental revenue, and no further operating lease receivables are recorded for that lease until such future determination is made that substantially all lease payments under that lease are now considered probable. If we subsequently conclude that the collection of substantially all lease payments under a lease is probable, a reversal of lease receivables previously written off is recognized.

The majority of concessions granted to our clients as a result of the COVID-19 pandemic have been rent deferrals with the original lease term unchanged. 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 consolidated rental revenue. Similarly, rent abatements granted, which are also accounted for as lease modifications, have impacted our rental revenue by an insignificant amount.

As of June 30, 2022, 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.

Investment in Unconsolidated Entities. We account for our investment in unconsolidated entity arrangements using the equity method of accounting as we have the ability to exercise significant influence, but not control, over operating and financing policies of these investments. We have determined that none of the unconsolidated entities would be considered VIEs under the applicable accounting guidance. Our equity method investments were acquired in our merger with VEREIT. As a result, the investments were recorded at fair value and subsequently will be adjusted for our share of equity in the entities' earnings and distributions received. The step-up in fair value was allocated to the individual investment assets and liabilities and is being amortized over the estimated useful life of the respective underlying tangible real estate assets, the lease term of the intangible real estate assets, and the remaining term of the assumed debt. The carrying value of our investment is included in 'Investment in unconsolidated entities' in the accompanying consolidated balance sheets. We record our proportionate share of net income from the unconsolidated entities in 'Equity in income and impairment of investment in unconsolidated entities' in the consolidated statements of income and comprehensive income.

Segment Reporting. During the second quarter of 2022, a re-evaluation of our business and management structure led to a change in identification of operating and reportable segments. As we have grown in size and scale over recent years, including through the acquisition of VEREIT in November 2021, management has shifted its focus from managing primarily through identification of concentrations of risk from exposure to client industries or geographies, to now focused on seeking investments with attractive yields and risk adjusted returns regardless of client industry or geography. As a result, we have reorganized our business activities into one operating and

-7-

Table of Contents

reportable segment. ASC Topic 280, Segment Reporting, establishes standards for the manner in which enterprises report information about operating segments. We are engaged in a single business activity, which is the leasing of property to clients, generally on a net basis (whereby clients are responsible for property taxes, insurance and maintenance costs). That business activity spans various geographic boundaries and includes property types and clients engaged in various industries, but ultimately all business activity involves similar economic characteristics of owning and leasing commercial properties under long-term, net lease agreements. Therefore, we aggregate these business activities for reporting purposes and operate in one operating and reportable segment. This segmental presentation is consistent with the information provided to our chief operating decision maker to make decisions about allocating resources and assessing our performance.

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. As, of June 30, 2022, all of our debt and derivative instruments have been converted from LIBOR to SOFR. The interest rate swap on our term loan, which was converted to a SOFR benchmark from LIBOR during June 2022, continues to be accounted for as a cash flow hedge. The adoption of this guidance had no impact on our consolidated financial statements.

3.Merger with VEREIT, Inc.

Merger with VEREIT

On November 1, 2021, we completed our merger with VEREIT, Inc. For further details, see note 3. Merger with VEREIT, Inc. and Orion Office REIT Inc. Divestiture, to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.

Our merger with VEREIT has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with Realty Income as the accounting acquirer, which requires, among other things, that the assets acquired, and liabilities assumed be recognized at their acquisition date fair value. The fair value of the consideration transferred on the date of the acquisition is as follows (in thousands, except share and per share data):

Shares of VEREIT common stock and VEREIT Operating Partnership, L.P. ("OP") common units exchanged (1)	229,304,035
Exchange Ratio	0.705
	161,659,345
Less: Fractional shares settled in cash	(1,545)
Shares of Realty Income common stock and Realty Income L.P. units issued	161,657,800
Adjusted opening price of Realty common stock on November 1, 2021 (2)	$	71.236
Fair value of Realty common stock issued to former holders of VEREIT common stock and VEREIT OP common units	$	11,515,855
Fair value of VEREIT's equity-based compensation awards attributable to pre-combination services (3)	44,020
Total non-cash consideration	11,559,875
Cash paid for fractional shares	110
VEREIT indebtedness paid off in connection with the merger (4)	500,414
Consideration transferred	$	12,060,399

(1) Includes 229,152,001 shares of VEREIT common stock and 152,034 VEREIT OP common units outstanding as of November 1, 2021. Under the Merger Agreement, these shares and units were converted to Realty Income common stock, or in certain instances, Realty Income L.P. units, at an Exchange Ratio of 0.705 per share of VEREIT common stock or VEREIT OP common unit, as applicable.

(2) The fair value of Realty Income common stock issued to former holders of VEREIT common stock and VEREIT OP common units is based on the per share opening price of Realty Income common stock of $71.00 on November 1, 2021, adjusted for the monthly dividend of $0.236 per share that former holders of VEREIT common stock and VEREIT OP common units were eligible to receive when such dividend was paid on November 15, 2021.

(3) Represents the fair value of fully vested deferred stock unit awards of VEREIT common stock (“VEREIT DSU Awards”) which were converted into Realty Income common stock upon our merger with VEREIT, as well as the estimated fair value of the Realty Income replacement employee and executive stock options and restricted stock units that were granted at the closing date of our merger with VEREIT and which were attributable to pre-combination services.

-8-

Table of Contents

(4) Represents the outstanding balance of the VEREIT revolving credit facility repaid by Realty Income in connection with the closing of the merger. The amount shown in the table above was based upon the balance outstanding immediately prior to November 1, 2021.

A.    Preliminary Purchase Price Allocation

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

ASSETS
Land	$	3,021,906
Buildings	8,677,467
Total real estate held for investment	11,699,373
Cash and cash equivalents	128,411
Accounts receivable	53,355
Lease intangible assets (1)	3,204,773
Goodwill	3,717,620
Investment in unconsolidated entities	175,379
Other assets	308,910
Total assets acquired	$	19,287,821
LIABILITIES
Accounts payable and accrued expenses	$	139,836
Lease intangible liabilities (2)	949,349
Other liabilities	320,893
Mortgages payable	869,027
Notes payable	4,946,965
Total liabilities assumed	$	7,226,070
Net assets acquired, at fair value	$	12,061,751
Noncontrolling interests	$	1,352
Total purchase price	$	12,060,399

(1) The weighted average amortization period for acquired lease intangible assets is 9.3 years.

(2) The weighted average amortization period for acquired lease intangible liabilities is 25.5 years.

The assessment of fair value is preliminary and is based on information that was available to management at the time the consolidated financial statements were prepared. Measurement period adjustments will be recorded in the future period in which they are determined, as if they had been completed at the acquisition date. The finalization of our purchase accounting assessment could result in changes in the valuation of assets acquired and liabilities assumed up to a year after the date of our merger with VEREIT, which could be material. As of June 30, 2022, we have recorded measurement period adjustments resulting in a net increase to Goodwill from the initial valuation of $54.8 million, which is reflected in the table above.

Due to the timing and complexity of the merger, we recorded the assets acquired and liabilities assumed at their preliminary estimated fair values. As of June 30, 2022, we had not finalized the determination of fair values allocated to certain assets and liabilities, including land, buildings, lease intangible assets, lease intangible liabilities, and the allocation of goodwill. The preliminary purchase price allocation is subject to change as we complete our analysis of the fair value of real estate assets and associated intangible assets and liabilities at the date of the transactions, which could have an impact on our consolidated financial statements.

A preliminary estimate of approximately $3.72 billion has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. The recognized goodwill is attributable to expected synergies and benefits arising from the merger transaction, including anticipated financing and overhead cost savings, potential economies of scale benefits in both customer

-9-

Table of Contents

and vendor relationships and the employee workforce onboarded from VEREIT following the closing of the merger. None of the goodwill recognized is expected to be deductible for tax purposes.

B.    Merger and Integration-related Costs
In conjunction with our merger with VEREIT, we incurred approximately $2.7 million and $9.2 million of transaction costs during the three and six months ended June 30, 2022, respectively, compared to approximately $13.3 million of merger-related transaction costs during each of the three and six months ended June 30, 2021. Merger and integration-related costs consist of advisory fees, attorney fees, accountant fees, SEC filing fees and additional incremental and non-recurring costs necessary to convert data and systems, retain employees and otherwise enable us to operate the acquired business or assets efficiently.

C.    Unaudited Pro Forma Financial Information

Our consolidated results of operations for the three and six months ended June 30, 2022, include $255.2 million and $513.5 million of revenues, respectively, and $9.0 million and $26.0 million of net income associated with the results of operations of VEREIT OP.

The following unaudited pro forma information presents a summary of our combined results of operations for the three and six months ended June 30, 2021, as if our merger with VEREIT had occurred on January 1, 2020 (in millions, except per share data). There are no pro forma adjustments for the three and six months ended June 30, 2022, as the merger was completed November 1, 2021. Amounts for the three and six months ended June 30, 2022 are presented for comparative purposes. The following pro forma financial information is not necessarily indicative of the results of operations had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses. In accordance with ASC 805, Business Combinations, the following information excludes the impact of the spin-off of office assets to Orion Office REIT Inc.

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Total revenues	$	810.4	$	765.3	$	1,617.8	$	1,507.8
Net income	$	223.8	$	186.7	$	423.8	$	376.0
Basic and diluted earnings per share	$	0.37	$	0.35	$	0.71	$	0.70

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

A.	Accounts Receivable, net, consist of the following at:	June 30, 2022		December 31, 2021
	Straight-line rent receivables, net	$	287,891	$	231,943
	Client receivables, net	212,493		194,825
		$	500,384	$	426,768

B.	Lease intangible assets, net, consist of the following at:	June 30, 2022		December 31, 2021
	In-place leases	$	4,962,053	$	4,791,846
	Accumulated amortization of in-place leases	(1,102,772)		(804,050)
	Above-market leases	1,665,374		1,591,382
	Accumulated amortization of above-market leases	(369,661)		(303,874)
		$	5,154,994	$	5,275,304

-10-

Table of Contents

C.	Other assets, net, consist of the following at:	June 30, 2022		December 31, 2021
	Right of use asset - operating leases, net	$	598,385	$	631,515
	Financing receivables	521,729		323,921
	Right of use asset - financing leases	442,092		218,332
	Derivative assets and receivables – at fair value	124,011		29,593
	Restricted escrow deposits	100,098		68,541
	Prepaid expenses	28,347		18,062
	Credit facility origination costs, net	19,663		4,352
	Non-refundable escrow deposits	13,815		28,560
	Corporate assets, net	12,209		10,915
	Investment in sales type lease	5,902		7,492
	Note receivable	5,867		4,455
	Impounds related to mortgages payable	718		5,249
	Other items	20,239		18,592
		$	1,893,075	$	1,369,579

D.	Accounts payable and accrued expenses consist of the following at:	June 30, 2022		December 31, 2021
	Notes payable - interest payable	$	123,853	$	108,227
	Property taxes payable	40,543		36,173
	Value-added tax payable	34,730		11,297
	Accrued property expenses	25,877		27,344
	Accrued costs on properties under development	22,893		19,665
	Derivative liabilities and payables – at fair value	18,899		70,617
	Accrued income taxes	16,653		19,152
	Mortgages, term loans, and credit line - interest payable	3,347		3,874
	Merger and integration-related costs	1,165		10,699
	Other items	65,613		44,080
		$	353,573	$	351,128

E.	Lease intangible liabilities, net, consist of the following at:	June 30, 2022		December 31, 2021
	Below-market leases	$	1,540,274	$	1,460,701
	Accumulated amortization of below-market leases	(193,626)		(152,480)
		$	1,346,648	$	1,308,221

F.	Other liabilities consist of the following at:	June 30, 2022		December 31, 2021
	Lease liability - operating leases, net	$	436,120	$	461,748
	Rent received in advance and other deferred revenue	243,102		242,122
	Lease liability - financing leases	49,738		43,987
	Security deposits	11,397		11,340
		$	740,357	$	759,197

-11-

Table of Contents

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, 2022, and 2021

Below is a summary of our acquisitions for the six months ended June 30, 2022:

	Number of Properties	Leasable Square Feet (in thousands)	Investment ($ in millions)		Weighted Average Lease Term (Years)	Initial Weighted Average Cash Lease Yield (1)
Six months ended June 30, 2022 (2)
Acquisitions - U.S.	289	5,551	$	1,492.0	13.9	5.7	%
Acquisitions - Europe	51	5,391	1,471.2		9.0	5.6	%
Total acquisitions