Merger with VEREIT, Inc. and Orion Office REIT Inc. Divestiture

12 Months Ended

Dec. 31, 2023

Business Combination and Asset Acquisition [Abstract]

Merger with VEREIT, Inc. and Orion Office REIT Inc. Divestiture

Merger with VEREIT, Inc. and Orion Office REIT Inc. Divestiture

Merger with VEREIT

On November 1, 2021, we completed our acquisition of VEREIT, Inc. ("VEREIT"), and the merger was consummated. Pursuant to the terms of the Merger Agreement and subject to the terms thereof, upon the consummation of the merger, (i) each outstanding share of VEREIT common stock, and each outstanding common partnership unit of VEREIT Operating Partnership, L.P., ("VEREIT OP") owned by any of its partners other than VEREIT, Realty Income or their respective affiliates, was automatically converted into 0.705 of newly issued shares of our common stock, or in certain instances, Realty Income L.P. units, and (ii) each VEREIT OP outstanding common unit owned by VEREIT, Realty Income or their respective affiliates remained outstanding as partnership interests in the surviving entity. Each outstanding VEREIT stock option and restricted stock unit that were unvested as of November 1, 2021 were converted into equivalent options and restricted stock units, in each case with respect to the share of the Company's common stock, using the equity award exchange ratio in accordance with the Merger Agreement.

A.    Merger and Integration-Related Costs
In conjunction with our merger with VEREIT, we incurred merger-related transaction costs of $4.8 million, $13.9 million, and $167.4 million for the years ended December 31, 2023, 2022, and 2021, respectively. Merger and integration-related costs consist of advisory fees, attorney fees, accountant fees, public 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.

B.    Unaudited Pro Forma Financial Information

Our consolidated results of operations for year ended December 31, 2021 include $176.3 million of revenues and $36.7 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 year ended December 31, 2021 as if our merger with VEREIT had occurred on January 1, 2020 (in millions, except per share data). The following pro forma financial information is not necessarily indicative of the results of operations had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results. 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. ("Orion").

	Year ended December 31, 2021
Total revenues	$	3,084.3
Net income	$	734.6
Basic and diluted earnings per share	$	1.27

The unaudited pro forma financial information above includes the following nonrecurring significant adjustment made to account for certain costs incurred as if our merger with VEREIT had been completed on January 1, 2020: merger and integration-related costs of $167.4 million were excluded within the pro forma financial information for 2021.

Orion Divestiture

Following of the closing of our merger with VEREIT, we contributed 92 office real estate assets, a consolidated real estate venture holding one office asset, and an unconsolidated real estate venture holding five office assets to a wholly owned subsidiary named Orion. On November 12, 2021, we distributed the outstanding shares of Orion common stock to our shareholders on a pro rata basis at a rate of one share of Orion common stock for every ten shares of Realty Income common stock held on November 12, 2021, the applicable record date. The fair market value of these shares for tax distribution was determined to be $20.6272 per share, which was calculated using the five-day volume weighted average share price after issuance. For more detail, see note 16, Distributions Paid and Payable.

In conjunction with the Orion Divestiture, we incurred approximately $1.9 million and $6.0 million of transaction costs during the year ended December 31, 2022 and 2021, which were included in 'Merger and integration-related costs' within our consolidated statements of income and comprehensive income.

As part of the Orion Divestiture, Orion paid us a dividend of $425.0 million and reimbursed $170.2 million to us for the early redemption of mortgage loans underlying the contributed assets prior to the effectuation of the Orion Divestiture. The distribution of Orion resulted in the derecognition of net assets of $1.74 billion, which net of the aforementioned cash payments of $595.2 million, resulted in a reduction to additional paid in capital of $1.14 billion.