Mortgages Payable (Mortgages Payable)

3 Months Ended

Mar. 31, 2013

Mortgages Payable

7. Mortgages Payable

During the first three months of 2013, we assumed mortgages totaling $564.5 million, excluding net premiums. The mortgages are secured by the properties on which the debt was placed. Of the $564.5 million of mortgages assumed during the first three months of 2013, approximately $543.3 million is considered non-recourse with limited customary exceptions for items such as bankruptcy, misrepresentation, fraud, misapplication of payments, environmental liabilities, failure to pay taxes, insurance premiums, liens on the property and uninsured losses. Approximately $6.6 million has full recourse to Realty Income, and the remaining $14.6 million of the assumed debt is not guaranteed by Realty Income. We expect to pay off the mortgages as soon as prepayment penalties make it economically feasible to do so. We intend to continue to primarily identify property acquisitions that are free from mortgage indebtedness.

During the first three months of 2013, aggregate net premiums totaling $26.8 million were recorded upon assumption of the mortgages for above-market interest rates, as compared to net premiums totaling $10.0 million recorded in 2012. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective mortgages, using a method that approximates the effective-interest method.

These mortgages contain customary covenants, such as limiting our ability to further mortgage each applicable property or to discontinue insurance coverage, without the prior consent of the lender. At March 31, 2013, we remain in compliance with these covenants.

As a result of assuming mortgages payable in 2012, we incurred deferred financing costs of $1.1 million, which were classified as part of other assets, net, on our consolidated balance sheets. The balance of these deferred financing costs was $1.4 million at March 31, 2013, and $1.5 million at December 31, 2012, which is being amortized over the remaining term of each mortgage. We did not incur any deferred financing costs on our mortgages payable assumed in the first three months of 2013.

The following is a summary of all our mortgages payable as of March 31, 2013 and December 31, 2012, respectively (dollars in thousands):

As Of	Number of Properties(1)	Weighted Average Stated Interest Rate(2)	Weighted Average Effective Interest Rate(3)	Weighted Average Remaining Years Until Maturity	Remaining Principal Balance	Unamortized Premium Balance	Mortgage Payable Balance
3/31/13	185	5.4%	3.8%	4.4	$ 729,320	$ 34,820	$ 764,140
12/31/12	11	5.8%	4.4%	4.8	165,927	9,941	$ 175,868

(1) At March 31, 2013, there were 48 mortgages on the 185 properties, while at December 31, 2012, there were 13 mortgages on the 11 properties. The mortgages require monthly payments, with principal payments due at maturity. The mortgages are at fixed interest rates, except for: (1) a $23.6 million mortgage maturing on June 10, 2015 with a floating variable interest rate calculated as the sum of the current one month LIBOR plus 4.5%, not to exceed an all-in interest rate of 5.5%, and (2) a $8.4 million mortgage maturing on September 3, 2021, with a floating interest rate calculated as the sum of the current one month LIBOR plus 2.4%. As part of the $8.4 million mortgage payable assumed in 2012, we also acquired an interest rate swap which essentially fixes the interest rate on this mortgage payable at 6.0%. As part of two mortgages totaling $8.8 million and maturing on December 28, 2013, we also acquired an $8.8 million note receivable, upon which we receive interest income at a stated rate of 8.1% through December 28, 2013.

(2) Stated interest rates range from 2.6% through 8.3%.

(3) Effective interest rates range from 2.4% through 9.3%.

The following table summarizes the maturity of mortgages payable, excluding net premiums of $34.8 million, as of March 31, 2013 (dollars in millions):

Year of Maturity
2013	$	24.8
2014	62.1
2015	123.2
2016	245.7
2017	90.0
Thereafter	183.5

Totals	$	729.3

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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