REALTY INCOME CORPORATION FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains 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" and similar expressions are
intended to identify forward-looking statements. Forward-looking statements
include, without limitation, discussions of our business, portfolio, strategy,
plans and intentions and statements regarding estimated or future results of
operations, financial condition or prospects (including, without limitation,
estimated and future funds from operations ("FFO"), adjusted funds from
operations ("AFFO") and normalized and adjusted FFO and net income, estimated
initial weighted average contractual lease rates, estimated square footage of
properties under development or expansion, the timing, prices and other terms of
potential or planned acquisitions or dispositions, statements regarding initial
cash lease yields on or percentages of investment grade clients that are lessees
of properties that we have acquired or intend or agreed to acquire or that are
under development or expansion, statements regarding the payment, dependability
and amount of and potential increases in future common stock dividends,
statements regarding future cash flow or cash generation, statements regarding
our ability to meet our liquidity needs, and statements regarding the
anticipated or projected impact of our merger with VEREIT on our business,
results of operations, financial condition or prospects). Forward-looking
statements are subject to risks, uncertainties, and assumptions about Realty
Income Corporation , including, among other things:
•Our access to capital and other sources of funding;
•Our anticipated growth strategies;
•Our intention to acquire additional properties and the timing of these
acquisitions;
•Our intention to sell properties and the timing of these property sales;
•Our intention to re-lease vacant properties;
•Anticipated trends in our business, including trends in the market for
long-term net leases of freestanding, single-client properties;
•Future expenditures for development projects;
•The impact of the COVID-19 pandemic, or future pandemics, on us, our business,
our clients, or the economy generally; and
•The uncertainties regarding whether the anticipated benefits or results of our
merger with VEREIT will be achieved.
Future events and actual results, financial and otherwise, may differ materially
from the results discussed or implied by the forward-looking statements. In
particular, forward-looking statements regarding estimated or future results of
operations or financial condition, estimated or future acquisitions or
dispositions of properties, or the estimated or potential impact of our merger
with VEREIT are based upon numerous assumptions and estimates and are inherently
subject to substantial uncertainties and actual results of operations, financial
condition, property acquisitions or dispositions and the impacts of our merger
with VEREIT may differ materially from those expressed or implied in the
forward-looking statements, particularly if actual events differ from those
reflected in the estimates and assumptions upon which such forward-looking
statements are based. Some of the factors that could cause actual results to
differ materially are:
•Our continued qualification as a real estate investment trust;
•General domestic and foreign business and economic conditions;
•Competition;
•Fluctuating interest and currency rates;
•Access to debt and equity capital markets;
•Continued volatility and uncertainty in the credit markets and broader
financial markets;
•Other risks inherent in the real estate business including our clients'
defaults under leases, 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 income tax laws and rates;
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•The continued evolution of the COVID-19 pandemic and the measures taken to
limit its spread, and its impacts on us, our business, our clients, or the
economy generally;
•The timing and pace of reopening efforts at the local, state and national level
in response to the COVID-19 pandemic and developments, such as the unexpected
surges in COVID-19 cases, that cause a delay in or postponement of reopenings;
•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
•Any effects of uncertainties regarding whether the anticipated benefits or
results of our merger with VEREIT will be achieved.
Additional factors that may cause future events and actual results, financial or
otherwise, to differ, potentially materially, from those discussed in or implied
by the forward-looking statements 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 fiscal year ended
Readers are cautioned not to place undue reliance on forward-looking statements. Those forward-looking statements are not guarantees of future performance and speak only as of the date that this quarterly report was filed with theSecurities and Exchange Commission , orSEC . While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, the forward-looking events discussed in this quarterly report might not occur. THE COMPANYRealty Income , The Monthly Dividend Company®, is an S&P 500 company and member of the S&P 500 Dividend Aristocrats® index for having increased its dividend every year for over 25 consecutive years. We invest in people and places to deliver dependable monthly dividends that increase over time. The Company is structured as a real estate investment trust ("REIT"), requiring us annually to distribute at least 90% of our taxable income (excluding net capital gains) in the form of dividends to its stockholders. The monthly dividends are supported by the cash flow generated from real estate owned under long-term net lease agreements with our commercial clients.Realty Income was founded in 1969 and listed on theNew York Stock Exchange (NYSE: O) in 1994. Over the past 53 years,Realty Income has been acquiring and managing freestanding commercial properties that generate rental revenue under long-term net lease agreements with our commercial clients.
At
•Consisting of 11,427 properties; •With an occupancy rate of 98.9%(1), or 11,295 properties leased and 132 properties available for lease or sale; •With clients doing business in 72 separate industries; •Located in all 50 U.S. states,Puerto Rico , theUnited Kingdom (U.K. ) andSpain ; •With approximately 218.5 million square feet of leasable space; •With a weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of approximately 8.8 years; and •With an average leasable space per property of approximately 19,120 square feet; approximately 12,840 square feet per retail property and approximately 240,450 square feet per industrial property.
(1) Excludes four properties with ancillary leases only, such as cell towers and billboards, of which one was vacant.
Of the 11,427 properties in the portfolio atJune 30, 2022 , 11,289, or 98.8%, are single-client properties, of which 11,158 were leased, and the remaining are multi-client properties. 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$41.0 million and$23.5 million for the three months endedJune 30, 2022 and 2021, respectively, and$85.0 million and$45.2 million for the six months endedJune 30, 2022 and 2021, respectively. -32-
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Investment Philosophy We believe that owning an actively managed, diversified portfolio of commercial properties under long-term, net lease agreements produces consistent and predictable income. 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 believe that a portfolio of properties under long-term net lease agreements with our commercial clients generally produces a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income. Diversification is also a key component of our investment philosophy. We believe that diversification of the portfolio by client, industry, geography, and property type leads to more consistent and predictable income for our stockholders by reducing vulnerability that can come with any single concentration. Our investment activities have led to a diversified property portfolio that, as ofJune 30, 2022 , consisted of 11,427 properties located in all 50 U.S. states,Puerto Rico , theU.K. andSpain , and doing business in 72 industries. None of the 72 industries represented in our property portfolio accounted for more than 9.2% of our annualized contractual rent as ofJune 30, 2022 . With expanded scale from our merger with VEREIT, we hope to serve our existing clients better and to partner with new clients that require the larger and more diversified balance sheet we now provide. Equally, as we look to continue to expand geographically acrossEurope , we hope to partner with new multinational clients that seek a real estate partner with an expanding geographic footprint. Investment Strategy We seek to invest in high-quality real estate that our clients consider important to the successful operation of their businesses. We generally seek to acquire commercial real estate that has some or all of the following characteristics: •Properties in markets or locations important to our clients; •Properties that we deem to be profitable for our clients (e.g., retail stores or revenue generating sites); •Properties with strong demographic attributes relative to the specific business drivers of our clients; •Properties with real estate valuations that approximate replacement costs; •Properties with rental or lease payments that approximate market rents for similar properties; •Properties that can be purchased with the simultaneous execution or assumption of long-term net lease agreements, offering both current income and the potential for future rent increases; •Properties that leverage relationships with clients, sellers, investors, or developers as part of a long-term strategy; and •Properties that leverage our proprietary insights, including predictive analytics (e.g., through the selection of locations and geographic markets we expect to remain strong or strengthen in the future). We typically seek to invest in properties owned or leased by clients that are already or could become leaders in their respective businesses supported by mechanisms including (but not limited to) occupancy of prime real estate locations, pricing, merchandise assortment, service, quality, economies of scale, consumer branding, e-commerce, and advertising. In addition, we frequently acquire large portfolios of properties net leased to different clients operating in a variety of industries. We have an internal team dedicated to sourcing such opportunities, often using our relationships with various clients, owners/developers, brokers and advisers to uncover and secure transactions. We also undertake thorough research and analysis to identify what we consider to be appropriate property locations, clients, and industries for investment. This research expertise is instrumental to uncovering net lease opportunities in markets where we believe we can add value.
In selecting potential investments, we generally look for clients with the following attributes:
•Reliable and sustainable cash flow, including demonstrated economic resiliency;
•Revenue and cash flow from multiple sources;
•Are willing to sign a long-term lease (10 or more years); and
•Are large owners and users of real estate.
From a retail perspective, our investment strategy is to target clients that
have a service, non-discretionary, and/or low-price-point component to their
business. Our investments are usually with clients who have demonstrated
resiliency to e-commerce or have a strong omni channel retail strategy, uniting
brick-and-mortar and mobile browsing, both of which reflect the continued
importance of last mile retail, the movement of goods to their final
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destination, real estate as part of a customer experience and supply chain strategy. Our overall investments (including last mile retail) are driven by an optimal portfolio strategy that, among other considerations, targets allocation ranges by asset class and industry. We review our strategy periodically and stress test our portfolio in a variety of positive and negative economic scenarios to ensure we deliver consistent earnings growth and value creation across economic cycles. As a result of the execution of this strategy, approximately 93% of our annualized retail contractual rent onJune 30, 2022 , is derived from our clients with a service, non-discretionary, and/or low price point component to their business. From a non-retail perspective, we target industrial properties leased to industry leaders, the majority of which are investment grade rated companies. We believe these characteristics enhance the stability of the rental revenue generated from these properties. After applying this investment strategy, we pursue those transactions where we believe we can achieve an attractive investment spread over our cost of capital and favorable risk-adjusted returns. We will continue to evaluate all investments for consistency with our objective of owning net lease assets.
Underwriting Strategy In order to be considered for acquisition, properties must meet stringent underwriting requirements. We have established a four-part analysis that examines each potential investment based on:
•The aforementioned overall real estate characteristics, including demographics, replacement cost, and comparative rental rates; •Industry, client (including credit profile), and market conditions; •Store profitability for retail locations if profitability data is available; and •The importance of the real estate location to the operations of the clients' business. We believe the principal financial obligations for most of our clients typically include their bank and other debt, payment obligations to employees, suppliers, and real estate lease obligations. Because we typically own the land and building in which a client conducts its business or which are critical to the client's ability to generate revenue, we believe the risk of default on a client's lease obligation is less than the client's unsecured general obligations. It has been our experience that clients must retain their profitable and critical locations in order to survive. Therefore, in the event of reorganization, we believe they are less likely to reject a lease of a profitable or critical location because this would terminate their right to use the property. Thus, as the property owner, we believe that we will fare better than unsecured creditors of the same client in the event of reorganization. If a property is rejected by our client during reorganization, we own the property and can either lease it to a new client or sell the property. In addition, we believe that the risk of default on real estate leases can be further mitigated by monitoring the performance of our clients' individual locations and considering whether to proactively sell locations that meet our criteria for disposition. We conduct comprehensive reviews of the business segments and industries in which our clients operate. Prior to entering into any transaction, our research department conducts a review of a client's credit quality. The information reviewed may include reports and filings, including any public credit ratings, financial statements, debt and equity analyst reports, and reviews of corporate credit spreads, stock prices, market capitalization, and other financial metrics. We conduct additional due diligence, including additional financial reviews of the client, and continue to monitor our clients' credit quality on an ongoing basis by reviewing the available information previously discussed, and providing summaries of these findings to management. AtJune 30, 2022 , approximately 43% of our total portfolio annualized contractual rent comes from properties leased to our investment grade clients, their subsidiaries or affiliated companies. AtJune 30, 2022 , our top 20 clients (based on percentage of total portfolio annualized contractual rent) represented approximately 42% of our annualized rent and 12 of these clients have investment grade credit ratings or are subsidiaries or affiliates of investment grade companies.
Asset Management Strategy In addition to pursuing new properties for investment, we seek to increase earnings and dividends through active asset management.
Generally, our asset management efforts seek to achieve:
•Rent increases at the expiration of existing leases, when market conditions permit;
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•Optimum exposure to certain clients, industries, and markets through re-leasing
vacant properties and selectively selling properties;
•Maximum asset-level returns on properties that are re-leased or sold;
•Additional value creation from the existing portfolio by enhancing individual
properties, pursuing alternative uses, and deriving ancillary revenue; and
•Investment opportunities in new asset classes for the portfolio.
We continually monitor our portfolio for any changes that could affect the performance of our clients, our clients' industries, and the real estate locations in which we have invested. We also regularly analyze our portfolio with a view towards optimizing its returns and enhancing its overall credit quality. Our active asset management strategy pursues asset sales when we believe the reinvestment of the sale proceeds will:
•Generate higher returns; •Enhance the credit quality of our real estate portfolio; •Extend our average remaining lease term; and/or •Strategically decrease client, industry, or geographic concentration.
The active management of the portfolio is an essential component of our long-term strategy of maintaining high occupancy.
Impact of Real Estate and Credit Markets
In the commercial real estate market, property prices generally continue to
fluctuate. Likewise, during certain periods, including the current market, the
global credit 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 credit
markets carefully and, if required, will make decisions to adjust our business
strategy accordingly.
RECENT DEVELOPMENTS
Increases in Monthly Dividends to Common Stockholders
We have continued our 53-year policy of paying monthly dividends. In addition,
we increased the dividend three times during 2022. As of July 2022 , we have paid
99 consecutive quarterly dividend increases and increased the dividend 116 times
since our listing on the NYSE in 1994.
The following table summarizes our dividend increases in 2022:
Month Month Dividend Increase
2022 Dividend increases Declared Paid per share per share
1st increase Dec 2021 Jan 2022 $0.2465 $0.0005
2nd increase Mar 2022 Apr 2022 $0.2470 $0.0005
3rd increase Jun 2022 Jul 2022 $0.2475 $0.0005 The dividends paid per share during the six months ended
The monthly dividend of$0.2475 per share represents a current annualized dividend of$2.9700 per share, and an annualized dividend yield of approximately 4.4% based on the last reported sale price of our common stock on the NYSE of$68.26 onJune 30, 2022 . Although we expect to continue our policy of paying monthly dividends, we cannot guarantee that we will maintain our current level of dividends, that we will continue our pattern of increasing dividends per share, or what our actual dividend yield will be in any future period. -35-
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Acquisitions During the Three and Six Months EndedJune 30, 2022 Below is a listing of our acquisitions in theU.S. andEurope for the periods indicated below: Weighted Initial Weighted Leasable Investment Average Average Number of Square Feet ($ in Lease Term Cash Lease Properties (in thousands) millions) (Years) Yield (1) Three months endedJune 30, 2022 (2) Acquisitions - U.S. 150 2,924$ 862.2 13.0 5.7 % Acquisitions - Europe 30 2,619 677.0 9.0 5.8 % Total acquisitions 180 5,543$ 1,539.2 11.3 5.7 % Properties under development (3) 57 2,471 136.6 14.4 5.6 % Total (4) 237 8,014$ 1,675.8 11.5 5.7 % Six months endedJune 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 340 10,942$ 2,963.2 11.5 5.7 % Properties under development (3) 83 2,721 267.9 15.9 5.7 % Total (5) 423 13,663$ 3,231.1 11.9 5.7 % (1)The initial weighted 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 includes approximately$2.5 million and$6.8 million , received as settlement credits as reimbursement of free rent periods for the three and six months endedJune 30, 2022 , respectively. 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 three and six months endedJune 30, 2022 , caused any one client to be 10% or more of our total assets atJune 30, 2022 . (3)Includes twoU.K. development properties that represent investments of £13.2 million and £14.9 million Sterling during the three and six months endedJune 30, 2022 , respectively, converted at the applicable exchange rate on the funding date. (4)Our clients occupying the new properties are 89.2% retail and 10.8% industrial, based on rental revenue. Approximately 39% of the rental revenue generated from acquisitions during the three months endedJune 30, 2022 , is from our investment grade rated clients, their subsidiaries or affiliated companies. (5)Our clients occupying the new properties are 87.4% retail and 12.6% industrial, based on rental revenue. Approximately 33% of the rental revenue generated from acquisitions during the six months endedJune 30, 2022 , is from our investment grade rated clients, their subsidiaries or affiliated companies. Announcement of Transaction with Wynn Resorts InFebruary 2022 , we announced that we had signed a definitive agreement with Wynn Resorts, Limited to acquire theEncore Boston Harbor Resort and Casino for$1.7 billion under a long-term net lease agreement. This sale-leaseback transaction, which is expected to close in the fourth quarter of 2022, is expected to be executed at a 5.9% initial weighted average cash lease yield and includes an initial lease term of 30 years with annual rent growth of 1.75% for the first ten years and the greater of 1.75% or CPI (capped at 2.5%) over the remaining lease term. The lease also includes an additional 30-year option to renew upon expiration. This transaction is subject to numerous uncertainties, including various closing conditions, and there can be no assurance that the transaction will be consummated on the terms or timetable currently contemplated, or at all.
Portfolio Discussion
Leasing Results AtJune 30, 2022 , we had 132 properties available for lease out of 11,427 properties in our portfolio, representing a 98.9% occupancy rate based on the number of properties in the portfolio. Our property-level occupancy rate atJune 30, 2022 excludes four properties with ancillary leases only, such as cell towers and billboards, of which one was vacant. -36-
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Below is a summary of our portfolio activity for the periods indicated below:
Three months ended June 30, 2022
Properties available for lease at March 31, 2022 156
Lease expirations (1) 220
Re-leases to same client (174)
Re-leases to new client (6)
Vacant dispositions (64)
Properties available for lease at June 30, 2022 132
Six months ended June 30, 2022
Properties available for lease at December 31, 2021 164
Lease expirations (1) 353
Re-leases to same client (273)
Re-leases to new client (17)
Vacant dispositions (95)
Properties available for lease at June 30, 2022 132
(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 June 30, 2022 , the annual new rent on re-leases
was $35.51 million , as compared to the previous annual rent of $33.63 million on
the same units, representing a rent recapture rate of 105.6% on the units
re-leased. We re-leased four units to new clients without a period of vacancy,
and seven units to new clients after a period of vacancy.
During the six months ended June 30, 2022 , the annual new rent on re-leases was
$67.20 million , as compared to the previous annual rent of $63.47 million on the
same units, representing a rent recapture rate of 105.9% on the units re-leased.
We re-leased seven units to new clients without a period of vacancy, and 19
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.
At June 30, 2022 , our average annualized contractual rent was approximately
$14.13 per square foot on the 11,295 leased properties in our portfolio. At June
30, 2022 , we classified 36 properties, with a carrying amount of $66.3 million ,
as real estate and lease intangibles held for sale, net on our balance
sheet. The expected sale of these properties does not represent a strategic
shift that will have a major effect on our operations and financial results and
is consistent with our existing disposition strategy to further enhance our real
estate portfolio and maximize portfolio returns.
Investments in Existing Properties
During the three months ended June 30, 2022 , we capitalized costs of $25.8
million on existing properties in our portfolio, consisting of $0.8 million for
re-leasing costs, $2.8 million for recurring capital expenditures, and
$22.2 million for non-recurring building improvements. During the six months
ended June 30, 2022 , we capitalized costs of $37.8 million on existing
properties in our portfolio, consisting of $3.2 million re-leasing costs,
$2.8 million for recurring capital expenditures, and $31.8 million for
non-recurring building improvements.
The majority of our building improvements relate to roof repairs, HVAC
improvements, and parking lot resurfacing and replacements. The amounts of our
capital expenditures can vary significantly, depending on the rental market,
credit worthiness of our clients, the lease term and the willingness of our
clients to pay higher rents over the terms of the leases.
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We define recurring capital expenditures as mandatory and recurring landlord capital expenditure obligations that have a limited useful life. We define non-recurring capital expenditures as property improvements in which we invest additional capital that extend the useful life of the properties. Sale ofUnconsolidated Joint Ventures InJuly 2022 , six of the seven properties owned by our industrial partnerships acquired in connection with the VEREIT merger were sold, with the seventh property expected to be sold later in the third quarter of 2022. The gross purchase price for the properties is$905.0 million and our proportionate share of net proceeds (after mortgage defeasance and closing costs) is estimated to be approximately$120 million . Equity Capital Raising During the three and six months endedJune 30, 2022 , we raised$1.1 billion and$1.7 billion of gross proceeds from the sale of common stock, respectively, at a weighted average price of$67.13 and$66.51 per share, respectively, primarily through proceeds from the sale of common stock through our prior ATM program. InJune 2022 , we replaced our prior ATM program, which authorized us to offer and sell up to 69,088,433 shares of common stock, with a new equity distribution program, pursuant to which we may offer and sell up to 120,000,000 shares of common stock (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers' transactions on the NYSE at prevailing market prices or at negotiated prices. Note Issuances InJune 2022 , we closed on the previously announced private placement of £600.0 million of senior unsecured notes, which included £140.0 million of notes due 2030, £345.0 million of notes due 2032, and £115.0 million of notes due 2037. The combined notes have a weighted average tenor of approximately 10.5 years, and a weighted average fixed interest rate of 3.22%. InJanuary 2022 , we issued £250.0 million of 1.875% senior unsecured notes dueJanuary 2027 (the "January 2027 Notes") and £250.0 million of 2.500% senior unsecured notes dueJanuary 2042 (the "January 2042 Notes"). The public offering price for theJanuary 2027 Notes was 99.487% of the principal amount, for an effective semi-annual yield to maturity of 1.974%, and the public offering price for theJanuary 2042 Notes was 98.445% of the principal amount, for an effective semi-annual yield to maturity of 2.584%. Combined, the new issues of theJanuary 2027 Notes and theJanuary 2042 Notes have a weighted average term of approximately 12.5 years and a weighted average effective semi-annual yield to maturity of approximately 2.28%. New, Expanded Revolving Credit Facility InApril 2022 , we entered a new$4.25 billion unsecured credit facility to amend and restate our previous$3.0 billion unsecured credit facility, which was due to expire inMarch 2023 . The new revolving credit facility matures inJune 2026 and includes two six-month extensions that can be exercised at our option. Similar to our previous revolving credit facility, the new revolving credit facility also has a$1.0 billion expansion feature, which is subject to obtaining lender commitments. As ofJune 30, 2022 , the balance of borrowings outstanding under our new revolving credit facility was$219.1 million , and we had a cash balance of$172.8 million . Expansion of Commercial Paper Program DuringJuly 2022 , ourU.S. Dollar-denominated unsecured commercial paper program was amended to increase the maximum aggregate amount of outstanding notes from$1.0 billion to$1.5 billion . We also established a new Euro-denominated unsecured commercial paper program, which permits us to issue additional unsecured commercial notes up to a maximum aggregate amount of$1.5 billion (or foreign currency equivalent), which may be issued inU.S. Dollars or various other foreign currencies, including but not limited to, Euros, Sterling, Swiss Francs, Yen, Canadian Dollars, and Australian Dollars, in each case, pursuant to customary terms in the European commercial paper note market. The notes offered under our European commercial paper program will rank pari passu with all of our other unsecured senior indebtedness, including borrowings under our revolving credit facility and our term loan, and our outstanding senior notes, including under ourU.S. Dollar-denominated commercial paper program. We use our unsecured revolving credit facility as a liquidity backstop for the repayment of the notes issued under these programs. -38-
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Select Financial Results The following summarizes our select financial results (dollars in millions, except per share data). Our merger with VEREIT occurred onNovember 1, 2021 ; hence, our financial results do not include VEREIT financial results during the three and six months endedJune 30, 2021 . % Increase Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Three months Six months Total revenue$ 810.4 $ 463.3$ 1,617.8 $ 905.6 74.9 % 78.6 % Net income available to common stockholders (1)$ 223.2 $ 124.5$ 422.6 $ 220.4 79.3 % 91.7 % Net income per share (2)$ 0.37 $ 0.33$ 0.71 $ 0.59 12.1 % 20.3 % Funds from operations available to common stockholders ("FFO")$ 608.8 $ 314.4$ 1,210.2 $ 582.1 93.6 % 107.9 % FFO per share (2)$ 1.01 $ 0.84$ 2.02 $ 1.56 20.2 % 29.5 % Normalized funds from operations available to common stockholders ("Normalized FFO")$ 611.5 $ 327.7$ 1,219.5 $ 595.4 86.6 % 104.8 % Normalized FFO per share (2)$ 1.02 $ 0.88$ 2.04 $ 1.60 15.9 % 27.5 % Adjusted funds from operations available to common stockholders ("AFFO")$ 583.7 $ 327.6$ 1,163.8 $ 645.9 78.2 % 80.2 % AFFO per share (2)$ 0.97 $ 0.88$ 1.94 $ 1.73 10.2 % 12.1 % (1) The calculation to determine net income available to common stockholders includes provisions for impairment, gain from the sale of real estate, and foreign currency gain and loss. These items can vary from quarter to quarter and can significantly impact net income available to common stockholders and period to period comparisons.
(2) All per share amounts are presented on a diluted per common share basis.
Our financial results during the three and six months endedJune 30, 2022 were impacted by merger and integration-related costs of$2.7 million and$9.2 million , respectively, related to our merger with VEREIT. Our financial results in the six months endedJune 30, 2021 were impacted by a$46.5 million loss on extinguishment of debt due to theJanuary 2021 early redemption of the 3.250% notes dueOctober 2022 , and$13.3 million of merger and integration-related costs related to our merger with VEREIT. See our discussion of FFO, Normalized FFO, and AFFO (which are not financial measures under generally accepted accounting principles, or GAAP), later in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," in this quarterly report, which includes a reconciliation of net income available to common stockholders to FFO and Normalized FFO, and AFFO. LIQUIDITY AND CAPITAL RESOURCES Capital Philosophy Historically, we have met our long-term capital needs by issuing common stock, long-term unsecured notes and bonds, term loans under our revolving credit facility, and preferred stock. Over the long term, we believe that common stock should be the majority of our capital structure; however, we may also raise funds from debt or other equity securities. We may issue common stock when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties. In addition, we may issue common stock to permanently finance properties that were initially financed by our revolving credit facility, commercial paper program, or 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. Our primary cash obligations, for the current year and subsequent years, are included in the "Table of Obligations," 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 cash provided by operating activities, borrowings on our credit facility and under our commercial paper program and through public securities offerings. As ofJune 30, 2022 , there are approximately$1.9 billion of obligations becoming due through the remainder of 2022, which we expect to fund through a combination of cash -39- -------------------------------------------------------------------------------- Table of Contents flows from operations, issuances of common stock or debt, and additional borrowings under our revolving credit facility and rolling over borrowings under our commercial paper program. We may choose to mitigate our financial exposure to exchange rate risk for properties acquired outside theU.S. through the issuance of debt securities denominated in the same local currency and through currency derivatives. We may leave a portion of our foreign cash flow unhedged to reinvest in additional properties in the same local currency. Conservative Capital Structure We believe that our stockholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. AtJune 30, 2022 , our total outstanding borrowings of senior unsecured notes and bonds, term loan, mortgages payable, revolving credit facility and commercial paper were$15.82 billion , or approximately 27.3% of our total market capitalization of$58.05 billion .
We define our total market capitalization at
•Shares of our common stock outstanding of 617,564,272, plus total common units outstanding of 1,060,709, multiplied by the last reported sales price of our common stock on the NYSE of$68.26 per share onJune 30, 2022 , or$42.23 billion ; •Outstanding borrowings of$219.1 million on our revolving credit facility; •Outstanding borrowings of$950.0 million on our commercial paper program; •Outstanding mortgages payable of$928.9 million , excluding net mortgage premiums of$19.2 million and deferred financing costs of$1.0 million ; •Outstanding borrowings of$250.0 million on our term loan, excluding deferred financing costs of$344,000 ; •Outstanding senior unsecured notes and bonds of$13.39 billion , including Sterling-denominated notes of £2.57 billion, and excluding unamortized net premiums of$257.0 million and deferred financing costs of$58.7 million ; and •Our proportionate share of outstanding debt from unconsolidated entities of$86.0 million , excluding premiums and deferred financing costs. Universal Shelf Registration InJune 2021 , we filed a shelf registration statement with theSEC , which is effective for a term of three years and will expire inJune 2024 . In accordance withSEC 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. At-the-Market ("ATM") Program Under our ATM program, up to 120,000,000 shares of common stock may be offered and sold (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers' transactions on the NYSE at prevailing market prices or at negotiated prices. Our ATM program replaced our prior ATM program inJune 2022 , which previously authorized us to offer and sell up to 69,088,433 shares of common stock. During the three months endedJune 30, 2022 , we issued 15,899,972 shares, which were sold pursuant to forward sale confirmations, and raised approximately$1.07 billion of gross proceeds under the prior ATM program. During the six months endedJune 30, 2022 , we issued 25,973,181 shares and raised approximately$1.73 billion of gross proceeds under the prior ATM program. As ofJune 30, 2022 , there were no open forward sale confirmations and we had 120,000,000 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. -40-
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Dividend Reinvestment and Stock Purchase Plan Our Dividend Reinvestment and Stock Purchase Plan, or our DRSPP, provides our common stockholders, as well as new investors, with a convenient and economical method of purchasing our common stock and reinvesting their distributions. Our DRSPP also allows our current stockholders to buy additional shares of common stock by reinvesting all or a portion of their distributions. Our DRSPP authorizes up to 26,000,000 common shares to be issued. Our DRSPP includes a waiver approval process, allowing larger investors or institutions, per a formal approval process, to purchase shares at a small discount, if approved by us. We did not issue shares under the waiver approval process during the six months endedJune 30, 2022 . During the three months endedJune 30, 2022 , we issued 43,260 shares and raised approximately$2.9 million under our DRSPP. During the six months endedJune 30, 2022 , we issued 84,631 shares and raised approximately$5.7 million under our DRSPP. AtJune 30, 2022 , we had 11,250,748 shares remaining for future issuance under our DRSPP program. Revolving Credit Facility InApril 2022 , we entered a new$4.25 billion unsecured revolving credit facility to amend and restate our previous$3.0 billion unsecured revolving credit facility, which was due to expire inMarch 2023 . This new multicurrency credit facility matures inJune 2026 , includes two six-month extensions that can be exercised at our option and allows us to borrow in up to 14 currencies, includingU.S. dollars. Similar to our previous credit facility, our new revolving credit facility also has a$1.0 billion expansion feature, which is subject to obtaining lender commitments. Under the new revolving credit facility, our current investment grade credit ratings provide for financing onU.S. Dollar borrowings 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 pricing of 0.95% over SOFR and British Pound Sterling 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 pricing of 0.8826% over SONIA. The borrowing rate is subject to an interest rate floor and may change if our investment grade credit ratings change. We also have other interest rate options available to us in different currencies as well. Our new credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation. AtJune 30, 2022 , we had a borrowing capacity of$4.03 billion available on our new revolving credit facility and an$219.1 million outstanding balance. The weighted average interest rate on borrowings under our revolving credit facility during the six months endedJune 30, 2022 , was 1.5% per annum. We must comply with various financial and other covenants in our credit facility. AtJune 30, 2022 , we were in compliance with these covenants. We expect to use our credit facility to acquire additional properties and for other general corporate purposes. Any additional borrowings will increase our exposure to interest rate risk. Commercial Paper Program We have aU.S. dollar-denominated unsecured commercial paper program. Under the terms of the program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding of$1.0 billion . Borrowings under this program generally mature in one year or less. AtJune 30, 2022 , we had an outstanding balance of$950.0 million . The weighted average interest rate on borrowings under our commercial paper program was 0.8% for the six months endedJune 30, 2022 . We use our$4.25 billion revolving credit facility as a liquidity backstop for the repayment of the notes issued under the commercial paper program. The commercial paper borrowings outstanding atJune 30, 2022 have matured and will mature betweenJuly 2022 andJanuary 2023 . We generally use our credit facility and commercial paper borrowings for the short-term financing of new property acquisitions. Thereafter, we generally seek to refinance those borrowings with the net proceeds of long-term or more permanent financing, including the issuance of equity or debt securities. We cannot assure you, however, that we will be able to obtain any such refinancing, or that market conditions prevailing at the time of the refinancing will enable us to issue equity or debt securities at acceptable terms. We regularly review our credit facility and commercial paper program and may seek to extend, renew or replace our credit facility and commercial paper program, to the extent we deem appropriate. DuringJuly 2022 , ourU.S. Dollar-denominated unsecured commercial paper program was amended to increase the maximum aggregate amount of outstanding notes from$1.0 billion to$1.5 billion . We also established a new Euro-denominated unsecured commercial paper program, which permits us to issue additional unsecured commercial notes up to a maximum aggregate amount of$1.5 billion (or foreign currency equivalent), which may be issued inU.S. Dollars or various other foreign currencies, in each case, pursuant to customary terms in the European commercial paper note market. -41-
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Term Loan InOctober 2018 , in conjunction with entering into our current revolving credit facility, we entered into a$250.0 million senior unsecured term loan, which matures inMarch 2024 . Prior toApril 2022 , borrowing under this term loan bore interest at the current one-month LIBOR, plus 0.85%. In connection with entering into our new unsecured credit facility inApril 2022 , the previous LIBOR benchmark rate was replaced with daily SOFR, based on a five day lookback period, and, due to our current credit ratings, is not subject to a credit spread adjustment. In conjunction with this term loan, we also entered into an interest rate swap, which was based off the one-month LIBOR throughJune 30, 2022 . As ofJune 30, 2022 , the interest rate swap was also converted to SOFR. As ofJune 30, 2022 , the effective interest rate on this term loan, after giving effect to the interest rate swap, is 3.73%. Mortgage Debt As ofJune 30, 2022 , we had$928.9 million of mortgages payable, of which £33.4 million related to a Sterling-denominated mortgage. The majority of our mortgages payable were assumed in connection with our property acquisitions, originally including ten mortgages from our merger with VEREIT in 2021 totaling$839.1 million , and eight mortgages on 17 properties totaling$45.1 million during the six months endedJune 30, 2022 . AtJune 30, 2022 , we had net premiums totaling$19.2 million on these mortgages and deferred financing costs of$1.0 million . We expect to pay off the mortgages payable as soon as prepayment penalties have declined to a level that would make it economically feasible to do so. During the six months endedJune 30, 2022 , we made$226.0 million in principal payments, including the repayment of seven mortgages in full for$223.9 million (of which$168.2 million was paid off related to mortgages assumed from our merger with VEREIT). -42- -------------------------------------------------------------------------------- Table of Contents Notes Outstanding
Our senior unsecured note and bond obligations consist of the following as of
As of June 30, 2022
Principal Amount
(Currency Carrying Value
Denomination) (USD)
4.600% notes,
$ 500 $ 500
3.875% notes, issued in June 2014 and due in July 2024 $ 350 350
3.875% notes, issued in April 2018 and due in April 2025 $ 500 500
4.625% notes,
$ 550 550
0.750% notes, issued December 2020 and due in March 2026 $ 325 325
4.875% notes,
600 600
4.125% notes,
$ 650 650
1.875% notes, issued in
£ 250 304
3.000% notes, issued in
$ 600 600
1.125% notes, issued in July 2021 and due in July 2027 £ 400 486
3.950% notes,
600 600
3.650% notes, issued in
$ 550 550
3.400% notes,
600 600
2.200% notes,
$ 500 500
3.250% notes, issued in June 2019 and due in June 2029 $ 500 500
3.100% notes,
$ 599 599
3.160% notes, issued in June 2022 and due in June 2030 £ 140 170
1.625% notes, issued in
£ 400 486
3.250% notes,
$ 950 950
3.180% notes, issued in
£ 345 419
2.850% notes,
$ 700 700
1.800% notes, issued in
$ 400 400
1.750% notes, issued in July 2021 and due in July 2033 £ 350 425
2.730% notes, issued in May 2019 and due in May 2034 £ 315 382
5.875% bonds,
$ 250 250
3.390% notes, issued in June 2022 and due in June 2037 £ 115 140
2.500% notes, issued in
£ 250 304
4.650% notes,
$ 550 550
Total principal amount $ 13,390
Unamortized net premiums and deferred financing costs 198
$ 13,588
(1) Carrying Value (USD) as of June 30, 2022 , includes the portion of the VEREIT
OP notes that remained outstanding, totaling $39.1 million in the aggregate,
that were not exchanged in the exchange offers commenced by us with respect to
the outstanding bonds of VEREIT Operating Partnership, L.P. ("VEREIT OP") in
connection with the consummation of the merger with VEREIT (the "Exchange
Offers").
(2) These notes were originally issued by VEREIT OP in December 2019 for the
principal amount of $600 million . The amount of Realty Income debt issued
through the Exchange Offers was $599 million , resulting from cancellations due
to late tenders that forfeited the early participation premium of $30 per $1,000
principal amount and cash paid in lieu of fractional shares.
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All of our outstanding notes and bonds have fixed interest rates and contain various covenants, with which we remained in compliance as ofJune 30, 2022 . Interest on our £400 million of 1.625% senior unsecured notes issued inOctober 2020 , our £400 million of 1.125% senior unsecured notes issued inJuly 2021 , our £350 million of 1.750% senior unsecured notes also issued inJuly 2021 , our £250 million of 1.875% senior unsecured notes issued inJanuary 2022 , and £250 million of 2.500% senior unsecured notes also issued inJanuary 2022 is paid annually. Interest on our remaining senior unsecured note and bond obligations is paid semiannually. 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 onU.S. generally accepted accounting principles ("GAAP") measurements, 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 ofJune 30, 2022 , are: Note Covenants Required
Actual
Limitation on incurrence of total debt < 60% of adjusted assets 40.1 % Limitation on incurrence of secured debt < 40% of adjusted assets 2.5 % Debt service coverage (trailing 12 months) (1) > 1.5x
5.5x
Maintenance of total unencumbered assets > 150% of unsecured debt
258.2 %
(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 onJuly 1, 2021 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 ofJuly 1, 2021 , nor does it purport to reflect our debt service coverage ratio for any future period. The following is our calculation of debt service and fixed charge coverage atJune 30, 2022 (in thousands, for trailing twelve months): Net income available to common stockholders $ 561,612
Plus: interest expense, excluding the amortization of deferred financing costs
381,241
Plus: loss on extinguishment of debt 50,578
Plus: provision for taxes 41,846
Plus: depreciation and amortization 1,345,260
Plus: provisions for impairment 33,730
Plus: pro forma adjustments 491,791
Less: gain on sales of real estate (83,224)
Income available for debt service, as defined $ 2,822,834 Total pro forma debt service charge $ 512,301 Debt service and fixed charge coverage ratio 5.5 Cash Reserves We are organized to operate as an equity REIT that acquires and leases properties and distributes to stockholders, in the form of monthly cash distributions, a substantial portion of our net cash flow generated from leases on our properties. We intend to retain an appropriate amount of cash as working capital. AtJune 30, 2022 , we had cash and cash equivalents totaling$172.8 million , inclusive of £107.5 million Sterling and €12.3 million Euro. 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 program. Credit Agency Ratings The borrowing interest rates under our revolving credit facility are based upon our ratings assigned by credit rating agencies. As ofJune 30, 2022 , 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'sRatings Group has assigned a rating of A- with a "stable" outlook. In addition, we were -44- -------------------------------------------------------------------------------- Table of Contents assigned the following ratings on our commercial paper atJune 30, 2022 : Moody's Investors Service has assigned a rating of P-2 and Standard & Poor'sRatings Group has assigned a rating of A-2. Based on our credit agency ratings as ofJune 30, 2022 , interest rates under our new credit facility forU.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 pricing of 0.95% over SOFR and, for British Pound Sterling 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 pricing of 0.8826% over SONIA. In addition, our new credit facility provides that the interest rates can range between: (i) SOFR/SONIA, plus 1.40% if our credit rating is lower than BBB-/Baa3 or our senior unsecured debt is unrated and (ii) SOFR/SONIA, 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 range 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. Table of Obligations The following table summarizes the maturity of each of our obligations as ofJune 30, 2022 (dollars in millions): Senior Ground Credit Facility and Unsecured Notes Leases Paid by Ground Year of Commercial Paper and Term Mortgages Realty Income Leases Paid by Maturity Program (1) Bonds (2) Loan (3) Payable (4) Interest (5) (6) Our Clients (7) Other
(8) Totals
2022 $ 930.0 $ - $ - $ 45.5 $ 250.6 $ 4.8 $ 15.4 $ 645.2 $ 1,891.5
2023 20.0 - - 62.8 481.4 9.7 30.7 81.0 685.6
2024 - 850.0 250.0 740.5 455.9 12.6 30.1 1.4 2,340.5
2025 - 1,050.0 - 42.3 397.5 11.3 29.4 - 1,530.5
2026 219.1 1,575.0 - 11.9 342.3 17.0 28.6 - 2,193.9
Thereafter - 9,915.3 - 26.0 1,598.5 278.7 225.8 - 12,044.3
Totals $ 1,169.1 $ 13,390.3 $ 250.0 $ 929.0 $ 3,526.2 $ 334.1 $ 360.0 $ 727.6 $ 20,686.3
(1)The initial term of the credit facility expires in June 2026 and includes, at
our option, two six-month extensions. At June 30, 2022 , there were $219.1
million borrowings under our revolving credit facility. Commercial paper program
outstanding at June 30, 2022 were $950.0 million , which have matured and will
mature between July 2022 and January 2023 .
(2)Excludes non-cash net premiums recorded on notes payable of $257.0 million
and deferred financing costs of $58.7 million .
(3)Excludes deferred financing costs of $344,000 .
(4)Excludes both non-cash net premiums recorded on the mortgages payable of
$19.2 million and deferred financing costs of $1.0 million .
(5)Interest on the term loan, notes, bonds, mortgages payable, credit facility
and commercial paper program has been calculated based on outstanding balances
at period end through their respective maturity dates.
(6)Realty Income currently pays the ground lessors directly for the rent under
the ground leases.
(7)Our clients, who are generally sub-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.
(8)"Other" consists of $678.6 million of commitments under construction
contracts, and $49.0 million for re-leasing costs, recurring capital
expenditures, and non-recurring building improvements.
Our credit facility, commercial paper program, term loan, and notes payable obligations are unsecured. Accordingly, we have not pledged any assets as collateral for these obligations.
Unconsolidated Investments As a result of our merger with VEREIT, we assumed an equity method investment in three unconsolidated entities. We are responsible to fund our proportionate share of any operating cash deficits pursuant to the governance documents of the applicable entities. There are no further material commitments related to these investments at this time. The debt held by the unconsolidated entities is secured by its properties, though is non-recourse to us with limited customary exceptions which vary from loan to loan. InJuly 2022 , six of the seven properties owned by our industrial partnerships acquired in connection with the VEREIT merger were sold, with the seventh property -45- -------------------------------------------------------------------------------- Table of Contents expected to be sold later in the third quarter of 2022. Our proportionate share of net proceeds (after mortgage defeasance and closing costs) is estimated to be approximately$120 million . 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
In order to maintain our status as a 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 2021, our cash distributions to common stockholders totaled$1.17 billion , or approximately 149.4% of our estimated taxable income of$783.3 million . Our estimated taxable income reflects non-cash deductions for depreciation and amortization. Our estimated 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. Our cash distributions to common stockholders in the six months endedJune 30, 2022 , totaled$884.1 million , representing 76.0% of our adjusted funds from operations available to common stockholders of approximately$1.16 billion . In comparison, our cash distributions to common stockholders in 2021 totaled$1.17 billion , representing 78.5% of our adjusted funds from operations available to common stockholders of$1.49 billion . 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 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 taxable REIT subsidiaries) 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 afterDecember 31, 2017 , and beforeJanuary 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 67.3% of the distributions to our common stockholders, made or deemed to have been made in 2021, were classified as a return of capital for federal income tax purposes. -46-
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RESULTS OF OPERATIONS
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with 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. This summary should be read in conjunction with the more complete
discussion of our accounting policies and procedures included in note 2 to our
consolidated financial statements in our Annual Report on Form 10-K for the
year ended December 31, 2021 .
In order to prepare our consolidated financial statements according to the
rules and guidelines set forth by GAAP, many subjective judgments must be made
with regard to critical accounting policies. Management must make significant
assumptions in determining the fair value of assets acquired and liabilities
assumed. When acquiring a property for investment purposes, we typically
allocate the cost of real estate acquired, inclusive of transaction costs, to:
(1) land, (2) building and improvements, and (3) identified intangible assets
and liabilities, based in each case on their relative estimated fair values.
Intangible assets and liabilities consist of above-market or below-market lease
value and the value of in-place leases, as applicable. Additionally,
above-market rents on certain leases under which we are a lessor are accounted
for as financing receivables amortizing over the lease term, while below-market
rents on certain leases under which we are a lessor are accounted for as prepaid
rent. In an acquisition of multiple properties, we must also allocate the
purchase price among the properties. The allocation of the purchase price is
based on our assessment of estimated fair value of the land, building and
improvements, and identified intangible assets and liabilities and is often
based upon the various characteristics of the market where the property is
located. In addition, any assumed mortgages are recorded at their estimated fair
values. The estimated fair values of our mortgages payable have been calculated
by discounting the future cash flows using applicable interest rates that have
been adjusted for factors, such as industry type, client investment grade,
maturity date, and comparable borrowings for similar assets. The use of
different assumptions in the allocation of the purchase price of the acquired
properties and liabilities assumed could affect the timing of recognition of the
related revenue and expenses.
Another significant judgment must be made as to if, and when, impairment losses
should be taken on our properties when events or a change in circumstances
indicate that the carrying amount of the asset may not be recoverable. If
estimated future operating cash flows (undiscounted and without interest
charges) plus estimated disposition proceeds (undiscounted) are less than the
current book value of the property, a fair value analysis is performed and, to
the extent the estimated fair value is less than the current book value, a
provision for impairment is recorded to reduce the book value to estimated fair
value. Key inputs that we utilize in this analysis include projected rental
rates, estimated holding periods, capital expenditures, and property sales
capitalization rates. If a property is held for sale, it is carried at the lower
of carrying cost or estimated fair value, less estimated cost to sell. The
carrying value of our real estate is the largest component of our consolidated
balance sheets. Our strategy of primarily holding properties, long-term,
directly decreases the likelihood of their carrying values not being
recoverable, thus requiring the recognition of an impairment. However, if our
strategy, or one or more of the above assumptions were to change in the future,
an impairment may need to be recognized. If events should occur that require us
to reduce the carrying value of our real estate by recording provisions for
impairment, they could have a material impact on our results of operations.
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The following is a comparison of our results of operations for the three and six
months ended
Total Revenue
The following summarizes our total revenue (dollars in thousands):
Three months ended June 30, Six months ended June 30, $ Increase
2022 2021 2022 2021 Three Months Six Months
REVENUE
Rental (excluding
reimbursable) $ 759,825 $ 436,735 $ 1,515,387 $ 854,422 $ 323,090 $ 660,965
Rental (reimbursable) 40,975 23,521 84,978 45,199 17,454 39,779
Other 9,619 3,042 17,397 5,931 6,577 11,466
Total revenue $ 810,419 $ 463,298 $ 1,617,762 $ 905,552 $ 347,121 $ 712,210 The increase in total revenue primarily relates to the merger with VEREIT and
acquisitions for the six months ended
Rental Revenue (excluding reimbursable) The table below summarizes the increase in rental revenue (excluding reimbursable) in the three months endedJune 30, 2022 , compared to the three months endedJune 30, 2021 (dollars in thousands): Three months ended June 30, Increase/(Decrease) Number of Properties Square Footage (1) 2022 2021 $ Change Properties acquired during 2022 & 2021 1,443 34,622,989$ 119,952 20,461 $ 99,491 Same store rental revenue (2) 9,686 168,881,270 615,633 603,572 12,061 Orion Divestiture 92 10,093,123 525 44,393 (43,868) Constant currency adjustment (3) N/A N/A 2,108 4,350
(2,242)
Properties sold prior to 2022 357 8,679,230 931 19,312
(18,381)
Straight-line rent and other non-cash adjustments N/A N/A 3,978 7,310
(3,332)
Vacant rents, development and other (4) 298 6,425,808 12,357 10,418 1,939 Other excluded revenue(5) NA N/A 4,341 1,964 2,377 Less: VEREIT same store rental revenue (6) N/A N/A - (275,045) 275,045 Totals$ 759,825 $ 436,735 $ 323,090 (1) Excludes 5,907,790 square feet from properties ground leased to clients and 2,647,226 square feet from properties with no land or building ownership. (2) The same store rental revenue percentage increase for the three months endedJune 30, 2022 as compared with the same period in prior year is 2.0%. (3) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as ofJune 30, 2022 , of1.22 GBP /USD. None of the properties inSpain met our same store pool definition for the periods presented. (4) Relates to the aggregate of (i) rental revenue from properties (285 properties comprising 5,721,191 square feet) that were available for lease during part of 2022 or 2021, (ii) rental revenue for properties (13 properties comprising 704,617 square feet) under development, and (iii) rental revenue that is not contractual base rent such as lease termination settlements. (5) Primarily consists of lease termination revenue and reimbursements for tenant improvements. (6) Amounts for the three months endedJune 30, 2021 represent same store rental revenue from VEREIT properties, which were not included in our financial statements prior to the close of the merger onNovember 1, 2021 . -48-
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The table below summarizes the increase in rental revenue (excluding
reimbursable) in the six months ended
Six months ended June 30, Increase/(Decrease)
Number of Properties Square Footage (1) 2022 2021 $ Change
Properties acquired during
2022 & 2021 1,443 34,622,989 $ 216,818 $ 25,413 $ 191,405
Same store rental revenue (2) 9,686 168,881,270 1,242,739 1,206,077 36,662
Orion Divestiture 92 10,093,123 938 88,590
(87,652)
Constant currency adjustment (3) N/A N/A 7,857 7,462
395
Properties sold prior to 2022 357 8,679,230 2,972 34,240
(31,268)
Straight-line rent and other non-cash adjustments N/A N/A 12,251 8,865
3,386
Vacant rents, development and other (4) 298 6,425,808 25,531 20,534 4,997 Other excluded revenue(5) N/A N/A 6,281 4,432 1,849 Less: VEREIT same store rental revenue (6) N/A N/A - (541,191) 541,191 Totals 1,515,387 854,422 660,965 (1) Excludes 5,907,790 square feet from properties ground leased to clients and 2,647,226 square feet from properties with no land or building ownership. (2) The same store rental revenue percentage increase for the six months endedJune 30, 2022 as compared with the same period in prior year is 3.0%. (3) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as ofJune 30, 2022 , of1.22 GBP /USD. None of the properties inSpain met our same store pool definition for the periods presented. (4) Relates to the aggregate of (i) rental revenue from properties (285 properties comprising 5,721,191 square feet) that were available for lease during part of 2022 or 2021, (ii) rental revenue for properties (13 properties comprising 704,617 square feet) under development, and (iii) rental revenue that is not contractual base rent such as lease termination settlements. (5) Primarily consists of lease termination revenue and reimbursements for tenant improvements. (6) Amounts for the six months endedJune 30, 2021 represent same store rental revenue from VEREIT properties, which were not included in our financial statements prior to the close of the merger onNovember 1, 2021 . 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 first quarter of 2022, properties acquired through the merger with VEREIT were considered under each element of our same store pool criterion, except for the requirement that the property be owned for the full comparative period. If the property was owned by VEREIT for the full comparative period and each of the other criterion were met, the property was included in our same store property pool. 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. Our calculation of same store rental revenue includes rent deferred for future payment as a result of lease concessions we granted in response to the COVID-19 pandemic and recognized under the practical expedient provided by theFinancial Accounting Standards Board (FASB). Beginning with the first quarter of 2022, properties acquired through the merger with VEREIT were considered under each element of ourSame Store Pool criterion, except for the requirement that the property be owned for the full comparative period. If the property was owned by VEREIT for the full comparative period and each of the other criterion were met, the property was included in our same store property pool. Our calculation of same store rental revenue also includes uncollected rent for which we have not granted a lease concession. If these applicable amounts of rent deferrals and uncollected rent were excluded from our calculation of same store rental revenue, the increases for the three and six months endedJune 30, 2022 relative to the comparable periods for 2021 would have been 2.6% and 3.5%, respectively. Of the 11,427 properties in the portfolio atJune 30, 2022 , 11,289, or 98.8%, are single-client properties and the remaining are multi-client properties. Of the 11,289 single-client properties, 11,158, or 98.8%, were net leased atJune 30, 2022 . -49-
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Of the 11,769 in-place leases in the portfolio, which excludes 168 vacant units, 10,069, or 85.6%, 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 above rent provisions.
Rent based on a percentage of our client's gross sales, or percentage rent, was$2.2 million in the three months endedJune 30, 2022 ,$596,000 in the three months endedJune 30, 2021 ,$6.0 million in the six months endedJune 30, 2022 , and$1.6 million in the six months endedJune 30, 2021 . We anticipate percentage rent to be less than 1% of rental revenue for 2022. AtJune 30, 2022 , our portfolio of 11,427 properties was 98.9% leased with 132 properties available for lease, as compared to 98.5% leased with 164 properties available for lease atDecember 31, 2021 , and 98.5% leased with 103 properties available for lease atJune 30, 2021 . 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, such as the ongoing COVID-19 pandemic and the measures taken to limit its spread. Rental Revenue (reimbursable) A number of our leases provide for contractually obligated reimbursements from clients for recoverable real estate taxes and operating expenses. The increase in contractually obligated reimbursements by our clients in the periods presented is primarily due to the growth of our portfolio due to acquisitions.
Other Revenue Other revenue primarily relates to interest income recognized on financing receivables for certain leases with above-market terms.
Total Expenses
The following summarizes our total expenses (dollars in thousands):
Three months ended June 30, Six months ended June 30, $ Increase/(Decrease)
2022 2021 2022 2021 Three Months Six Months
EXPENSES
Depreciation and amortization $ 409,437 $ 187,789 $ 813,199 $ 365,774 $ 221,648 $ 447,425
Interest 110,121 73,674 216,524 146,749 36,447 69,775
Property (excluding
reimbursable) 11,205 8,213 19,544 15,034 2,992 4,510
Property (reimbursable) 40,975 23,521 84,978 45,199 17,454 39,779
General and administrative 34,139 21,849 66,838 42,645 12,290 24,193
Provisions for impairment 7,691 17,246 14,729 19,966 (9,555) (5,237)
Merger and integration-related
costs 2,729 13,298 9,248 13,298 (10,569) (4,050)
Total expenses $ 616,297 $ 345,590 $ 1,225,060 $ 648,665 $ 270,707 $ 576,395
Total revenue (1) $ 769,444 $ 439,777 $ 1,532,784 $ 860,353
General and administrative
expenses as a percentage of
total revenue (1) 4.4 % 5.0 % 4.4 % 5.0 %
Property expenses (excluding
reimbursable) as a percentage
of total revenue (1) 1.5 % 1.9 % 1.3 % 1.7 %
(1) Excludes rental revenue (reimbursable). During 2021, we began presenting
'Other income, net', which consists of certain miscellaneous non-recurring
revenue previously presented in 'Other' within 'Revenue,' in a separate caption
in the consolidated statements of income and
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comprehensive income. Prior to this adjustment, general and administrative
expenses as a percentage of total revenue was 4.9% for the six months end June
30, 2021 . There was no change for the three months ended June 30, 2021 .
Depreciation and Amortization
The increase in depreciation and amortization for the three and six months ended
June 30, 2022 , was primarily due to the acquisition of properties in 2021 and
the merger with VEREIT. As discussed in the sections entitled "Funds from
Operations Available to Common Stockholders (FFO) and Normalized Funds from
Operations Available to Common Stockholders (Normalized FFO)" and "Adjusted
Funds from Operations Available to Common Stockholders (AFFO)," depreciation and
amortization is a non-cash item that is added back to net income available to
common stockholders for our calculation of FFO, Normalized FFO, and AFFO.
Interest Expense
The following is a summary of the components of our interest expense (dollars in
thousands):
Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Interest on our credit
facility, commercial paper,
term loan, notes, mortgages and
interest rate swaps $ 124,313 $ 70,203 $ 245,288 $ 139,731
Credit facility commitment fees 1,226 948 2,163 1,885
Amortization of debt
origination and deferred
financing costs 3,280 2,675 6,403 5,336
Loss on interest rate swaps 724 724 1,446 1,447
Amortization of net mortgage
premiums (3,530) (205) (7,091) (485)
Amortization of net note
premiums (15,683) (53) (31,423) (138)
Interest capitalized (565) (696) (940) (1,181)
Capital lease obligation 356 78 678 154
Interest expense $ 110,121 $ 73,674 $ 216,524 $ 146,749
Credit facility, commercial
paper, term loan, mortgages and
notes
Average outstanding balances
(dollars in thousands) $ 15,944,510 $ 9,025,470 $ 15,629,159 $ 8,662,893
Average interest rates 3.08 % 3.02 % 3.10 % 3.14 %
The increase in interest expense for the three and six months ended June 30,
2022 is primarily due the January 2022 issuance of £500 million in principal of
Sterling denominated notes, the issuance of $4.65 billion in principal of notes
associated with the exchange offer and assumption of $839.1 million in principal
of mortgage debt, both associated with our merger with VEREIT in November 2021 ,
the July 2021 issuance of £750 million in principal of Sterling denominated
notes, and higher average balances and rates on the credit facility and
commercial paper borrowings, partially offset by the December 2021 early
redemption on all $750.0 million in principal of the 4.650% notes due August
2023 , and the January 2021 early redemption on all $950.0 million in principal
of the 3.250% notes due October 2022 .
During the six months ended
•Revolving credit facility outstanding borrowings of$219.1 million was 1.5%; •Commercial paper outstanding borrowings of$950.0 million was 0.8%; •Term loan outstanding of$250.0 million (excluding deferred financing costs of$344,000 ) was swapped to fixed at 3.7%; •Mortgages payable of$928.9 million (excluding net premiums totaling$19.2 million and deferred financing costs of$1.0 million on these mortgages) was 4.8%; •Notes and bonds payable of$13.39 billion (excluding net unamortized original issue premiums of$257.0 million and deferred financing costs of$58.7 million ) was 3.3%; and •Notes, bonds, mortgages, term loan, and credit facility and commercial paper borrowings of$15.7 billion (excluding all net premiums and deferred financing costs) was 3.1%. -51-
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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. Expenses related to properties available for lease and non-net-leased properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections and legal fees. General portfolio costs include, but are not limited to, insurance, legal, property inspections, and title search fees. AtJune 30, 2022 , 132 properties were available for lease or sale, as compared to 164 atDecember 31, 2021 , and 103 atJune 30, 2021 . The increase in property expenses (excluding reimbursable) for the three and six months endedJune 30, 2022 , is primarily due to the increase in portfolio size, resulting in higher utilities, repairs and maintenance and property-related legal expenses. Property Expenses (reimbursable) The increase in property expenses (reimbursable) for the three and six months endedJune 30, 2022 , was primarily attributable to our increased portfolio size, which contributed to higher operating expenses as a result of our acquisitions in 2021 and the six months endedJune 30, 2022 , and an increase in ground lease rent, insurance, and property taxes paid on behalf of our clients. General and Administrative Expenses General and administrative expenses are expenditures related to the operations of our company, including employee-related costs, professional fees, and other general overhead costs associated with running our business. The increase in general and administrative expenses for the three and six months endedJune 30, 2022 , is primarily due to higher payroll-related costs and higher corporate-level professional fees, information technology, and corporate occupancy costs associated with the growth of the company, including the merger with VEREIT. AtJune 30, 2022 , the headcount was 380 versus 239 atJune 30, 2021 .
Provisions for Impairment The following table summarizes provisions for impairment during the periods indicated below (dollars in millions):
Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Carrying value prior to
impairment $ 64.5 $ 45.6 $ 98.2 $ 59.2
Less: total provisions for
impairment (7.7) (17.2) (14.7) (20.0)
Carrying value after impairment 56.8 28.4 83.5 39.2
Number of properties:
Classified as held for sale 9 1 23 1
Classified as held for
investment 3 5 3 6
Sold 32 31 49 44
Merger and Integration-related Costs
In conjunction with our merger with VEREIT, we incurred approximately
$2.7 million and $9.2 million of merger and integration-related transaction
costs during the three and six months ended June 30, 2022 , respectively,
compared to approximately $13.3 million during 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.
Gain on Sales of Real Estate
The following summarizes our property dispositions (dollars in millions):
Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Number of properties sold 70 42 104 69
Net sales proceeds $ 150.0 $ 56.9 $ 272.2 $ 91.6
Gain on sales of real estate $ 40.6 $ 14.9 $ 50.7 $ 23.3
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Foreign Currency and Derivative Gain, 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. Gain and loss on foreign currency are largely offset by derivative gain and loss. Derivative gain and loss relates to mark-to-market adjustments on derivatives that do not qualify for hedge accounting. Net derivative gain and loss are primarily related to realized and unrealized short term currency exchange swaps. Gain and loss on derivatives are largely offset by foreign currency gain and loss. InJune 2022 , following the early prepayment of our Sterling-denominated intercompany loan receivable from our consolidated foreign subsidiaries, we terminated the four cross-currency swaps used to hedge the foreign currency exposure of the intercompany loan. As the hedge relationship has been terminated and the future principal and interest associated with the prepaid intercompany loan will not occur,$20.0 million was reclassified from accumulated other comprehensive income, or AOCI, to Foreign currency and derivative gain, net during the three months endedJune 30, 2022 . The reclassification from AOCI was offset by$7.9 million in losses from the intercompany loan remeasurement on the final exchange. Loss on Extinguishment of Debt InJanuary 2021 , we completed the early redemption on all$950.0 million in principal amount of outstanding 3.250% notes dueOctober 2022 , plus accrued and unpaid interest. As a result of the early redemption, we recognized a$46.5 million loss on extinguishment of debt for the six months endedJune 30, 2021 . Equity in Income and Impairment of Investment in Unconsolidated Entities Equity in income of unconsolidated entities for the three and six months endedJune 30, 2022 , relates to three equity method investments that were acquired in our merger with VEREIT. The loss for the three and six months endedJune 30, 2022 is primarily driven by an other than temporary impairment of$7.8 million . There were no comparative investments for the three and six months endedJune 30, 2021 . Other Income,Net Certain miscellaneous non-recurring revenue is included in other income, net. The increase in the three and six months endedJune 30, 2022 , is primarily related to insurance proceeds received from property losses and other non-recurring settlements. Income Taxes Income taxes are for city and state income and franchise taxes, and for international income taxes accrued or paid by us and our subsidiaries. The increase in income taxes for the three and six months endedJune 30, 2022 , was primarily attributable to our increased volume ofU.K. investments, which contributed to higherU.K. income taxes as compared to the same period in 2021.
Net Income Available to Common Stockholders The following summarizes our net income available to common stockholders (dollars in millions, except per share data):
Three months ended June 30, Six months ended June 30, % Increase
2022 2021 2022 2021 Three Months Six Months
Net income available to common
stockholders $ 223.2 $ 124.5 $ 422.6 $ 220.4 79.3 % 91.7 %
Net income per share (1) $ 0.37 $ 0.33 $ 0.71 $ 0.59 12.1 % 20.3 %
(1) All per share amounts are presented on a diluted per common share basis.
The calculation to determine net income available to common stockholders includes provisions for impairment, gain from the sale of properties, and foreign currency gain and loss, which can vary from period to period based on timing and significantly impact net income available to the Company and available to common stockholders.
The increase in net income available to common stockholders for the six months endedJune 30, 2022 , compared to the six months endedJune 30, 2021 primarily related to the increase in the size of our portfolio due to the merger with VEREIT, which closed onNovember 1, 2021 . In addition, net income available to common stockholders for the -53-
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six months ended
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate (Adjusted EBITDAre)The National Association of Real Estate Investment Trusts (Nareit) established an EBITDA metric for real estate companies (i.e., EBITDA for real estate, or EBITDAre) it believed would provide investors with a consistent measure to help make investment decisions among REITs. Our definition of "Adjusted EBITDAre" is generally consistent with the Nareit definition, other than our adjustments to remove foreign currency and derivative gain and loss, excluding gain and loss from the settlement of foreign currency forwards not designated as hedges, (which is consistent with our previous calculations of "Adjusted EBITDA"). We define Adjusted EBITDAre, a non-GAAP financial measure, for the most recent quarter as earnings (net income) before (i) interest expense, including non-cash loss (gain) on swaps, (ii) income and franchise taxes, (iii) gain on extinguishment of debt, (iv) real estate depreciation and amortization, (v) provisions for impairment, (vi) merger and integration-related costs, (vii) gain on sales of real estate, (viii) foreign currency and derivative gain, net (as described in the Adjusted Funds from Operations section), and (ix) our proportionate share of interest expense and real estate depreciation and amortization 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 EBITDAre differently than we do. Management believes Adjusted EBITDAre 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, EBITDAre 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 EBITDAre metric, which we refer to as Annualized Adjusted EBITDAre, is meaningful because it represents our current earnings run rate for the period presented. Annualized Adjusted EBITDAre and Annualized Pro Forma Adjusted EBITDAre, as defined below, are also used to determine the vesting of performance share awards granted to executive officers. Annualized Adjusted EBITDAre 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 EBITDAre as Annualized Adjusted EBITDAre, subject to certain adjustments to incorporate Adjusted EBITDAre from properties we acquired or stabilized during the applicable quarter and to remove Adjusted EBITDAre from properties we disposed of during the applicable quarter, and includes transaction accounting adjustments in accordance withU.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 EBITDAre 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 EBITDAre 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-to-Annualized Adjusted EBITDAre and net debt-to Annualized Pro Forma Adjusted EBITDAre 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 on debt from unconsolidated entities, less cash and cash equivalents), divided by annualized quarterly Adjusted EBITDAre and annualized Pro Forma Adjusted EBITDAre, respectively. -54-
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The following is a reconciliation of net income available to common stockholders
(which we believe is the most comparable GAAP measure) to Adjusted EBITDAre and
Annualized Pro Forma EBITDAre calculations for the periods indicated below
(dollars in thousands):
Three months ended
2022 2021
Net income $ 223,822 $ 124,768
Interest 110,121 73,674
Gain on extinguishment of debt (127) -
Income taxes 14,658 9,225
Depreciation and amortization 409,437 187,789
Provisions for impairment 7,691 17,246
Merger and integration-related costs 2,729 13,298
Gain on sales of real estate (40,572) (14,901)
Foreign currency and derivative gain, net (7,480) (400)
Gain on settlement of foreign currency forwards 2,106 -
Proportionate share of adjustments for unconsolidated entities
9,049 -
Quarterly Adjusted EBITDAre $ 731,434 $ 410,699
Annualized Adjusted EBITDAre (1) $ 2,925,736 $ 1,642,796
Annualized Pro Forma Adjustments (2) $ 55,756 $ 42,118
Annualized Pro Forma Adjusted EBITDAre $ 2,981,492 $ 1,684,914 Total debt per the consolidated balance sheets, excluding
deferred financing costs and net premiums and discounts
$ 9,197,694
Proportionate share for unconsolidated entities debt, excluding deferred financing costs
86,006 -
Less: Cash and cash equivalents (172,849) (231,164)
Net Debt (2) $ 15,651,540 $ 8,966,530
Net Debt/Annualized Adjusted EBITDAre (3) 5.3 5.5
Net Debt/Annualized Pro Forma Adjusted EBITDAre(3) 5.2 5.3
(1) We calculate Annualized Adjusted EBITDAre by multiplying the Quarterly
Adjusted EBITDAre 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 on debt from unconsolidated entities, less cash and cash
equivalents.
(3) During 2021, Net Debt was adjusted to exclude deferred financing costs and
net premiums and discounts. The adjustment of Net Debt did not impact the
calculation for the three months ended June 30, 2021 .
As described above, the Annualized Pro Forma Adjustments, which includes
transaction accounting adjustments in accordance with U.S. GAAP, consists of
adjustments to incorporate the Adjusted EBITDAre from properties we acquired or
stabilized during the applicable quarter and removes Adjusted EBITDAre from
properties 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 EBITDAre calculation for the
periods indicated below:
Three months ended June 30,
Dollars in thousands 2022 2021
Annualized pro forma adjustments from properties
acquired or stabilized $ 56,048 $ 42,120
Annualized pro forma adjustments from properties
disposed (292) (2)
Annualized Pro forma Adjustments $ 55,756 $ 42,118
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FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (FFO) AND NORMALIZED
FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (Normalized FFO)
The following summarizes our FFO and Normalized FFO (dollars in millions, except per share data):
We define FFO, a non-GAAP measure, consistent with theNational 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 and integration-related costs related to our merger with VEREIT. We define diluted FFO and diluted normalized FFO as FFO and normalized FFO adjusted for dilutive noncontrolling interests. Three months ended June 30, Six months ended June 30, % Increase 2022 2021 2022 2021 Three Months Six
Months
FFO available to common stockholders$ 608.8 $ 314.4$ 1,210.2 $ 582.1 93.6 % 107.9 % FFO per share (1)$ 1.01 $ 0.84 $ 2.02 $ 1.56 20.2 % 29.5 % Normalized FFO available to common stockholders$ 611.5 $ 327.7$ 1,219.5 $ 595.4 86.6 % 104.8 % Normalized FFO per share (1)$ 1.02 $ 0.88 $ 2.04 $ 1.60 15.9 % 27.5 %
(1) All per share amounts are presented on a diluted per common share basis.
FFO and Normalized FFO for the three and six months endedJune 30, 2022 and 2021 were impacted by the same transactions listed under "Net Income Available To Common Stockholders" on page 40. The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable 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): -56-
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Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Net income available to common
stockholders $ 223,207 $ 124,479 $ 422,576 $ 220,419
Depreciation and amortization 409,437 187,789 813,199 365,774
Depreciation of furniture, fixtures and
equipment (489) (73) (967) (444)
Provisions for impairment 7,691 17,246 14,729 19,966
Gain on sales of real estate (40,572) (14,901) (50,728) (23,302)
Proportionate share of adjustments for
unconsolidated entities(1) 9,860 - 12,095 -
FFO adjustments allocable to
noncontrolling interests (319) (165) (673) (331)
FFO available to common stockholders
$ 582,082 FFO allocable to dilutive noncontrolling interests 776 348 1,584 705 Diluted FFO$ 609,591 $ 314,723 $ 1,211,815 $ 582,787
FFO available to common stockholders
$ 582,082 Merger and integration-related costs 2,729 13,298 9,248 13,298 Normalized FFO available to common stockholders$ 611,544 $ 327,673 $ 1,219,479 $ 595,380 Normalized FFO allocable to dilutive noncontrolling interests 776 348 1,584 705 Diluted Normalized FFO$ 612,320 $ 328,021 $ 1,221,063 $ 596,085
FFO per common share, basic and diluted $ 1.01
$ 1.56 Normalized FFO per common share, basic and diluted $ 1.02$ 0.88 $ 2.04$ 1.60 Distributions paid to common stockholders$ 445,829 $ 263,358 $ 884,109 $ 524,056 FFO available to common stockholders in excess of distributions paid to common stockholders$ 162,986 $ 51,017 $ 326,122 $ 58,026 Normalized FFO available to common stockholders in excess of distributions paid to common stockholders$ 165,715 $ 64,315 $ 335,370 $ 71,324 Weighted average number of common shares used for FFO and normalized FFO: Basic 601,672,201 374,236,424 597,778,173 372,879,165 Diluted 603,091,375 374,804,142 599,201,411 373,434,863 (1)Includes an other than temporary impairment of$7.8 million on our investment in unconsolidated entities recognized in the three and six months endedJune 30, 2022 . 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 and integration-related 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. -57-
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ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (AFFO)
The following summarizes our AFFO (dollars in millions, except per share data):
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.
Three months ended June 30, Six months ended June 30, % Increase
2022 2021 2022 2021 Three months Six months
AFFO available to
common stockholders $ 583.7 $ 327.6 $ 1,163.8 $ 645.9 78.2 % 80.2 %
AFFO per share (1) $ 0.97 $ 0.88 $ 1.94 $ 1.73 10.2 % 12.1 %
(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.
The following is a reconciliation of net income available to common stockholders
(which we believe is the most comparable 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):
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Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Net income available to common
stockholders $ 223,207 $ 124,479 $ 422,576 $ 220,419
Cumulative adjustments to calculate
Normalized FFO (1) 388,337 203,194 796,903 374,961
Normalized FFO available to common
stockholders 611,544 327,673 1,219,479 595,380
(Gain) loss on extinguishment of debt (127) - (127) 46,473
Amortization of share-based compensation 6,641 4,472 11,643 8,169
Amortization of net debt premiums and
deferred financing costs (2) (16,948) 1,505 (34,044) 2,890
Loss on interest rate swaps 724 724 1,446 1,446
Straight-line payments from cross-currency
swaps (3) 367 584 884 1,202
Leasing costs and commissions (794) (121) (3,167) (827)
Recurring capital expenditures (173) (27) (186) (50)
Straight-line rent (27,554) (11,004) (55,376) (21,467)
Amortization of above and below-market
leases, net 16,402 3,934 30,044 13,234
Proportionate share of adjustments for
unconsolidated entities (2,090) - (4,154) -
Other adjustments (4) (4,264) (93) (2,616) (581)
AFFO available to common stockholders
$ 1,163,826 $ 645,869 AFFO allocable to dilutive noncontrolling interests 787 344 1,607 695 Diluted AFFO$ 584,515 $ 327,991 $ 1,165,433 $ 646,564 AFFO per common share: Basic $ 0.97$ 0.88 $ 1.95$ 1.73 Diluted $ 0.97$ 0.88 $ 1.94$ 1.73
Distributions paid to common stockholders
AFFO available to common stockholders in excess of distributions paid to common stockholders$ 137,899 $ 64,289 $ 279,717 $ 121,813 Weighted average number of common shares used for computation per share: Basic 601,672,201 374,236.424 597,778,173 372,879,165 Diluted 603,091,375 374,804.142 599,201,411 373,434,863 (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 premiums and discounts on notes payable and assumption of our mortgages payable, which are being amortized over the life of the applicable debt, and costs incurred and capitalized upon issuance and exchange of our notes payable, assumption of our mortgages payable and issuance of our term loans, which are also being amortized over the lives of the applicable debt. No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included. (3) Straight-line payments from cross-currency swaps represent quarterly payments inU.S. dollars received by us from counterparties in exchange for associated foreign currency payments. InJune 2022 , we terminated the four cross-currency swaps subject to this adjustment. The three and six months endedJune 30, 2022 include the adjustment through the termination date. (4) Includes adjustments allocable to noncontrolling interests, obligations related to financing lease liabilities, mark-to-market adjustments on investments and derivatives that do not qualify for hedge accounting, and foreign currency gain and loss as a result of intercompany debt and remeasurement transactions. -59-
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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 GAAP performance metric to which AFFO should be reconciled is net
income available to common stockholders.
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
•Consisting of 11,427 properties; •With an occupancy rate of 98.9%(1), or 11,295 properties leased and 132 properties available for lease or sale; •With clients doing business in 72 separate industries; •Located in all 50 U.S. states,Puerto Rico , theU.K. andSpain ; •With approximately 218.5 million square feet of leasable space; •With a weighted average remaining lease term (excluding rights to extend a lease at the option of the client) of approximately 8.8 years; and •With an average leasable space per property of approximately 19,120 square feet; approximately 12,840 square feet per retail property and approximately 240,450 square feet per industrial property.
(1) Excludes four properties with ancillary leases only, such as cell towers and billboards, of which one was vacant.
AtJune 30, 2022 , 11,295 properties 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, but excluding percentage rent and reimbursements from clients, as of the balance sheet date, multiplied by 12, excluding percentage rent. We believe total portfolio annualized contractual revenue 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 and reserve reversals recorded as adjustments to GAAP rental revenue in the periods presented and excludes unconsolidated entities. -60-
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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 now only 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 is still 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 (1)
As of
Jun 30, Dec 31, Dec 31, Dec 31, Dec 31,
2022 2021 2020 2019 2018
Grocery stores 10.5% 10.2% 9.8% 7.9% 5.0%
Convenience stores 9.2 9.1 11.9 12.3 12.6
Dollar stores 7.4 7.5 7.6 7.9 7.3
Restaurants - quick service 6.4 6.6 5.3 5.8 6.3
Drug stores 6.3 6.6 8.2 8.8 9.4
Restaurants - casual dining 5.7 5.9 2.8 3.2 3.3
Home improvement 5.2 5.1 4.3 2.9 2.8
Health and fitness 4.5 4.7 6.7 7.0 7.1
General merchandise 3.8 3.7 3.4 2.5 2.1
Automotive service 3.5 3.2 2.7 2.6 2.2
(1) The presentation of Top 10 Industry Concentrations combines total portfolio
contractual rent from the U.S. and Europe . Europe consists of properties in the
U.K. , starting in May 2019 , and in Spain , starting in September 2021 .
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Property Type Composition The following table sets forth certain property type information regarding our property portfolio as ofJune 30, 2022 (dollars in thousands): Approximate Total Portfolio Percentage of Total Number of Leasable Annualized Portfolio Annualized Property Type Properties Square Feet (1) Contractual Rent Contractual Rent Retail 11,097 142,465,300$ 2,567,882 84.0 % Industrial 307 73,818,800 438,060 14.3 Other (2) 23 2,201,000 53,775 1.7 Totals 11,427 218,485,100$ 3,059,717 100.0 % (1)Includes leasable building square footage. Excludes 3,600 acres of leased land categorized as agriculture atJune 30, 2022 . (2)"Other" includes seven properties classified as office, consisting of approximately 2.0 million leasable square feet and$25.2 million in annualized contractual rent, and 16 properties classified as agriculture, consisting of approximately 191,200 leasable square feet and$28.6 million in annualized contractual rent. Client Diversification The following table sets forth the 20 largest clients in our property portfolio, expressed as a percentage of total portfolio annualized contractual rent, which does not give effect to deferred rent, atJune 30, 2022 : Percentage of Total Number of Portfolio Annualized Client Leases Contractual Rent Walgreens 340 4.0 % Dollar General 1,307 3.9 7-Eleven 6323.9 Dollar Tree / Family Dollar 1,037 3.5 FedEx 81 2.9 LA Fitness 79 2.4 Sainsbury's 27 2.1 BJ's Wholesale Clubs 32 1.9 B&Q (Kingfisher) 34 1.8 CVS Pharmacy 183 1.7 Wal-Mart / Sam's Club 65 1.7 AMC Theatres 35 1.6 Red Lobster 201 1.5 Regal Cinemas (Cineworld) 41 1.5 Tractor Supply 163 1.4 Tesco 16 1.4 Lifetime Fitness 16 1.3 Home Depot 29 1.2 Kroger 31 1.1 Fas Mart (GPM Investments) 260 1.0 Total 4,609 41.8 % -62-
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Lease Expirations The following table sets forth certain information regarding the timing of the lease term expirations in our portfolio (excluding rights to extend a lease at the option of the client) and their contribution to total portfolio annualized contractual rent as ofJune 30, 2022 (dollars in thousands): Total Portfolio (1) Expiring Approximate Total Portfolio Percentage of Total Leases Leasable Annualized Portfolio Annualized Year Retail Non-Retail Square Feet Contractual Rent Contractual Rent 2022 118 8 1,403,900$ 18,769 0.6 2023 718 27 10,788,100 135,195 4.4 2024 685 32 13,766,900 157,057 5.1 2025 830 35 13,846,000 195,679 6.4 2026 769 32 15,674,200 180,810 5.9 2027 1,310 30 21,308,500 259,438 8.5 2028 1,029 34 19,602,900 237,291 7.8 2029 866 17 17,898,600 220,637 7.2 2030 512 20 14,502,400 163,807 5.5 2031 458 37 20,612,900 237,083 7.7 2032 640 18 10,768,100 184,806 6.0 2033 526 13 12,262,100 158,893 5.2 2034 518 6 9,825,900 201,637 6.6 2035 397 3 4,543,200 101,191 3.3 2036 398 7 6,890,000 126,207 4.1 2037 - 2059 1,641 35 22,791,700 481,217 15.7 Totals 11,415 354 216,485,400$ 3,059,717 100.0 %
(1)Leases on our multi-client properties are counted separately in the table above. This table excludes 168 vacant units.
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Geographic Diversification
The following table sets forth certain state-by-state information regarding our
property portfolio as of June 30, 2022 (dollars in thousands):
Approximate Percentage of Total
Number of Leasable Portfolio Annualized
Location Properties Percent Leased Square Feet Contractual Rent
Alabama 381 97 % 4,123,200 2.0 %
Alaska 6 100 299,700 0.1
Arizona 229 100 3,513,000 1.9
Arkansas 223 100 2,428,700 1.1
California 326 99 11,355,000 6.3
Colorado 163 98 2,634,700 1.5
Connecticut 25 100 1,237,300 0.5
Delaware 26 100 192,000 0.2
Florida 716 99 9,646,500 5.3
Georgia 502 99 8,057,800 3.6
Hawaii 22 100 47,800 0.2
Idaho 27 100 189,100 0.1
Illinois 474 98 12,232,700 5.3
Indiana 390 99 7,145,500 2.8
Iowa 91 99 2,631,800 0.9
Kansas 175 100 4,486,900 1.2
Kentucky 207 99 4,335,900 1.4
Louisiana 309 100 4,921,500 2.2
Maine 55 98 1,008,300 0.5
Maryland 73 96 2,822,700 1.3
Massachusetts 92 99 3,119,600 1.4
Michigan 446 99 5,250,300 2.8
Minnesota 231 100 3,513,100 2.0
Mississippi 279 99 4,206,900 1.4
Missouri 343 98 4,743,200 2.0
Montana 21 100 204,500 0.1
Nebraska 75 99 1,013,000 0.4
Nevada 72 99 2,638,200 1.0
New Hampshire 29 100 561,500 0.3
New Jersey 143 98 2,243,000 1.8
New Mexico 102 99 1,299,200 0.7
New York 240 99 4,311,000 3.1
North Carolina 377 99 7,700,000 3.2
North Dakota 22 86 352,300 0.2
Ohio 662 99 14,503,100 4.5
Oklahoma 283 99 3,911,600 1.7
Oregon 41 98 654,900 0.4
Pennsylvania 336 99 5,942,600 2.8
Rhode Island 7 86 109,800 0.1
South Carolina 284 99 3,909,100 1.9
South Dakota 29 100 428,400 0.2
Tennessee 376 98 6,502,900 2.5
Texas 1,467 99 24,675,800 10.7
Utah 36 100 1,529,500 0.5
Vermont 7 100 134,900 0.1
Virginia 351 98 5,942,500 2.5
Washington 77 100 1,768,300 1.0
West Virginia 74 100 726,000 0.4
Wisconsin 251 100 4,768,100 1.9
Wyoming 23 100 157,700 0.1
Puerto Rico 6 100 59,400 0.1
Spain 43 100 2,492,000 0.7
United Kingdom 182 100 15,802,600 9.1
Totals/average 11,427 99 % 218,485,100 100.0 %
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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.
Moreover, our use of net lease agreements tends to reduce our exposure to rising
property expenses due to inflation because the client is responsible for
property expenses. Inflation and increased costs may have an adverse impact on
our clients if increases in their operating expenses exceed increases in
revenue.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTSFor information on the impact of new accounting standards on our business, see note 2 of the Notes to the Consolidated Financial Statements.
OTHER INFORMATION
Our common stock is listed on the NYSE under the ticker symbol "O" with a CUSIP
number of 756109-104. Our 1.625% notes due December 2030 are listed on the NYSE
under the ticker symbol "O30" with a CUSIP number of 756109-AY0. Our 1.875%
notes due January 2027 are listed on the NYSE under the ticker symbol "O27B"
with a CUSIP number of 756109-BM5. Our 1.125% notes due July 2027 are listed on
the NYSE under the ticker symbol "O27A" with a CUSIP number of 756109-BB9. Our
1.750% notes due July 2033 are listed on the NYSE under the ticker symbol "O33A"
with a CUSIP number of 756109-BC7. Our 2.500% notes due January 2042 are listed
on the NYSE under the ticker symbol "O42" with a CUSIP number of 756109-BN3. Our
central index key number is 726728.
We maintain a corporate website at www.realtyincome.com. On our website we make
available, free of charge, copies of our annual report on Form 10-K ,
quarterly reports on Form 10-Q, Form 3s, Form 4s, Form 5s, current reports on
Form 8-K, and amendments to those reports, as soon as reasonably practicable
after we electronically file these reports with the SEC . None of the information
on our website is deemed to be part of this report.
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