Published: 2023-02-22 00:00:00 ET

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Realty Income Corporation (“Realty Income,” the “Company,” “we,” “our” or “us”) was founded in 1969 and is organized as a Maryland corporation. We invest in commercial real estate and have elected to be taxed as a real estate investment trust ("REIT"). We are listed on the New York Stock Exchange ("NYSE") under the symbol “O”.

Over the past 54 years, we have been acquiring and managing freestanding commercial properties that generate rental revenue under long-term net lease agreements with our commercial clients. At December 31, 2022, we owned or held interests in 12,237 properties, with approximately 236.8 million leasable square feet.

Information with respect to number of properties, leasable square feet, average initial lease term and initial weighted average cash lease yield is unaudited.

Our financial results for the years ended December 31, 2022 and 2021 reflect our merger with VEREIT, Inc. ("VEREIT"), following the consummation of the merger on November 1, 2021. Our financial results for the year ended December 31, 2020 do not reflect the merger. For more details, please see note 3, Merger with VEREIT, Inc. and Orion Office REIT Inc. Divestiture.

Basis of Presentation. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Intercompany accounts and transactions are eliminated in consolidation. The U.S. Dollar ("USD") is our reporting currency. Unless otherwise indicated, all dollar amounts are expressed in USD.

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

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

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

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

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

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The portion of a consolidated entity not owned by us is recorded as a noncontrolling interest. Noncontrolling interests are reflected on our consolidated balance sheets as a component of equity. Noncontrolling interests that were created or assumed as part of a business combination or asset acquisition were recognized at fair value as of the date of the transaction (see note 11, Noncontrolling Interests).

At December 31, 2022, Realty Income, L.P. and certain of our investments, including investments in joint ventures, are considered VIEs in which we were deemed the primary beneficiary based on our controlling financial interests. Below is a summary of selected financial data of consolidated VIEs included on our consolidated balance sheets at December 31, 2022 and 2021 (in thousands):

			December 31, 2022						December 31, 2021
Net real estate			$	920,032					$	688,229
Total assets			$	1,082,346					$	795,670
Total liabilities			$	60,127					$	57,057

Reclassification. Certain reclassifications have been made to the prior years’ consolidated statements of cash flows to conform to current year presentation.

Use of Estimates. The consolidated financial statements were prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Net Income per Common Share. Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted net income per common share is computed by dividing net income available to common stockholders, plus income attributable to dilutive shares and convertible common units for the period, by the weighted average number of common shares that would have been outstanding assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. For more detail, see note 15, Net Income per Common Share.

Cash Equivalents and Restricted Cash. We consider all short-term, highly liquid investments that are readily convertible to cash and have an original maturity of three months or less at the time of purchase to be cash equivalents. Restricted cash includes cash proceeds from the sale of assets held by qualified intermediaries in anticipation of the acquisition of replacement properties in tax-free exchanges under Section 1031 of the U.S. Internal Revenue Code, impounds related to mortgages payable and cash that is not immediately available to Realty Income (i.e. escrow deposits for future acquisitions).

Cash accounts maintained on behalf of Realty Income in demand deposits at commercial banks and money market funds may exceed federally insured levels or may be held in accounts without any federal insurance or any other insurance or guarantee. However, Realty Income has not experienced any losses in such accounts.

Income Taxes. We have elected to be taxed as a REIT, under the Internal Revenue Code of 1986, as amended. We believe we have qualified and continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income. Assuming our dividends equal or exceed our taxable net income in the U.S., we generally will not be required to pay U.S. income taxes on such income. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of our taxable REIT subsidiaries ("TRS"). A TRS is a subsidiary of a REIT that is subject to federal, state and local income taxes, as applicable. Our use of a TRS enables us to engage in certain business activities while complying with the REIT qualification requirements and to retain any income generated by these businesses for reinvestment without the requirement to distribute those earnings. For our international territories, we are liable for taxes in the United Kingdom and Spain. Accordingly, provisions have been made for U.K. and Spain income taxes. Therefore, the income taxes recorded on our consolidated statements of income and comprehensive income represent amounts accrued or paid by Realty Income and its subsidiaries for U.S. income taxes on our TRS entities, city and state income and franchise taxes, and income taxes for the U.K. and Spain.

Earnings and profits that determine the taxability of distributions to stockholders differ from net income reported for financial reporting purposes primarily due to differences in the estimated useful lives and methods used to compute depreciation and the carrying value (basis) of the investments in properties for tax purposes, among other things.

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We regularly analyze our various international, federal and state filing positions and only recognize the income tax effect in our financial statements when certain criteria regarding uncertain income tax positions have been met. We believe that our income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities. Therefore, no provisions for uncertain tax positions have been recorded on our consolidated financial statements.

Lease Revenue Recognition and Accounts Receivable. The majority of our leases are accounted for as operating leases. Under this method, leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term. Any rental revenue contingent upon our client’s sales is recognized only after our client exceeds their sales breakpoint. Rental increases based upon changes in the consumer price indexes are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements. Contractually obligated rental revenue from our clients for recoverable real estate taxes and operating expenses are included in contractually obligated reimbursements by our clients, a component of rental revenue, in the period when such costs are incurred. Taxes and operating expenses paid directly by our clients are recorded on a net basis.

Other revenue includes certain property-related revenue not included in rental revenue and interest income recognized on financing receivables for certain leases with above-market terms.

The COVID-19 pandemic and the measures taken to limit its spread have negatively impacted the economy across many industries, including the industries in which some of our clients operate. We continue to assess the probability of collecting substantially all of the lease payments to which we are entitled under the original lease contract as required under Topic 842, Leases. We assess the collectability of our future lease payments based on an analysis of creditworthiness, economic trends (including trends arising from the COVID-19 pandemic) and other facts and circumstances related to the applicable clients. If we conclude the collection of substantially all lease payments under a lease is less than probable, rental revenue recognized for that lease is limited to cash received going forward, existing operating lease receivables, including those related to straight-line rental revenue, must be written off as an adjustment to rental revenue, and no further operating lease receivables are recorded for that lease until such future determination is made that substantially all lease payments under that lease are now considered probable. If we subsequently conclude that the collection of substantially all lease payments under a lease is probable, a reversal of lease receivables previously written off is recognized.

As of December 31, 2022, the majority of concessions granted to our clients as a result of the COVID-19 pandemic have been rent deferrals with the original lease term unchanged. In accordance with the guidance provided by the Financial Accounting Standards Board ("FASB") staff, we have elected to account for these leases as if the right of deferral existed in the lease contract and therefore continue to recognize lease revenue in accordance with the lease contract in effect. In limited circumstances, the undiscounted cash flows resulting from deferrals granted increased significantly from original lease terms, which required us to account for these as lease modifications and resulted in an insignificant impact to consolidated rental revenue. Similarly, rent abatements granted, which are also accounted for as lease modifications, have impacted our rental revenue by an insignificant amount.

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

						Years ended December 31,
						2022						2021						2020
Rental revenue reserves						$	2.3					$	10.2					$	44.1
Straight-line rent reserves						1.7						4.5						8.4
Total rental revenue reserves						$	4.0					$	14.7					$	52.5

As of December 31, 2022, other than the information related to the reserves recorded to date, we do not have any further client specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable. However, since the conversations regarding rent collections for our clients affected by the COVID-19 pandemic are ongoing and we do not currently know the types of future concessions, if any, that will ultimately be granted, there may be impacts in future periods that could change this assessment as the situation continues to evolve and as more information becomes available.

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Gain on Sales of Real Estate. When real estate is sold, the carrying amount of the applicable assets is derecognized with a corresponding gain from the sale recognized in our consolidated statements of income and comprehensive income. We record a gain on sale of real estate pursuant to provisions under ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets. We determine whether we would have a controlling financial interest in the property after the sale. We record a gain from the sale of real estate provided that various criteria, relating to the terms of the sale and any subsequent involvement by us with the real estate, have been met.

Allocation of the Purchase Price of Real Estate Acquisitions. A majority of our acquisitions qualify as asset acquisitions and the transaction costs associated with those acquisitions are capitalized. However, our merger with VEREIT was comprised of both inputs and substantive processes that together significantly contributed to the ability to create outputs and, therefore, was considered a business. As a result, the merger with VEREIT qualified as a business combination and, accordingly, the transaction costs were expensed and categorized as merger and integration-related costs on our consolidated statements of income and comprehensive income. In accordance with ASC Topic 805, Business Combinations, adjustments to the allocated purchase price were made within one year of the closing date of our merger with VEREIT as acquisition date uncertainties were resolved (for more details on our merger with VEREIT, please see note 3, Merger with VEREIT, Inc. and Orion Office REIT Inc. Divestiture).

Apart from our merger with VEREIT, a majority of our acquisitions qualify as asset acquisitions. Therefore 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 of in-place leases 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 values of the land, building and improvements, and identified intangible assets and liabilities, utilizing market-based evidence and commonly applied valuation approaches. In addition, any assumed notes payable or 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.

Our estimated fair value determinations are based on management’s judgment, utilizing various factors, including: market land and building values, market rental rates, discount rates and capitalization rates. Our methodology for measuring and allocating the fair value of real estate acquisitions includes both observable market data (categorized as level 2 on the three-level valuation hierarchy of ASC Topic 820, Fair Value Measurement), and unobservable inputs that reflect our own internal assumptions (categorized as level 3 under ASC Topic 820). Given the significance of the unobservable inputs we believe the allocations of fair value of real estate acquisitions should be categorized as level 3 under ASC Topic 820. From time to time, we have used, and may continue to use, the assistance of independent third parties specializing in real estate valuations to prepare our purchase price allocations.

The allocation of tangible assets (which includes land and buildings/improvements) of an acquired property with an in-place lease is based upon relative fair value. Land is typically valued utilizing the sales comparison (or market) approach. Buildings and improvements are typically valued under the replacement cost approach. In allocating the fair value to identified intangibles for above-market or below-market leases, an amount is recorded based on the present value of the difference between (i) the contractual amount to be paid pursuant to the in-place lease and (ii) our estimate of fair market lease rate for the corresponding in-place lease, measured over the remaining assumed contract term of the lease. The value of in-place leases is determined by our estimated costs related to acquiring a client and the carrying costs that would be incurred over the vacancy period to locate a client if the property were vacant, considering market conditions and costs to execute similar leases at the time of acquisition.

The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of income and comprehensive income. The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to depreciation and amortization expense over the remaining periods of

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the respective leases. If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease are recorded to revenue or expense as appropriate.

Real Estate and Lease Intangibles Held for Sale. We generally reclassify assets to held for sale when the disposition has been approved, there are no known contingencies relating to the sale and the consummation of the disposition is considered probable within one year. Upon classifying a real estate investment as held for sale, we will no longer recognize depreciation expense related to the depreciable assets of the property. Assets held for sale are recorded at the lower of carrying value or estimated fair value, less the estimated cost to dispose of the assets. Twenty-two properties were classified as held for sale at December 31, 2022.

If circumstances arise that we previously considered unlikely and, as a result, we decide not to sell a property previously classified as held for sale, we will reclassify the property as held for investment. We measure and record a property that is reclassified as held for investment at the lower of (i) its carrying value before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held for investment or (ii) the estimated fair value at the date of the subsequent decision not to sell.

Investment in Unconsolidated Entities. During the year ended December 31, 2022, all seven properties owned by our industrial partnerships and accounted for under the equity method were sold. For further details, see note 5, Investments in Real Estate.

We accounted for our investment in unconsolidated entity arrangements using the equity method of accounting as we had the ability to exercise significant influence, but not control, over operating and financing policies of these investments. We had determined that none of the unconsolidated entities would be considered VIEs under the applicable accounting guidance. Our equity method investments were acquired in our merger with VEREIT. As a result, the investments were recorded at fair value and subsequently would be adjusted for our share of equity in the entities' earnings and distributions received. The step-up in fair value was allocated to the individual investment assets and liabilities and were amortized over the estimated useful life of the respective underlying tangible real estate assets, the lease term of the intangible real estate assets, and the remaining term of the assumed debt. The carrying value of our investment was included in 'Investment in unconsolidated entities' in the accompanying consolidated balance sheet as of December 31, 2021. We recorded our proportionate share of net income from the unconsolidated entities in 'Equity in income and impairment of investment in unconsolidated entities' in the consolidated statements of income and comprehensive income for the years ended December 31, 2022 and 2021.

Goodwill. Upon the closing of a business combination, after identifying all tangible and intangible assets and liabilities, the excess consideration paid over the fair value of the assets and liabilities acquired and assumed, respectively, represents goodwill. In connection with our merger with VEREIT, we recorded goodwill as a result of consideration exceeding the net assets acquired. For further details, see note 3, Merger with VEREIT, Inc. and Orion Office REIT Inc. Divestiture.

Deferred Financing Costs. Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining or originating financing. Deferred financing costs, other than those associated with the line of credit, are presented on the consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability. Deferred financing costs related to the line of credit are included in other assets, net in the accompanying consolidated balance sheets. These costs are amortized to interest expense over the terms of the respective financing agreements that approximates the effective interest method.

Depreciation and Amortization. Land, buildings and improvements are recorded and stated at cost. Major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives, while ordinary repairs and maintenance are expensed as incurred. Buildings and improvements that are under redevelopment, or are being developed, are carried at cost and no depreciation is recorded on these assets. Additionally, amounts essential to the development of the property, such as pre-construction, development, construction, interest and other costs incurred during the period of development are capitalized. We cease capitalization when the property is available for occupancy upon substantial completion of property improvements to accommodate the client's use, but in any event no later than one year from the completion of major construction activity.

Properties are depreciated using the straight-line method over the estimated useful lives of the assets.  The estimated useful lives are as follows:

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Buildings			25 years or 35 years
Building improvements			4 to 35 years
Equipment			5 to 25 years
Lease commissions and property improvements to accommodate the client's use			The shorter of the term of the related lease or useful life
Acquired in-place leases			Remaining terms of the respective leases

Provisions for Impairment - Real Estate Assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an 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 assumptions that we utilize in this analysis include projected rental rates, estimated holding periods, capital expenditures and property sales capitalization rates. For further details, see note 12, Financial Instruments and Fair Value Measurements.

Provisions for Impairment - Goodwill. Goodwill is not amortized, but is subject to impairment reviews annually, or more frequently if necessary. Goodwill is qualitatively assessed to determine whether a quantitative impairment assessment is necessary. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized, and the asset is written down to its estimated fair value. We perform our annual goodwill impairment assessment as of June 30. During the years ended December 31, 2022, 2021 and 2020, there were no impairments of goodwill.

Provisions for Impairment - Investment in Unconsolidated Entities. As part of our merger with VEREIT in November 2021, we acquired seven properties owned by industrial partnerships. These properties, which were subsequently sold during the year ended December 31, 2022, were accounted for under the equity method and considered unconsolidated entities. During our ownership of those properties and when circumstances indicated that a decrease in the value of an equity method investment had occurred that was other than temporary, we recognized an impairment loss, which required significant judgment. To determine whether the impairment loss was other-than-temporary, we considered whether it had the ability and intent to hold the investment until the carrying value was fully recovered. We evaluated the impairment of our investment in unconsolidated entities in accordance with accounting standards for equity investments by first reviewing each investment for indicators of impairment. If indicators were present, we estimated the fair value of the investments. If the carrying value of the investment was greater than the estimated fair value, we made an assessment of whether the impairment was temporary or other-than-temporary. In making this assessment, we considered the length of time and the extent to which fair value had been less than cost, the financial condition and near-term prospects of the entity, and our intent and ability to retain the interest long enough for a recovery in market value. The investment was reduced to its estimated fair value if conclusions indicated the impairment was other than temporary. For further details, see note 5, Investments in Real Estate.

Equity Offering Costs.  Underwriting commissions and offering costs have been reflected as a reduction of additional paid-in-capital on our consolidated balance sheets.

Derivative and Hedging Activities. Derivatives are financial arrangements among two or more parties with returns linked to or “derived” from an underlying equity, debt, commodity, other asset, liability, interest rate, foreign exchange rate or another index, or the occurrence or nonoccurrence of a specified event. The settlement of a derivative is determined by its underlying notional amount specified in the contract. Derivative contracts may be entered into outright or embedded within a non-derivative host contract, and may be listed, traded on exchanges or privately negotiated directly between two parties.

We actively manage our risk exposures which arise from our liquidity and funding activities using derivative instruments which hedge for interest rate risk, foreign exchange risk, or both. We record all derivatives on the balance sheet at fair value. The recognition of changes in the fair value of derivatives is recorded in net income unless the derivative is designated in a cash flow or net investment hedge accounting relationship in which case the change in fair value is recorded in other comprehensive income until such time as the designated hedged item impacts net income.

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Segment Reporting. During the second quarter of 2022, a re-evaluation of our business and management structure led to a change in identification of operating and reportable segments. As we have grown in size and scale over recent years, including through the acquisition of VEREIT in November 2021, management has shifted its focus to operating performance, seeking investments with attractive yields and risk adjusted returns regardless of client industry or geography. Our chief operating decision maker relies primarily on cash flow analysis at the consolidated level to make decisions about allocating resources. As a result, we reorganized our business activities into one operating and reportable segment. ASC Topic 280, Segment Reporting, establishes standards for the manner in which enterprises report information about operating segments. We are engaged in a single business activity, which is the leasing of property to clients, generally on a net basis (whereby clients are responsible for property taxes, insurance and maintenance costs). That business activity spans various geographic boundaries and includes property types and clients engaged in various industries, but ultimately all business activity involves similar economic characteristics of owning and leasing commercial properties under long-term, net lease agreements. Therefore, we operate and manage the business in one operating and reportable segment. This segmental presentation is consistent with the information provided to our chief operating decision maker to make decisions about allocating resources and assessing our performance. ASC 280 requires certain entity-wide annual disclosures for entities with a single reportable segment. The following table disaggregates domestic and international revenue by major asset types and geographic regions (in millions):

						Years ended December 31,
						2022
						U.S.						U.K.						Other (1)						Total
Retail						$	2,455.9					$	243.3					$	30.9					$	2,730.1
Industrial						465.2						30.2						—						495.4
Other (2)						74.2						—						—						74.2
Rental (including reimbursable)						$	2,995.3					$	273.5					$	30.9					$	3,299.7
Other revenue																								44.0
Total revenue																								$	3,343.7
						2021
						U.S.						U.K.						Other (1)						Total
Retail						$	1,566.7					$	138.9					$	4.2					$	1,709.8
Industrial						261.5						9.6						—						$	271.1
Other (2)						84.1						—						—						$	84.1
Rental (including reimbursable)						$	1,912.3					$	148.5					$	4.2					$	2,065.0
Other revenue																								15.5
Total revenue																								$	2,080.5
						2020
						U.S.						U.K.						Other (1)						Total
Retail						$	1,312.5					$	55.9					$	—					$	1,368.4
Industrial						184.6						1.3						—						185.9
Other (2)						85.2						—						—						85.2
Rental (including reimbursable)						$	1,582.3					$	57.2					$	—					$	1,639.5
Other revenue																								7.6
Total revenue																								$	1,647.1

(1) Other includes properties in Spain, starting in September 2021 and in Italy, starting in October 2022.

(2) Other includes the office, agriculture and gaming asset types, with gaming starting in December 2022.

Long-lived assets include items such as property, plant, equipment and right-of-use assets subject to operating and finance leases. As of December 31, 2022, no individual country or asset-type representing more than 10% of total revenue, other than as presented in the tables above. In addition, as of December 31, 2022, no individual country or asset-type representing more than 10% of the total assets, other than as presented in the tables below. The

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following table disaggregates domestic and international total long-lived assets (in millions):

						As of December 31,
						2022																								2021
						U.S.						U.K.						Other (1)						Total						U.S.						U.K.						Other (1)						Total
Long-lived assets						$	33,685.6					$	4,596.1					$	582.7					$	38,864.4					$	29,323.8					$	3,206.6					$	314.3					$	32,844.7
Remaining assets																								10,808.7																								10,292.8
Total assets																								$	49,673.1																							$	43,137.5

(1) Other includes properties in Spain, starting in September 2021 and in Italy, starting in October 2022.

Recently Adopted Accounting Standards In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, 2020, and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. During 2022, all of our debt and derivative instruments were converted from LIBOR to SOFR. The interest rate swap on our term loan, which was converted to a Secured Overnight Financing Rate ("SOFR") benchmark from the London Inter-Bank Offered Rate (“LIBOR”) during June 2022, continues to be accounted for as a cash flow hedge. The adoption of this guidance had no impact on our consolidated financial statements.

Merger with VEREIT

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

The primary reason for the Merger was to expand our size, scale and diversification, in order to further enhance our competitive advantages and accelerate our investment activities.

On November 1, 2021, we completed our acquisition of VEREIT, and the merger was consummated. Pursuant to the terms of the Merger Agreement and subject to the terms thereof, upon the consummation of the merger, (i) each outstanding share of VEREIT common stock, and each outstanding common partnership unit of VEREIT OP owned by any of its partners other than VEREIT, Realty Income or their respective affiliates, was automatically converted into 0.705 of newly issued shares of our common stock, or in certain instances, Realty Income L.P. units, and (ii) each VEREIT OP outstanding common unit owned by VEREIT, Realty Income or their respective affiliates remained outstanding as partnership interests in the surviving entity. Each outstanding VEREIT stock option and restricted stock unit that were unvested as of November 1, 2021 were converted into equivalent options and restricted stock units, in each case with respect to the share of the Company's common stock, using the equity award exchange ratio in accordance with the Merger Agreement. For more details, see note 17, Common Stock Incentive Plan.

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

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

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

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

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

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

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A.    Purchase Price Allocation

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

						As of November 1, 2021
ASSETS
Land						$	3,021,906
Buildings						8,677,467
Total real estate held for investment						11,699,373
Cash and cash equivalents						128,411
Accounts receivable						53,355
Lease intangible assets (1)						3,204,773
Goodwill						3,717,620
Investment in unconsolidated entities						175,379
Other assets						308,910
Total assets acquired						$	19,287,821
LIABILITIES
Accounts payable and accrued expenses						$	139,836
Lease intangible liabilities (2)						949,349
Other liabilities						320,893
Mortgages payable						869,027
Notes payable						4,946,965
Total liabilities assumed						$	7,226,070
Net assets acquired, at fair value						$	12,061,751
Noncontrolling interests						$	1,352
Total purchase price						$	12,060,399

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

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

The initial assessment of fair value provided in our Annual Report on Form 10-K for the year ended December 31, 2021 was preliminary and was based on information that was available to management at the time the consolidated financial statements were prepared. Measurement period adjustments were recorded during the year ended December 31, 2022 in the period in which they were determined, as if they had been completed at the acquisition date. Before the first anniversary of the merger date, final measurement period adjustments, as reflected in the table above, resulted in a net increase of $54.8 million to goodwill from the initial valuation, reflecting a decrease of $15.8 million in land, $7.6 million in building, $22.6 million in lease intangible assets, $19.5 million in investment in unconsolidated entities, $9.9 million in other assets, offset by decrease of $4.4 million in lease intangible liabilities, $16.1 million in other liabilities and $0.1 million in mortgages payable.

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

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employee workforce onboarded from VEREIT following the closing of the merger. None of the goodwill recognized is deductible for tax purposes.

B.    Merger and Integration-Related Costs
In conjunction with our merger with VEREIT, we incurred merger-related transaction costs of $13.9 million and $167.4 million for the years ended December 31, 2022 and 2021, respectively. Merger and integration-related costs consist of advisory fees, attorney fees, accountant fees, SEC filing fees and additional incremental and non-recurring costs necessary to convert data and systems, retain employees and otherwise enable us to operate the acquired business or assets efficiently.

C.    Unaudited Pro Forma Financial Information

Our consolidated results of operations for the years ended December 31, 2022 and 2021, include $1.02 billion and $176.3 million of revenues, respectively, and $62.4 million and $36.7 million of net income associated with the results of operations of VEREIT OP, respectively.

The following unaudited pro forma information presents a summary of our combined results of operations for the years ended December 31, 2021 and 2020, as if our merger with VEREIT had occurred on January 1, 2020 (in millions, except per share data). There are no pro forma adjustments for the year ended December 31, 2022, as the merger was completed November 1, 2021. The following pro forma financial information is not necessarily indicative of the results of operations had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses. In accordance with ASC 805, Business Combinations, the following information excludes the impact of the spin-off of office assets to Orion Office REIT Inc. ("Orion").

												Years ended December 31,
																					2021						2020
Total revenues																					$	3,084.3					$	2,835.5
Net income																					$	734.6					$	325.9
Basic and diluted earnings per share																					$	1.27					$	0.64

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

Orion Divestiture

Following of the closing of our merger with VEREIT, we contributed 92 office real estate assets, a consolidated real estate venture holding one office asset, and an unconsolidated real estate venture holding five office assets to a wholly owned subsidiary named Orion. On November 12, 2021, we distributed the outstanding shares of Orion common stock to our shareholders (including legacy VEREIT stockholders who received shares of our common stock in our merger with VEREIT) on a pro rata basis at a rate of one share of Orion common stock for every ten shares of Realty Income common stock held on November 12, 2021, the applicable record date, which we refer to as the Orion Divestiture. The fair market value of these shares for tax distribution was determined to be $20.6272 per share, which was calculated using the five-day volume weighted average share price after issuance. For more detail, see note 14, Distributions Paid and Payable. Following the Orion Divestiture, Orion began operating as a separate, independent public company.

In conjunction with the Orion Divestiture, we incurred approximately $6.0 million of transaction costs during the year ended December 31, 2021, which were included in the $167.4 million of merger and integration-related costs within our consolidated statements of income and comprehensive income. We incurred $1.9 million of transaction costs relating to the Orion Divestiture during the year ended December 31, 2022.

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

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A.			Accounts receivable, net, consist of the following at:			December 31, 2022						December 31, 2021
			Straight-line rent receivables, net			$	363,993					$	231,943
			Client receivables, net			203,970						194,825
						$	567,963					$	426,768

B.			Lease intangible assets, net, consist of the following at:			December 31, 2022						December 31, 2021
			In-place leases			$	5,324,565					$	4,791,846
			Accumulated amortization of in-place leases			(1,409,878)						(804,050)
			Above-market leases			1,697,367						1,591,382
			Accumulated amortization of above-market leases			(443,688)						(303,874)
						$	5,168,366					$	5,275,304

C.			Other assets, net, consist of the following at:			December 31, 2022						December 31, 2021
			Financing receivables			$	933,116					$	323,921
			Right of use asset - operating leases, net			603,097						631,515
			Right of use asset - financing leases			467,920						218,332
			Derivative assets and receivables – at fair value			83,100						29,593
			Restricted escrow deposits			37,627						68,541
			Prepaid expenses			28,128						18,062
			Impounds related to mortgages payable			18,152						5,249
			Credit facility origination costs, net			17,196						4,352
			Corporate assets, net			12,334						10,915
			Investment in sales type lease			5,951						7,492
			Non-refundable escrow deposits			5,667						28,560
			Note receivable			—						4,455
			Other items			39,939						18,592
						$	2,252,227					$	1,369,579

D.			Accounts payable and accrued expenses consist of the following at:			December 31, 2022						December 31, 2021
			Notes payable - interest payable			$	129,202					$	108,227
			Derivative liabilities and payables – at fair value			64,724						70,617
			Property taxes payable			45,572						36,173
			Accrued costs on properties under development			26,559						19,665
			Accrued property expenses			25,290						27,344
			Value-added tax payable			23,375						11,297
			Accrued income taxes			22,626						19,152
			Mortgages, term loans, and credit line - interest payable			4,404						3,874
			Merger and integration-related costs			1,464						10,699
			Other items			55,921						44,080
						$	399,137					$	351,128

E.			Lease intangible liabilities, net, consist of the following at:			December 31, 2022						December 31, 2021
			Below-market leases			$	1,617,870					$	1,460,701
			Accumulated amortization of below-market leases			(238,434)						(152,480)
						$	1,379,436					$	1,308,221

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

A.    Acquisitions During the Years ended December 31, 2022, and 2021

Below is a summary of our acquisitions for the year ended December 31, 2022 (unaudited):

			Number of Properties						Leasable Square Feet (in thousands, unaudited)						Investment ($ in millions)						Weighted Average Lease Term (Years)						Initial Weighted Average Cash Lease Yield (1)
Year ended December 31, 2022 (2)
Acquisitions - U.S.			990						15,774						$	5,746.4					19.3						6.0		%
Acquisitions - Europe			94						11,179						2,441.3						8.9						6.0		%
Total acquisitions			1,084						26,953						$	8,187.7					16.3						6.0		%
Properties under development (3)			217						5,500						807.6						15.0						5.3		%
Total (4)			1,301						32,453						$	8,995.3					16.2						5.9		%

(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 weighted average cash yield includes approximately $10.5 million received as settlement credits as reimbursement of free rent periods for the year ended December 31, 2022.

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 weighted 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 year ended December 31, 2022 caused any one client to be 10% or more of our total assets at December 31, 2022.

(3)Includes five U.K. development properties that represent an investment of £40.9 million during the year ended December 31, 2022, converted at the applicable exchange rate on the funding date.

(4)Our clients occupying the new properties are 71.4% retail, 19.1% gaming, 6.5% industrial and 3.0% other property types (including 2.7% agricultural and 0.3% office) based on rental revenue. Approximately 23% of the rental revenue generated from acquisitions during the year ended December 31, 2022 is from our investment grade rated clients, their subsidiaries or affiliated companies.

The acquisitions during the year ended December 31, 2022, which had no associated contingent consideration, were allocated as follows (in millions):

Year ended December 31, 2022			Acquisitions - USD (1)						Acquisitions - Sterling															Acquisitions - Euro
Land (2)			$	1,568.6					£	640.5														€	118.0
Buildings and improvements			3,853.6						663.0															156.8
Lease intangible assets (3)			458.6						247.8															51.1
Other assets (4)			634.1						203.0															5.4
Lease intangible liabilities (5)			(94.9)						(60.1)															—
Other liabilities (6)			(46.0)						(4.9)															—
			$	6,374.0					£	1,689.3														€	331.3

(1)Included in USD-denominated acquisitions was an investment of $1.7 billion into a single property in the gaming industry. The acquisition was allocated as (i) $419.5 million to land, (ii) $1.28 billion to buildings and improvements, (iii) $13.2 million of right-of-use assets accounted for as operating leases included in 'Other assets' and (iv) $9.3 million of lease liabilities under operating leases included in 'Other liabilities'.

(2)Sterling-denominated land includes £42.5 million of right of use assets under long-term ground leases.

(3)The weighted average amortization period for acquired lease intangible assets is 11.6 years.

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(4)USD-denominated other assets consists of $585.7 million of financing receivables with above-market terms and $32.8 million of right-of-use assets accounted for as finance leases, and $15.6 million of right of use assets under ground leases. Sterling-denominated other assets consists of £12.2 million of financing receivables with above-market terms, £188.4 million of right-of-use assets accounted for as finance leases and £2.4 million of right-of-use assets accounted for as operating leases. Euro-denominated other assets consists entirely of financing receivables with above-market terms.

(5)The weighted average amortization period for acquired lease intangible liabilities is 14.2 years.

(6)USD-denominated other liabilities consists of $28.0 million of deferred rent on certain below-market leases, $11.5 million of lease liabilities under ground leases, and $8.6 million of lease liabilities under financing leases. Sterling-denominated other liabilities consists of £2.4 million of lease liabilities under operating leases and £2.5 million of deferred rent on certain below-market leases.

The properties acquired during the year ended December 31, 2022 generated total revenues of $211.3 million and net income of $79.0 million during the year ended December 31, 2022.

Below is a summary of our acquisitions for the year ended December 31, 2021 (information is unaudited and excludes properties assumed on November 1, 2021 in conjunction with our merger with VEREIT):

			Number of Properties						Leasable Square Feet (in thousands, unaudited)						Investment ($ in millions)						Weighted Average Lease Term (Years)						Initial Weighted Average Cash Lease Yield (1)
Year ended December 31, 2021 (2)
Acquisitions - U.S.			714						14,727						$	3,608.6					14.1						5.5		%
Acquisitions - Europe			129						9,196						2,558.9						11.6						5.5		%
Total acquisitions			843						23,923						$	6,167.5					13.1						5.5		%
Properties under development (3)			68						2,682						243.3						15.7						6.0		%
Total (4)			911						26,605						$	6,410.8					13.2						5.5		%

(1)Contractual net operating income used in the calculation of initial weighted average cash yield includes approximately $8.5 million received as settlement credits as reimbursement of free rent periods for the year ended December 31, 2021.

(2)None of our investments during the year ended December 31, 2021 caused any one client to be 10% or more of our total assets at December 31, 2021.

(3)Includes one U.K. development property that represents an investment of £7.0 million during the year ended December 31, 2021, converted at the applicable exchange rate on the funding date.

(4) Our clients occupying the new properties are 83.6% retail and 16.4% industrial, based on rental revenue. Approximately 40% of the rental revenue generated from acquisitions during the year ended December 31, 2021, was from investment grade rated clients, their subsidiaries or affiliated companies.

The acquisitions during the year ended December 31, 2021, which had no associated contingent consideration, were allocated as follows (in millions):

Year ended December 31, 2021			Acquisitions - USD						Acquisitions - Sterling						Acquisitions - Euro
Land (1)			$	1,054.4					£	438.9					€	106.2
Buildings and improvements			1,802.6						888.0						173.4
Lease intangible assets (2)			547.8						248.9						34.9
Other assets (3)			530.2						40.4						21.9
Lease intangible liabilities (4)			(91.6)						(7.1)						—
Other liabilities (5)			(127.6)						(0.3)						(16.0)
			$	3,715.8					£	1,608.9					€	320.4

(1) Sterling-denominated land includes £8.2 million of right of use assets under long-term ground leases.

(2) The weighted average amortization period for acquired lease intangible assets is 12.7 years.

(3) USD-denominated other assets consists of $179.7 million of financing receivables with above-market terms, $85.0 million of right-of-use assets accounted for as finance leases, $5.8 million in investments in sales-type leases, and $259.7 million of right of use assets under ground leases. Sterling-denominated other assets consists of £7.2 million of financing receivables with above-market terms and £33.2 million of right-of-use assets accounted for as finance leases. Euro-denominated other assets consists entirely of financing receivables with above-market terms.

(4) The weighted average amortization period for acquired lease intangible liabilities is 15.9 years.

(5) USD-denominated other liabilities consists of $26.9 million of deferred rent on certain below-market leases, $67.4 million of lease liabilities under ground leases and $33.3 million of lease liabilities under financing leases. Sterling-denominated other liabilities consists entirely of a mortgage premium. Euro-denominated other liabilities consists entirely of deferred rent on certain below-market leases.

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The properties acquired during the year ended December 31, 2021, which were all accounted for as asset acquisitions, generated total revenues of $136.6 million and net income of $25.8 million during the year ended December 31, 2021.

B.    Investments in Existing Properties

During the year ended December 31, 2022, we capitalized costs of $96.7 million on existing properties in our portfolio, consisting of $88.3 million for non-recurring building improvements, $5.2 million for re-leasing costs, and $3.2 million for recurring capital expenditures. In comparison, during the year ended December 31, 2021, we capitalized costs of $21.9 million on existing properties in our portfolio, consisting of $14.6 million for non-recurring building improvements, $6.3 million for re-leasing costs, and $1.0 million for recurring capital expenditures.

C.    Properties with Existing Leases

The value of the in-place and above-market leases is recorded to 'Lease intangible assets, net' on our consolidated balance sheets, and the value of the below-market leases is recorded to 'Lease intangible assets, net' on our consolidated balance sheets.

The values of the in-place leases are amortized as depreciation and amortization expense. The amounts amortized to expense for all of our in-place leases, for the years ended December 31, 2022, 2021 and 2020 were $634.9 million, $247.5 million, and $134.6 million, respectively.

The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue in the consolidated statements of income and comprehensive income. The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for the years ended December 31, 2022, 2021 and 2020 were $111.7 million, $54.6 million, and $30.9 million, respectively. If a lease was to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense, as appropriate.

The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at December 31, 2022 (dollars in thousands):

			Net increase (decrease) to rental revenue						Increase to amortization expense
2023			$	(56,782)					$	589,541
2024			(50,525)						522,895
2025			(43,963)						451,177
2026			(36,100)						402,028
2027			(27,926)						348,289
Thereafter			341,053						1,600,757
Totals			$	125,757					$	3,914,687

D.    Gain on Sales of Real Estate

The following table summarizes our properties sold during the periods indicated below, excluding our proportionate share of net proceeds from the disposition of properties by our unconsolidated industrial partnerships for 2022 and 2021 and the properties disposed from the spin-off of office properties to Orion in November 2021 (dollars in millions):

									Years ended December 31,
															2022						2021						2020
Number of properties															168						154						126
Net sales proceeds															$	434.9					$	250.3					$	262.5
Gain on sales of real estate															$	102.7					$	55.8					$	76.2

These property sales do not represent a strategic shift that will have a major effect on our operations and financial results, and therefore do not require presentation as discontinued operations.

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E.    Investment in Unconsolidated Entities

The following is a summary of our investments in unconsolidated entities as of December 31, 2022 (in thousands):

			Ownership % (1)						Number of Properties						Carrying Amount of Investment as of									Equity in income and impairment of investment in unconsolidated entities for the year ended(2)
Investment(2)			As of December 31, 2022												December 31, 2022			December 31, 2021						December 31, 2022			December 31, 2021			December 31, 2020
Industrial Partnerships			20		%				—						$	—		$	140,967					$	(6,448)		$	1,106		$	—

(1) Our ownership interest reflects legal ownership interest. Legal ownership may, at times, not equal our economic interest in the listed properties because of various provisions in certain entity agreements regarding capital contributions, distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns. As a result, our actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with legal ownership interests.

(2) All seven assets held by our industrial partnerships were sold during the year ended December 31, 2022. As the portion of the net proceeds applied to our investment basis that we expected to receive at closing was less than our $121.4 million carrying amount of investment in unconsolidated entities, we recognized an other than temporary impairment of $8.5 million during the year ended December 31, 2022. The other than temporary impairments are included in 'Equity in income and impairment of investment in unconsolidated entities' in the consolidated statements of income and comprehensive income for the periods presented.

As a result of the merger with VEREIT, we assumed a preferred equity interest in the development of one distribution center for which we were entitled to receive a cumulative preferred return of 9% per year on the initial contribution of $22.8 million along with a share in the profit earned in the event of the sale of the property to a third party. Under the acquisition method of accounting, this preferred equity interest was adjusted to its fair value of $38.1 million at the time of the merger. During December 2021, the distribution center was sold to a third party and we received proceeds of $38.3 million and recorded a $0.2 million gain on disposition.

The aggregate debt outstanding for unconsolidated entities was $431.8 million as of December 31, 2021, all of which was non-recourse to us with limited customary exceptions that varied from loan to loan. There was no aggregate debt outstanding as of December 31, 2022, as all seven properties owned by our industrial partnerships were sold during the year ended December 31, 2022, and the debt underlying each of the seven properties was either defeased or prepaid in connection with the sales.

Each of us and our unconsolidated entity partners were subject to the provisions of the applicable entity agreements for our unconsolidated partnerships, which included provisions for when additional contributions might be required to fund certain cash shortfalls.

A.    Credit Facility

We have a $4.25 billion unsecured revolving multicurrency credit facility that matures in June 2026, includes two six-month extensions that can be exercised at our option, and allows us to borrow in up to 14 currencies, including U.S dollars. Our revolving credit facility also has a $1.0 billion expansion option, which is subject to obtaining lender commitments. Under our revolving credit facility, our current investment grade credit ratings provide for financing on USD 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, 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, and Euro Borrowings at one-month Euro Interbank Offered Rate (“EURIBOR”), plus 0.725%, and a revolving credit facility fee of 0.125%, for all-in pricing of 0.85% over one-month EURIBOR.

As of December 31, 2022, credit facility origination costs of $17.2 million are included in other assets, net, as compared to $4.4 million at December 31, 2021, on our consolidated balance sheets. These costs are being amortized over the remaining term of our revolving credit facility.

As of December 31, 2022, we had a borrowing capacity of $2.2 billion available on our revolving credit facility (subject to customary conditions to borrowing) and an outstanding balance of $2.0 billion, comprised of €1.8 billion Euro and £70.0 million Sterling borrowings, as compared to an outstanding balance at December 31, 2021 of $650.0 million, consisting entirely of USD borrowings.

The weighted average interest rate on outstanding borrowings under our revolving credit facility was 1.8% during the year ended December 31, 2022, and 0.9% during the year ended December 31, 2021. At December 31, 2022, our weighted average interest rate on borrowings outstanding under our revolving credit facility was 2.6%. Our

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revolving credit facility is subject to various leverage and interest coverage ratio limitations, and at December 31, 2022, we were in compliance with the covenants under our revolving credit facility.

B.    Commercial Paper Programs

During July 2022, our USD-denominated unsecured commercial paper program was amended to increase the maximum aggregate amount of outstanding notes from $1.0 billion to $1.5 billion. Also during July 2022, we 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 in USD or various 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 market.

The commercial paper ranks on a parity in right of payment with all of our other unsecured senior indebtedness outstanding from time to time, including borrowings under our revolving credit facility, our term loans and our outstanding senior unsecured notes. Proceeds from commercial paper borrowings are used for general corporate purposes.

In October 2018, in conjunction with entering into our current revolving credit facility, we entered into a $250.0 million senior unsecured term loan, which matures in March 2024. Prior to April 2022, borrowing under this term loan bore interest at the current one-month London Inter-Bank Offered Rate (“LIBOR”), plus 0.85%. In connection with entering into our new unsecured credit facility in April 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 daily SOFR through June 30, 2022. As of December 31, 2022, the effective interest rate on this term loan, after giving effect to the interest rate swap, was 3.83%.

At December 31, 2022, deferred financing costs of $0.2 million are included net of the term loan principal balance, as compared to $0.4 million at December 31, 2021, on our consolidated balance sheets. These costs are being amortized over the remaining term of the term loan.

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In September 2021, we completed the early redemption on $12.5 million in principal of a mortgage due June 2032, plus accrued and unpaid interest. In October 2021, we completed the early redemption on $9.6 million in principal of a mortgage due June 2022, plus accrued and unpaid interest. As a result of the early redemptions in September and October of 2021, we recognized total losses of $4.3 million on extinguishment of debt during the year ended December 31, 2021. There were no comparable mortgage redemptions during the years ended December 31, 2022 or 2020.

Our mortgages contain customary covenants, such as limiting our ability to further mortgage each applicable property or to discontinue insurance coverage without the prior consent of the lender. At December 31, 2022, we were in compliance with these covenants.

The balance of our deferred financing costs, which are classified as part of 'Mortgages payable, net', on our consolidated balance sheets, was $0.8 million at December 31, 2022 and 2021, respectively. These costs are being amortized over the remaining term of each mortgage.

The following table summarizes our mortgages payable as of December 31, 2022 and 2021 (dollars in thousands):

As Of			Number of Properties (1)						Weighted Average Stated Interest Rate (2)						Weighted Average Effective Interest Rate (3)						Weighted Average Remaining Years Until Maturity						Remaining Principal Balance						Unamortized Premium and Deferred Financing Costs Balance, net						Mortgage Payable Balance
December 31, 2022			136						4.8		%				3.3		%				1.4						$	842,343					$	11,582					$	853,925
December 31, 2021			267						4.8		%				3.5		%				1.8						$	1,114,129					$	27,866					$	1,141,995

(1)At December 31, 2022, there were 18 mortgages on 136 properties. At December 31, 2021, there were 22 mortgages on 267 properties. With the exception of one Sterling-denominated mortgage which is paid quarterly, the mortgages require monthly payments with principal payments due at maturity. At December 31, 2022 and December 31, 2021, all mortgages were at fixed interest rates.

(2) Stated interest rates ranged from 3.0% to 6.9% at December 31, 2022 and 2021, respectively.

(3) Effective interest rates ranged from 2.7% to 6.6% and 2.6% to 6.0% at December 31, 2022 and 2021, respectively.

The following table summarizes the maturity of mortgages payable, excluding net premiums of $12.4 million and deferred financing costs of $0.8 million as of December 31, 2022 (dollars in millions):

Year of Maturity						Principal
2023						$	22.0
2024						740.5
2025						42.0
2026						12.0
2027						22.3
Thereafter						3.5
Totals						$	842.3

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A.    General

Our senior unsecured notes and bonds are USD-denominated and Sterling-denominated. Foreign denominated notes are converted at the applicable exchange rate on the balance sheet date. The following are sorted by maturity date (in millions):

			Principal Amount (Currency Denomination)						Carrying Value (USD) as of December 31,
									2022						2021
4.600% notes, $500 issued February 2014, of which $485 was exchanged in November 2021, both due in February 2024 (1)			$	500					$	500					$	500
3.875% notes, issued in June 2014 and due in July 2024			$	350					350						350
3.875% notes, issued in April 2018 and due in April 2025			$	500					500						500
4.625% notes, $550 issued October 2018, of which $544 was exchanged in November 2021, both due in November 2025 (1)			$	550					550						550
0.750% notes, issued December 2020 and due in March 2026			$	325					325						325
4.875% notes, $600 issued June 2016, of which $596 was exchanged in November 2021, both due in June 2026 (1)			$	600					600						600
4.125% notes, $250 issued in September 2014 and $400 issued in March 2017, both due in October 2026			$	650					650						650
1.875% notes, issued in January 2022 and due in January 2027			£	250					301						—
3.000% notes, issued in October 2016 and due in January 2027			$	600					600						600
1.125% notes, issued in July 2021 and due in July 2027			£	400					482						541
3.950% notes, $600 issued August 2017, of which $594 was exchanged in November 2021, both due in August 2027 (1)			$	600					600						600
3.650% notes, issued in December 2017 and due in January 2028			$	550					550						550
3.400% notes, $600 issued June 2020, of which $598 was exchanged in November 2021, both due in January 2028 (1)			$	600					600						600
2.200% notes, $500 issued November 2020, of which $497 was exchanged in November 2021, both due in June 2028 (1)			$	500					500						500
3.250% notes, issued in June 2019 and due in June 2029			$	500					500						500
3.100% notes, $600 issued December 2019, of which $596 was exchanged in November 2021, both due in December 2029 (1)(2)			$	599					599						599
3.160% notes, issued in June 2022 and due in June 2030			£	140					169						—
1.625% notes, issued in October 2020 and due December 2030			£	400					482						541
3.250% notes, $600 issued in May 2020 and $350 issued in July 2020, both due in January 2031			$	950					950						950
3.180% notes, issued in June 2022 and due in June 2032			£	345					416						—
5.625% notes, issued in October 2022 and due in October 2032			$	750					750						—
2.850% notes, $700 issued November 2020, of which $699 was exchanged in November 2021, both due in December 2032 (1)			$	700					700						700
1.800% notes, issued in December 2020 and due in March 2033			$	400					400						400
1.750% notes, issued in July 2021 and due in July 2033			£	350					422						474
2.730% notes, issued in May 2019 and due in May 2034			£	315					379						427
5.875% bonds, $100 issued in March 2005 and $150 issued in June 2011, both due in March 2035			$	250					250						250
3.390% notes, issued in June 2022 and due in June 2037			£	115					138						—
2.500% notes, issued in January 2022 and due in January 2042			£	250					301						—
4.650% notes, $300 issued in March 2017 and $250 issued in December 2017, both due in March 2047			$	550					550						550
Total principal amount									$	14,114					$	12,257
Unamortized net premiums and deferred financing costs									164						243
									$	14,278					$	12,500

(1) Carrying Value (USD) includes the portion of the VEREIT OP notes that remained outstanding, totaling $39.1 million in the aggregate at December 31, 2022 and 2021, that were not exchanged in the exchange offers commenced by us with respect to the outstanding bonds of 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 of 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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The following table summarizes the maturity of our notes and bonds payable as of December 31, 2022, excluding net unamortized premiums of $224.6 million and deferred financing costs of $60.7 million (dollars in millions):

Year of Maturity						Principal
2024						$	850
2025						1,050
2026						1,575
2027						1,983
Thereafter						8,656
Totals						$	14,114

As of December 31, 2022, the weighted average interest rate on our notes and bonds payable was 3.4% and the weighted average remaining years until maturity was 7.2 years.

Interest incurred on all of the notes and bonds was $431.3 million, $286.4 million, and $252.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Our outstanding notes and bonds are unsecured; accordingly, we have not pledged any assets as collateral for these or any other obligations. Interest on our £400 million of 1.625% senior unsecured notes issued in October 2020, our £400 million of 1.125% senior unsecured notes issued in July 2021, our £350 million of 1.750% senior unsecured notes also issued in July 2021, our £250 million of 1.875% senior unsecured notes issued in January 2022, and £250 million of 2.500% senior unsecured notes also issued in January 2022 is paid annually. Interest on our remaining senior unsecured note and bond obligations is paid semiannually.

All of these notes and bonds contain various covenants, including: (i) a limitation on incurrence of any debt which would cause our debt to total adjusted assets ratio to exceed 60%; (ii) a limitation on incurrence of any secured debt which would cause our secured debt to total adjusted assets ratio to exceed 40%; (iii) a limitation on incurrence of any debt which would cause our debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of total unencumbered assets not less than 150% of our outstanding unsecured debt. At December 31, 2022, we were in compliance with these covenants.

B.    Note Repayments

We redeemed the following principal amounts (in millions) of certain outstanding notes, prior to their maturity. As a result of these early redemptions, we recognized the following losses on extinguishment of debt (in millions) in the consolidated statements of income and comprehensive income. There were no comparable repayments for the year ended December 31, 2022.

												Loss on Extinguishment of Debt
2021 Repayments						Principal Amount (1)						Amount of Loss						Period Recognized
4.650% notes due August 2023 redeemed in December 2021						$	750.0					$	46.4					December 31, 2021
3.250% notes due October 2022 redeemed in January 2021						$	950.0					$	46.5					March 31, 2021
2020 Repayments
5.750% notes due January 2021 redeemed in January 2020						$	250.0					$	9.8					March 31, 2020

(1) The redeemed principal amounts presented exclude the amounts we paid in accrued and unpaid interest.

C.    Note Issuances

During the years ended December 31, 2022, 2021, and 2020 we issued the following notes and bonds (in millions):

2022 Issuances			Date of Issuance						Maturity Date						Principal amount used						Price of par value						Effective yield to maturity
1.875% Notes			January 2022						January 2027						£	250					99.487		%				1.974		%
2.500% Notes			January 2022						January 2042						£	250					98.445		%				2.584		%
3.160% Notes			June 2022						June 2030						£	140					100.000		%				3.160		%
3.180% Notes			June 2022						June 2032						£	345					100.000		%				3.180		%
3.390% Notes			June 2022						June 2037						£	115					100.000		%				3.390		%
5.625% Notes			October 2022						October 2032						$	750					99.879		%				5.641		%

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2021 Issuances			Date of Issuance						Maturity Date						Principal amount used						Price of par value						Effective yield to maturity
1.125% Notes			July 2021						July 2027						£	400					99.305		%				1.242		%
1.750% Notes			July 2021						July 2033						£	350					99.842		%				1.757		%
4.600% Notes(1)			November 2021						February 2024						$	485					100.000		%				4.600		%
4.625% Notes(1)			November 2021						November 2025						$	544					100.000		%				4.625		%
4.875% Notes(1)			November 2021						June 2026						$	596					100.000		%				4.875		%
3.950% Notes(1)			November 2021						August 2027						$	594					100.000		%				3.950		%
3.400% Notes(1)			November 2021						January 2028						$	598					100.000		%				3.400		%
2.200% Notes(1)			November 2021						June 2028						$	497					100.000		%				2.200		%
3.100% Notes(1)			November 2021						December 2029						$	596					100.000		%				3.100		%
2.850% Notes(1)			November 2021						December 2032						$	699					100.000		%				2.850		%

2020 Issuances						Date of Issuance						Maturity Date						Principal amount used						Price of par value						Effective yield to maturity
3.250% Notes (2)						May 2020						January 2031						$	600					98.99		%				3.364		%
3.250% Notes (2)						July 2020						January 2031						$	350					108.24		%				2.341		%
1.625% Notes						October 2020						December 2030						£	400					99.19		%				1.712		%
0.750% Notes						December 2020						March 2026						$	325					99.19		%				0.908		%
1.800% Notes						December 2020						March 2033						$	400					98.47		%				1.941		%

(1) In connection with our merger with VEREIT, we completed our debt exchange offer to exchange all outstanding notes issued by VEREIT OP on November 9, 2021 for notes of identical terms issued by Realty Income, pursuant to which approximately 99.2% of the outstanding notes issued by VEREIT OP were exchanged. We issued $1,000 principal amount of Realty Notes for each validly tendered VEREIT Notes with $1,000 principal amount. For this reason, we denote our “Price of par value” as 100%. Prior to the completion of our merger with VEREIT on November 1, 2021, these notes were not the obligation of Realty Income. With respect to the notes originally issued by VEREIT OP that remained outstanding, we amended the indenture governing such notes to, among other things, eliminate substantially all of the restrictive covenants in such indenture.

To induce holders of the VEREIT OP notes to participate in the exchange, Realty Income offered noteholders electing to exchange their notes a cash payment equal to 10 basis points of the note principal amount held. This resulted in a cash payment of $4.6 million to participating noteholders. The exchange was accounted for as a modification of the existing VEREIT OP notes assumed in our merger with VEREIT. With respect to the notes originally issued by VEREIT OP that remained outstanding, we amended the indenture governing such notes to, among other things, eliminate substantially all of the restrictive covenants in such indenture.

(2) In July 2020, we issued $350.0 million of 3.250% senior unsecured notes due January 2031 (the "2031 Notes"), which constituted a further issuance of, and formed a single series with, the $600.0 million of 2031 Notes issued in May 2020.

The proceeds from each of these offerings were used to repay borrowings outstanding under our credit facility, to fund investment opportunities, and for other general corporate purposes.

In January 2023, we issued $500 million of 5.05% senior unsecured notes due January 2026 and $600 million of 4.85% senior unsecured notes due March 2030. See note 19, Subsequent Events for further details.

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A.    Issuance of Common Stock in Connection with VEREIT Acquisition

On November 1, 2021, we completed our acquisition of VEREIT. As a result of the merger, former VEREIT common stockholders, VEREIT OP common unitholders and awardees of vested share awards separated from Realty Income and received approximately 162 million shares of Realty Income common stock, based on the shares of VEREIT common stock and common units of VEREIT OP outstanding as of October 29, 2021. For further details, please refer to note 3, Merger with VEREIT, Inc. and Orion Office REIT Inc. Divestiture.

B.    Issuances of Common Stock in Underwritten Public Offerings

In July 2021, we issued 9,200,000 shares of common stock, including 1,200,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After deducting underwriting discounts of $2.9 million, the net proceeds of $594.1 million were primarily used to repay borrowings under our commercial paper programs, to fund potential investment opportunities and for other general corporate purposes.

In January 2021, we issued 12,075,000 shares of common stock, including 1,575,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After deducting underwriting discounts of $19.3 million, the net proceeds of $669.6 million were used to fund property acquisitions, for general corporate purposes and working capital.

In March 2020, we issued 9,690,500 shares of common stock, including 690,500 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. The net proceeds of $728.9 million were used to repay borrowings under our credit facility, to fund investment opportunities, and for other general corporate purposes.

There were no comparative offerings during the year ended December 31, 2022.

C.    At-the-Market ("ATM") Program

In June 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 "at-the-market" equity distribution program, or our ATM 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 under the ticker symbol "O" at prevailing market prices or at negotiated prices. After deducting 6,744,884 shares sold pursuant to forward sale confirmations that remained open at December 31, 2022, we had 70,620,121 additional 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.

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The following table outlines common stock issuances pursuant to our ATM programs (dollars in millions):

									Years ended December 31,
															2022						2021						2020
Shares of common stock issued under the ATM program(1)															68,608,176						46,290,540						17,724,374
Gross proceeds															$	4,599.4					$	3,207.9					$	1,094.9
Sales agents' commissions															(34.3)						(27.3)						(14.6)
Other offering expenses															(9.1)						(1.1)						(0.4)
Net proceeds															$	4,556.0					$	3,179.5					$	1,079.9

(1)  During the year ended December 31, 2022, 65,279,851 shares were sold and 58,534,967 settled pursuant to forward sale confirmations. In addition, as of December 31, 2022, 6,744,884 shares of common stock subject to forward sale confirmations have been executed at a weighted average initial price of $63.31 per share but not settled. Upon settlement, subject to certain exceptions, we may elect, in our sole discretion, to cash settle or net share settle all or any portion of our obligations under any forward sale agreement, in which cases we may not receive any proceeds (in the case of cash settlement) or will not receive any proceeds (in the case of net share settlement), and we may owe cash (in the case of cash settlement) or shares of our common stock (in the case of net share settlement) to the relevant forward purchaser. We currently expect to fully physically settle any forward sale agreement with the respective forward purchaser on one or more dates specified by us on or prior to the maturity date of such forward sale agreement, in which case we expect to receive aggregate net cash proceeds at settlement equal to the number of shares specified in such forward sale agreement multiplied by the relevant forward price per share. We currently expect to fully settle the outstanding forward sale agreements during the three months ended March 31, 2023, representing $0.4 billion in net proceeds, for which the weighted average forward price at December 31, 2022 was $62.59 per share. Our forward sale confirmations are accounted for as equity instruments, as we have determined the agreements meet the derivatives and hedging guidance scope exception. No shares were sold pursuant to forward sale confirmations during years ended December 31, 2021 and 2020.

D.    Dividend Reinvestment and Stock Purchase Plan ("DRSPP")

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. At December 31, 2022, we had 11,159,825 shares remaining for future issuance under our DRSPP program.

The following table outlines common stock issuances pursuant to our DRSPP program (dollars in millions):

									Years ended December 31,
															2022						2021						2020
Shares of common stock issued under the DRSPP program															175,554						168,000						149,289
Gross proceeds															$	11.7					$	11.2					$	9.1

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 years ended December 31, 2022, 2021 or 2020.

There are four entities with noncontrolling interests that we consolidate, including an operating partnership, Realty Income, L.P., a joint venture acquired in December 2019, and two development joint ventures, one acquired in December 2020 and one acquired in May 2021.

In November 2021, we issued 300,604 common partnership units in Realty Income, L.P. in connection with the acquisition of seven properties and recorded $20.4 million of noncontrolling interests. In December 2021, we issued 240,586 common partnership units in Realty Income, L.P. in connection with the acquisition of one property and recorded $16.6 million of noncontrolling interests. In November 2021 we issued 56,400 of common partnership units in Realty Income, L.P. in exchange for VEREIT OP units in connection with our merger with VEREIT and recorded noncontrolling interests of $1.8 million. In addition, during September 2022, we issued 734,458 common partnership units in Realty Income, L.P. in connection with the acquisition of nine properties and recorded $51.2 million of contributions to noncontrolling interests. At December 31, 2022, outstanding common partnership units in Realty Income, L.P. represented 6.9% ownership interest in Realty Income L.P. We hold the remaining 93.1% interest and consolidate the entity.

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None of our common partnership units have voting rights. Common partnership units are entitled to monthly distributions equal to the amount paid to common stockholders of Realty Income, and are redeemable in cash or Realty Income common stock, at our option, and at a conversion ratio of 1.02934 due to the Orion Divestiture, subject to certain exceptions. Prior to the Orion Divestiture, the conversion ratio was one to one. These issuances with redemption provisions that permit the issuer to settle in either cash or common stock, at the option of the issuer, were evaluated to determine whether temporary or permanent equity classification on the balance sheet was appropriate. We determined that the units meet the requirements to qualify for presentation as permanent equity.

In May 2021 and December 2020, we completed the respective acquisition of a development property by acquiring a controlling interest in a joint venture. We are the managing member of these two joint ventures, and possess the ability to control the business and manage the affairs of these entities. At December 31, 2022, we and our subsidiaries held an 89.6% interest in the joint venture established in May 2021 and an 94.5% interest in the joint venture established in December 2020.

In December 2019, we completed the acquisition of nine properties by acquiring a controlling interest in a joint venture. We are the managing member of this joint venture and possess the ability to control the business and manage the affairs of this entity. At December 31, 2022, we and our subsidiaries held an 89.9% interest, and consolidated this entity in our consolidated financial statements.

The following table represents the change in the carrying value of all noncontrolling interests through December 31, 2022 (dollars in thousands):

			Realty Income, L.P. units (1)						Other Noncontrolling Interests						Total
Carrying value at December 31, 2020			$	24,100					$	8,147					$	32,247
Contributions			36,975						6,415						43,390
Issued in merger			3,160						—						3,160
Orion divestiture			(1,352)						—						(1,352)
Reallocation of equity			(42)						—						(42)
Distributions			(1,574)						(294)						(1,868)
Allocation of net income			1,149						142						1,291
Carrying value at December 31, 2021			$	62,416					$	14,410					$	76,826
Contributions			51,221						—						51,221
Distributions			(3,818)						(307)						(4,125)
Allocation of net income			2,772						236						3,008
Reallocation of equity			3,210						—						3,210
Carrying value at December 31, 2022			$	115,801					$	14,339					$	130,140

(1)  In September 2022, we issued 734,458 common partnership units in Realty Income, L.P. in connection with the acquisition of nine properties and recorded $51.2 million of contributions to noncontrolling interests. 1,795,167 and 1,060,709 units were outstanding as of December 31, 2022 and 2021, respectively.

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

ASC 820, Fair Value Measurements and Disclosures, sets forth a fair value hierarchy that categorizes inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs. Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

•Level 1 – Unadjusted quoted prices in active markets

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Financial instruments are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis.

•Level 2 – Valuation Technique Using Observable Inputs

Financial instruments classified as Level 2 are valued using quoted prices for identical instruments in markets that are not considered to be active, or quoted prices for similar assets or liabilities in active markets, or valuation techniques in which all significant inputs are observable or can be corroborated by observable market data for substantially the entire contractual term of the financial asset or liability.

•Level 3 – Valuation Technique Using Significant Unobservable Inputs

Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). Such inputs are generally determined based on observable inputs of a similar nature, historical observations on the level of the inputs, or other analytical techniques.

We evaluate our hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from period to period. Changes in the type of inputs may result in a reclassification for certain assets. We have not historically had changes in classifications and do not expect that changes in classifications between levels will be frequent.

A.    Financial Instruments Not Measured at Fair Value on the Consolidated Balance Sheets

The fair value of short-term financial instruments such as cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, accounts payable, distributions payable, line of credit payable and commercial paper borrowings, and other liabilities approximate their carrying value in the accompanying consolidated balance sheets, due to their short-term nature. The fair value of our $250 million term loan approximates carrying value due to the frequent repricing of the variable interest rate charged on the borrowing, which is based on the daily SOFR. The fair value of our financial instruments not carried at fair value are disclosed as follows (in millions):

December 31, 2022			Carrying value						Estimated fair value
Mortgages payable assumed in connection with acquisitions (1)			$	842.3					$	810.4
Notes and bonds payable (2)			$	14,114.2					$	12,522.8

December 31, 2021			Carrying value						Estimated fair value
Mortgages payable assumed in connection with acquisitions (1)			$	1,114.1					$	1,154.7
Notes and bonds payable (2)			$	12,257.3					$	13,114.5

(1)Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums was $12.4 million at December 31, 2022, and $28.7 million at December 31, 2021. Also excludes deferred financing costs of $0.8 million at December 31, 2022, and $0.8 million at December 31, 2021.

(2)Excludes non-cash premiums and discounts recorded on notes payable. The unamortized balance of the net premiums was $224.6 million at December 31, 2022, and $295.5 million at December 31, 2021. Also excludes deferred financing costs of $60.7 million at December 31, 2022, and $53.1 million at December 31, 2021.

The estimated fair values of our mortgages payable assumed in connection with acquisitions and private senior notes payable have been calculated by discounting the future cash flows using an interest rate based upon the relevant forward interest rate curve, plus an applicable credit-adjusted spread. Because this methodology includes unobservable inputs that reflect our own internal assumptions and calculations, the measurement of estimated fair values related to our mortgages payable is categorized as level three on the three-level valuation hierarchy.

The estimated fair values of our publicly-traded senior notes and bonds payable are based upon indicative market prices and recent trading activity of our senior notes and bonds payable. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values related to our notes and bonds payable is categorized as level two on the three-level valuation hierarchy.

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B.    Financial Instruments Measured at Fair Value on a Recurring Basis

For derivative assets and liabilities, we may utilize interest rate swaps and forward-starting swaps to manage interest rate risk, and cross-currency swaps, currency exchange swaps, foreign currency forwards and foreign currency collars to manage foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, spot and forward rates, as well as option volatility.

Derivative fair values also include credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although we have determined that the majority of the inputs used to value our derivatives fall within level two on the three-level valuation hierarchy, the credit valuation adjustments associated with our derivatives utilize level three inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by ourselves and our counterparties. However, at December 31, 2022, and 2021, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety are classified as level two.

C.    Items Measured at Fair Value on a Non-Recurring Basis

Impairment of Real Estate Investments

Certain financial and nonfinancial assets and liabilities are measured at fair value on a non-recurring basis and are subject to fair value adjustments only under certain circumstances, such as when an impairment write-down occurs.

The impairments for the years ended December 31, 2022 and 2021 primarily relate to properties sold, in the process of being sold, or vacant.

We identify the impact of the COVID-19 pandemic as an impairment triggering event for properties occupied by certain clients experiencing difficulties meeting their lease obligations to us. After considering the impacts of the COVID-19 pandemic on the key assumptions noted above, we determined that the carrying values of 38 properties classified as held for investment for the year ended December 31, 2020 were not recoverable. As a result, we recorded provisions for impairment of $105.0 million for the year ended December 31, 2020 on the applicable properties impacted by the COVID-19 pandemic.

The following table summarizes our provisions for impairment on real estate investments during the periods indicated below (dollars in millions):

									Years ended December 31,
															2022						2021						2020
Carrying value prior to impairment															$	140.9					$	169.2					$	260.8
Less: total provisions for impairment															(25.9)						(39.0)						(147.2)
Carrying value after impairment															$	115.0					$	130.2					$	113.6

Derivative Designated as Hedging Instruments

In order to hedge the foreign currency risk associated with interest payments on intercompany loans denominated in British Pound Sterling ("GBP") and Euros, we have a hedging strategy to enter into foreign currency forward contracts to sell GBP, USD, and Euro and buy Euro, USD, and GBP. These foreign currency forwards are designated as cash flow hedges. Forward points on the forward contracts are included in the assessment of hedge effectiveness. Amounts reported in other comprehensive income (loss) related to foreign currency derivative contracts will be reclassified to other gain and (loss) in the same period during which the hedged forecasted transactions affect earnings.

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In May 2019, we entered into four cross-currency swaps to exchange £130 million for $166 million maturing in May 2034, in order to hedge the foreign currency risk associated with our Sterling-denominated intercompany loan receivable from our consolidated foreign subsidiaries. These cross-currency swaps were designated as cash flow hedges on their trade date. In June 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 was terminated and the future principal and interest associated with the prepaid intercompany loan did not occur, a $20.0 million gain was reclassified from AOCI to 'Foreign currency and derivative (loss) gain, net' during the three months ended June 30, 2022.

In October 2022, we entered into six cross-currency swaps to exchange €612 million for $600 million maturing in October 2032, in order to hedge the foreign currency risk associated with our Euro-denominated intercompany loans receivable from our consolidated foreign subsidiaries. We designated three of the six cross-currency swaps, exchanging €326 million for $320 million, as fair value hedges of foreign denominated intercompany loans receivable (the "hedged assets"). The hedged assets are eliminated in consolidation, but remeasurement gains and losses pertaining to the hedged assets impact earnings as part of 'Foreign currency and derivative (loss) gain, net'. For these hedges, we have elected to exclude the change in fair value of the cross-currency swaps related to both time value and cross currency basis spread from the assessment of hedge effectiveness (the "excluded component"). Changes in the fair value of the cross-currency swaps attributable to changes in the spot rates on the final notional exchanges and changes in the value of the hedged assets due to changes in the spot rates are recorded in 'Foreign currency and derivative (loss) gain, net'. Changes in the fair value of the cross-currency swaps attributable to the excluded components are recorded to Other comprehensive income and will be recognized in Foreign currency and derivative (loss) gain, net on a systematic and rational basis, as net cash settlements and interest accruals on the respective cross currency swaps occur, over the remaining life of the hedging instruments.

In February 2020, we entered into five forward starting treasury rate locks with notional amounts totaling $500.0 million. The treasury rate locks were entered into to hedge our exposure to the changes in the 10-year US treasury rates in anticipation of potential future debt offerings during the first half of 2020. The treasury rate locks were designated as cash flow hedges, with any changes in fair value recorded in AOCI. Upon the initial issuance of the 2031 Notes in May 2020, we amortized the AOCI balance over the term of the 2031 Notes. In June 2020, all five treasury rate locks were terminated and we entered into six forward starting interest rate swaps with notional amounts totaling $500.0 million in a cashless settlement of the terminated treasury rate locks. The forward starting swaps were entered into to hedge our exposure to the changes in the 3-month USD-LIBOR swap rate in anticipation of potential future debt offerings through a current estimated range ending in 2023. The forward starting swaps are designated as cash flow hedges, with any changes in fair value recorded in AOCI. Upon issuance of the 2031 Notes during July 2020, the AOCI balance associated with four of the forward starting swaps with a notional amount of $350.0 million we amortized over the term of the notes. However, we elected not to terminate the four forward starting interest rate swaps, and redesignated the swaps in a new hedging relationship for a future debt issuance to hedge our exposure to the changes in the 10-year US treasury rates in anticipation of potential future debt offerings between May 2020 and December 2023. Upon the December 2020 issuance of $325.0 million of 0.750% notes due March 2026 and $400.0 million of 1.800% notes due March 2033, the AOCI balance associated with six of the forward starting swaps with a notional amount of $500.0 million began amortizing over the term. The AOCI balance being amortized represents the change in fair value on four swaps with a notional amount of $350.0 million from the July issuance of the 2031 notes through the December note issuances and the change in fair value from the two remaining forward starting swaps with a notional amount of $150.0 million from their June 2020 inception through the December note issuances. The notional amounts of the six swaps were first applied to the $400.0 million of 1.800% notes due March 2033, with the remaining $100.0 million of notional applied to the $325.0 million of 0.750% notes due March 2026. In connection with our October 2022 offering of $750 million of 5.625% unsecured notes, due October 13, 2032, we terminated the six forward starting interest rate swaps. Upon the issuance of the October 2022 offering, the change in fair value on the six forward starting interest rate swaps with notional amounts totaling $500.0 million is being amortized through the AOCI balance through the term of the notes.

As of December 31, 2022, we had one interest rate swap in place on our $250.0 million unsecured term loan. Our objective in using derivatives is to add stability to interest expense and to manage our exposure to interest rate movements. We designated this interest rate swap as a cash flow hedge in accordance with Topic 815, Derivatives and Hedging. This interest rate swap is recorded on the consolidated balances sheets at fair value. Changes to fair value are recorded to accumulated other comprehensive income (loss), or AOCI, and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings. This interest

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rate swap, which was converted to a SOFR benchmark from LIBOR during June 2022, continues to be accounted for as a cash flow hedge.

The following table summarizes the amount of unrecognized gain (loss) on derivatives in other comprehensive income during the periods indicated below (in thousands):

												Years ended December 31,
Derivatives in Cash Flow Hedging Relationships																		2022						2021						2020
Currency swaps																		$	(5,091)					$	8,232					$	(2,169)
Interest rate swaps																		98,310						34,659						(32,757)
Foreign currency forwards																		8,540						7,557						—
Total derivatives in cash flow hedging relationships																		$	101,759					$	50,448					$	(34,926)
Derivatives in Fair Value Hedging Relationships
Currency swaps																		(4,705)						—						—
Total unrealized gain (loss) on derivatives																		$	97,054					$	50,448					$	(34,926)

The following table summarizes the amount of gain (loss) on derivatives reclassified from AOCI (in thousands):

																		Years ended December 31,
Derivatives in Cash Flow Hedging Relationships						Location of Gain (Loss) Recognized in Income																		2022						2021						2020
Currency swaps						Foreign currency and derivative gain (loss), net																		$	30,814					$	3,541					$	(3,617)
Interest rate swaps						Interest expense																		(4,487)						(10,343)						(11,434)
Foreign Currency Forwards						Foreign currency and derivative gain, net																		2,139						—						—
Total derivatives in cash flow hedging relationships																								$	28,466					$	(6,802)					$	(15,051)
Derivatives in Fair Value Hedging Relationships
Currency swaps						Foreign currency and derivative loss, net																		(29,708)						—						—
Net decrease to net income																								$	(1,242)					$	(6,802)					$	(15,051)

We expect to reclassify $11.9 million from AOCI as a decrease to interest expense relating to interest rate swaps and $9.8 million from AOCI to foreign currency gain relating to foreign currency forwards within the next twelve months.

Derivatives Not Designated as Hedging Instruments

We enter into foreign currency exchange swap agreements to reduce the effects of currency exchange rate fluctuations between the U.S. dollar, our reporting currency, and British Pound Sterling and Euro. These derivative contracts generally mature within one year and are not designated as hedge instruments for accounting purposes. As the currency exchange swap is not accounted for as a hedging instrument, the change in fair value is recorded in earnings through the caption entitled 'Foreign currency and derivative (loss) gain, net' in the consolidated statements of income and comprehensive income.

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The following table details our foreign currency and derivative gains (losses), net included in income (in thousands):

												Years ended December 31,
																		2022						2021						2020
Realized foreign currency and derivative gain (loss), net:
Gain (loss) on the settlement of undesignated derivatives																		$	204,392					$	24,392					$	(6,344)
Gain (loss) on the settlement of designated derivatives reclassified from AOCI																		3,245						3,541						(3,617)
Loss on the settlement of transactions with third parties																		(553)						(134)						(36)
Total realized foreign currency and derivative gain (loss), net																		$	207,084					$	27,799					$	(9,997)
Unrealized foreign currency and derivative gain (loss), net:
Gain (loss) on the change in fair value of undesignated derivatives																		$	29,316					$	(14,714)					$	(8,205)
Gain (loss) on remeasurement of certain assets and liabilities																		(249,711)						(12,375)						22,787
Total unrealized foreign currency and derivative gain (loss), net																		$	(220,395)					$	(27,089)					$	14,582
Total foreign currency and derivative gains (losses), net																		$	(13,311)					$	710					$	4,585

The following table summarizes the terms and fair values of our derivative financial instruments at December 31, 2022 and 2021 (dollars in millions):

Derivative Type			Number of Instruments (1)			Accounting Classification			Notional Amount as of						Weighted Average Strike Rate (2)			Maturity Date (3)			Fair Value - asset (liability) as of
Derivatives Designated as Hedging Instruments									December 31, 2022			December 31, 2021									December 31, 2022			December 31, 2021
Interest rate swap			1			Derivative			$	250.0		$	250.0		2.88%			March 2024			$	5.6		$	(11.9)
Cross-currency swaps (4)			3			Derivative			320.0			166.3			(5)			October 2032			(33.3)			(13.8)
Foreign currency forwards			30			Derivative			185.5			176.1			(6)			Jan 2023 - Aug 2024			16.1			7.6
Forward-starting swaps (7)			–			Derivative			–			300.0			–%						–			(3.2)
Forward-starting swaps (7)			–			Hybrid Debt			–			200.0			–%						–			(5.1)
									$	755.5		$	1,092.4								$	(11.6)		$	(26.4)
Derivatives not Designated as Hedging Instruments
Currency exchange swaps (8)			4			Derivative			$	2,427.7		$	1,639.5		(9)			January 2023			$	58.8		$	(14.7)
Cross-Currency Swaps (4)			3			Derivative			280.0			–			(5)			October 2032			(29.5)			—
Total of all Derivatives									$	3,463.2		$	2,731.9								$	17.7		$	(41.1)

(1)This column represents the number of instruments outstanding as of December 31, 2022.

(2)Weighted average strike rate is calculated using the notional value as of December 31, 2022.

(3)This column represents maturity dates for instruments outstanding as of December 31, 2022.

(4)In June 2022, we terminated four British Pound Sterling, or GBP, cross-currency swaps with a notional amount of $166.3 million. In October 2022, we entered into six cross-currency swaps to exchange €612 million for $600 million maturing in October 2032.

(5)USD fixed rate of 5.625% and EUR weighted average fixed rate of 4.697%.

(6)Weighted average forward GBP-USD exchange rate of 1.34.

(7)There were five treasury rate locks entered into during February 2020 that were terminated in June 2020 and converted into six forward starting interest rate swaps through a cashless settlement. These forward starting interest rate swaps were terminated in connection with a senior unsecured note issuance in October 2022.

(8)Represents one GBP currency exchange swap with a notional amount of $836.4 million and three Euro ("EUR"), currency exchange swaps with an associated notional amount of $1.6 billion.

(9)Weighted Average Forward EUR-GBP exchange rate of 0.86 and Weighted Average Forward EUR-USD exchange rate of 1.05.

We measure our derivatives at fair value and include the balances within other assets and accounts payable as well as accrued expenses on our consolidated balance sheets.

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At December 31, 2022, we owned or held interests in 12,237 properties. Of the 12,237 properties, 12,018, or 98.2%, are single-client properties, and the remaining are multi-client properties. At December 31, 2022, 126 properties were available for lease or sale. The majority of our leases are accounted for as operating leases.

Substantially all of our leases are net leases where our client pays or reimburses us for property taxes and assessments, maintains the interior and exterior of the building and leased premises, and carries insurance coverage for public liability, property damage, fire and extended coverage.

Rent based on a percentage of our client's gross sales, or percentage rent, for the years ended December 31, 2022, 2021, and 2020 was $14.9 million, $6.5 million, and $5.1 million, respectively.

At December 31, 2022, minimum future annual rental revenue to be received on the operating leases for the next five years and thereafter are as follows (in thousands):

						Future Minimum Operating Lease Payments						Future Minimum Direct Financing and Sale-Type Lease Payments (1)
2023						$	3,417,312					$	2,024
2024						3,314,029						1,118
2025						3,162,006						893
2026						2,987,790						894
2027						2,769,839						771
Thereafter						20,149,647						25,848
Totals						$	35,800,623					$	31,548

(1)  Related to 17 properties which are subject to direct financing leases and, therefore, revenue is recognized as rental income on the discounted cash flows of the lease payments. Amounts reflected are the cash rent on these respective properties. Two properties are subject to sales-type leases and, therefore, revenue is recognized as sales-type lease income on the discounted cash flows of the lease payments. Amounts reflected are the cash rent on these respective properties.

No individual client’s rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the years ended December 31, 2022, 2021, and 2020.

We pay monthly distributions to our common stockholders. The following is a summary of monthly distributions paid per common share for the years ended December 31, 2022, 2021, and 2020:

Month			2022						2021						2020
January			$	0.2465					$	0.2345					$	0.2275
February			0.2465						0.2345						0.2325
March			0.2465						0.2345						0.2325
April			0.2470						0.2350						0.2330
May			0.2470						0.2350						0.2330
June			0.2470						0.2350						0.2330
July			0.2475						0.2355						0.2335
August			0.2475						0.2355						0.2335
September			0.2475						0.2355						0.2335
October			0.2480						0.2360						0.2340
November			0.2480						0.2360						0.2340
December			0.2480						0.2460						0.2340
Total			$	2.9670					$	2.8330					$	2.7940

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At December 31, 2022, a distribution of $0.2485 per common share was payable and was paid in January 2023. At December 31, 2021, a distribution of $0.2465 per common share was payable and was paid in January 2022.

The following presents the federal income tax characterization of distributions paid or deemed to be paid per common share for the years:

						2022						2021						2020
Ordinary income						$	2.7867654					$	1.5146899					$	2.2798764
Nontaxable distributions						—						3.2925615						0.4902835
Total capital gain distribution (1)						0.1802346						0.0854609						0.0238401
Totals (2)						$	2.9670000					$	4.8927123					$	2.7940000

(1)  Unrecaptured Section 1250 Gain of $0.0784152, or 2.643% of the total common dividends paid in the year ended December 31, 2022, and Section 897 Gain of $0.1802346, or 6.075% of the total common dividends paid in the year ended December 31, 2022, both represent additional characterization of, and are part of, total capital gain distribution.

(2)  The amount distributed in 2021 includes the $2.060 tax distribution of Orion shares, that occurred in conjunction with the Orion Divestiture on November 12, 2021, after our merger with VEREIT on November 1, 2021. The fair market value of these shares for tax distribution was determined to be $20.6272 per share, which was calculated using the five-day volume weighted average share price after issuance.

The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation:

									Years ended December 31,
															2022						2021						2020
Weighted average shares used for the basic net income per share computation															611,765,815						414,535,283						345,280,126
Incremental shares from share-based compensation															394,579						234,563						135,132
Dilutive effect of forward ATM offerings															20,125						—						—
Weighted average shares used for diluted net income per share computation															612,180,519						414,769,846						345,415,258
Unvested shares from share-based compensation that were anti-dilutive															32,165						45,404						70,581
Weighted average partnership common units convertible to common shares that were anti-dilutive															1,292,114						500,217						463,119
Weighted average forward ATM offerings that were anti-dilutive															644,458						—						—

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The following table summarizes our supplemental cash flow information during the periods indicated below (dollars in thousands):

			Years ended December 31,
			2022						2021						2020
Supplemental disclosures:
Cash paid for interest			$	501,716					$	355,483					$	285,617
Cash paid for income taxes			$	45,031					$	19,676					$	13,128
Cash paid for merger and integration-related costs			$	22,783					$	157,115					$	—
Non-cash activities:
Net increase (decrease) in fair value of derivatives			$	58,753					$	40,489					$	(55,205)
Mortgages assumed at fair value (1)			$	45,079					$	911,525					$	—
Notes payable assumed at fair value			$	—					$	4,946,965					$	—
Issuance of common partnership units of Realty Income, L.P. (2)			$	51,221					$	38,783					$	—
Non-cash assets and liabilities assumed in merger			$	—					$	11,559,875					$	—
Non-cash assets and liabilities distributed in Orion Divestiture			$	—					$	1,142,121					$	—

(1) For the year ended December 31, 2021, includes £31.0 million sterling, converted at the applicable exchange rate on the date of transaction, for one mortgage and $869.1 million, estimated at fair value, for ten mortgages from our merger with VEREIT.

(2) For the year ended December 31, 2022, includes 734,458 common partnership units of Realty Income L.P. that were issued in connection with the acquisition of nine properties. For the year ended December 31, 2021, includes $1.8 million for the issuance of 56,400 units on November 1, 2021 that were a result of our merger with VEREIT, $20.4 million for the issuance of 300,604 units on November 30, 2021 that were a partial consideration for an acquisition of properties, and $16.6 million for the issuance of 240,586 units on December 30, 2021 that were issued to a new partner in connection with an industrial property contribution.

The following table provides a reconciliation of cash and cash equivalents reported within the consolidated balance sheets to the total of the cash, cash equivalents and restricted cash reported within the consolidated statements of cash flows (dollars in thousands):

			December 31, 2022						December 31, 2021
Cash and cash equivalents shown in the consolidated balance sheets			$	171,102					$	258,579
Restricted escrow deposits (1)			37,627						68,541
Impounds related to mortgages payable (1)			18,152						5,249
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows			$	226,881					$	332,369

(1)  Included within other assets, net on the consolidated balance sheets (see note 4, Supplemental Detail for Certain Components of Consolidated Balance Sheets). These amounts consist of cash that we are legally entitled to, but that is not immediately available to us. As a result, these amounts were considered restricted as of the dates presented.

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In connection with our merger with VEREIT, shares which remained available for issuance under the VEREIT, Inc. 2021 Equity Incentive Plan immediately prior to the closing of the merger (as adjusted by the Exchange Ratio) may be used for awards under the 2021 Plan and will not reduce the shares authorized for grant under the 2021 Plan, to the extent that awards using such shares (i) are permitted without stockholder approval under applicable stock exchange rules, (ii) are made only to VEREIT service providers or individuals who become Realty Income service providers following the date of the consummation of the merger, and (iii) are only granted under the 2021 Plan during the period commencing on the date of the consummation of the merger and ending on June 2, 2031. As a result, 6,186,101 additional shares were available for issuance under the 2021 Plan.

The amount of share-based compensation costs recognized in 'General and administrative' in the consolidated statements of income and comprehensive income was $21.6 million, $16.2 million, and $16.5 million (including $1.8 million of accelerated share-based compensation costs for our former Chief Financial Officer) during the years ended December 31, 2022, 2021, and 2020, respectively.

Also, in connection with the merger, each outstanding VEREIT, Inc. stock option and restricted stock unit that were unvested as of November 1, 2021 were converted into equivalent options and restricted stock units, in each case with respect to shares of the Company's common stock, using the equity award exchange ratio in accordance with the merger agreement. The converted awards issued by Realty Income have identical terms to the original VEREIT, Inc. award grant. On November 1, 2021, we issued 442,418 shares of Realty Income common stock in settlement of equity awards that vested upon the separation of certain former-VEREIT employees and directors in connection with the merger. This issuance is excluded from the Restricted Stock Units and Stock Options sections below, as the awards were not granted under the 2021 Plan. The aggregate fair value of the converted awards was $71.6 million, of which i.) $44.0 million related to pre-combination services and is included in the consideration transferred in the merger (please refer to note 3, Merger with VEREIT, Inc. and Orion Office REIT Inc. Divestiture), ii.) $25.6 million of expense was recognized during November in merger and integration-related costs related to the acceleration of vesting upon the separation of certain employees in connection with the merger, and iii.) $2.0 million will be amortized through general and administrative expenses over the remaining vesting term for former VEREIT, Inc. employees who were retained by Realty Income. The following disclosures are inclusive of converted awards for former VEREIT employees continuing as employees of Realty Income, which are reflected as grants, as the replacement awards represent newly issued awards settled in Realty Income common shares.

In connection with the Orion Divestiture, each stock option, restricted stock unit and performance award outstanding at November 12, 2021 was entitled to an equitable adjustment equal to the ratio of the five-day volume weighted average per-share price of Realty Income common stock prior to the Orion Divestiture divided by the five-day volume weighted average per-share of Realty Income common stock following the Orion Divestiture, resulting in an adjustment factor of approximately 1.002342. The equitable adjustment was considered a modification in accordance with the provisions of ASC 718, Compensation-Stock Compensation. As a result, we compared the fair value of each award immediately prior to the equitable adjustment to the fair value immediately after the equitable adjustment to measure incremental compensation cost, if any. The equitable adjustment did not result in any incremental fair value. Therefore, no stock-based compensation expense was recorded as of result of the modification. The following disclosures are inclusive of these adjustments, which has been labeled 'Equitable adjustment - Orion Divestiture' throughout.

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A.    Restricted Stock

The following table summarizes our common stock grant activity:

						2022												2021												2020
						Number of shares						Weighted average price(1)						Number of shares						Weighted average price(1)						Number of shares						Weighted average price(1)
Outstanding nonvested shares, beginning of year						212,630						$	65.20					219,482						$	63.69					259,698						$	58.39
Shares granted(2)						156,274						$	67.37					133,052						$	64.27					103,473						$	67.84
Shares vested						(118,160)						$	63.95					(124,505)						$	61.57					(141,486)						$	56.94
Shares forfeited						(8,084)						$	67.78					(15,399)						$	65.09					(2,203)						$	66.48
Outstanding nonvested shares, end of each period						242,660						$	67.12					212,630						$	65.20					219,482						$	63.69

(1)  Grant date fair value.

(2) Our restricted stock awards granted to employees vest over a service periods not exceeding four-years. Effective November 1, 2022, and applied retroactively for all outstanding awards, restricted stock awards granted to employees with 10 years of continued service and 60 years of age will vest over the shorter of the original vesting term or the period through the date in which the awardee reaches age 60.

The vesting schedule for shares granted to non-employee directors is as follows:

•For directors with less than six years of service at the date of grant, shares vest in 33.33% annual increments upon re-election to the Board at each of the three Annual Meetings of Stockholders following the grant date;

•For directors with six years of service at the date of grant, shares vest in 50% annual increments upon re-election to the Board at each of the two Annual Meetings of Stockholders following the grant date;

•For directors with seven years of service at the date of grant, shares are 100% vested upon re-election to the Board in the following year; and

•For directors with eight or more years of service at the date of grant, there is immediate vesting as of the date the shares of stock are granted.

For the years ended December 31, 2022, 2021 and 2020, respectively, we granted 40,000, 36,000, and 36,000 total shares of restricted stock granted to the independent members of our Board of Directors in connection with our annual awards in May 2022, 2021 and 2020, respectively. In addition, in November 2021, we granted 8,000 shares of restricted stock to the new members of our Board of Directors, which vest in equal parts over a three-year service period. In connection with our annual awards, 20,000, 24,000, and 24,000 shares vested immediately and 20,000, 12,000, and 12,000 shares vest in equal parts over a three-year service period for the years ending December 31, 2022, 2021 and 2020, respectively.

As of December 31, 2022, the remaining unamortized share-based compensation expense related to restricted stock totaled $11.4 million, which is being amortized on a straight-line basis over the service period of each applicable award. The amount of share-based compensation is based on the fair value of the stock at the grant date. We define the grant date as the date the recipient and Realty Income have a mutual understanding of the key terms and conditions of the award, and the recipient of the grant begins to benefit from, or be adversely affected by, subsequent changes in the price of the shares.

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B.    Performance Shares

During 2022, 2021 and 2020, we granted annual performance share awards, as well as dividend equivalent rights, to our executive officers. The number of performance shares that vest for each of the three years is based on the achievement of the following performance goals:

						Weighting for year granted
Annual Performance Awards Metrics						2022						2021						2020
Total shareholder return (“TSR”) ranking relative to MSCI US REIT Index						55		%				70		%				70		%
Dividend per share growth rate						20		%				15		%				15		%
Net Debt-to-Pro Forma Adjusted EBITDAre Ratio						25		%				N/A						N/A
Net Debt-to-Adjusted EBITDAre Ratio						N/A						15		%				15		%

The annual performance shares are earned based on our performance related to our metrics above, and vest 50% on the first and second January 1 after the end of the three-year performance period, subject to continued service. The performance period for the 2020 performance awards began on January 1, 2020 and ended on December 31, 2022. The performance period for the 2021 performance awards began on January 1, 2021 and will end on December 31, 2023. The performance period for the 2022 performance awards began on January 1, 2022 and will end on December 31, 2024.

On November 15, 2021, the Compensation Committee approved a one-time grant of performance share awards and a one-time cash bonus to certain of our named executives in connection with the completion of our merger with VEREIT and the transactions contemplated thereby, including the Orion Divestiture (the "VEREIT Transaction"). The awards were made to reward the executives for the successful consummation of the VEREIT Transaction and were intended to retain and motivate the executives to achieve optimal synergies and incentivize further growth from the merger. The performance shares are earned based on our performance related to Adjusted Funds from Operations Available to Common Stockholders ("AFFO") accretion (50% weighting) and general and administrative expense synergies (50% weighting), and vest 50% upon the completion of the performance period. The remaining 50% will vest on the one-year anniversary of the completion of the applicable performance period. All vesting is subject to continued service. The performance period was one year for the AFFO accretion targets from January 1, 2022 to December 31, 2022, and is two years for the general and administrative expense synergies from January 1, 2022 to December 31, 2023.

The fair value of the annual performance shares was estimated on the date of grant using a Monte Carlo Simulation model. The fair value of the one-time performance shares was based on the fair value of our common stock at the grant date and is dependent on the probability of satisfying the performance conditions stipulated in the award grant. The following table summarizes our performance share grant activity, inclusive of annual performance shares and the one-time performance shares related to the merger with VEREIT:

						2022												2021												2020
						Number of performance shares						Weighted average price(1)						Number of performance shares						Weighted average price(1)						Number of performance shares						Weighted average price(1)
Outstanding nonvested shares, beginning of year						388,139						$	68.09					291,759						$	69.73					304,663						$	62.25
Equitable adjustment - Orion Divestiture (2)						—												752												—
Shares granted						174,940						$	77.73					257,149						$	64.18					136,729						$	79.98
Shares vested						(74,247)						$	59.62					(109,113)						$	62.52					(139,012)						$	63.66
Shares forfeited						(17,952)						$	58.59					(52,408)						$	65.83					(10,621)						$	66.64
Outstanding nonvested shares, end of each period						470,880						$	73.37					388,139						$	68.09					291,759						$	69.73

(1) Grant date fair value.

(2) Effective with the Orion Divestiture on November 12, 2021, outstanding equity awards were adjusted by a conversion ratio of 1.002342 per one Realty Income share then held.

As of December 31, 2022, the remaining share-based compensation expense related to the performance shares totaled $15.9 million and is being recognized on a tranche-by-tranche basis over the service period.

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C.    Restricted Stock Units

During 2022, 2021 and 2020, and in connection with our merger with VEREIT Inc., we also granted restricted stock units that primarily vest over service periods of three or four-years and have the same economic rights as shares of restricted stock: 

						2022												2021												2020
						Number of restricted stock units						Weighted average price(1)						Number of restricted stock units						Weighted average price(1)						Number of restricted stock units						Weighted average price(1)
Outstanding nonvested shares, beginning of year						67,367						$	69.69					18,670						$	70.38					15,511						$	59.82
Equitable adjustment - Orion Divestiture (2)						—												109												—
Shares granted						24,820						$	66.82					71,956						$	68.96					9,966						$	78.79
Shares vested						(26,917)						$	70.55					(23,368)						$	66.96					(6,807)						$	58.63
Shares forfeited						(6,757)						$	71.14					—												—
Outstanding nonvested shares, end of each period						58,513						$	67.91					67,367						$	69.69					18,670						$	70.38

(1) Grant date fair value.

(2) Effective with the Orion Divestiture on November 12, 2021, outstanding equity awards were adjusted by a conversion ratio of 1.002342 per one Realty Income share then held.

As of December 31, 2022, the remaining share-based compensation expense related to the restricted stock units totaled $1.4 million and is being recognized on a straight-line basis over the service period. The amount of share-based compensation for the restricted stock units is based on the fair value of our common stock at the grant date. The expense amortization period for restricted stock units is the lesser of the four-year service period or the period over which the awardee reaches the qualifying retirement age. For employees who have already met the qualifying retirement age, restricted stock units are fully expensed at the grant date.

D.    Stock Options

The following stock options were converted in connection with our merger with VEREIT, Inc. in 2021 and there are no additional granted or outstanding stock options.

The fair value of the stock options as of their grant date is determined using the Black-Scholes option pricing model, which requires the input of assumptions including expected terms, expected volatility, dividend yield and risk-free rate.

The following table summarizes our stock option activity during the year ended December 31, 2022: 

						Number of stock options						Weighted average exercise price (1)						Weighted average remaining contractual term (Years)						Aggregate intrinsic value
Outstanding nonvested options, beginning of year						315,070						$	52.89
Options exercised						(262,267)						$	52.41
Options forfeited						(7,424)						$	58.46
Outstanding nonvested options, end of each period						45,379						$	54.75					5.8						$	393,710

(1)Grant date fair value.

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The following table summarizes our stock option activity during the year ended December 31, 2021: 

						Number of stock options						Weighted average exercise price(1)						Weighted average remaining contractual term (Years)						Aggregate intrinsic value
Outstanding nonvested options, beginning of year						—
Options granted (2)						709,426						$	53.80
Equitable adjustment - Orion Divestiture (3)						1,547
Options exercised						(395,903)						$	54.54
Options forfeited						—
Outstanding nonvested options, end of each period						315,070						$	52.89					2.4						$	5,891,639

(1) Grant date fair value.

(2) During the year ended December 31, 2021, stock options were granted in connection with the VEREIT merger.

(3) Effective with the Orion Divestiture on November 12, 2021, outstanding equity awards were adjusted by a conversion ratio of 1.002342 per one Realty Income share then held.

Compensation expense for stock options is recognized on a straight-line basis over the service period described above. During the years ended December 31, 2022 and 2021, we recorded $47,000 and $68,000 of expense related to stock options, respectively. As of December 31, 2022, there was no unamortized expense relating to our outstanding stock options.

In the ordinary course of business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated financial position or results of operations.

At December 31, 2022, we had commitments of $21.7 million, which primarily relate to re-leasing costs, recurring capital expenditures, and non-recurring building improvements. In addition, as of December 31, 2022, we had committed $606.3 million under construction contracts related to development projects, which have estimated rental revenue commencement dates between January 2023 and August 2024.

We have certain properties that are subject to ground leases, which are accounted for as operating leases.

At December 31, 2022, minimum future rental payments for the next five years and thereafter are as follows (in millions):

						Operating Leases						Finance Leases						Total
2023						39.6						2.2						41.8
2024						38.9						5.1						44.0
2025						38.1						3.4						41.5
2026						37.3						9.0						46.3
2027						33.9						1.3						35.2
Thereafter						508.1						44.1						552.2
Total						$	695.9					$	65.1					$	761.0
Present value adjustment for remaining lease payments (1)						(255.8)						(15.6)
Total lease liability						$	440.1					$	49.5

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A.    Dividends

In January 2023, we declared a dividend of $0.2485 per share to our common stockholders, which was paid in February 2023. In addition, in February 2023, we declared a dividend of $0.2545, which will be paid in March 2023.

B.    Note Issuances

In January 2023, we issued $500 million of 5.05% senior unsecured notes due January 2026, which are callable at par on January 13, 2024, and $600 million of 4.85% senior unsecured notes due March 2030, which are callable at par on January 15, 2030. The public offering price for the January 2026 Notes was 99.618% of the principal amount for an effective semi-annual yield to maturity of 5.189% and the public offering price for the March 2030 Notes was 98.813% of the principal amount for an effective semi-annual yield to maturity of 5.047%.

C.    Term Loans

On January 6, 2023 we entered into a term loan agreement (the “Term Loan Agreement”) governing our term loan, pursuant to which we borrowed an aggregate of approximately $1.0 billion in multicurrency borrowings, including $90.0 million, £705.0 million and €85.0 million (collectively, the “Term Loans”). The Term Loan Agreement also permits us to incur additional term loans, up to an aggregate of $1.5 billion in total borrowings. The Term Loans initially mature in January 2024 and include two 12-month maturity extensions that can be exercised at the company's option. Our A3/A- credit ratings provide for a borrowing rate of 80 basis points over the applicable benchmark rate, which includes adjusted SOFR for USD-denominated loans, adjusted SONIA for Sterling-denominated loans, and EURIBOR for Euro-denominated loans.

D. ATM Forward Offerings

ATM forward agreements for a total of 13.4 million shares remain unsettled with total expected net proceeds of approximately $850 million, of which 6.7 million shares were executed in 2023.

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