Published: 2022-08-04 00:00:00 ET

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The consolidated financial statements of Realty Income Corporation (“Realty Income,” the “Company,” “we,” “our” or “us”) were prepared from our books and records without audit and include all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented. Readers of this quarterly report should refer to our audited consolidated financial statements for the year ended December 31, 2021, which are included in our 2021 Annual Report on Form 10-K, as certain disclosures that would substantially duplicate those contained in the audited financial statements have not been included in this report. The U.S. Dollar (“USD”) is our reporting currency. Unless otherwise indicated, all dollar amounts are expressed in United States USD.

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

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

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

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

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

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

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

Income Taxes. We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended. We believe we have qualified and continue to qualify as a REIT. Under the REIT

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

Lease Revenue Recognition and Accounts Receivable. The COVID-19 pandemic and the measures taken to limit its spread have negatively impacted the economy across many industries, including the industries in which some of our clients operate. These impacts may continue as the duration and severity of the pandemic increases. As a result, we have closely monitored the collectability of our accounts receivable and continue to evaluate the potential impacts of the COVID-19 pandemic and the measures taken to limit its spread on our business and industry segments as the situation continues to evolve and more information becomes available.

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

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

As of June 30, 2022, other than the information related to the reserves recorded to date, we do not have any further client specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable. However, since the conversations regarding rent collections for our clients affected by the COVID-19 pandemic are ongoing and we do not currently know the types of future concessions, if any, that will ultimately be granted, there may be impacts in future periods that could change this assessment as the situation continues to evolve and as more information becomes available.

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

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

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

Newly Issued Accounting Standards. In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, 2020, and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. As, of June 30, 2022, all of our debt and derivative instruments have been converted from LIBOR to SOFR. The interest rate swap on our term loan, which was converted to a SOFR benchmark from LIBOR during June 2022, continues to be accounted for as a cash flow hedge. The adoption of this guidance had no impact on our consolidated financial statements.

Merger with VEREIT

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

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

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

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

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

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

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

A.    Preliminary Purchase Price Allocation

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

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

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

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

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

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

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

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

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

C.    Unaudited Pro Forma Financial Information

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

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

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

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

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

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

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

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

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

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

A.    Acquisitions During the Six Months Ended June 30, 2022, and 2021

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

			Number of Properties						Leasable Square Feet (in thousands)						Investment ($ in millions)						Weighted Average Lease Term (Years)						Initial Weighted Average Cash Lease Yield (1)
Six months ended June 30, 2022 (2)
Acquisitions - U.S.			289						5,551						$	1,492.0					13.9						5.7		%
Acquisitions - Europe			51						5,391						1,471.2						9.0						5.6		%
Total acquisitions			340						10,942						$	2,963.2					11.5						5.7		%
Properties under development (3)			83						2,721						267.9						15.9						5.7		%
Total (4)			423						13,663						$	3,231.1					11.9						5.7		%

(1)The initial average cash lease yield for a property is generally computed as estimated contractual first year cash net operating income, which, in the case of a net leased property, is equal to the aggregate cash base rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a client could default on the payment of contractual rent, we cannot provide assurance that the actual return on the funds invested will remain at the percentages listed above. Contractual net operating income used in the calculation of initial average cash yield includes approximately $6.8 million received as settlement credits as reimbursement of free rent periods for the six months ended June 30, 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 six months ended June 30, 2022, caused any one client to be 10% or more of our total assets at June 30, 2022.

(3)Includes two U.K. development properties that represent an investment of £14.9 million Sterling during the six months ended June 30, 2022, converted at the applicable exchange rate on the funding date.

(4)Our clients occupying the new properties are 87.4% retail and 12.6% industrial, based on rental revenue. Approximately 33% of the rental revenue generated from acquisitions during the six months ended June 30, 2022, is from investment grade rated clients, their subsidiaries or affiliated companies.

The acquisitions during the six months ended June 30, 2022, which had no associated contingent consideration, were allocated as follows (in millions):

			Acquisitions - U.S.						Acquisitions - U.K.
Six months ended June 30, 2022			(USD)						(£ Sterling)
Land (1)			$	480.3					£	476.7
Buildings and improvements			843.9						368.2
Lease intangible assets (2)			185.0						179.4
Other assets (3)			214.7						166.2
Lease intangible liabilities (4)			(27.3)						(50.2)
Other liabilities (5)			(21.1)						—
			$	1,675.5					£	1,140.3

(1) U.K. land includes £33.2 million of right of use assets under long-term ground leases.

(2) The weighted average amortization period for acquired lease intangible assets is 10.3 years.

(3) U.S. other assets consists of $182.6 million of financing receivables with above-market terms and $32.1 million of right-of-use assets accounted for as finance leases. U.K. other assets consists of £3.8 million of financing receivables with above-market terms and £162.4 million of right-of-use assets accounted for as finance leases.

(4) The weighted average amortization period for acquired lease intangible liabilities is 11.4 years.

(5) U.S. other liabilities consists of $14.6 million of deferred rent on certain below-market leases and $8.6 million of lease liabilities under financing leases, offset by $2.1 million of mortgage discounts.

The properties acquired during the six months ended June 30, 2022, which were all accounted for as asset acquisitions, generated total revenues of $37.5 million and net income of $13.4 million during the six months ended June 30, 2022.

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Below is a summary of our acquisitions for the six months ended June 30, 2021:

			Number of Properties						Leasable Square Feet (in thousands)						Investment ($ in millions)						Weighted Average Lease Term (Years)						Initial Weighted Average Cash Lease Yield (1)
Six months ended June 30, 2021 (2)
Acquisitions - U.S.			173						4,485						$	1,052.3					13.7						5.5		%
Acquisitions - Europe			41						3,133						994.8						9.8						5.6		%
Total acquisitions			214						7,618						$	2,047.1					11.8						5.5		%
Properties under development - U.S.			40						2,016						114.8						15.6						5.7		%
Total (3)			254						9,634						$	2,161.9					12.0						5.5		%

(1)Contractual net operating income used in the calculation of initial average cash yield includes approximately $850,000 received as settlement credits as reimbursement of free rent periods for the six months ended June 30, 2021.

(2)None of our investments during the six months ended June 30, 2021, caused any one client to be 10% or more of our total assets at June 30, 2021.

(3) Our clients occupying the new properties are 75.8% retail and 24.2% industrial, based on rental revenue. Approximately 47% of the rental revenue generated from acquisitions during the six months ended June 30, 2021, was from investment grade rated clients, their subsidiaries or affiliated companies.

The acquisitions during the six months ended June 30, 2021, which had no associated contingent consideration, were allocated as follows (in millions):

			Acquisitions - U.S.						Acquisitions - U.K.
Six months ended June 30, 2021			(USD)						(£ Sterling)
Land(1)			$	384.5					£	219.7
Buildings and improvements			539.5						375.4
Lease intangible assets (2)			171.8						125.6
Other assets (3)			38.5						—
Lease intangible liabilities (4)			(14.4)						(5.3)
Other liabilities (5)			(21.6)						(0.3)
			$	1,098.3					£	715.1

(1) U.K land includes £1.3 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) U.S. other assets consists entirely of financing receivables with above-market terms and a right-of-use asset accounted for as a finance lease.

(4) The weighted average amortization period for acquired lease intangible liabilities is 14.0 years.

(5) U.S. other liabilities consists of deferred rent on certain below-market leases. U.K other liabilities consists entirely of a GBP mortgage premium.

The properties acquired during the six months ended June 30, 2021, which were all accounted for as asset acquisitions, generated total revenues of $24.9 million and net income of $6.1 million during the six months ended June 30, 2021.

B.    Investments in Existing Properties

During the six months ended June 30, 2022, we capitalized costs of $37.8 million on existing properties in our portfolio, consisting of $3.2 million for re-leasing costs, $2.8 million for recurring capital expenditures, and $31.8 million for non-recurring building improvements. In comparison, during the six months ended June 30, 2021, we capitalized costs of $4.3 million on existing properties in our portfolio, consisting of $827,000 for re-leasing costs, $51,000 for recurring capital expenditures, and $3.4 million for non-recurring building improvements.

C.    Properties with Existing Leases

Of the $3.23 billion we invested during the six months ended June 30, 2022, approximately $267.9 million related to development. Of the $2.96 billion invested outside of development, $2.21 billion was used to acquire 168 properties with existing leases. In comparison, of the $2.16 billion we invested during the six months ended June 30, 2021, $114.8 million related to development. Of the $2.05 billion invested outside of development, $1.81 billion was used to acquire 143 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.

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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 six months ended June 30, 2022, and 2021 were $318.3 million and $77.5 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 six months ended June 30, 2022, and 2021 were $48.6 million and $19.7 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 June 30, 2022 (dollars in thousands):

			Net increase (decrease) to rental revenue						Increase to amortization expense
2022			$	(29,835)					$	306,632
2023			(58,837)						545,532
2024			(52,621)						484,561
2025			(46,411)						415,549
2026			(38,118)						370,236
Thereafter			276,757						1,736,771
Totals			$	50,935					$	3,859,281

D.          Gain on Sales of Real Estate

The following table summarizes our properties sold during the periods indicated below (dollars in millions):

			Three months ended June 30,												Six months ended June 30,
			2022						2021						2022						2021
Number of properties			70						42						104						69
Net sales proceeds			$	150.0					$	56.9					$	272.2					$	91.6
Gain on sales of real estate			$	40.6					$	14.9					$	50.7					$	23.3

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E.           Investment in Unconsolidated Entities

The following is a summary of our investments in unconsolidated entities as of June 30, 2022 (in thousands):

			Ownership % (1)						Number of Properties						Carrying Amount of Investment as of (2)									Equity in income and impairment of investment in unconsolidated entities for the six months ended(2)(3)
Investment			June 30, 2022												June 30, 2022			December 31, 2021						June 30, 2022			June 30, 2021
Industrial Partnerships			20		%				7						$	113,562		$	140,967					$	(5,673)		$	—

(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) The total carrying amount of the investments was greater than the underlying equity in net assets by $74.1 million as of June 30, 2022. The difference relates to a step-up in fair value of the investment net assets acquired in connection with the merger with VEREIT on November 1, 2021. The step up in fair value was allocated to the individual investment assets and liabilities and is being amortized over the estimated useful life of the respective underlying tangible real estate assets, the lease term of the intangible real estate assets, and the remaining term of the mortgages payable. Prior to November 1, 2021, we did not own any unconsolidated entities.

(3) As of June 30, 2022, the seven assets held by our Industrial Partnerships were under agreement of sale. As the portion of the net proceeds applied to our investment basis that we expect 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 $7.8 million , which is included in 'Equity in income and impairment of investment in unconsolidated entities' in the consolidated statements of income and comprehensive income for the three and six months ended June 30, 2022.

The aggregate debt outstanding for unconsolidated entities was $431.8 million as of June 30, 2022, and December 31, 2021, all of which is non-recourse to us with limited customary exceptions which vary from loan to loan.

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

A.    Credit Facility

In April 2022, we entered a new $4.25 billion unsecured credit facility to amend and restate our previous $3.0 billion unsecured revolving credit facility, which was due to expire in March 2023. The new multicurrency credit facility 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. Similar to our previous revolving credit facility, the new revolving credit facility also has a $1.0 billion expansion option, which is subject to obtaining lender commitments. Under the new revolving credit, our current investment grade credit ratings provide for financing on U.S. Dollar borrowings at the Secured Overnight Financing Rate ("SOFR"), plus 0.725% with a SOFR adjustment charge of 0.10% and a revolving credit facility fee of 0.125%, for all-in pricing of 0.95% over SOFR and British Pound Sterling at the Sterling Overnight Indexed Average (“SONIA”), plus 0.725% with a SONIA adjustment charge of 0.0326% and a revolving credit facility fee of 0.125%, for all-in pricing of 0.8826% over SONIA.

At June 30, 2022, credit facility origination costs of $19.7 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.

At June 30, 2022, we had a borrowing capacity of $4.03 billion available on our revolving credit facility (subject to customary conditions to borrowing) and an outstanding balance of $219.1 million, as compared to an outstanding balance at December 31, 2021, of $650.0 million.

The weighted average interest rate on outstanding borrowings under our revolving credit facility was 1.5% during the six months ended June 30, 2022, and 0.9% during the six months ended June 30, 2021. At June 30, 2022, our weighted average interest rate on borrowings outstanding under our revolving credit facility was 2.2%. Our revolving credit facility is subject to various leverage and interest coverage ratio limitations, and at June 30, 2022, we were in compliance with the covenants on our revolving credit facility.

B.    Commercial Paper Program

We have a U.S. dollar-denominated unsecured commercial paper program. Under the terms of the program, we were permitted to issue unsecured commercial paper notes up to a maximum aggregate amount outstanding of $1.0 billion. The commercial paper ranks on a parity in right of payment with all of our other unsecured senior

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indebtedness outstanding from time to time, including borrowings under our revolving credit facility, our term loan and our outstanding senior unsecured notes. Proceeds from commercial paper borrowings are used for general corporate purposes. As of June 30, 2022, the balance of borrowings outstanding under our commercial paper program was $950.0 million as compared to $901.4 million outstanding commercial paper borrowings at December 31, 2021. The weighted average interest rate on outstanding borrowings under our commercial paper program was 0.8% for the six months ended June 30, 2022, and 0.3% for the six months ended June 30, 2021. As of June 30, 2022, our weighted average interest rate on outstanding borrowings under our commercial paper program was 1.8%. We use our $4.25 billion revolving credit facility as a liquidity backstop for the repayment of the notes issued under the commercial paper program. The commercial paper borrowings generally carry a term of less than a year.

During July 2022, the U.S. dollar-denominated unsecured commercial paper program was amended, and we entered into a new European unsecured commercial paper program. See Note 19, Subsequent Events.

During the six months ended June 30, 2022, we made $226.0 million in principal payments, including the full repayment of seven mortgages for $223.9 million. During the six months ended June 30, 2021, we made $42.6 million in principal payments, including the full repayment of five mortgages in for $40.9 million. We assumed eight mortgages on 17 properties totaling $45.1 million during the six months ended June 30, 2022, as compared to the assumption of one Sterling-denominated mortgage on one property totaling £31.0 million for the six months ended June 30, 2021. Assumed mortgages are secured by the properties on which the debt was placed and are considered non-recourse debt with limited customary exceptions which vary from loan to loan.

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 June 30, 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 $1.0 million at June 30, 2022, and $790,000 at December 31, 2021. These costs are being amortized over the remaining term of each mortgage.

The following table summarizes our mortgages payable as of June 30, 2022, and December 31, 2021, respectively (dollars in thousands):

As Of			Number of Properties (1)						Weighted Average Stated Interest Rate (2)						Weighted Average Effective Interest Rate (3)						Weighted Average Remaining Years Until Maturity						Remaining Principal Balance						Unamortized Premium and Deferred Financing Costs Balance, net						Mortgage Payable Balance
6/30/2022			158						4.8		%				3.3		%				1.8						$	928,943					$	18,169					$	947,112
12/31/2021			267						4.8		%				3.5		%				1.8						$	1,114,129					$	27,866					$	1,141,995

(1)At June 30, 2022, there were 23 mortgages on 158 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 June 30, 2022, and December 31, 2021, all mortgages were at fixed interest rates.

(2) Stated interest rates ranged from 3.0% to 6.9% at each of June 30, 2022, and December 31, 2021.

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(3) Effective interest rates ranged from 2.6% to 6.6% and 2.6% to 6.0% at each of June 30, 2022, and December 31, 2021, respectively.

The following table summarizes the maturity of mortgages payable, excluding net premiums of $19.2 million and deferred financing costs of $1.0 million, as of June 30, 2022 (dollars in millions):

Year of Maturity						Principal
2022						$	45.5
2023						62.8
2024						740.5
2025						42.3
2026						11.9
Thereafter						26.0
Totals						$	929.0

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A.    General

Our senior unsecured notes and bonds are U.S. dollar 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
									June 30, 2022						December 31, 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					304						—
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					486						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					170						—
1.625% notes, issued in October 2020 and due December 2030			£	400					486						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					419						—
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					425						474
2.730% notes, issued in May 2019 and due in May 2034			£	315					382						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					140						—
2.500% notes, issued in January 2022 and due in January 2042			£	250					304						—
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									$	13,390					$	12,257
Unamortized net premiums and deferred financing costs									198						243
									$	13,588					$	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 each of June 30, 2022, and December 31, 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 June 30, 2022, excluding net unamortized premiums of $257.0 million and deferred financing costs of $58.7 million (dollars in millions):

Year of Maturity						Principal
2024						$	850
2025						1,050
2026						1,575
Thereafter						9,915
Totals						$	13,390

As of June 30, 2022, the weighted average interest rate on our notes and bonds payable was 3.2% and the weighted average remaining years until maturity was 7.6 years.

Interest incurred on all of the notes and bonds was $103.0 million and $62.7 million for the three months ended June 30, 2022 and June 30, 2021, respectively, and $206.1 million and $125.9 million for the six months ended June 30, 2022 and June 30, 2021, 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 June 30, 2022, we were in compliance with these covenants.

B.    Note Repayment

In January 2021, we redeemed all $950.0 million in principal amount of our outstanding 3.250% notes due October 2022, plus accrued and unpaid interest. As a result of the early redemption, we recognized a $46.5 million loss on extinguishment of debt in the consolidated statements of income and comprehensive income for the six months ended June 30, 2021. There were no comparable repayments for the six months ended June 30, 2022.

C.    Note Issuances

During the six months ended June 30, 2022, 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		%

There were no comparable note issuances during the six months ended June 30, 2021.

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A.    Issuances of Common Stock in Underwritten Public Offerings

In January 2021, we issued 12,075,000 shares of common stock in an underwritten public offering, 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 and for general corporate purposes and working capital.

There were no comparative offerings during the six months ended June 30, 2022.

B.    At-the-Market (ATM) Program

In June 2022, we replaced our prior "at-the-market" program, or 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 New York Stock Exchange ("NYSE: O") at prevailing market prices or at negotiated prices. At June 30, 2022, we had 120,000,000 shares remaining for future issuance under our ATM program. We anticipate maintaining the availability of our ATM program in the future, including the replenishment of authorized shares issuable thereunder.

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

			Three months ended June 30,												Six months ended June 30,
			2022						2021						2022						2021
Shares of common stock issued under the ATM program(1)			15,899,972						6,589,598						25,973,181						6,589,598
Gross proceeds			$	1,067.3					$	454.8					$	1,727.5					$	454.8
Sales Agents' Commissions			(7.0)						(4.6)						(10.9)						(4.6)
Other Offering Expenses			(3.7)						(0.2)						(3.9)						(0.3)
Net proceeds			$	1,056.6					$	450.0					$	1,712.7					$	449.9

(1)  During the three and six months ended June 30, 2022 15,899,972 shares were sold pursuant to forward sale confirmations. As of June 30, 2022, there were no open forward sale confirmations and 120,000,000 shares remained available for future issuance. No shares were sold pursuant to forward sale confirmations during the three and six months ended June 30, 2021.

C.    Dividend Reinvestment and Stock Purchase Plan

Our Dividend Reinvestment and Stock Purchase Plan, or our DRSPP, provides our common stockholders, as well as new investors, with a convenient and economical method of purchasing our common stock and reinvesting their distributions. Our DRSPP also allows our current stockholders to buy additional shares of common stock by reinvesting all or a portion of their distributions. Our DRSPP authorizes up to 26,000,000 common shares to be issued. At June 30, 2022, we had 11,250,748 shares remaining for future issuance under our DRSPP program.

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

			Three months ended June 30,												Six months ended June 30,
			2022						2021						2022						2021
Shares of common stock issued under the DRSPP program			43,260						39,423						84,631						82,817
Gross proceeds			$	2.9					$	2.7					$	5.7					$	5.3

Our DRSPP includes a waiver approval process, allowing larger investors or institutions, per a formal approval process, to purchase shares at a small discount, if approved by us. We did not issue shares under the waiver approval process during the six months ended June 30, 2022, or 2021.

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There are four entities with noncontrolling interests that we consolidate, including an operating partnership, Realty Income, L.P., a joint venture acquired in 2019, and two development joint ventures, one acquired in 2020 and one acquired in May 2021. The following table represents the change in the carrying value of all noncontrolling interests through June 30, 2022 (dollars in thousands):

			Realty Income, L.P. units (1)						Other Noncontrolling Interests						Total
Carrying value at December 31, 2021			$	62,416					$	14,410					$	76,826
Distributions			(1,624)						(152)						(1,776)
Allocation of net income			1,095						122						1,217
Carrying value at June 30, 2022			$	61,887					$	14,380					$	76,267

(1)  1,060,709 units were outstanding as of both June 30, 2022 and December 31, 2021.

At June 30, 2022, Realty Income, L.P. and certain of our joint venture investments 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 June 30, 2022, and December 31, 2021 (in thousands):

			June 30, 2022						December 31, 2021
Net real estate			$	705,322					$	688,229
Total assets			$	804,027					$	795,670
Total liabilities			$	59,033					$	57,057

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

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.

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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 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):

June 30, 2022			Carrying value						Estimated fair value
Mortgages payable assumed in connection with acquisitions (1)			$	928.9					$	906.6
Notes and bonds payable (2)			$	13,390.3					$	12,377.8

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 $19.2 million at June 30, 2022, and $28.7 million at December 31, 2021. Also excludes deferred financing costs of $1.0 million at June 30, 2022, and $790,000 at December 31, 2021.

(2)Excludes non-cash premiums and discounts recorded on notes payable. The unamortized balance of the net premiums was $257.0 million at June 30, 2022, and $295.5 million at December 31, 2021. Also excludes deferred financing costs of $58.7 million at June 30, 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, including the senior notes and bonds payable assumed in the debt exchange offer on November 9, 2021, in connection with our merger with VEREIT. 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.

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 June 30, 2022, and December 31, 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.

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Items Measured at Fair Value on a Non-Recurring Basis

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

			Three months ended June 30,												Six months ended June 30,
			2022						2021						2022						2021
Carrying value prior to impairment			$	64.5					$	45.6					$	98.2					$	59.2
Less: total provisions for impairment			(7.7)						(17.2)						(14.7)						(20.0)
Carrying value after impairment			$	56.8					$	28.4					$	83.5					$	39.2
Number of properties:
Classified as held for sale			9						1						23						1
Classified as held for investment			3						5						3						6
Sold			32						31						49						44

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, or GBP, we initiated a hedging strategy to enter into foreign currency forward contracts to sell GBP and buy U.S. Dollars, or USD. 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.

In May 2019, we entered into four cross-currency swaps to exchange £130 million Sterling 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 has been terminated and the future principal and interest associated with the prepaid intercompany loan will not occur, $20.0 million has been reclassified from AOCI to Foreign currency and derivative gain, net during the three months ended June 30, 2022.

As of June 30, 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.

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

						Three months ended June 30,												Six months ended June 30,
Derivatives in Cash Flow Hedging Relationships						2022						2021						2022						2021
Currency swaps						$	(6,986)					$	5,598					$	(5,091)					$	3,978
Interest rate swaps						30,386						(20,353)						69,391						27,676
Foreign currency forwards						10,054						3,922						12,844						3,922
Total unrealized gain on derivatives						$	33,454					$	(10,833)					$	77,144					$	35,576

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

												Three months ended June 30,												Six months ended June 30,
Derivatives in Cash Flow Hedging Relationships						Location of Gain (Loss) Recognized in Income						2022						2021						2022						2021
Currency swaps						Foreign currency and derivative gain, net						$	21,527					$	(235)					$	27,641					$	(1,386)
Interest rate swaps						Interest expense						(2,153)						(2,578)						(4,683)						(5,119)
Net increase (decrease) to net income												$	19,374					$	(2,813)					$	22,958					$	(6,505)

We expect to reclassify $2.7 million from AOCI as an increase to interest expense relating to interest rate swaps and $8.5 million from AOCI to foreign currency gain relating to foreign currency forwards within the next twelve months.

Derivatives Not Designated as Hedging Instruments

Based on our potential exposure to changes in foreign currency exchange rate, primarily in British Pound Sterling and, to a lesser extent, the Euro, we initiated a program in the third quarter of 2021 to enter into foreign currency collars. A foreign currency collar consists of a written call option and a purchased put option to sell the foreign currency at a range of predetermined exchange rates. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. Our foreign currency collars generally have maturities of five months or less and are not designated as hedge instruments for accounting purposes. The gain or loss on these derivative contracts are recognized in 'Foreign currency and derivative gain, net' in the consolidated statements of income and comprehensive income based on the changes in fair value.

In addition, we enter into foreign currency exchange swap agreements to reduce the effects of currency exchange rate fluctuations between the British Pound Sterling and Euro. These derivative contracts generally mature within one to three months 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 gain, net' in the consolidated statements of income and comprehensive income

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

						Three months ended June 30,												Six months ended June 30,
						2022						2021						2022						2021
Realized foreign currency and derivative gain (loss), net:
Gain on the settlement of undesignated derivatives						$	79,308					$	—					$	76,628					$	—
Gain (loss) on the settlement of designated derivatives reclassified from AOCI						21,527						(235)						27,641						(1,386)
Gain (loss) on the settlement of transactions with third parties						1,004						(104)						952						(104)
Total realized foreign currency and derivative gain (loss), net						$	101,839					$	(339)					$	105,221					$	(1,490)
Unrealized foreign currency and derivative gain (loss), net:
Gain on the change in fair value of undesignated derivatives						$	37,274					$	—					$	59,995					$	3,724
Gain (loss) on remeasurement of certain assets and liabilities						(131,633)						739						(158,326)						(1,030)
Total unrealized foreign currency and derivative gain (loss), net						$	(94,359)					$	739					$	(98,331)					$	2,694
Total foreign currency and derivative gain, net						$	7,480					$	400					$	6,890					$	1,204

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The following table summarizes the terms and fair values of our derivative financial instruments at June 30, 2022, and December 31, 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									June 30, 2022			December 31, 2021									June 30, 2022			December 31, 2021
Interest rate swap			1			Derivative			$	250.0		$	250.0		2.88%			March 2024			$	0.4		$	(11.9)
Cross-currency swaps (4)			—			Derivative			—			166.3			—			—			—			(13.8)
Foreign currency forwards			36			Derivative			177.5			176.1			(5)			Jul 2022 - Aug 2024			20.4			7.6
Forward-starting swaps (6)			4			Derivative			300.0			300.0			1.86%			Nov 2032 - Jun 2033			31.2			(3.2)
Forward-starting swaps (6)			2			Hybrid Debt			200.0			200.0			1.93%			Nov 2032 - Jun 2033			16.2			(5.1)
									$	927.5		$	1,092.4								$	68.2		$	(26.4)
Derivatives not Designated as Hedging Instruments
Currency exchange swaps (7)			5			Derivative			833.2			1,639.5			(8)			Jul 2022 - Nov 2022			36.9			(14.7)
Total of all Derivatives									$	1,760.7		$	2,731.9								$	105.1		$	(41.1)

(1)This column represents the number of instruments outstanding as of June 30, 2022.

(2)Weighted average strike rate is calculated using the current notional value as of June 30, 2022.

(3)This column represents maturity dates for instruments outstanding as of June 30, 2022.

(4)In June 2022, we terminated the four British Pound Sterling, or GBP, cross-currency swaps with notional amount of $166.3 million.

(5)Weighted average forward GBP-USD exchange rate of 1.40.

(6)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.

(7)Represents three GBP currency exchange swaps with notional amount of $564.9 million and two Euro, or EUR, currency exchange swaps with notional amount of $268.3 million.

(8)Weighted average Forward GBP-USD exchange rate of 1.26 and Weighted Average Forward EUR-USD exchange rate of 1.11.

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

We have agreements with each of our derivative counterparties containing provisions under which we could be declared in default on our derivative obligations if repayment of our indebtedness is accelerated by the lender due to our default.

We 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.

To comply with the provisions of ASC 820, Fair Value Measurement, we incorporate 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.

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A. At June 30, 2022, we owned 11,427 properties in all 50 U.S. states, Puerto Rico, the U.K. and Spain. Of the 11,427 properties, 11,289, or 98.8%, are single-client properties, and the remaining are multi-client properties. At June 30, 2022, 132 properties were available for lease or sale.

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 three months ended June 30, 2022, and 2021 was $2.2 million and $596,000, respectively. Percentage rents for the six months ended
June 30, 2022 and 2021 were $6.0 million and $1.6 million, respectively.

B. Major Clients - No individual client’s rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the six months ended June 30, 2022, and 2021.

We pay monthly distributions to our common stockholders. The following is a summary of monthly distributions paid per common share for the six months ended June 30, 2022, and 2021:

Month			2022						2021
January			$	0.2465					$	0.2345
February			0.2465						0.2345
March			0.2465						0.2345
April			0.2470						0.2350
May			0.2470						0.2350
June			0.2470						0.2350
Total			$	1.4805					$	1.4085

At June 30, 2022, a distribution of $0.2475 per common share was payable and was paid in July 2022.

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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:

			Three months ended June 30,												Six months ended June 30,
			2022						2021						2022						2021
Weighted average shares used for the basic net income per share computation			601,672,201						374,236,424						597,778,173						372,879,165
Incremental shares from share-based compensation			358,465						104,599						362,529						92,579
Weighted average shares used for diluted net income per share computation			602,030,666						374,341,023						598,140,702						372,971,744
Unvested shares from share based compensation that were anti-dilutive			16,039						161,359						16,437						148,342
Weighted average partnership common units convertible to common shares that were anti-dilutive			1,060,709						463,119						1,060,709						463,119

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

			Six months ended June 30,
			2022						2021
Supplemental disclosures:
Cash paid for interest			$	229,929					$	139,389
Cash paid for income taxes			$	30,091					$	9,726
Non-cash activities:
Net increase in fair value of derivatives			$	146,181					$	60,414
Mortgages assumed at fair value			$	45,079					$	43,779

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):

			June 30, 2022						June 30, 2021
Cash and cash equivalents shown in the consolidated balance sheets			$	172,849					$	231,164
Restricted escrow deposits (1)			100,098						34,636
Impounds related to mortgages payable (1)			718						1,185
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows			$	273,665					$	266,985

(1)  Included within other assets, net on the consolidated balance sheets (see note 4). 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.

In March 2021, our Board of Directors adopted, and in May 2021, stockholders approved, the Realty Income 2021 Incentive Award Plan, or 2021 Plan. This note should be read in conjunction with the more complete discussion of our 2021 Plan included in note 16 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.

The amount of share-based compensation costs recognized in 'General and administrative' in the consolidated statements of income and comprehensive income was $6.6 million and $4.5 million during the three months ended June 30, 2022 and 2021, respectively and $11.6 million and $8.2 million during the six months ended June 30, 2022 and 2021, respectively.

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A.    Restricted Stock

During the six months ended June 30, 2022, we granted 153,105 shares of common stock under the 2021 Plan. This included 40,000 total shares of restricted stock granted to the independent members of our Board of Directors in connection with our annual awards in May 2022, 20,000 shares of which vested immediately and 20,000 shares of which vest in equal parts over a three-year service period. Our restricted stock awards granted to employees vest in equal parts over a four-year service period.

As of June 30, 2022, the remaining unamortized share-based compensation expense related to restricted stock totaled $14.6 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.

B.    Performance Shares and Restricted Stock Units

During the six months ended June 30, 2022, we granted 154,840 performance shares, as well as dividend equivalent rights, to our executive officers. The performance shares are earned based on our Total Shareholder Return (TSR) performance relative to select industry indices and peer groups as well as achievement of certain operating metrics, and vest 50% on the first and second January 1 after the end of the three-year performance period, subject to continued service.

During the six months ended June 30, 2022, we also granted 24,456 restricted stock units, all of which vest over a four-year service period. These restricted stock units have the same economic rights as shares of restricted stock.

As of June 30, 2022, the remaining share-based compensation expense related to the performance shares and restricted stock units totaled $24.0 million. The fair value of the performance shares were estimated on the date of grant using a Monte Carlo Simulation model. The performance shares are being recognized on a tranche-by-tranche 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.

C.    Stock Options

We did not grant any stock options during the six months ended June 30, 2022. During the six months ended June 30, 2022, we recorded $47,000 of expense related to stock options. There was no comparable expense for the six months ended June 30, 2021. As of June 30, 2022, there was no unamortized expense relating to our outstanding stock options.

A.    Dividends
In July 2022, we declared a dividend of $0.2475 per share to our common stockholders, which will be paid in August 2022.

B.     Commercial Paper Program

During July 2022, our U.S. Dollar-denominated unsecured commercial paper program was amended to increase the maximum aggregate amount of outstanding notes from $1.0 billion to $1.5 billion. We also established a new Euro-denominated unsecured commercial paper program, which permits us to issue additional unsecured commercial notes up to a maximum aggregate amount of $1.5 billion (or foreign currency equivalent), which may be issued in

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U.S. Dollars or various other foreign currencies, including but not limited to, Euros, Sterling, Swiss Francs, Yen, Canadian Dollars, and Australian Dollars, in each case, pursuant to customary terms in the European commercial paper note market. The notes offered under our European commercial paper program will rank pari passu with all of our other unsecured senior indebtedness, including borrowings under our revolving credit facility and our term loan, and our outstanding senior notes, including under our U.S. Dollar-denominated commercial paper program.

C.     Sale of Unconsolidated Joint Ventures

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