REALTY INCOME CORP [O] Filings

10-Q 1 o-20240630.htm 10-Q o-20240630

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2024, or

☐ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-13374

REALTY INCOME CORPORATION

(Exact name of registrant as specified in its charter)


Maryland						33-0580106
(State or Other Jurisdiction of Incorporation or Organization)						(IRS Employer Identification Number)

11995 El Camino Real, San Diego, California 92130

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: (858) 284-5000

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange On Which Registered
Common Stock, $0.01 Par Value	O	New York Stock Exchange
6.000% Series A Cumulative Redeemable Preferred Stock, $0.01 Par Value	O PR	New York Stock Exchange
1.125% Notes due 2027	O27A	New York Stock Exchange
1.875% Notes due 2027	O27B	New York Stock Exchange
1.625% Notes due 2030	O30	New York Stock Exchange
4.875% Notes due 2030	O30A	New York Stock Exchange
5.750% Notes due 2031	O31A	New York Stock Exchange
1.750% Notes due 2033	O33A	New York Stock Exchange
5.125% Notes due 2034	O34	New York Stock Exchange
6.000% Notes due 2039	O39	New York Stock Exchange
2.500% Notes due 2042	O42	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," “accelerated filer,” "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 2, 2024, there were 870,867,608 shares of common stock outstanding.

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REALTY INCOME CORPORATION

Index to Form 10-Q

June 30, 2024


PART I.	FINANCIAL INFORMATION	Page
Item 1:	Financial Statements (Unaudited)
	Consolidated Balance Sheets	2
	Consolidated Statements of Income and Comprehensive Income	3
	Consolidated Statements of Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4:	Controls and Procedures	51
PART II.	OTHER INFORMATION
Item 1A:	Risk Factors	52
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 5:	Other Information	52
Item 6:	Exhibits	53

SIGNATURE		54

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PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts) (unaudited)


	June 30, 2024		December 31, 2023
ASSETS
Real estate held for investment, at cost:
Land	$	16,760,251	$	14,929,310
Buildings and improvements	39,895,617		34,657,094
Total real estate held for investment, at cost	56,655,868		49,586,404
Less accumulated depreciation and amortization	(6,693,997)		(6,072,118)
Real estate held for investment, net	49,961,871		43,514,286
Real estate and lease intangibles held for sale, net	190,570		31,466
Cash and cash equivalents	442,820		232,923
Accounts receivable, net	788,639		710,536
Lease intangible assets, net	6,730,472		5,017,907
Goodwill	4,931,159		3,731,478
Investment in unconsolidated entities	1,219,759		1,172,118
Other assets, net	3,795,641		3,368,643
Total assets	$	68,060,931	$	57,779,357
LIABILITIES AND EQUITY
Distributions payable	$	231,160	$	195,222
Accounts payable and accrued expenses	884,087		738,526
Lease intangible liabilities, net	1,704,747		1,406,853
Other liabilities	866,992		811,650
Line of credit payable and commercial paper	1,148,787		764,390
Term loans, net	2,370,057		1,331,841
Mortgages payable, net	199,031		821,587
Notes payable, net	21,741,606		18,602,319
Total liabilities	$	29,146,467	$	24,672,388
Commitments and contingencies (note 20)
6.000% Series A cumulative redeemable preferred stock and paid in capital, par value $0.01 per share, 69,900 shares authorized, 6,900 shares and no shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively, liquidation preference $25.00 per share	$	167,394	$	—
Stockholders’ equity:
Common stock and paid in capital, par value $0.01 per share, 1,300,000 shares authorized, 870,848 and 752,460 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively	$	46,230,789	$	39,629,709
Distributions in excess of net income	(7,724,318)		(6,762,136)
Accumulated other comprehensive income	75,322		73,894
Total stockholders’ equity	$	38,581,793	$	32,941,467
Noncontrolling interests	165,277		165,502
Total equity	$	38,747,070	$	33,106,969
Total liabilities and equity	$	68,060,931	$	57,779,357

The accompanying notes to consolidated financial statements are an integral part of these statements.

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REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share amounts) (unaudited)


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
REVENUE
Rental (including reimbursable)	$	1,284,728	$	995,289	$	2,492,897	$	1,920,578
Other	54,715		23,916		107,031		43,026
Total revenue	1,339,443		1,019,205		2,599,928		1,963,604
EXPENSES
Depreciation and amortization	605,570		472,278		1,186,634		923,755
Interest	246,931		183,857		487,545		337,989
Property (including reimbursable)	99,851		94,703		189,212		164,100
General and administrative	45,070		36,829		85,912		70,996
Provisions for impairment	96,458		29,815		185,947		42,993
Merger and integration-related costs	2,754		341		96,858		1,648
Total expenses	1,096,634		817,823		2,232,108		1,541,481
Gain on sales of real estate	25,153		7,824		41,727		12,103
Foreign currency and derivative gain (loss), net	511		(2,552)		4,557		7,770

Equity in earnings of unconsolidated entities	2,029		411		353		411
Other income, net	6,108		3,020		11,554		5,750
Income before income taxes	276,610		210,085		426,011		448,157
Income taxes	(15,642)		(12,932)		(31,144)		(24,882)
Net income	260,968		197,153		394,867		423,275
Net income attributable to noncontrolling interests	(1,577)		(1,738)		(3,192)		(2,844)
Net income attributable to the Company	259,391		195,415		391,675		420,431
Preferred stock dividends	(2,587)		—		(5,175)		—
Net income available to common stockholders	$	256,804	$	195,415	$	386,500	$	420,431
Amounts available to common stockholders per common share:

Net income
Basic	$	0.30	$	0.29	$	0.45	$	0.63
Diluted	$	0.29	$	0.29	$	0.45	$	0.63
Weighted average common shares outstanding:
Basic	870,319		674,109		852,621		667,357
Diluted	870,725		674,593		853,011		668,108
Net income available to common stockholders	$	256,804	$	195,415	$	386,500	$	420,431
Total other comprehensive income
Foreign currency translation adjustment	3,218		29,046		(14,818)		57,796
Unrealized gain (loss) on derivatives, net	7,324		(6,410)		16,246		(8,572)
Total other comprehensive income	$	10,542	$	22,636	$	1,428	$	49,224
Comprehensive income available to common stockholders	$	267,346	$	218,051	$	387,928	$	469,655

The accompanying notes to consolidated financial statements are an integral part of these statements.

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REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands) (unaudited)

Three months ended June 30, 2024, and 2023



	Shares of preferred stock	Preferred stock and paid in capital		Shares of common stock	Common stock and paid in capital		Distributions in excess of net income		Accumulated other comprehensive income		Total stockholders’ equity		Non-controlling interests		Total equity
Balance, March 31, 2024	6,900	$	167,394	870,756	$	46,220,761	$	(7,299,514)	$	64,780	$	38,986,027	$	165,063	$	39,151,090
Net income	—	—		—	—		259,391		—		259,391		1,577		260,968
Other comprehensive income	—	—		—	—		—		10,542		10,542		—		10,542
Distributions paid and payable	—	—		—	—		(684,195)		—		(684,195)		(2,430)		(686,625)
Share issuances, net of costs	—	—		57	2,796		—		—		2,796		—		2,796
Contributions by noncontrolling interests	—	—		—	—		—		—		—		1,067		1,067
Share-based compensation, net	—	—		35	7,232		—		—		7,232		—		7,232
Balance, June 30, 2024	6,900	$	167,394	870,848	$	46,230,789	$	(7,724,318)	$	75,322	$	38,581,793	$	165,277	$	38,747,070

Balance, March 31, 2023	—	$	—	673,207	$	34,958,608	$	(5,772,923)	$	73,421	$	29,259,106	$	128,232	$	29,387,338
Net income	—	—		—	—		195,415		—		195,415		1,738		197,153
Other comprehensive income	—	—		—	—		—		22,636		22,636		—		22,636
Distributions paid and payable	—	—		—	—		(524,718)		—		(524,718)		(1,597)		(526,315)
Share issuances, net of costs	—	—		35,519	2,183,194		—		—		2,183,194		—		2,183,194
Contributions by noncontrolling interests	—	—		—	—		—		—		—		39,559		39,559
Share-based compensation, net	—	—		47	7,578		—		—		7,578		—		7,578
Balance, June 30, 2023	—	$	—	708,773	$	37,149,380	$	(6,102,226)	$	96,057	$	31,143,211	$	167,932	$	31,311,143


Six months ended June 30, 2024 and 2023

	Shares of preferred stock	Preferred stock and paid in capital		Shares of common stock	Common stock and paid in capital		Distributions in excess of net income		Accumulated other comprehensive income		Total stockholders’ equity		Non-controlling interests		Total equity
Balance, December 31, 2023	—	$	—	752,460	$	39,629,709	$	(6,762,136)	$	73,894	$	32,941,467	$	165,502	$	33,106,969
Net income	—	—		—	—		391,675		—		391,675		3,192		394,867
Other comprehensive income	—	—		—	—		—		1,428		1,428		—		1,428
Distributions paid and payable	—	—		—	—		(1,353,857)		—		(1,353,857)		(4,698)		(1,358,555)
Share issuances, net of costs	—	—		9,720	549,452		—		—		549,452		—		549,452
Shares issued with merger	6,900	167,394		108,308	6,043,641		—		—		6,043,641		—		6,043,641
Contributions by noncontrolling interests	—	—		—	—		—		—		—		1,281		1,281
Share-based compensation, net	—	—		360	7,987		—		—		7,987		—		7,987
Balance, June 30, 2024	6,900	$	167,394	870,848	$	46,230,789	$	(7,724,318)	$	75,322	$	38,581,793	$	165,277	$	38,747,070

Balance December 31, 2022	—	$	—	660,300	$	34,159,509	$	(5,493,193)	$	46,833	$	28,713,149	$	130,140	$	28,843,289
Net income	—	—		—	—		420,431		—		420,431		2,844		423,275
Other comprehensive income	—	—		—	—		—		49,224		49,224		—		49,224
Distributions paid and payable	—	—		—	—		(1,029,464)		—		(1,029,464)		(4,611)		(1,034,075)
Share issuances, net of costs	—	—		48,226	2,982,094		—		—		2,982,094		—		2,982,094
Contributions by noncontrolling interests	—	—		—	—		—		—		—		39,559		39,559
Share-based compensation, net	—	—		247	7,777		—		—		7,777		—		7,777
Balance, June 30, 2023	—	$	—	708,773	$	37,149,380	$	(6,102,226)	$	96,057	$	31,143,211	$	167,932	$	31,311,143

The accompanying notes to consolidated financial statements are an integral part of these statements.

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REALTY INCOME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)


	Six months ended June 30,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	394,867	$	423,275
Adjustments to net income:
Depreciation and amortization	1,186,634		923,755
Amortization of share-based compensation	41,270		13,923
Non-cash revenue adjustments	(64,367)		(33,420)
Amortization of net premiums on mortgages payable	(69)		(6,396)
Amortization of net premiums on notes payable	(4,125)		(30,657)
Amortization of deferred financing costs	11,693		12,568
Foreign currency and unrealized derivative gain, net	(5,104)		(6,289)
Non-cash interest expense (income)	7,409		(3,600)
Gain on sales of real estate	(41,727)		(12,103)
Equity in earnings of unconsolidated entities	(353)		(411)
Distributions on common equity from unconsolidated entities	10,551		—
Provisions for impairment	185,947		42,993
Change in assets and liabilities
Accounts receivable and other assets	25,139		25,733
Accounts payable, accrued expenses and other liabilities	12,080		116,742
Net cash provided by operating activities	1,759,845		1,466,113
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in real estate	(892,956)		(4,686,800)
Improvements to real estate, including leasing costs	(51,644)		(29,458)
Investment in unconsolidated entities	(51,856)		—
Investment in loans	(377,490)		—
Proceeds from sales of real estate	201,904		60,460
Return of investment from unconsolidated entities	—		3,927

Proceeds from note receivable	42,574		—
Insurance proceeds received	1,865		7,198
Non-refundable escrow deposits	—		(1,935)
Net cash acquired in merger	93,683		—
Net cash used in investing activities	(1,033,920)		(4,646,608)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash distributions to common stockholders	(1,312,714)		(1,012,336)
Cash distributions to preferred stockholders	(5,175)		—
Borrowings on line of credit and commercial paper programs	11,308,772		27,136,997
Payments on line of credit and commercial paper programs	(10,919,709)		(28,911,973)
Proceeds from term loan	—		1,029,383
Principal payment on term loan	(250,000)		—
Proceeds from notes payable issued	1,250,000		2,074,883
Principal payment on notes payable	(499,999)		—
Principal payments on mortgages payable	(622,357)		(8,070)

Proceeds from common stock offerings, net	543,283		2,976,683
Proceeds from dividend reinvestment and stock purchase plan	6,169		5,411
Distributions to noncontrolling interests	(4,698)		(3,038)
Net payments on derivative settlements	—		(9,285)
Debt issuance costs	(28,603)		(25,108)

Other items, including shares withheld upon vesting	(8,529)		(6,146)
Net cash (used in) provided by financing activities	(543,560)		3,247,401
Effect of exchange rate changes on cash and cash equivalents	(1,429)		21,075
Net increase in cash, cash equivalents and restricted cash	180,936		87,981
Cash, cash equivalents and restricted cash, beginning of period	292,175		226,881
Cash, cash equivalents and restricted cash, end of period	$	473,111	$	314,862

For supplemental disclosures, see note 19, Supplemental Disclosures of Cash Flow Information.

The accompanying notes to consolidated financial statements are an integral part of these statements.

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REALTY INCOME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(unaudited)

1. Summary of Significant Accounting Policies

Realty Income Corporation (“Realty Income,” the “Company,” “we,” “our” or “us”), a Maryland corporation, is an S&P 500 company and real estate partner to the world's leading companies. The Company was founded in 1969 and our shares of common stock trade on the New York Stock Exchange ("NYSE") under the symbol “O”.

As of June 30, 2024, we owned or held interests in a diversified portfolio of 15,450 properties located in all 50 states of the United States ("U.S."), the United Kingdom ("U.K."), and six other countries in Europe, with approximately 335.3 million square feet of leasable space.

In January 2024, we completed our merger with Spirit Realty Capital, Inc. (“Spirit”). For more details, please see note 2, Merger with Spirit Realty Capital, Inc.

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") on our 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 (loss), net' in our consolidated statements of income and comprehensive income. In the statement of cash flows, cash flows denominated in foreign currencies are translated using the exchange rates in effect at the time of the respective cash flows or at average exchange rates for the period, depending on the nature of the cash flow items.

In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented have been included. Operating results for the three and six months ended June 30, 2024 are not necessarily an indication of the results that may be expected for the entire year. Readers of this quarterly report should refer to our audited consolidated financial statements for the year ended December 31, 2023, which are included in our 2023 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.

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 ("VOEs") 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

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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.

At June 30, 2024, we are considered the primary beneficiary of Realty Income, L.P. and certain investments, including investments in joint ventures. Below is a summary of selected financial data of such consolidated VIEs, included on our consolidated balance sheets at June 30, 2024 and December 31, 2023 (in thousands):


	June 30, 2024		December 31, 2023
Net real estate	$	2,875,524	$	2,866,272
Total assets	$	3,555,788	$	3,588,720
Total liabilities	$	158,801	$	134,366

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).

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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Segment Reporting. We report our results in a single reportable segment, which reflects how our chief operating decision maker allocates resources and assesses our performance.

Income Taxes. We have elected to be taxed as a real estate investment trust ("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 TRS entities 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 U.K. 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.

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 a client’s sales, or percentage rent, is recognized only after such client exceeds its sales breakpoint. Rental increases based upon changes in the consumer price indices 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.

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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.

We assess the probability of collecting substantially all of the lease payments to which we are entitled under the original lease contract as required under ASC 842, Leases. We assess the collectability of our future lease payments based on an analysis of creditworthiness, economic trends and other facts and circumstances related to the applicable clients. If we conclude the collection of substantially all of the 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.

Allowance for Credit Losses. The allowance for credit losses, which is recorded as a reduction to loans receivable and financing receivable within 'Other assets, net' on our consolidated balance sheets, is measured using a probability of default method based on our clients' respective credit ratings and the expected value of the underlying collateral upon its repossession. Included in our model are factors that incorporate forward-looking information. Allowance for credit losses is presented in 'Provisions for impairment' in our consolidated statements of income and comprehensive income.

During the three and six months ended June 30, 2024, we recognized a provision for credit losses of $9.3 million and $10.5 million, respectively. The amount recognized during the six months ended June 30, 2024 is comprised of increases of $4.6 million in allowances on loans receivable and $5.9 million in allowances on financing receivables.

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 six months ended June 30, 2024 and 2023, there were no impairments of goodwill.

Recent Accounting Standards Not Yet Adopted.

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes, to enhance income tax disclosures, provide more information about tax risks and opportunities present in worldwide operations, and to disaggregate existing income tax disclosures. The guidance is effective for annual periods beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. We are currently evaluating the impact on our financial statement disclosures.

In November 2023, FASB issued Accounting Standards Update ASU 2023-07, Segment Reporting, establishing improvements to reportable segments disclosures to enhance segment reporting under Topic 280. This ASU aims to change how public entities identify and aggregate operating segments and apply quantitative thresholds to determine their reportable segments. This ASU also requires public entities that operate as a single reportable segment to provide all segment disclosures in Topic 280, not just entity level disclosures. The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024 and the amendments should be applied retrospectively to all periods presented in the financial statements. We are currently evaluating the impact on our financial statement disclosures.

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2. Merger with Spirit Realty Capital, Inc.

On October 29, 2023, we entered into an Agreement and Plan of Merger (as amended, or the “Merger Agreement”) with Saints MD Subsidiary, Inc., (“Merger Sub”) a Maryland corporation and direct wholly owned subsidiary of Realty Income and Spirit, a Maryland corporation.

On January 23, 2024, we completed our merger with Spirit. Pursuant to the terms and subject to the conditions of the Merger Agreement, Spirit merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation (the “Merger”). At the effective time of the Merger (the “Effective Time”), (i) each outstanding share of Spirit common stock, par value $0.05 per share, automatically converted into 0.762 (the “Exchange Ratio”) of a newly issued share of our common stock, subject to adjustments as set forth in the Merger Agreement, and cash in lieu of fractional shares, and (ii) each outstanding share of Spirit’s 6.000% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share, converted into the right to receive one share of newly issued Realty Income 6.000% Series A Cumulative Redeemable Preferred Stock, having substantially the same terms as the Spirit Series A Preferred Stock. Immediately prior to the Effective Time, each award of outstanding restricted Spirit common stock and Spirit performance share award was cancelled and converted into Realty Income common stock, using the Exchange Ratio. For more details, see note 16, Redeemable Preferred Stock.

The primary reason for the merger was to expand our size, scale and diversification, in order to further position us as the real estate partner of choice for large net lease transactions.

Our merger with Spirit 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 Spirit common stock exchanged (1)	142,136,567
Exchange Ratio	0.762
Shares of Realty Income common stock issued	108,308,064
Opening price of Realty Income common stock on January 23, 2024	$	55.80
Fair value of Realty Income common stock issued to the former holders of Spirit common stock	$	6,043,590
Shares of Realty Income Series A preferred stock issued in exchange for Spirit Series A preferred stock	6,900,000
Opening price of Realty Income Series A preferred stock on January 23, 2024	$	24.26
Fair value of Realty Income Series A preferred stock issued to the former holders of Spirit Series A preferred stock	$	167,394
Cash paid for fractional shares	$	51
Less: Fair value of Spirit restricted stock and performance awards attributable to post-combination costs (2)	$	(24,751)
Consideration transferred	$	6,186,284

(1) Includes 142,136,567 shares of Spirit common stock outstanding as of January 23, 2024, which were converted into Realty Income common stock at the Effective Time at an Exchange Ratio of 0.762 per share of Spirit common stock. The portion of the converted unvested Spirit Restricted Stock Awards related to post-combination expense is removed in footnote (2) below.

(2) Represents the fair value of fully vested Spirit restricted stock and performance share awards that were accelerated and converted into Realty Income common stock at the Effective Time, reflecting the value attributable to post-combination services. Spirit restricted stock and performance share awards are included in Spirit's outstanding common stock as of the merger date. The fair value attributable to pre-combination services was $41.7 million and is included in the consideration transferred above.

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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):


	At Acquisition Date As Reported March 31, 2024		Measurement Period Adjustments		At Acquisition Date As Reported June 30, 2024
ASSETS
Land	$	1,853,895	$	(1,673)	$	1,852,222
Buildings and improvements	4,859,162		95,923		4,955,085
Total real estate held for investment	6,713,057		94,250		6,807,307
Real estate and lease intangibles held for sale	35,650		(1,583)		34,067
Cash and cash equivalents	93,683		—		93,683
Accounts receivable	12,959		(145)		12,814
Lease intangible assets (1)	2,214,615		(32,665)		2,181,950
Goodwill	1,259,864		(60,183)		1,199,681
Other assets (2)	174,672		(1,881)		172,791
Total assets acquired	$	10,504,500	$	(2,207)	$	10,502,293
LIABILITIES
Accounts payable and accrued expenses	$	56,407	$	(1,933)	$	54,474
Lease intangible liabilities (3)	378,369		(416)		377,953
Other liabilities	101,954		142		102,096
Term loans	1,300,000		—		1,300,000
Notes payable	2,481,486		—		2,481,486
Total liabilities assumed	$	4,318,216	$	(2,207)	$	4,316,009
Net assets acquired, at fair value	$	6,186,284	$	—	$	6,186,284
Total purchase price	$	6,186,284	$	—	$	6,186,284

(1) The weighted average amortization period for acquired lease intangible assets is 10.8 years.

(2) Includes $53.9 million of gross contractual loans receivable, the fair value of which was $47.1 million, and we expect to collect substantially all of the loans receivable as of the acquisition date.

(3) The weighted average amortization period for acquired lease intangible liabilities is 8.2 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 period in which they are determined, as if they had been completed at the acquisition date. As of June 30, 2024, we had not finalized the determination of fair values allocated to certain assets and liabilities. Accordingly, certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, loss contingencies, and goodwill are subject to change. 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 Spirit, which could be material.

A preliminary estimate of approximately $1.20 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 corporate overhead cost savings. None of the goodwill recognized is expected to be deductible for tax purposes.

The measurement period adjustments recorded in the three months ended June 30, 2024 resulted from updated valuations related to real estate assets and liabilities, in addition to loans receivable. The adjustments were determined based on additional information that existed at the acquisition date but was not contemplated in our initial fair value assessment and resulted in a decrease to goodwill of $60.2 million.

B. Merger and Integration-Related Costs
In conjunction with our merger with Spirit, we incurred $2.8 million and $96.9 million of merger-related transaction costs during the three and six months ended June 30, 2024, respectively, primarily consisting of employee severance, post-combination share-based compensation, transfer taxes, and various professional fees directly attributable to the Merger.

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C. Unaudited Pro Forma Financial Information

The following unaudited pro forma information presents a summary of our combined results of operations for the three and six months ended June 30, 2024 and 2023, respectively, as if our merger with Spirit had occurred on January 1, 2023 (in millions, except per share data). The following pro forma financial information is not necessarily indicative of the results of operations had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results 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.


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Total revenues	$	1,339.4	$	1,211.8	$	2,646.8	$	2,346.7
Net income	$	256.8	$	222.2	$	490.8	$	418.9
Basic earnings per share	$	0.30	$	0.28	$	0.58	$	0.54
Diluted earnings per share	$	0.29	$	0.28	$	0.58	$	0.54

Our consolidated results of operations for the three and six months ended June 30, 2024 include $206.8 million and $361.8 million of revenues, respectively, and $56.1 million and $63.0 million of net income, respectively, associated with the results of operations of Spirit from the merger closing date of January 23, 2024 to June 30, 2024.

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3. Supplemental Detail for Certain Components of Consolidated Balance Sheets (in thousands):


A.	Accounts receivable, net, consist of the following at:	June 30, 2024		December 31, 2023
	Straight-line rent receivables, net	$	612,934	$	516,692
	Client receivables, net	175,705		193,844
		$	788,639	$	710,536


B.	Lease intangible assets, net, consist of the following at:	June 30, 2024		December 31, 2023
	In-place leases	$	7,282,427	$	5,500,404
	Above-market leases	2,191,019		1,811,400
	Accumulated amortization of in-place leases	(2,099,483)		(1,746,377)
	Accumulated amortization of above-market leases	(645,235)		(549,319)
	Other items	1,744		1,799
		$	6,730,472	$	5,017,907


C.	Other assets, net, consist of the following at:	June 30, 2024		December 31, 2023
	Financing receivables, net	$	1,553,737	$	1,570,943
	Right of use asset - financing leases	694,253		706,837
	Right of use asset - operating leases, net	641,873		594,712
	Loan receivable, net	594,048		205,339
	Value-added tax receivable	77,936		100,672
	Prepaid expenses	58,996		33,252
	Derivative assets and receivables - at fair value	52,195		21,170
	Restricted escrow deposits	18,806		6,247
	Corporate assets, net	14,226		12,948
	Interest receivable	11,572		6,139
	Impounds related to mortgages payable	11,485		53,005
	Credit facility origination costs, net	9,797		12,264
	Investment in sales type lease	6,098		6,056
	Non-refundable escrow deposits	—		200
	Other items	50,619		38,859
		$	3,795,641	$	3,368,643


D.	Accounts payable and accrued expenses consist of the following at:	June 30, 2024		December 31, 2023
	Notes payable - interest payable	$	325,788	$	218,811
	Accrued costs on properties under development	103,715		65,967
	Value-added tax payable	89,955		64,885
	Derivative liabilities and payables - at fair value	88,597		119,620
	Property taxes payable	81,411		78,809
	Accrued income taxes	60,655		61,070
	Accrued property expenses	43,482		54,208
	Accrued merger-related costs	19,077		4,551
	Mortgages, term loans, and credit line - interest payable	4,829		8,580
	Other items	66,578		62,025
		$	884,087	$	738,526


E.	Lease intangible liabilities, net, consist of the following at:	June 30, 2024		December 31, 2023
	Below-market leases	$	2,107,340	$	1,728,027
	Accumulated amortization of below-market leases	(402,593)		(321,174)
		$	1,704,747	$	1,406,853

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F.	Other liabilities consist of the following at:	June 30, 2024		December 31, 2023
	Lease liability - operating leases, net	$	473,173	$	425,213
	Rent received in advance and other deferred revenue	306,203		312,195
	Lease liability - financing leases	55,366		44,345
	Security deposits	30,653		28,250
	Other acquisition liabilities	1,597		1,647
		$	866,992	$	811,650

4. Investments in Real Estate

A. Acquisitions of Real Estate

Below is a summary of our acquisitions for the six months ended June 30, 2024:


	Number of Properties	Leasable Square Feet (in thousands)	Investment ($ in millions)		Weighted Average Lease Term (Years)	Initial Weighted Average Cash Lease Yield (1)

Acquisitions - U.S.	20	719	$	147.1	19.3	7.7	%
Acquisitions - Europe	14	1,564	417.9		6.2	8.2	%
Total acquisitions	34	2,283	$	565.0	9.5	8.1	%
Properties under development (2)	162	6,152	409.0		15.5	7.4	%
Total (3)	196	8,435	$	974.0	11.9	7.8	%

(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 (defined as the monthly aggregate cash amount charged to clients, inclusive of monthly base rent receivables), 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 lease yield includes approximately $0.5 million received as settlement credits as reimbursement of free rent periods for the six months ended June 30, 2024.

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)Includes £35.2 million of investments relating to U.K. development properties, €17.7 million of investments relating to Spain development properties, and €6.9 million of investments relating to Portugal development properties, converted at the applicable exchange rates on the funding dates.

(3)Our clients occupying the new properties are 86.2% retail and 13.8% industrial based on net operating income. Approximately 31% of the net operating income generated from acquisitions during the six months ended June 30, 2024 is from investment grade rated clients, their subsidiaries, or affiliated companies.

The aggregate purchase price of the assets acquired during the six months ended June 30, 2024 has been allocated as follows (in millions):


	Acquisitions - USD		Acquisitions - Sterling		Acquisitions - Euro
Land	$	37.4	£	73.5	€	11.1
Buildings and improvements	237.3		157.8		29.2
Lease intangible assets (1)	36.6		60.3		9.5
Other assets (2)	3.8		—		—
Lease intangible liabilities (3)	(14.9)		(2.4)		(0.8)

	$	300.2	£	289.2	€	49.0

(1)The weighted average amortization period for acquired lease intangible assets is 8.5 years.

(2)USD-denominated other assets consist entirely of financing receivables with above-market terms.

(3)The weighted average amortization period for acquired lease intangible liabilities is 10.0 years.

The properties acquired during the six months ended June 30, 2024 generated total revenue and net income of $13.1 million and $3.6 million, respectively.

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B. Investments in Existing Properties

During the six months ended June 30, 2024, we capitalized costs of $49.3 million on existing properties in our portfolio, consisting of $46.2 million for non-recurring building improvements, $3.1 million for re-leasing costs, and less than $0.1 million for recurring capital expenditures. In comparison, during the six months ended June 30, 2023, we capitalized costs of $31.9 million on existing properties in our portfolio, consisting of $26.3 million for non-recurring building improvements, $5.5 million for re-leasing costs, and $0.1 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 liabilities, 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 six months ended June 30, 2024, and 2023 were $434.2 million and $319.4 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 our 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, 2024, and 2023 were $19.1 million and $28.9 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 June 30, 2024 (dollars in thousands):


	Net increase (decrease) to rental revenue		Increase to amortization expense
2024	$	(17,510)	$	418,215
2025	(31,545)		762,169
2026	(34,543)		672,135
2027	(35,137)		575,914
2028	(28,122)		488,379
Thereafter	305,820		2,266,132
Totals	$	158,963	$	5,182,944

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,
	2024		2023		2024		2023
Number of properties	76		29		122		55
Net sales proceeds	$	106.3	$	31.9	$	201.9	$	60.5
Gain on sales of real estate	$	25.2	$	7.8	$	41.7	$	12.1

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5. Investments in Unconsolidated Entities

The following is a summary of our investments in unconsolidated entities as of June 30, 2024 and December 31, 2023 (dollars in thousands):


	Ownership %	Number of Properties	Carrying Amount (1) of Investment as of
Investment	As of June 30, 2024		June 30, 2024		December 31, 2023
Bellagio Las Vegas Joint Venture - Common Equity Interest	21.9%	1	$	283,608	$	296,097
Bellagio Las Vegas Joint Venture - Preferred Equity Interest	n/a	n/a	650,000		650,000
Data Center Joint Venture	80.0%	2	286,151		226,021

Total investment in unconsolidated entities

REALTY INCOME CORP [O] Filings
REALTY INCOME CORP [O-P] Filings
10-Q	[2024-08-06]
10-Q	[2024-05-07]
10-K	[2024-02-21]
10-Q	[2023-11-07]
10-Q	[2023-08-03]
10-Q	[2023-05-04]
10-K	[2023-02-22]
10-Q	[2022-11-03]
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-02-23]
10-Q	[2021-11-02]
10-Q	[2021-08-03]
10-Q	[2021-05-04]
10-K	[2021-02-23]
10-Q	[2020-11-03]
10-Q	[2020-08-04]
10-Q	[2020-05-05]
10-K	[2020-02-24]
10-Q	[2019-11-05]
10-Q	[2019-08-06]
10-Q	[2019-05-02]
10-K	[2019-02-22]
10-Q	[2018-11-01]
10-Q	[2018-08-02]
10-Q	[2018-05-09]
10-K	[2018-02-22]
10-Q	[2017-10-26]
10-Q	[2017-07-27]
10-Q	[2017-04-26]
10-K	[2017-02-23]
10-Q	[2016-10-26]
10-Q	[2016-07-28]
10-Q	[2016-04-27]
10-K	[2016-02-11]
10-Q	[2015-10-29]
10-Q	[2015-07-30]
10-Q	[2015-04-30]

REALTY INCOME CORP [O] Filings

REALTY INCOME CORP [O-P] Filings