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OQ110Q2019NEXTGENONLY_IMAGE1.JPG
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 March 31, 2020, 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
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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐    No  ☒
There were 343,416,057 shares of common stock outstanding as of April 30, 2020.



REALTY INCOME CORPORATION
Index to Form 10-Q
March 31, 2020
Page
 
 
 
 
 
2
 
3
 
4
 
5
 
6
 
 
 
 
 
 
 
 
22
 
23
 
26
 
30
 
36
 
43
 
44
 
45
 
50
 
50
 
50
 
 
 
50
 
 
 
51
 
 
 
 
 
 
 
52
 
 
 
54
 
 
 
55
 
 
 
57

-1-

PART 1. FINANCIAL INFORMATION
Item 1.    Financial Statements
REALTY INCOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share and share count data)
 
March 31, 2020

 
December 31, 2019

ASSETS
(unaudited)

 
 
Real estate held for investment, at cost:
 
 
 
Land
$
5,742,023

 
$
5,684,034

Buildings and improvements
14,070,733

 
13,833,882

Total real estate held for investment, at cost
19,812,756

 
19,517,916

Less accumulated depreciation and amortization
(3,242,175
)
 
(3,117,919
)
Real estate held for investment, net
16,570,581

 
16,399,997

Real estate and lease intangibles held for sale, net
21,356

 
96,775

Cash and cash equivalents
41,804

 
54,011

Accounts receivable
185,632

 
181,969

Lease intangible assets, net
1,516,819

 
1,493,383

Other assets, net
460,250

 
328,661

Total assets
$
18,796,442

 
$
18,554,796

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Distributions payable
$
80,911

 
$
76,728

Accounts payable and accrued expenses
182,177

 
177,039

Lease intangible liabilities, net
328,748

 
333,103

Other liabilities
251,353

 
262,221

Line of credit payable
615,176

 
704,335

Term loans, net
499,151

 
499,044

Mortgages payable, net
408,158

 
410,119

Notes payable, net
6,013,129

 
6,288,049

Total liabilities
8,378,803

 
8,750,638

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Common stock and paid in capital, par value $0.01 per share, 740,200,000 shares authorized, 343,402,030 and 333,619,106 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
13,604,055

 
12,873,849

Distributions in excess of net income
(3,173,468
)
 
(3,082,291
)
Accumulated other comprehensive loss
(42,572
)
 
(17,102
)
Total stockholders’ equity
10,388,015

 
9,774,456

Noncontrolling interests
29,624

 
29,702

Total equity
10,417,639

 
9,804,158

Total liabilities and equity
$
18,796,442

 
$
18,554,796

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

-2-

REALTY INCOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in thousands, except per share data) (unaudited)
 
Three months ended March 31,
 
 
2020

 
2019

REVENUE
 

 
 

Rental (including reimbursable)
$
412,157

 
$
354,037

Other
2,184

 
328

Total revenue
414,341

 
354,365

 
 
 
 
EXPENSES
 
 
 
Depreciation and amortization
164,585

 
137,517

Interest
75,925

 
70,020

Property (including reimbursable)
25,606

 
21,636

General and administrative
20,964

 
15,108

Income taxes
2,763

 
1,445

Provisions for impairment
4,478

 
4,672

Total expenses
294,321

 
250,398

Gain on sales of real estate
38,506

 
7,263

Foreign currency and derivative losses, net
(1,564
)
 
—

Loss on extinguishment of debt
(9,819
)
 
—

Net income
147,143

 
111,230

Net income attributable to noncontrolling interests
(316
)
 
(288
)
Net income available to common stockholders
$
146,827

 
$
110,942

 
 
 
 
Amounts available to common stockholders per common share:
 
 
 
Net Income:
 
 
 
Basic and Diluted
$
0.44

 
$
0.37

 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic
336,624,567

 
303,528,336

Diluted
336,976,515

 
303,819,878

 
 
 
 
Other comprehensive income:
 
 
 
Net income available to common stockholders
$
146,827

 
$
110,942

Foreign currency translation adjustment
392

 
—

Unrealized loss on derivatives, net
(25,862
)
 
(3,699
)
Comprehensive income available to common stockholders
$
121,357

 
$
107,243


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

-3-

REALTY INCOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY 
(dollars in thousands) (unaudited)

Three Months Ended March 31, 2020 and 2019
 
 
Shares of
common
stock

 
Common
stock and
paid in
capital

 
Distributions
in excess of
net income

 
Accumulated other comprehensive loss

 
Total
stockholders’
equity

 
Noncontrolling
interests

 
Total
equity

Balance, December 31, 2018
 
303,742,090

 
$
10,754,495

 
$
(2,657,655
)
 
$
(8,098
)
 
$
8,088,742

 
$
32,236

 
$
8,120,978

Net income
 
—

 
—

 
110,942

 
—

 
110,942

 
288

 
111,230

Other comprehensive loss
 
—

 
—

 
—

 
(3,699
)
 
(3,699
)
 
—

 
(3,699
)
Distributions paid and payable
 
—

 
—

 
(206,062
)
 
—

 
(206,062
)
 
(273
)
 
(206,335
)
Share issuances, net of costs
 
31,898

 
2,151

 
—

 
—

 
2,151

 
—

 
2,151

Issuance of common partnership units
 
—

 
—

 
—

 
—

 
—

 
6,286

 
6,286

Redemption of common units
 
—

 
(6,869
)
 
—

 
—

 
(6,869
)
 
(13,356
)
 
(20,225
)
Share-based compensation, net
 
33,433

 
(1,310
)
 
—

 
—

 
(1,310
)
 
—

 
(1,310
)
Balance, March 31, 2019
 
303,807,421

 
$
10,748,467

 
$
(2,752,775
)
 
$
(11,797
)
 
$
7,983,895

 
$
25,181

 
$
8,009,076

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2019
 
333,619,106

 
$
12,873,849

 
$
(3,082,291
)
 
$
(17,102
)
 
$
9,774,456

 
$
29,702

 
$
9,804,158

Net Income
 
—

 
—

 
146,827

 
—

 
146,827

 
316

 
147,143

Other comprehensive loss
 
—

 
—

 
—

 
(25,470
)
 
(25,470
)
 
—

 
(25,470
)
Distributions paid and payable
 
—

 
—

 
(238,004
)
 
—

 
(238,004
)
 
(394
)
 
(238,398
)
Share issuances, net of costs
 
9,724,500

 
730,776

 
—

 
—

 
730,776

 
—

 
730,776

Share-based compensation, net
 
58,424

 
(570
)
 
—

 
—

 
(570
)
 
—

 
(570
)
Balance, March 31, 2020
 
343,402,030

 
$
13,604,055

 
$
(3,173,468
)
 
$
(42,572
)
 
$
10,388,015

 
$
29,624

 
$
10,417,639

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


-4-

REALTY INCOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands) (unaudited)
 
   Three Months Ended
          March 31,
 
2020

 
2019

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
147,143

 
$
111,230

Adjustments to net income:
 
 
 
Depreciation and amortization
164,585

 
137,517

Amortization of share-based compensation
5,518

 
2,764

Non-cash revenue adjustments
(1,352
)
 
(2,116
)
Loss on extinguishment of debt
9,819

 
—

Amortization of net premiums on mortgages payable
(354
)
 
(354
)
Amortization of deferred financing costs
2,581

 
1,957

Loss on interest rate swaps
686

 
678

Foreign currency and derivative losses, net
1,564

 
—

Gain on sales of real estate
(38,506
)
 
(7,263
)
Provisions for impairment on real estate
4,478

 
4,672

Change in assets and liabilities
 
 
 
Accounts receivable and other assets
3,005

 
(6,185
)
Accounts payable, accrued expenses and other liabilities
(33,951
)
 
(30,873
)
Net cash provided by operating activities
265,216

 
212,027

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Investment in real estate
(473,245
)
 
(517,975
)
Improvements to real estate, including leasing costs
(3,658
)
 
(2,995
)
Proceeds from sales of real estate
126,233

 
22,456

Insurance and other proceeds received
539

 
—

Non-refundable escrow deposits
(1,280
)
 
—

Net cash used in investing activities
(351,411
)
 
(498,514
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Cash distributions to common stockholders
(233,824
)
 
(204,546
)
Borrowings on line of credit
846,532

 
732,000

Payments on line of credit
(921,859
)
 
(146,000
)
Principal payment on term loan
—

 
(70,000
)
Principal payment on notes payable
(250,000
)
 
—

Principal payments on mortgages payable
(1,673
)
 
(1,235
)
Payments upon extinguishment of debt
(9,445
)
 
—

Proceeds from common stock offerings, net
728,883

 
—

Proceeds from dividend reinvestment and stock purchase plan
2,366

 
2,164

Redemption of common units
—

 
(20,225
)
Distributions to noncontrolling interests
(394
)
 
(321
)
Net receipts on derivative settlements
1,251

 
—

Other items, including shares withheld upon vesting
(6,561
)
 
(4,087
)
Net cash provided by financing activities
155,276

 
287,750

Effect of exchange rate changes on cash and cash equivalents
(2,929
)
 
—

Net increase in cash, cash equivalents and restricted cash
66,152

 
1,263

Cash, cash equivalents and restricted cash, beginning of period
71,005

 
21,071

Cash, cash equivalents and restricted cash, end of period
$
137,157

 
$
22,334

For supplemental disclosures, see note 17.
The accompanying notes to consolidated financial statements are an integral part of these statements.


-5-

REALTY INCOME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)
1.
Basis of Presentation
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, 2019, which are included in our 2019 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. Unless otherwise indicated, all dollar amounts are expressed in United States (U.S.) dollars.
At March 31, 2020 we owned 6,525 properties, located in 49 U.S. states, Puerto Rico and the United Kingdom (U.K.), consisting of approximately 106.0 million leasable square feet.
2.Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements
A. The accompanying consolidated financial statements include the accounts of Realty Income and other subsidiaries for which we make operating and financial decisions (i.e., control), after elimination of all material intercompany balances and transactions. We consolidate entities that we control and record a noncontrolling interest for the portion that we do not own. 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 10). We have no unconsolidated investments.
B. 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 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, we generally will not be required to pay federal corporate 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. The income taxes recorded on our consolidated statements of income and comprehensive income represent amounts paid by Realty Income and its subsidiaries for city and state income and franchise taxes and for U.K. income taxes.
C. The COVID-19 pandemic and the measures taken to limit its spread are negatively impacting the economy across many industries, including the industries in which some of our tenants operate. These impacts may continue and increase in severity as the duration of the pandemic lengthens, which may, in turn, adversely impact the fair value estimates of our real estate and recording of impairments on our properties. As a result, we are evaluating certain key assumptions involving fair value estimates of our real estate. We 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. However, as of March 31, 2020, we have determined that the COVID-19 pandemic and the measures taken to limit its spread have not had a material impact on our consolidated financial statements as of and for period ended March 31, 2020. Based on the status of our business operations as of March 31, 2020, as a result of the COVID-19 pandemic, we expect to remain in compliance with the financial covenants for our unsecured notes and credit facility over the next 12 months.

On April 8, 2020, the Financial Accounting Standards Board, or FASB, staff and FASB board members responded to questions about the accounting for COVID-19 related rent concessions under Topic 842, Leases. The accounting for these rent concessions under Topic 842 depends on the enforceable rights and obligations of the parties under the original lease contract (including those arising from the laws of the jurisdiction governing the lease contract) and the nature of any changes to the terms and conditions of the contract. If a rent concession under these circumstances is required by the original lease contract (e.g. by a force majeure clause), the concession will generally be accounted for as a variable lease payment. In contrast, if the lessor is under no obligation to grant a rent concession, the lessor’s agreement to grant one should be accounted for as a lease modification.


-6-

The FASB staff has provided clarifying guidance for leases where the total lease cash flows will remain substantially the same or less than those after the COVID-19 related effects, though companies may choose to forgo the evaluation of the enforceable rights and obligations of the original lease contract as a practical expedient. Instead, the company would account for rent concessions, whatever their form (e.g. rent deferral, abatement or other), either (1) as if they are part of the enforceable rights and obligations of the parties under the existing lease contract; or (2) as a lease modification. If accounting for a concession as a lease modification, the full lease modification requirements under Topic 842 apply. Under either policy election, we must 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. If we conclude collection of substantially all lease payments is less than probable, rental revenue recognized is limited to cash received and existing operating lease receivables must be written off as an adjustment to rental revenue.

We assess collectability of our future lease payments based on an analysis of creditworthiness, economic trends, including the COVID-19 pandemic, and other facts and circumstances related to the applicable tenants. As we collect the majority of our rent in advance and at this time we do not have any tenant specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable, the impact of the COVID-19 pandemic on our tenants' ability to pay rent did not have a significant impact on our consolidated financial statements for the quarter ended March 31, 2020. However, since the conversations regarding rent collections for tenants affected by COVID-19 are ongoing we do not currently know the types of concessions, if any, that will ultimately be granted and, as a result, have not yet made an election to proceed with option (1) or (2) above.
D. During the first three months of 2020, we reclassified 'Real estate held for sale, net', which was previously presented in 'Net real estate', into a new caption entitled 'Real estate and lease intangibles held for sale, net'. The reclassification out of 'Net real estate' incorporates intangibles held for sale into a more appropriate presentation of the held for sale caption. Intangibles held for investment are included in the captions entitled 'Lease intangible assets, net' and 'Lease intangible liabilities, net' in the consolidated balance sheets. The December 31, 2019 balance sheet has been reclassified to match the current period classification.

3.Supplemental Detail for Certain Components of Consolidated Balance Sheets (dollars in thousands):
A.
Lease intangible assets, net, consist of the following at:
March 31, 2020

 
December 31, 2019

 
In-place leases
$
1,667,826

 
$
1,612,153

 
Accumulated amortization of in-place leases
(659,165
)
 
(627,676
)
 
Above-market leases
720,341

 
710,275

 
Accumulated amortization of above-market leases
(212,183
)
 
(201,369
)
 
 
$
1,516,819

 
$
1,493,383


B.
Other assets, net, consist of the following at:
March 31, 2020

 
December 31, 2019

 
Right of use asset - operating leases, net
$
119,648

 
$
120,533

 
Right of use asset - financing leases
88,804

 
36,901

 
Restricted escrow deposits
82,391

 
4,529

 
Financing receivables
81,436

 
81,892

 
Derivative assets and receivables - at fair value
25,173

 
12

 
Prepaid expenses
16,113

 
11,839

 
Goodwill
14,397

 
14,430

 
Impounds related to mortgages payable
12,962

 
12,465

 
Credit facility origination costs, net
10,274

 
11,453

 
Corporate assets, net
5,534

 
5,251

 
Non-refundable escrow deposits
1,280

 
14,803

 
Value-added tax receivable
—

 
9,682

 
Other items
2,238

 
4,871

 
 
$
460,250

 
$
328,661



-7-

C.
Distributions payable consist of the following declared distributions at:
March 31, 2020

 
December 31, 2019

 
Common stock distributions
$
80,803

 
$
76,622

 
Noncontrolling interests distributions
108

 
106

 
 
$
80,911

 
$
76,728


D.
Accounts payable and accrued expenses consist of the following at:
March 31, 2020

 
December 31, 2019

 
Derivative liabilities and payables - at fair value
$
67,944

 
$
26,359

 
Notes payable - interest payable
62,709

 
75,114

 
Property taxes payable
16,478

 
18,626

 
Accrued income taxes
4,429

 
4,450

 
Value-added tax payable
4,301

 
13,434

 
Accrued costs on properties under development
3,325

 
5,870

 
Mortgages, term loans, credit line - interest payable and interest rate swaps
1,876

 
1,729

 
Other items
21,115

 
31,457

 
 
$
182,177

 
$
177,039


E.
Lease intangible liabilities, net, consist of the following at:
March 31, 2020

 
December 31, 2019

 
Below-market leases
$
449,445

 
$
447,522

 
Accumulated amortization of below-market leases
(120,697
)
 
(114,419
)
 
 
$
328,748

 
$
333,103


F.
Other liabilities consist of the following at:
March 31, 2020

 
December 31, 2019

 
Lease liability - operating leases, net
$
121,790

 
$
122,285

 
Rent received in advance and other deferred revenue
117,291

 
127,687

 
Security deposits
6,249

 
6,303

 
Lease liability - financing leases
6,023

 
5,946

 
 
$
251,353

 
$
262,221


4.
Investments in Real Estate
We acquire land, buildings and improvements necessary for the successful operations of commercial tenants.
A.    Acquisitions During the First Three Months of 2020 and 2019
Below is a summary of our acquisitions for the three months ended March 31, 2020:
 
Number of Properties

 
Square Feet
(in millions)

 
Investment
($ in millions)

 
Weighted Average Lease Term (Years)
 
Initial Average Cash Lease Yield

Three Months Ended March 31, 2020 (1)
 
 
 
 
 
 
 
 
 
Acquisitions - U.S. (in 22 states)
54

 
1.4

 
$
318.3

 
14.8
 
6.5
%
Acquisitions - U.K. (2)
4

 
0.4

 
165.6

 
12.5
 
5.1
%
Total Acquisitions
58

 
1.8

 
483.9

 
14.2
 
6.0
%
Properties under Development - U.S.
7

 
0.2

 
2.1

 
10.6
 
7.5
%
Total (3)
65

 
2.0

 
$
486.0

 
14.1
 
6.0
%
(1) 
None of our investments during the first three months of 2020 caused any one tenant to be 10% or more of our total assets at March 31, 2020. All of our investments in acquired properties during the first three months of 2020 are 100% leased at the acquisition date.    
(2) 
Represents investments of £133.3 million Sterling during the three months ended March 31, 2020 converted at the applicable exchange rate on the date of acquisition.
(3) 
The tenants occupying the new properties operate in 17 industries, and are 95.4% retail and 4.6% industrial, based on rental revenue. Approximately 36% of the rental revenue generated from acquisitions during the first three months of 2020 is from investment grade rated tenants, their subsidiaries or affiliated companies.
The $486.0 million invested during the first three months of 2020 was allocated as follows: $70.2 million to land (of which $7.4 million was related to right of use assets under long-term ground leases), $56.9 million to right of use assets under ground leases, $295.9 million to buildings and improvements, $64.8 million to intangible assets related to leases, $508,000 to financing receivables related to certain leases with above-market terms, $1.4 million to

-8-

intangible liabilities related to below-market leases and $934,000 to lease liabilities under ground leases. There was no contingent consideration associated with these acquisitions.
The properties acquired during the first three months of 2020 generated total revenues of $3.9 million and net income of $1.2 million during the three months ended March 31, 2020.
Below is a summary of our acquisitions for the three months ended March 31, 2019:
 
Number of Properties

 
Square Feet
(in millions)

 
Investment
($ in millions)

 
Weighted Average Lease Term (Years)
 
Initial Average Cash Lease Yield

Three months ended March 31, 2019 (1)
 
 
 
 
 
 
 
 
 
Acquisitions - U.S. (in 25 states)
97

 
1.9

 
$
508.6

 
17.0
 
6.7
%
Properties under Development - U.S.
8

 
0.4

 
10.9

 
17.3
 
7.2
%
Total (2)
105

 
2.3

 
$
519.5

 
17.0
 
6.7
%
(1) 
None of our investments during the first three months of 2019 caused any one tenant to be 10% or more of our total assets at March 31, 2019. All of our investments in acquired properties during the first three months of 2019 were 100% leased upon acquisition.
(2) 
The tenants occupying the new properties operated in 14 industries, and the property types consisted of 98.7% retail and 1.3% industrial, based on rental revenue. Approximately 31% of the rental revenue generated from acquisitions during the first three months of 2019 was from investment grade rated tenants, their subsidiaries or affiliated companies.
The $519.5 million invested during the first three months of 2019 was allocated as follows: $121.1 million to land, $329.2 million to buildings and improvements, $52.4 million to intangible assets related to leases, $26.3 million to financing receivables related to certain leases with off-market terms, and $9.5 million to intangible liabilities related to certain leases with below-market terms. There was no contingent consideration associated with these acquisitions.
The properties acquired during the first three months of 2019 generated total revenues of $3.5 million and net income of $1.8 million during the three months ended March 31, 2019.
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 tenant 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.
In the case of a property under development or expansion, the contractual lease rate is generally fixed such that rent varies based on the actual total investment in order to provide a fixed rate of return. When the lease does not provide for a fixed rate of return on a property under development or expansion, the initial average cash lease yield is computed as follows: estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs.

B.    Investments in Existing Properties
During the first three months of 2020, we capitalized costs of $2.1 million on existing properties in our portfolio, consisting of $138,000 for re-leasing costs and $2.0 million for non-recurring building improvements. In comparison, during the first three months of 2019, we capitalized costs of $3.0 million on existing properties in our portfolio, consisting of $323,000 for re-leasing costs, $56,000 for recurring capital expenditures, and $2.6 million for non-recurring building improvements.

C.    Properties with Existing Leases
Of the $486.0 million we invested during the first three months of 2020, approximately $363.0 million was used to acquire 39 properties with existing leases. In comparison, of the $519.5 million we invested during the first three months of 2019, approximately $258.0 million was used to acquire 53 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.

-9-

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 first three months of 2020 and 2019 were $32.6 million and $26.0 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 on 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 first three months of 2020 and 2019 were $8.2 million and $3.4 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 March 31, 2020 (dollars in thousands):
 
Net
decrease to
rental revenue

Increase to
amortization
expense

2020
$
(17,775
)
$
96,203

2021
(22,683
)
120,617

2022
(21,135
)
108,643

2023
(19,618
)
96,339

2024
(18,031
)
87,650

Thereafter
(80,168
)
499,209

Totals
$
(179,410
)
$
1,008,661


5.
Credit Facility
We have a $3.0 billion unsecured revolving credit facility with an initial term that expires in March 2023 and includes, at our option, two six-month extensions. The revolving credit facility allows us to borrow in up to 14 currencies, including U.S. dollars, and has a $1.0 billion expansion option, which is subject to obtaining lender commitments. Under our credit facility, our investment grade credit ratings as of March 31, 2020 provide for financing at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 0.775% with a facility commitment fee of 0.125%, for all-in drawn pricing of 0.90% over LIBOR. The borrowing rate is subject to an interest rate floor and may change if our investment grade credit ratings change. We also have other interest rate options available to us under our revolving credit facility. Our revolving credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation.
At March 31, 2020, credit facility origination costs of $10.3 million are included in other assets, net, as compared to $11.5 million at December 31, 2019, on our consolidated balance sheet. These costs are being amortized over the remaining term of our revolving credit facility.
At March 31, 2020, we had a borrowing capacity of $2.4 billion available on our revolving credit facility (subject to customary conditions to borrowing) and an outstanding balance of $615.2 million, including £282.8 million Sterling, as compared to an outstanding balance of $704.3 million, including £169.2 million Sterling, at December 31, 2019.
On April 9, 2020, we borrowed an additional $1.2 billion on our revolving credit facility to increase our cash position to $1.25 billion as a conservative measure due to COVID-19. See Note 21, Subsequent Events.
The weighted average interest rate on outstanding borrowings under our revolving credit facility was 2.1% during the first three months of 2020 and 3.3% during the first three months of 2019. At March 31, 2020 and December 31, 2019, the weighted average interest rate on borrowings outstanding under our revolving credit facility was 1.3% and 2.2%, respectively. Our revolving credit facility is subject to various leverage and interest coverage ratio limitations, and at March 31, 2020, we were in compliance with the covenants on our revolving credit facility.

-10-

6.
Term Loans

In October 2018, in conjunction with entering into our current revolving credit facility, we entered into a $250.0 million senior unsecured term loan, which matures in March 2024. Borrowing under this term loan bears interest at the current one-month LIBOR, plus 0.85%. In conjunction with this term loan, we also entered into an interest rate swap, which effectively fixes our per annum interest on this term loan at 3.89%.
In June 2015, in conjunction with entering into our previous revolving credit facility, we entered into a $250.0 million senior unsecured term loan maturing in June 2020. Borrowing under this term loan bears interest at the current one-month LIBOR, plus 0.90%. In conjunction with this term loan, we also entered into an interest rate swap which effectively fixes our per annum interest rate on this term loan at 2.62%. Upon the maturity of this term loan, we intend to either repay the outstanding principal with cash on hand, enter into an amendment to our current term loan, or enter into a new term loan.

Deferred financing costs of $1.2 million incurred in conjunction with the $250.0 million term loan maturing June 2020 and $1.1 million incurred in conjunction with the $250.0 million term loan maturing March 2024 are being amortized over the remaining terms of each respective term loan. The net balance of these deferred financing costs, which was $849,000 at March 31, 2020, and $956,000 at December 31, 2019, is included within term loans, net on our consolidated balance sheets.
7.
Mortgages Payable
During the first three months of 2020, we made $1.7 million in principal payments. During the first three months of 2019, we made $1.2 million in principal payments. No mortgages were assumed during the first three months of 2020 or 2019. Assumed mortgages are secured by the properties on which the debt was placed and are considered non-recourse debt with limited customary exceptions for items such as solvency, bankruptcy, misrepresentation, fraud, misapplication of payments, environmental liabilities, failure to pay taxes, insurance premiums, liens on the property, violations of the single purpose entity requirements, and uninsured losses.
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 March 31, 2020, 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 $1.2 million at March 31, 2020 and $1.3 million at December 31, 2019. These costs are being amortized over the remaining term of each mortgage.
The following table summarizes our mortgages payable as of March 31, 2020 and December 31, 2019, 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

3/31/2020
 
92
 
4.9
%
 
4.7
%
 
2.9
 
$
406,746

 
$
1,412

 
$
408,158

12/31/2019
 
92
 
4.9
%
 
4.6
%
 
3.1
 
$
408,419

 
$
1,700

 
$
410,119

(1) 
At March 31, 2020 and December 31, 2019, there were 27 mortgages on 92 properties. The mortgages require monthly payments with principal payments due at maturity. The mortgages were at fixed interest rates, except for one variable rate mortgage on one property, which has been swapped to a fixed interest rate, with a principal balance at March 31, 2020 and December 31, 2019 of $7.0 million and $7.1 million, respectively.
(2) Stated interest rates ranged from 3.8% to 6.9% at each of March 31, 2020 and December 31, 2019.
(3) Effective interest rates ranged from 3.8% to 7.6% at each of March 31, 2020 and December 31, 2019.

-11-

The following table summarizes the maturity of mortgages payable, excluding net premiums of $2.6 million and deferred financing costs of $1.2 million, as of March 31, 2020 (dollars in millions):
Year of Maturity
 
Principal

2020
 
$
82.6

2021
 
68.8

2022
 
111.8

2023
 
20.6

2024
 
112.1

Thereafter
 
10.8

Totals
 
$
406.7


8.
Notes Payable
A.    General
Our senior unsecured notes and bonds consist of the following, sorted by maturity date (dollars in millions):
 
March 31, 2020

 
December 31, 2019

5.750% notes, issued in June 2010 and due in January 2021
$
—

 
$
250

3.250% notes, $450 issued in October 2012 and $500 issued in December 2017, both due in October 2022
950

 
950

4.650% notes, issued in July 2013 and due in August 2023
750

 
750

3.875% notes, issued in June 2014 and due in July 2024
350

 
350

3.875% notes, issued in April 2018 and due in April 2025
500

 
500

4.125% notes, $250 issued in September 2014 and $400 issued in March 2017, both due in October 2026
650

 
650

3.000% notes, issued in October 2016 and due in January 2027
600

 
600

3.650% notes, issued in December 2017 and due in January 2028
550

 
550

3.250% notes, issued in June 2019 and due in June 2029
500

 
500

2.730% notes, issued in May 2019 and due in May 2034 (1)
391

 
418

5.875% bonds, $100 issued in March 2005 and $150 issued in June 2011, both due in March 2035
250

 
250

4.650% notes, $300 issued in March 2017 and $250 issued in December 2017, both due in March 2047
550

 
550

Total principal amount
6,041

 
6,318

Unamortized net original issuance premiums and deferred financing costs
(28
)
 
(30
)
 
$
6,013

 
$
6,288


(1) 
Represents the principal balance (in U.S. dollars) of the Sterling-denominated private placement of £315.0 million converted at the applicable exchange rates on March 31, 2020, and December 31, 2019, respectively.
The following table summarizes the maturity of our notes and bonds payable as of March 31, 2020, excluding net unamortized original issuance premiums and deferred financing costs (dollars in millions):
Year of Maturity
 
Principal

2022
 
$
950

2023
 
750

2024
 
350

Thereafter
 
3,991

Totals
 
$
6,041


As of March 31, 2020, the weighted average interest rate on our notes and bonds payable was 3.8% and the weighted average remaining years until maturity was 8.3 years. All of our outstanding notes and bonds payable have fixed interest rates and contain various covenants, with which we remained in compliance as of March 31, 2020. Additionally, interest on all of our senior unsecured note and bond obligations is paid semiannually.

-12-

B.    Note Repayment
In January 2020, we completed the early redemption on all $250.0 million in principal amount of our outstanding 5.750% notes due January 2021, plus accrued and unpaid interest. As a result of the early redemption, we recognized a $9.8 million loss on extinguishment of debt on our consolidated statement of income for the first quarter of 2020.
9.
Issuances of Common Stock
A.    Issuance of Common Stock in an Underwritten Public Offering
In March 2020, we issued 9,690,500 shares of common stock in an underwritten public offering, including 690,500 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After deducting underwriting discounts and other offering costs of $21.5 million, the net proceeds of $728.5 million were used to repay borrowings under our credit facility, to fund investment opportunities, and for other general corporate purposes.
B.    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 March 31, 2020, we had 11,618,668 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 March 31,
 
 
2020

 
2019

Shares of common stock issued under the DRSPP program
34,000

 
31,898

Gross proceeds
$
2.4

 
$
2.2


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 first three months of 2020 or 2019.
C.    At-the-Market (ATM) Program
Under our "at-the-market" equity distribution plan, or our ATM program, up to 33,402,405 shares of common stock may be offered and sold (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers' transactions on the New York Stock Exchange ("NYSE: O") at prevailing market prices or at negotiated prices. At March 31, 2020, we had 33,402,405 shares remaining for future issuance under our ATM program. We anticipate maintaining the availability of our ATM program in the future, including through replenishing the authorized shares issuable thereunder. We did not issue any shares under the ATM program during the first three months of 2020 or 2019.
10.    Noncontrolling Interests
The two noncontrolling interests that we consolidate include an operating partnership, Realty Income, L.P., and a joint venture acquired during 2019. The following table represents the change in the carrying value of all noncontrolling interests through March 31, 2020 (dollars in thousands):
 
Realty Income, L.P.
units (1)

 
Other
Noncontrolling
Interests

 
Total

Carrying value at December 31, 2019
$
24,596

 
$
5,106

 
$
29,702

Distributions
(323
)
 
(71
)
 
(394
)
Allocation of net income
277

 
39

 
316

Carrying value at March 31, 2020
$
24,550

 
$
5,074

 
$
29,624

(1)  242,007 units were issued on March 30, 2018, 131,790 units were issued on April 30, 2018, and 89,322 units were issued on March 28, 2019. 463,119 remained outstanding at each of March 31, 2020 and December 31, 2019.

-13-

At March 31, 2020 and December 31, 2019, Realty Income, L.P. and the joint venture acquired during 2019 were considered variable interest entities, or 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 in the consolidated balance sheets at March 31, 2020 and December 31, 2019 (in thousands):
 
March 31, 2020

 
December 31, 2019

Net real estate
$
647,877

 
$
654,305

Total assets
737,990

 
744,394

Total liabilities
52,613

 
52,087


11.    Financial Instruments and Fair Value Measurements
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 disclosure for assets and liabilities measured at fair value requires allocation to a three-level valuation hierarchy. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
We believe that the carrying values reflected in our consolidated balance sheets reasonably approximate the fair values for cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, line of credit payable, term loans and all other liabilities, due to their short-term nature or interest rates and terms that are consistent with market, except for our mortgages payable assumed in connection with acquisitions and our senior notes and bonds payable, which are disclosed as follows (dollars in millions):
March 31, 2020
Carrying value

 
Estimated fair value

Mortgages payable assumed in connection with acquisitions (1)
$
406.7

 
$
410.3

Notes and bonds payable (2)
6,041.2

 
6,008.4

December 31, 2019
Carrying value

 
Estimated fair value

Mortgages payable assumed in connection with acquisitions (1)
$
408.4

 
$
417.7

Notes and bonds payable (2)
6,317.6

 
6,826.1

(1) 
Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums was $2.6 million at March 31, 2020, and $3.0 million at December 31, 2019. Also excludes deferred financing costs of $1.2 million at March 31, 2020 and $1.3 million at December 31, 2019.
(2) 
Excludes non-cash original issuance premiums and discounts recorded on notes payable. The unamortized balance of the net original issuance premiums was $6.2 million at March 31, 2020, and $6.3 million at December 31, 2019. Also excludes deferred financing costs of $34.3 million at March 31, 2020 and $35.9 million at December 31, 2019.
The estimated fair values of our mortgages payable assumed in connection with acquisitions and private senior notes payable have been calculated by discounting the future cash flows using an interest rate based upon the relevant forward interest rate curve, plus an applicable credit-adjusted spread. Because this methodology includes unobservable inputs that reflect our own internal assumptions and calculations, the measurement of estimated fair values related to our mortgages payable is categorized as level three on the three-level valuation hierarchy.
The estimated fair values of our publicly-traded senior notes and bonds payable are based upon indicative market prices and recent trading activity of our senior notes and bonds payable. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values related to our notes and bonds payable is categorized as level two on the three-level valuation hierarchy.
In February 2020, we entered into five forward starting treasury rate locks with notional amounts totaling $500.0 million. The treasury rate locks were entered into to hedge our exposure to the changes in the 10-year US treasury rates in anticipation of potential future debt offerings during the first half of 2020. These treasury rate locks are designated as cash flow hedges, with any changes in fair value recorded in accumulated other comprehensive income, or AOCI.

-14-

In May 2019, we entered into four cross-currency swaps to exchange £130 million for $166 million maturing in May 2034, in order to hedge the foreign currency risk associated with our Sterling-denominated intercompany loan receivable from our consolidated foreign subsidiaries. These cross-currency swaps were designated as cash flow hedges on their trade date. Gains and losses, representing hedge components excluded from the assessment of effectiveness, are recognized in earnings over the life of the hedges on a systematic and rational basis, as documented at hedge inception in accordance with our accounting policy election. The earnings recognition of excluded components is presented in foreign currency and derivative gains, net on our consolidated statements of income and comprehensive income, which is the same caption item as the hedged transactions.
We record interest rate swaps on the consolidated balances sheet at fair value. Changes to fair value are recorded to AOCI.
The following table summarizes the terms and fair values of our derivative financial instruments at     March 31, 2020 and December 31, 2019 (dollars in millions):
Derivative Type
Hedge Designation
Notional Amount
Strike
Effective Date
Maturity Date
Fair Value - asset (liability)
 
 
March 31,

December 31,

 
 
 
March 31

December 31,

 
 
2020

2019

 
 
 
2020

2019

Interest rate swap
Cash flow
$
7.0

$
7.0

6.03%
09/25/2012
09/03/2021
$
(0.3
)
$
(0.2
)
Interest rate swap
Cash flow
250.0

250.0

1.72%
06/30/2015
06/30/2020
(0.6
)
(0.1
)
Interest rate swap
Cash flow
250.0

250.0

3.04%
10/24/2018
03/24/2024
(25.3
)
(14.7
)
Cross-currency swap (1)
Cash flow
41.6

41.6

(2) 
05/20/2019
05/22/2034
6.9

(2.6
)
Cross-currency swap (1)
Cash flow
41.6

41.6

(3) 
05/20/2019
05/22/2034
6.4

(2.6
)
Cross-currency swap (1)
Cash flow
41.6

41.6

(4) 
05/20/2019
05/22/2034
6.0

(2.9
)
Cross-currency swap (1)
Cash flow
41.6

41.6

(5) 
05/20/2019
05/22/2034
5.8

(3.2
)
Treasury rate lock(6)
Cash flow
75.0

—

1.63%
(6) 
06/30/2020
(6.9
)
—

Treasury rate lock(6)
Cash flow
75.0

—

1.63%
(6) 
06/30/2020
(6.9
)
—

Treasury rate lock(6)
Cash flow
100.0

—

1.64%
(6) 
06/30/2020
(9.2
)
—

Treasury rate lock(6)
Cash flow
100.0

—

1.57%
(6) 
06/30/2020
(8.6
)
—

Treasury rate lock(6)
Cash flow
150.0

—

1.37%
(6) 
06/30/2020
(10.0
)
—

 
 
$
1,173.4

$
673.4

 
 
 
$
(42.7
)
$
(26.3
)
(1) 
Represents British Pound Sterling, or GBP, United States Dollar, or USD, cross-currency swap.
(2) 
GBP fixed rates initially at 4.82% and escalating to 10.96%, and USD fixed rate at 9.800%.
(3) 
GBP fixed rates initially at 4.82% and escalating to 10.96%, and USD fixed rate at 9.803%.
(4) 
GBP fixed rates initially at 4.82% and escalating to 10.96%, and USD fixed rate at 9.745%.
(5) 
GBP fixed rates initially at 4.82% and escalating to 10.96%, and USD fixed rate at 9.755%.
(6) 
These treasury rate locks were entered into during February 2020 to hedge our exposure to the changes in the 10-year US treasury rate on potential future debt offerings during the first half of 2020. In the event we do not execute a debt offering or offerings within the original contract maturity, we may elect to extend the maturity of all or a portion of these contracts.
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 swap agreements to manage interest rate risk and cross-currency swaps 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

-15-

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 March 31, 2020 and December 31, 2019, 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 on the three-level valuation hierarchy.
Unrealized gains and losses in AOCI are reclassified to interest expense in the case of interest rate swaps and to foreign currency gains and losses, net in the case of cross-currency swaps, when the related hedged items are recognized. During the three months ended March 31, 2020, we reclassified $1.6 million from AOCI as an increase to interest expense for our interest rate swaps and $11.4 million for cross-currency swaps into foreign exchange gains. During the first three months of 2019, we reclassified $678,000 from AOCI into interest expense.
We expect to reclassify $12.0 million from AOCI as an increase to interest expense relating to interest rate swaps and treasury locks and $2.1 million from AOCI to foreign currency gain relating to cross-currency swaps within the next twelve months.
12.     Operating Leases
 
A. At March 31, 2020, we owned 6,525 properties in 49 U.S. states, Puerto Rico, and the U.K. Of the 6,525 properties, 6,490, or 99.5%, are single-tenant properties, and the remaining are multi-tenant properties. At March 31, 2020, 97 properties were available for lease or sale.
 
Substantially all of our leases are net leases where the tenant 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 a tenants’ gross sales, or percentage rents, for the first three months of 2020 and 2019 was $1.2 million and $3.6 million, respectively.
 
B. Major Tenants - No individual tenant’s rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the three months ended March 31, 2020 and 2019.
13.    Gain on Sales of Real Estate

The following table summarizes our properties sold during the periods indicated below (dollars in millions):
 
Three Months Ended March 31,
 
 
2020

 
2019

Number of properties
17

 
19

Net sales proceeds
$
126.2

 
$
22.5

Gain on sales of real estate
$
38.5

 
$
7.3



-16-

14.    Impairments
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A provision is made for impairment if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property. Key factors that we utilize in this analysis include projected rental rates, estimated holding periods, capital expenditures and property sales capitalization rates. If a property is classified as held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell, and depreciation of the property ceases.

The following table summarizes our provisions for impairment during the periods indicated below (dollars in millions):
 
Three Months Ended March 31,
 
 
2020

 
2019

Total provisions for impairment
$
4.5

 
$
4.7

Number of properties:
 
 
 
Classified as held for sale
8

 
—

Classified as held for investment
1

 
—

Sold
7

 
11


15.    Distributions Paid and Payable
We pay monthly distributions to our common stockholders. The following is a summary of monthly distributions paid per common share for the first three months of 2020 and 2019:
Month
2020

 
2019

January
$
0.2275

 
$
0.2210

February
0.2325

 
0.2255

March
0.2325

 
0.2255

Total
$
0.6925

 
$
0.6720


At March 31, 2020, a distribution of $0.233 per common share was payable and was paid in April 2020.
16.    Net Income per Common Share
Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted net income per common share is computed by dividing net income available to common stockholders, plus income attributable to dilutive shares and convertible common units, for the period by the weighted average number of common shares that would have been outstanding assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period.
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 March 31,
 
 
2020

 
2019

Weighted average shares used for the basic net income per share computation
336,624,567

 
303,528,336

Incremental shares from share-based compensation
351,948

 
291,542

Weighted average shares used for diluted net income per share computation
336,976,515

 
303,819,878

Unvested shares from share-based compensation that were anti-dilutive
31,001

 
30,060

Weighted average partnership common units convertible to common shares that were anti-dilutive
463,119

 
377,767



-17-

17.    Supplemental Disclosures of Cash Flow Information
Cash paid for interest was $84.1 million in the first three months of 2020 and $82.2 million in the first three months of 2019.
Cash paid for income taxes was $2.5 million in the first three months of 2020 and $1.7 million in the first three months of 2019.
The following non-cash activities are included in the accompanying consolidated financial statements:
A. As a result of the adoption of Accounting Standards Update, or ASU, 2016-02 in 2019, we recorded $132.0 million of lease liabilities and related right of use assets as lessee under operating leases on January 1, 2019.
B. During the first three months of 2019, we issued 89,322 common partnership units of Realty Income, L.P. as partial consideration for an acquisition of properties, totaling $6.3 million.
C. During the first three months of 2020, the fair value of net derivative liabilities decreased by $16.4 million.
D. Non-refundable deposits from 2019 of $14.8 million were applied to acquisitions during the first three months of 2020.
Per the requirements of ASU 2016-18 (Topic 230, Statement of Cash Flows), 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):
 
March 31, 2020

 
March 31, 2019

Cash and cash equivalents shown in the consolidated balance sheets
$
41,804

 
$
2,997

Restricted escrow deposits (1)
82,391

 
9,081

Impounds related to mortgages payable (1)
12,962

 
10,256

Total cash, cash equivalents, and restricted cash shown in the consolidated
statements of cash flows
$
137,157

 
$
22,334

(1)  Included within other assets, net on the consolidated balance sheets (see note 3). 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.

18.    Segment Information
We evaluate performance and make resource allocation decisions on an industry by industry basis. For financial reporting purposes, we have grouped our tenants into 51 activity segments. All of the properties are incorporated into one of the applicable segments. Unless otherwise specified, all segments listed below are located within the U.S. Because almost all of our leases require the tenant to pay operating expenses, rental revenue is the only component of segment profit and loss we measure.
The following tables set forth certain information regarding the properties owned by us, classified according to the business of the respective tenants (dollars in thousands):

-18-

Assets, as of:
March 31, 2020

 
December 31, 2019

Segment net real estate:
 
 
 
Automotive service
$
286,380

 
$
288,453

Automotive tire services
232,093

 
232,709

Beverages
278,318

 
279,373

Child care
217,120

 
208,326

Convenience stores
2,040,499

 
2,057,157

Dollar stores
1,430,852

 
1,427,950

Drug stores
1,603,799

 
1,618,854

Financial services
386,310

 
389,634

General merchandise
515,199

 
475,418

Grocery stores - U.S.(1)
911,070

 
922,349

Grocery stores - U.K.(1)
664,056

 
663,210

Health and fitness
1,092,881

 
1,019,796

Home improvement
503,092

 
495,305

Restaurants-casual dining
568,547

 
576,526

Restaurants-quick service
1,067,239

 
1,059,155

Theaters - U.S. (1)
869,621

 
878,103

Transportation services
720,929

 
769,614

Wholesale club
393,501

 
396,690

Other non-reportable segments
2,810,431

 
2,738,150

Total net real estate
16,591,937

 
16,496,772

Intangible assets:
 
 
 
Automotive service
57,833

 
58,854

Automotive tire services
6,940

 
7,322

Beverages
1,444

 
1,509

Child care
22,805

 
21,997

Convenience stores
129,145

 
131,808

Dollar stores
81,755

 
82,701

Drug stores
179,585

 
183,319

Financial services
16,468

 
17,130

General merchandise
74,187

 
66,135

Grocery stores - U.S.(1)
176,030

 
180,197

Grocery stores - U.K.(1)
177,001

 
153,407

Health and fitness
74,257

 
74,428

Home improvement
73,939

 
72,979

Restaurants-casual dining
22,629

 
23,289

Restaurants-quick service
51,372

 
52,353

Theaters - U.S. (1)
35,029

 
36,089

Transportation services
58,957

 
66,055

Wholesale club
22,594

 
23,372

Other non-reportable segments
254,849

 
240,439

Other corporate assets
687,686

 
564,641

Total assets
$
18,796,442

 
$
18,554,796



-19-

 
Three months ended March 31,
 
Revenue
2020

 
2019

Segment rental revenue:
 
 
 
Automotive service
$
8,670

 
$
7,213

Automotive tire services
7,833

 
7,777

Beverages
7,996

 
7,915

Child care
9,481

 
7,827

Convenience stores
46,733

 
41,214

Dollar stores
31,391

 
24,986

Drug stores
35,299

 
33,170

Financial services
7,543

 
7,718

General merchandise
11,316

 
6,911

Grocery stores - U.S.(1)
19,509

 
16,124

Grocery stores - U.K.(1)
10,405

 
—

Health and fitness
28,278

 
26,225

Home improvement
11,309

 
9,815

Restaurants-casual dining
12,538

 
11,290

Restaurants-quick service
23,308

 
21,730

Theaters - U.S. (1)
24,567

 
17,656

Transportation services
16,187

 
16,026

Wholesale club
9,588

 
9,593

Other non-reportable segments and tenant reimbursements
90,206

 
80,847

Rental (including reimbursable)
412,157

 
354,037

Other
2,184

 
328

Total revenue
$
414,341

 
$
354,365

(1) Our investments in industries outside of the U.S. are managed as separate operating segments.
19.    Common Stock Incentive Plan
In 2012, our Board of Directors adopted and stockholders approved the Realty Income Corporation 2012 Incentive Award Plan, or the 2012 Plan, to enable us to motivate, attract and retain the services of directors and employees considered essential to our long-term success. The 2012 Plan offers our directors and employees an opportunity to own our stock or rights that will reflect our growth, development and financial success. Under the terms of the 2012 plan, the aggregate number of shares of our common stock subject to options, restricted stock, stock appreciation rights, restricted stock units and other awards, will be no more than 3,985,734 shares. The 2012 Plan has a term of ten years from the date it was adopted by our Board of Directors.
The amount of share-based compensation costs recognized in general and administrative expense on our consolidated statements of income and comprehensive income was $5.5 million during the first three months of 2020 (including $1.8 million of accelerated share-based compensation costs for our former Chief Financial Officer ("CFO") upon his departure from the company), and $2.8 million during the first three months of 2019. Upon the departure of our former CFO in the first quarter of 2020, we incurred a severance charge of $3.5 million, consisting of $1.6 million of cash, $1.8 million related to share–based compensation expense and $58,000 of professional fees.
A.    Restricted Stock
During the first three months of 2020, we granted 62,873 shares of common stock under the 2012 Plan. These shares vest over a four-year service period, with the exception of 4,541 shares granted to our former CFO, which vested upon his departure from the Company.
As of March 31, 2020, the remaining unamortized share-based compensation expense related to restricted stock totaled $12.4 million, which is being amortized on a straight-line basis over the service period of each applicable award. The amount of share-based compensation is based on the fair value of the stock at the grant date. We define the grant date as the date the recipient and Realty Income have a mutual understanding of the key terms

-20-

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 first three months of 2020, we granted 98,844 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 first three months of 2020, we also granted 9,966 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 March 31, 2020, the remaining share-based compensation expense related to the performance shares and restricted stock units totaled $15.6 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 restricted stock units are being recognized on a straight-line basis over the service period.
20.    Commitments and Contingencies
In the ordinary course of business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated financial position or results of operations.
At March 31, 2020, we had commitments of $6.1 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements. In addition, as of March 31, 2020, we had committed $13.2 million under construction contracts related to development projects, which is expected to be paid in the next twelve months.

-21-

21.    Subsequent Events
•
In April 2020, we declared a dividend of $0.233 per share to our common stockholders, which will be paid in May 2020.
•
On April 9, 2020, we borrowed an additional $1.2 billion under revolving credit facility to increase our cash position to $1.25 billion as a conservative measure due to the COVID-19 pandemic. As of May 1, 2020, we had $1.9 billion of borrowings outstanding under our revolving credit facility, including £325.5 million of Sterling-denominated borrowings, with a remaining available capacity of $1.1 billion. The revolving credit facility also has a $1.0 billion expansion option, which is subject to obtaining lender commitments.
•
In addition, on April 9, 2020, we withdrew our 2020 guidance that was provided on February 19, 2020 due to the ongoing uncertainty regarding the impact of the COVID-19 pandemic and the measures taken to limit its spread. We are continuing to evaluate these impacts on our business as the situation continues to evolve and feel it is not prudent to provide revised guidance at this time.
As of May 1, 2020:
◦
We have collected 82.9% of contractual rent(1) due for the month of April 2020 across our total portfolio;
◦
We are in rent deferral discussions with tenants that account for a majority of the unpaid contractual rent for the month of April 2020, as well as certain tenants that did pay April contractual rent;
◦
We have collected 82.9% of contractual rent due for the month of April 2020 from our top 20 tenants(2); and
◦
We have collected 99.9% of contractual rent due for the month of April 2020 from our investment grade tenants(3).
(1) 
Contractual rent is the aggregate cash amount charged to tenants inclusive of April monthly base rent receivables, offset by applicable discounts or credits. U.K. rent (which is payable in pounds Sterling) was converted at the exchange rate in effect on May 1, 2020.
(2 ) We define top 20 tenants as our 20 largest tenants based on percentage of total portfolio annualized rental revenue.
(3) We define investment grade tenants as tenants with a credit rating, and tenants that are subsidiaries or affiliates of companies with a credit rating, of Baa3/BBB- or higher from one of the three major rating agencies (Moody’s/S&P/Fitch).


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. When used in this quarterly report, the words “estimated”, “anticipated”, “expect”, “believe”, “intend” and similar expressions are intended to identify forward-looking statements. Forward-looking statements include discussions of strategy, plans, or intentions of management. Forward-looking statements are subject to risks, uncertainties, and assumptions about Realty Income Corporation, including, among other things:
•
Our anticipated growth strategies;
•
Our intention to acquire additional properties and the timing of these acquisitions;
•
Our intention to sell properties and the timing of these property sales;
•
Our intention to re-lease vacant properties;
•
Anticipated trends in our business, including trends in the market for long-term, net leases of freestanding, single-tenant properties;
•
Future expenditures for development projects; and
•
The impact of the COVID-19 pandemic, or future pandemics, on us, our business, our tenants, or the economy generally.
Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. In particular, some of the factors that could cause actual results to differ materially are:
•
Our continued qualification as a real estate investment trust;

-22-

•
General domestic and foreign business and economic conditions;
•
Competition;
•
Fluctuating interest and currency rates;
•
Access to debt and equity capital markets;
•
Volatility and uncertainty in the credit markets and broader financial markets;
•
Other risks inherent in the real estate business including tenant defaults, potential liability relating to environmental matters, illiquidity of real estate investments, and potential damages from natural disasters;
•
Impairments in the value of our real estate assets;
•
Changes in income tax laws and rates;
•
The continued evolution of the COVID-19 pandemic and the measures taken to limit its spread, and its impacts on us, our business, our tenants, or the economy generally;
•
The timing and pace of reopening efforts at the local, state and national level in response to the COVID-19 pandemic;
•
The outcome of any legal proceedings to which we are a party or which may occur in the future; and
•
Acts of terrorism and war.
Additional factors that may cause risks and uncertainties include those discussed in the sections entitled “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2019 and those discussed in this section and the "Item 1.A.- Risk Factors" in Part II of this report.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that this quarterly report was filed with the Securities and Exchange Commission, or SEC. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, the forward-looking events discussed in this quarterly report might not occur.
THE COMPANY
Realty Income, The Monthly Dividend Company®, is an S&P 500 company dedicated to providing stockholders with dependable monthly dividends that increase over time. The company is structured as a real estate investment trust, or REIT, requiring it annually to distribute at least 90% of its taxable income (excluding net capital gains) in the form of dividends to its stockholders. The monthly dividends are supported by the cash flow generated from real estate owned under long-term, net lease agreements.
Realty Income was founded in 1969, and listed on the New York Stock Exchange (NYSE: O) in 1994. Over the past 51 years, Realty Income has been acquiring and managing freestanding commercial properties that generate rental revenue under long-term net lease agreements. The company is a member of the S&P 500 Dividend Aristocrats® index for having increased its dividend every year for the last 25 consecutive years.
At March 31, 2020, we owned a diversified portfolio:
•
Of 6,525 properties;
•
With an occupancy rate of 98.5%, or 6,428 properties leased and 97 properties available for lease;
•
Doing business in 51 separate industries;
•
Located in 49 U.S. states, Puerto Rico and the United Kingdom (U.K.);
•
With approximately 106.0 million square feet of leasable space;
•
With a weighted average remaining lease term (excluding rights to extend a lease at the option of the tenant) of approximately 9.2 years; and
•
With an average leasable space per property of approximately 16,245 square feet; approximately 11,960 square feet per retail property and 224,499 square feet per industrial property.
Of the 6,525 properties in the portfolio at March 31, 2020, 6,490, or 99.5%, are single-tenant properties, of which 6,396 were leased, and the remaining are multi–tenant properties.
Unless otherwise specified, references to rental revenue in the Management's Discussion and Analysis of Financial Condition and Results of Operations are exclusive of reimbursements from tenants for recoverable real estate taxes and operating expenses totaling $20.4 million and $17.3 million for the first three months of 2020 and 2019, respectively.

-23-

Investment Philosophy
We believe that owning an actively managed, diversified portfolio of commercial properties under long-term, net lease agreements produces consistent and predictable income over time. A net lease typically requires the tenant to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance. In addition, tenants of our properties typically pay rent increases based on: (1) increases in the consumer price index (typically subject to ceilings), (2) fixed increases, or (3) additional rent calculated as a percentage of the tenants’ gross sales above a specified level. We believe that a portfolio of properties under long-term, net lease agreements generally produces a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income.
Diversification is also a key component of our investment philosophy. We believe that diversification of the portfolio by tenant, industry, geography, and property type leads to more consistent and predictable income for our stockholders by reducing vulnerability that can come with any single concentration. Our investment activities have led to a diversified property portfolio that, as of March 31, 2020, consisted of 6,525 properties located in 49 U.S. states, Puerto Rico and the U.K., and doing business in 51 industries. Each of the 51 industries represented in our property portfolio accounted for no more than 11.9% of our rental revenue for the quarter ended March 31, 2020.
Investment Strategy
When identifying new properties for investment, we generally focus on acquiring high-quality real estate that tenants consider important to the successful operation of their business. We generally seek to acquire real estate that has the following characteristics:
•
Properties that are freestanding, commercially-zoned with a single tenant;
•
Properties that are in significant markets or strategic locations critical to generating revenue for our tenants (i.e. they need the property in which they operate in order to conduct their business);
•
Properties that we deem to be profitable for the tenants and/or can generally be characterized as important to the successful operations of the company’s business;
•
Properties that are located within attractive demographic areas relative to the business of our tenants;
•
Properties with real estate valuations that approximate replacement costs;
•
Properties with rental or lease payments that approximate market rents for similar properties; and
•
Properties that can be purchased with the simultaneous execution or assumption of long-term, net lease agreements, offering both current income and the potential for future rent increases.

We seek to invest in properties owned by tenants that are already or could become leaders in their respective businesses supported by mechanisms including (but not limited to) occupancy of prime real estate locations, pricing, merchandise assortment, service, quality, economies of scale, consumer branding, and advertising. In addition, we frequently acquire large portfolios of single-tenant properties net leased to different tenants operating in a variety of industries. We have an internal team dedicated to sourcing such opportunities, often using our relationships with various tenants, owners/developers, brokers and advisers to uncover and secure transactions. We also undertake thorough research and analysis to identify what we consider to be appropriate property locations, tenants, and industries for investment. This research expertise is instrumental to uncovering net lease opportunities in markets where we believe we can add value.
In selecting potential investments, we look for tenants with the following attributes:
•
Tenants with reliable and sustainable cash flow;
•
Tenants with revenue and cash flow from multiple sources;
•
Tenants that are willing to sign a long-term lease (10 or more years); and
•
Tenants that are large owners and users of real estate.
From a retail perspective, our investment strategy is to target tenants that have a service, non-discretionary, and/or low-price-point component to their business. We believe these characteristics better position tenants to operate in a variety of economic conditions and to compete more effectively with internet retailers. As a result of the execution of this strategy, approximately 95% of our annualized retail rental revenue at March 31, 2020 is derived from tenants with a service, non-discretionary, and/or low price point component to their business. From a non-retail perspective, we target industrial properties leased to industry leaders that are primarily investment grade rated companies. We believe these characteristics enhance the stability of the rental revenue generated from these properties.

-24-

After applying this investment strategy, we pursue those transactions where we can achieve an attractive investment spread over our cost of capital and favorable risk-adjusted returns. We will continue to evaluate all investments for consistency with our objective of owning net lease assets.
Underwriting Strategy
In order to be considered for acquisition, properties must meet stringent underwriting requirements. We have established a four-part analysis that examines each potential investment based on:
•
The aforementioned overall real estate characteristics, including demographics, replacement cost and comparative rental rates;
•
Industry, tenant (including credit profile), and market conditions;
•
Store profitability for retail locations if profitability data is available; and
•
The importance of the real estate location to the operations of the tenants’ business.

We believe the principal financial obligations for most of our tenants typically include their bank and other debt, payment obligations to suppliers, and real estate lease obligations. Because we typically own the land and building in which a tenant conducts its business or which are critical to the tenant’s ability to generate revenue, we believe the risk of default on a tenant’s lease obligation is less than the tenant’s unsecured general obligations. It has been our experience that tenants must retain their profitable and critical locations in order to survive. Therefore, in the event of reorganization, they are less likely to reject a lease of a profitable or critical location because this would terminate their right to use the property.
Thus, as the property owner, we believe that we will fare better than unsecured creditors of the same tenant in the event of reorganization. If a property is rejected by the tenant during reorganization, we own the property and can either lease it to a new tenant or sell the property. In addition, we believe that the risk of default on real estate leases can be further mitigated by monitoring the performance of the tenants’ individual locations and considering whether to proactively sell locations that meet our criteria for disposition.
Prior to entering into any transaction, our research department conducts a review of a tenant’s credit quality. The information reviewed may include reports and filings, including any public credit ratings, financial statements, debt and equity analyst reports, and reviews of corporate credit spreads, stock prices, market capitalization, and other financial metrics. We conduct additional due diligence, including additional financial reviews of the tenant and a more comprehensive review of the business segment and industry in which the tenant operates. We continue to monitor our tenants’ credit quality on an ongoing basis by reviewing the available information previously discussed, and providing summaries of these findings to management. At March 31, 2020, approximately 48% of our annualized rental revenue comes from properties leased to investment grade rated companies, their subsidiaries or affiliated companies. At March 31, 2020, our top 20 tenants (based on percentage of total portfolio annualized rental revenue) represented approximately 53% of our annualized revenue and 12 of these tenants have investment grade credit ratings or are subsidiaries or affiliates of investment grade companies.
Asset Management Strategy
In addition to pursuing new properties for investment, we seek to increase earnings and distributions to stockholders through active asset management.
Generally, our asset management efforts seek to achieve: 
•
Rent increases at the expiration of existing leases, when market conditions permit;
•
Optimum exposure to certain tenants, industries, and markets through re-leasing vacant properties and selectively selling properties;
•
Maximum asset-level returns on properties that are re-leased or sold;
•
Additional value creation from the existing portfolio by enhancing individual properties, pursuing alternative uses, and deriving ancillary revenue; and
•
Investment opportunities in new asset classes for the portfolio.
We continually monitor our portfolio for any changes that could affect the performance of our tenants, our tenants’ industries, and the real estate locations in which we have invested. We also regularly analyze our portfolio with a view towards optimizing its returns and enhancing its overall credit quality. Our active asset management strategy pursues asset sales when we believe the reinvestment of the sale proceeds will:
•
Generate higher returns;

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•
Enhance the credit quality of our real estate portfolio;
•
Extend our average remaining lease term; and/or
•
Strategically decrease tenant, industry, or geographic concentration.
The active management of the portfolio is an essential component of our long-term strategy of maintaining high occupancy.
Impact of Real Estate and Credit Markets
In the commercial real estate market, property prices generally continue to fluctuate. Likewise, during certain periods, including the current market, the global credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real estate and global credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly.

RECENT DEVELOPMENTS
Increases in Monthly Dividends to Common Stockholders
We have continued our 51-year policy of paying monthly dividends. In addition, we increased the dividend three times during 2020. As of April 2020, we have paid 90 consecutive quarterly dividend increases and increased the dividend 106 times since our listing on the NYSE in 1994.

The following table summarizes our dividend increases in 2020:
2020 Dividend increases
Month
Declared
Month
Paid
Dividend
per share

Increase
per share

1st increase
Dec 2019
Jan 2020
$
0.2275

$
0.0005

2nd increase
Jan 2020
Feb 2020
$
0.2325

$
0.0050

3rd increase
Mar 2020
Apr 2020
$
0.2330

$
0.0005

The dividends paid per share during the first three months of 2020 totaled approximately $0.693, as compared to approximately $0.672 during the first three months of 2019, an increase of $0.021, or 3.1%.
The monthly dividend of $0.233 per share represents a current annualized dividend of $2.796 per share, and an annualized dividend yield of approximately 5.6% based on the last reported sale price of our common stock on the NYSE of $49.86 on March 31, 2020. Although we expect to continue our policy of paying monthly dividends, we cannot guarantee that we will maintain our current level of dividends, that we will continue our pattern of increasing dividends per share, or what our actual dividend yield will be in any future period.
Acquisitions During the First Three Months of 2020
Below is a listing of our acquisitions in the U.S. and U.K. for the periods indicated below:
 
Number of Properties

 
Square Feet
(in millions)

 
Investment
($ in millions)

 
Weighted Average Lease Term (Years)

 
Initial Average Cash Lease Yield

Three months ended March 31, 2020 (1)
 
 
 
 
 
 
 
 
 
Acquisitions - U.S. (in 22 states)
54

 
1.4

 
$
318.3

 
14.8

 
6.5
%
Acquisitions - U.K. (2)
4

 
0.4

 
165.6

 
12.5

 
5.1
%
Total Acquisitions
58

 
1.8

 
483.9

 
14.2

 
6.0
%
Properties under Development - U.S.
7

 
0.2

 
2.1

 
10.6

 
7.5
%
Total (3)
65

 
2.0

 
$
486.0

 
14.1

 
6.0
%
(1) 
None of our investments during the first three months of 2020 caused any one tenant to be 10% or more of our total assets at March 31, 2020. All of our investments in acquired properties during the first three months of 2020 are 100% leased at the acquisition date.    
(2) 
Represents investments of £133.3 million Sterling during the three months ended March 31, 2020 converted at the applicable exchange rate on the date of acquisition.
(3) 
The tenants occupying the new properties operate in 17 industries, and are 95.4% retail and 4.6% industrial, based on rental revenue. Approximately 36% of the rental revenue generated from acquisitions during the first three months of 2020 is from investment grade rated tenants and their subsidiaries.


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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 tenant 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.
 
In the case of a property under development or expansion, the contractual lease rate is generally fixed such that rent varies based on the actual total investment in order to provide a fixed rate of return. When the lease does not provide for a fixed rate of return on a property under development or expansion, the initial average cash lease yield is computed as follows: estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs. We may continue to pursue development or expansion opportunities under similar arrangements in the future.
Portfolio Discussion
 Leasing Results
At March 31, 2020, we had 97 properties available for lease out of 6,525 properties in our portfolio, which represents a 98.5% occupancy rate based on the number of properties in our portfolio.

The following tables summarizes our leasing results for the first three months of 2020:
Properties available for lease at December 31, 2019
94

Lease expirations
109

Re-leases to same tenant (1)
(90
)
Re-leases to new tenant (1)(2)
(3
)
Vacant Dispositions
(13
)
Properties available for lease at March 31, 2020
97

(1) 
The annual new rent on these re-leases was $17.82 million, as compared to the previous annual rent of $18.0 million on the same properties, representing a rent recapture rate of 99.0% on the properties re-leased during the first three months of 2020.
(2) 
Re-leased one property to a new tenant without a period of vacancy, and two properties to new tenants after a period vacancy.
As part of our re-leasing costs, we pay leasing commissions to unrelated, third party real estate brokers consistent with the commercial real estate industry standard, and sometimes provide tenant rent concessions. We do not consider the collective impact of the leasing commissions or tenant rent concessions to be material to our financial position or results of operations.
At March 31, 2020, our average annualized rental revenue was approximately $15.13 per square foot on the 6,428 leased properties in our portfolio. At March 31, 2020, we classified 22 properties, with a carrying amount of $21.4 million, as held for sale on our balance sheet. The expected sale of these properties does not represent a strategic shift that will have a major effect on our operations and financial results and is consistent with our existing disposition strategy to further enhance our real estate portfolio and maximize portfolio returns.
Investments in Existing Properties
In the first three months of 2020, we capitalized costs of $2.1 million on existing properties in our portfolio,  consisting of $138,000 for re-leasing costs and $2.0 million for non-recurring building improvements. In the first three months of 2019, we capitalized costs of $3.0 million on existing properties in our portfolio, consisting of $323,000 for re-leasing costs, $56,000 for recurring capital expenditures, and $2.6 million for non-recurring building improvements.
The majority of our building improvements relate to roof repairs, HVAC improvements, and parking lot resurfacing and replacements. The amounts of our capital expenditures can vary significantly, depending on the rental market, tenant credit worthiness, the lease term and the willingness of tenants to pay higher rents over the terms of the leases.
We define recurring capital expenditures as mandatory and recurring landlord capital expenditure obligations that have a limited useful life. We define non-recurring capital expenditures as property improvements in which we invest additional capital that extend the useful life of the properties.

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Equity Capital Raising
During the first three months of 2020, we raised $752.4 million from the sale of common stock at a weighted average price of $77.37, primarily from 9,690,500 shares issued in an overnight underwritten public offering, including 690,500 shares purchased by the underwriters upon the exercise of their option to purchase additional shares.
Chief Financial Officer Departure
In March 2020 and as previously announced, Paul Meurer, our former EVP, Chief Financial Officer ("CFO"), departed from the Company. We have begun a search for a new CFO. As a result of Mr. Meurer's departure, we recognized an executive severance charge of $3.5 million during the first three months of 2020, consisting of $1.6 million of cash, $1.8 million related to share–based compensation expense and $58,000 of professional fees.
Early Redemption of 5.75% Notes Due January 2021
In January 2020, we completed the early redemption on all $250.0 million in principal amount of our outstanding 5.750% notes due January 2021, plus accrued and unpaid interest. As a result of the early redemption, we recognized a $9.8 million loss on extinguishment of debt during the first three months of 2020.
Impact of COVID-19
The COVID-19 pandemic and the measures taken to limit its spread are negatively impacting global, national and regional economies across many industries, including the industries in which some of our tenants operate, and have disrupted the businesses and operations of some of our tenants, each of which has had and may continue to have an adverse impact on our business, results of operations, financial condition, and liquidity. These impacts may increase in severity as the duration of the pandemic lengthens. See "Item 1A--Risk Factors" in Part II of this report for more information regarding the actual and potential future impacts of the COVID-19 pandemic and the measures taken to limit its spread on our tenants and our business, results of operations, financial condition and liquidity.

As a result of this challenging environment, we are working diligently with our tenants most affected by the pandemic to understand their financial liquidity and their ability to satisfy their contractual obligations to us. As we carefully navigate this difficult economic period with our tenants, our focus is on finding resolutions that preserve the long-term relationships we have built with many of our tenants.

In addition, as we believe to be the case with many retail landlords, we received many short-term rent relief requests, most often in the form of rent deferral requests, or requests for further discussion from tenants. We believe that not all tenant requests will ultimately result in modification agreements, nor have we relinquished our contractual rights under our lease agreements. April collections and rent relief requests to-date may not be indicative of collections or requests in any future period.

As of May 1, 2020:
•
We have collected 82.9% of contractual rent(1) due for the month of April 2020 across our total portfolio;
•
We are in rent deferral discussions with tenants that account for a majority of the unpaid contractual rent for the month of April 2020, as well as certain tenants that did pay April contractual rent;
•
We have collected 82.9% of contractual rent due for the month of April 2020 from our top 20 tenants(2); and
•
We have collected 99.9% of contractual rent due for the month of April 2020 from our investment grade tenants(3).
(1) 
Contractual rent is the aggregate cash amount charged to tenants inclusive of April monthly base rent receivables, offset by applicable discounts or credits. U.K. rent (which is payable in pounds Sterling) was converted at the exchange rate in effect on May 1, 2020.
(2) 
We define top 20 tenants as our 20 largest tenants based on percentage of total portfolio annualized rental revenue.
(3) We define investment grade tenants as tenants with a credit rating, and tenants that are subsidiaries or affiliates of companies with a credit rating, of Baa3/BBB- or higher from one of the three major rating agencies (Moody’s/S&P/Fitch).


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The following table provides information relating to April 2020 rent collections by industry through May 1, 2020:
 
 
 
Percentage
 
 
 
 
of April 2020
 
 
Percentage
 
Total Contractual
 
 
of Total Contractual
 
Rent
 
 
Rent due
 
Collected as of
 
 
for April 2020 (1)
 
May 1, 2020 (1)
 
U.S.
 
 
 
 
Aerospace
0.7%
 
0.7%
 
Apparel stores
1.2
 
1.1
 
Automotive collision services
1.1
 
0.9
 
Automotive parts
1.6
 
1.6
 
Automotive service
2.5
 
2.4
 
Automotive tire services
2.1
 
1.5
 
Beverages
2.0
 
2.0
 
Child care
2.2
 
0.7
 
Consumer appliances
—
 
—
 
Consumer electronics
0.3
 
0.3
 
Consumer goods
0.6
 
0.6
 
Convenience stores
12.1
 
12.0
 
Crafts and novelties
0.7
 
0.6
 
Diversified industrial
0.7
 
0.7
 
Dollar stores
7.9
 
7.9
 
Drug stores
8.6
 
8.5
 
Education
0.2
 
*
 
Electric utilities
0.1
 
0.1
 
Entertainment
0.3
 
0.3
 
Equipment services
0.4
 
0.4
 
Financial services
1.9
 
1.9
 
Food processing
0.7
 
0.7
 
General merchandise
2.8
 
2.8
 
Government services
0.6
 
0.6
 
Grocery stores
5.1
 
5.1
 
Health and beauty
0.2
 
0.2
 
Health and fitness
7.2
 
2.5
 
Health care
1.6
 
1.6
 
Home furnishings
0.9
 
0.4
 
Home improvement
2.9
 
2.9
 
Machinery
0.1
 
0.1
 
Motor vehicle dealerships
1.6
 
1.6
 
Office supplies
0.1
 
0.1
 
Other manufacturing
0.6
 
0.6
 
Packaging
0.9
 
0.9
 
Paper
0.1
 
0.1
 
Pet supplies and services
0.7
 
0.6
 
Restaurants - casual dining
3.1
 
1.6
 
Restaurants - quick service
5.7
 
4.7
 
Shoe stores
0.2
 
0.2
 
Sporting goods
0.8
 
0.7
 
Telecommunications
0.5
 
0.5
 
Theaters
6.0
 
—
 
Transportation services
4.2
 
4.2
 
Wholesale clubs
2.4
 
2.4
 
Other
0.2
 
*
 
Total U.S.
96.4%
 
79.3%
 
U.K.
 
 
 
 
Grocery stores
3.5
 
3.5
 
Theaters
*
 
—
 
Health care
0.1
 
0.1
 
Total U.K.
3.6%
 
3.6%
 
Totals
100.0%
 
82.9%
 
* Less than 0.1%
(1) Contractual rent is the aggregate cash amount charged to tenants inclusive of April monthly base rent receivables, offset by applicable discounts or credits. U.K. rent (which is payable in pounds Sterling) is converted at the exchange rate in effect on May 1, 2020.




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We are still in the preliminary stages of collecting rent for the month of May 2020. As a result, we cannot predict the number of tenants that will not pay rent for the month of May 2020, nor can we predict whether tenants who pay rent for April or May 2020 will continue to pay rent or request rent deferrals thereafter. In addition, as the adverse impacts of the COVID-19 pandemic and the measures taken to limit its spread continue to evolve, the ability of our tenants to continue to pay rent to us may further diminish, and therefore we cannot assure you that our rental collections in April are indicative of our rental collections in May or in the future. As a result of the impacts of the COVID-19 pandemic and the measures taken to limit its spread, our revenues in the second quarter of 2020 may decline relative to the first quarter of 2020, and that decline may continue or increase in subsequent periods as long as such impacts continue to exist.
Select Financial Results
The following summarizes our select financial results (dollars in millions, except per share data):
 
Three Months Ended March 31,
 
 
% Increase
 
2020

 
2019

 
Total revenue
$
414.3

 
$
354.4

 
16.9
%
Net income available to common stockholders (1)
$
146.8

 
$
110.9

 
32.4
%
Net income per share (2)
$
0.44

 
$
0.37

 
18.9
%
FFO available to common stockholders
$
277.1

 
$
245.7

 
12.8
%
FFO per share (2)
$
0.82

 
$
0.81

 
1.2
%
AFFO available to common stockholders
$
297.2

 
$
248.7

 
19.5
%
AFFO per share (2)
$
0.88

 
$
0.82

 
7.3
%
(1) The calculation to determine net income available to common stockholders includes impairments, gains from the sale of real estate, and foreign currency gains and losses. These items can vary from quarter to quarter and can significantly impact net income available to common stockholders and period to period comparisons.
(2) All per share amounts are presented on a diluted per common share basis.
Net income available to common stockholders and FFO in the first three months of 2020 were impacted by a loss on extinguishment of debt due to the early redemption of the 5.750% Notes due 2021 in January 2020 and an executive severance charge for our former CFO in March 2020.
See our discussion of FFO and AFFO (which are not financial measures under generally accepted accounting principles, or GAAP), later in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this quarterly report, which includes a reconciliation of net income available to common stockholders to FFO and AFFO.
LIQUIDITY AND CAPITAL RESOURCES
Capital Philosophy
Historically, we have met our long-term capital needs by issuing common stock, preferred stock and long-term unsecured notes and bonds. Over the long term, we believe that common stock should be the majority of our capital structure; however, we may issue preferred stock or debt securities. We may issue common stock when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties. In addition, we may issue common stock to permanently finance properties that were initially financed by our revolving credit facility or debt securities. However, we cannot assure you that we will have access to the capital markets at all times and at terms that are acceptable to us.

Our primary cash obligations, for the current year and subsequent years, are included in the “Table of Obligations,” which is presented later in this section. We expect to fund our operating expenses and other short-term liquidity requirements, including property acquisitions and development costs, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to common stockholders, primarily through cash provided by operating activities, borrowing on our credit facility and through public securities offerings.

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Conservative Capital Structure
We believe that our stockholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. At March 31, 2020, our total outstanding borrowings of senior unsecured notes and bonds, term loans, mortgages payable and credit facility borrowings were $7.56 billion, or approximately 30.6% of our total market capitalization of $24.71 billion.
We define our total market capitalization at March 31, 2020 as the sum of:
•
Shares of our common stock outstanding of 343,402,030, plus total common units outstanding of 463,119, multiplied by the last reported sales price of our common stock on the NYSE of $49.86 per share on March 31, 2020, or $17.15 billion;
•
Outstanding borrowings of $615.2 million on our revolving credit facility, including £282.8 million British Pounds Sterling-denominated borrowings;
•
Outstanding mortgages payable of $406.7 million, excluding net mortgage premiums of $2.6 million and deferred financing costs of $1.2 million;
•
Outstanding borrowings of $500.0 million on our term loans, excluding deferred financing costs of $849,000; and
•
Outstanding senior unsecured notes and bonds of $6.04 billion, including a Sterling-denominated private placement of £315.0 million, and excluding unamortized net original issuance premiums of $6.2 million and deferred financing costs of $34.3 million.
Universal Shelf Registration
In November 2018, we filed a shelf registration statement with the SEC, which is effective for a term of three years and will expire in November 2021. In accordance with SEC rules, the amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit. The securities covered by this registration statement include (1) common stock, (2) preferred stock, (3) debt securities, (4) depositary shares representing fractional interests in shares of preferred stock, (5) warrants to purchase debt securities, common stock, preferred stock, or depositary shares, and (6) any combination of these securities. We may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.
At-the-Market (ATM) Program
Under our "at-the-market" equity distribution plan, or our ATM program, up to 33,402,405 shares of common stock may be offered and sold (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers' transactions on the NYSE at prevailing market prices or at negotiated prices. At March 31, 2020, we had 33,402,405 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. We did not issue any shares under the ATM program during the first three months of 2020.
Issuance of Common Stock
In March 2020, we issued 9,690,500 shares of common stock in an overnight underwritten public offering, including 690,500 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After deducting underwriting discounts and other offering costs of $21.5 million, the net proceeds of $728.5 million were primarily used to repay borrowings under our revolving credit facility.
Dividend Reinvestment and Stock Purchase Plan
Our Dividend Reinvestment and Stock Purchase Plan, or our DRSPP, provides our common stockholders, as well as new investors, with a convenient and economical method of purchasing our common stock and reinvesting their distributions. Our DRSPP also allows our current stockholders to buy additional shares of common stock by reinvesting all or a portion of their distributions. Our DRSPP authorizes up to 26,000,000 common shares to be issued. Our DRSPP includes a waiver approval process, allowing larger investors or institutions, per a formal approval process, to purchase shares at a small discount, if approved by us. We did not issue shares under the waiver approval process during the first three months of 2020. At March 31, 2020, we had 11,618,668 shares

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remaining for future issuance under our DRSPP program. During the three months ended March 31, 2020, we sold 34,000 shares of common stock for gross proceeds of $2.4 million.
Revolving Credit Facility
We have a $3.0 billion unsecured revolving credit facility with an initial term that expires in March 2023 and includes, at our option, two six-month extensions. The multicurrency revolving facility allows us to borrow in up to 14 currencies, including U.S. dollars. Our revolving credit facility has a $1.0 billion expansion option, which is subject to obtaining lender commitments. Under our revolving credit facility, our investment grade credit ratings as of March 31, 2020 provide for financing at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 0.775% with a facility commitment fee of 0.125%, for all-in drawn pricing of 0.90% over LIBOR.

The borrowing rate is subject to an interest rate floor and may change if our investment grade credit ratings change. We also have other interest rate options available to us under our credit facility. Our credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation.
At March 31, 2020, we had a borrowing capacity of $2.4 billion available on our revolving credit facility and an outstanding balance of $615.2 million, including £282.8 million Sterling. The weighted average interest rate on borrowings under our revolving credit facility during the first three months of 2020 was 2.1% per annum. We must comply with various financial and other covenants in our credit facility. At March 31, 2020, we were in compliance with these covenants. We expect to use our credit facility to acquire additional properties and for other general corporate purposes. Any additional borrowings will increase our exposure to interest rate risk.
On April 9, 2020, we borrowed an additional $1.2 billion under our revolving credit facility to increase our cash position to $1.25 billion as a conservative measure due to COVID-19. As of May 1, 2020, we have $1.9 billion of borrowings outstanding under our revolving credit facility, including £325.5 million of Sterling-denominated borrowings, with a remaining available capacity of $1.1 billion. The revolving credit facility also has a $1.0 billion expansion option, which is subject to obtaining lender commitments.
We generally use our credit facility for the short-term financing of new property acquisitions. Thereafter, we generally seek to refinance those borrowings with the net proceeds of long-term or permanent financing, which may include the issuance of common stock, preferred stock or debt securities. We cannot assure you, however, that we will be able to obtain any such refinancing, or that market conditions prevailing at the time of the refinancing will enable us to issue equity or debt securities at acceptable terms. We regularly review our credit facility and may seek to extend, renew or replace our credit facility, to the extent we deem appropriate.
Term Loans
In October 2018, in conjunction with entering into our revolving credit facility, we entered into a $250.0 million senior unsecured term loan, which matures in March 2024, and is governed by the credit agreement that governs our revolving credit facility. Borrowing under this term loan bears interest at the current one-month LIBOR, plus 0.85%. In conjunction with this term loan, we also entered into an interest rate swap which effectively fixes our per annum interest on this term loan at 3.89%.
In June 2015, in conjunction with entering into our previous revolving credit facility, we entered into a $250.0 million senior unsecured term loan maturing in June 2020, and is governed by the credit agreement that governs our revolving credit facility. Borrowing under this term loan bears interest at the current one-month LIBOR, plus 0.90%. In conjunction with this term loan, we also entered into an interest rate swap which effectively fixes our per annum interest rate on this term loan at 2.62%. Upon the maturity of this term loan, we intend to either repay the outstanding principal with cash on hand, enter into an amendment to our current term loan, or enter into a new term loan.
Mortgage Debt
As of March 31, 2020, we had $406.7 million of mortgages payable, all of which were assumed in connection with our property acquisitions. Additionally, at March 31, 2020, we had net premiums totaling $2.6 million on these mortgages and deferred financing costs of $1.2 million. We expect to pay off the mortgages payable as soon as prepayment penalties have declined to a level that would make it economically feasible to do so. During the first three months of 2020, we made $1.7 million in principal payments.

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Notes Outstanding
Our senior unsecured note and bond obligations consist of the following as of March 31, 2020, sorted by maturity date (dollars in millions):
3.250% notes, $450 issued in October 2012 and $500 issued in December 2017, both due in October 2022
$
950

4.650% notes, issued in July 2013 and due in August 2023
750

3.875% notes, issued in June 2014 and due in July 2024
350

3.875% notes, issued in April 2018 and due in April 2025
500

4.125% notes, $250 issued in September 2014 and $400 issued in March 2017, both due in October 2026
650

3.000% notes, issued in October 2016 and due in January 2027
600

3.650% notes, issued in December 2017 and due in January 2028
550

3.250% notes, issued in June 2019 and due in June 2029
500

2.730% notes, issued in May 2019 and due in May 2034 (1)
391

5.875% bonds, $100 issued in March 2005 and $150 issued in June 2011, both due in March 2035
250

4.650% notes, $300 issued in March 2017 and $250 issued in December 2017, both due in March 2047
550

Total principal amount
$
6,041

Unamortized net original issuance premiums and deferred financing costs
(28
)
 
$
6,013

(1) Represents the principal balance (in U.S. dollars) of the Sterling-denominated private placement of £315.0 million converted at the applicable exchange rate on March 31, 2020.
All of our outstanding notes and bonds have fixed interest rates and contain various covenants, with which we remained in compliance as of March 31, 2020. Additionally, interest on all of our senior note and bond obligations is paid semiannually.
The following is a summary of the key financial covenants for our senior unsecured notes, as defined and calculated per the terms of our senior notes and bonds. These calculations, which are not based on U.S. GAAP measurements, are presented to investors to show our ability to incur additional debt under the terms of our senior notes and bonds as well as to disclose our current compliance with such covenants, and are not measures of our liquidity or performance. The actual amounts as of March 31, 2020 are:
Note Covenants
Required
Actual

Limitation on incurrence of total debt
< 60% of adjusted assets
37.1
%
Limitation on incurrence of secured debt
< 40% of adjusted assets
2.0
%
Debt service coverage (trailing 12 months) (1)
> 1.5x
5.5x

Maintenance of total unencumbered assets
> 150% of unsecured debt
274.8
%
(1)  Our debt service coverage ratio is calculated on a pro forma basis for the preceding four-quarter period on the assumptions that: (i) the incurrence of any Debt (as defined in the covenants) incurred by us since the first day of such four-quarter period and the application of the proceeds therefrom (including to refinance other Debt since the first day of such four-quarter period), (ii) the repayment or retirement of any of our Debt since the first day of such four-quarter period, and (iii) any acquisition or disposition by us of any asset or group since the first day of such four quarters had in each case occurred on April 1, 2019 and subject to certain additional adjustments.  Such pro forma ratio has been prepared on the basis required by that debt service covenant, reflects various estimates and assumptions and is subject to other uncertainties, and therefore does not purport to reflect what our actual debt service coverage ratio would have been had transactions referred to in clauses (i), (ii) and (iii) of the preceding sentence occurred as of April 1, 2019, nor does it purport to reflect our debt service coverage ratio for any future period. The following is our calculation of debt service and fixed charge coverage at March 31, 2020 (in thousands, for trailing twelve months):

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Net income available to common stockholders
$
472,367

Plus: interest expense, excluding the amortization of deferred financing costs
287,209

Plus: loss on extinguishment of debt
9,819

Plus: provision for taxes
7,476

Plus: depreciation and amortization
621,029

Plus: provisions for impairment
39,992

Plus: pro forma adjustments
112,633

Less: gain on sales of real estate
(61,239
)
 
 
Income available for debt service, as defined
$
1,489,286

 
 
Total pro forma debt service charge
$
271,158

 
 
Debt service and fixed charge coverage ratio
5.5

Cash Reserves
We are organized to operate as an equity REIT that acquires and leases properties and distributes to stockholders, in the form of monthly cash distributions, a substantial portion of our net cash flow generated from leases on our properties. We intend to retain an appropriate amount of cash as working capital. At March 31, 2020, we had cash and cash equivalents totaling $41.8 million, inclusive of £15.2 million Sterling. On April 9, 2020, we borrowed an additional $1.2 billion under our revolving credit facility, as to increase our cash position to $1.25 billion as a conservative measure due to COVID-19.
We believe that our cash and cash equivalents on hand, cash provided from operating activities, and borrowing capacity is sufficient to meet our liquidity needs for the next twelve months. We intend, however, to use permanent or long-term capital to fund property acquisitions and to repay future borrowings under our credit facility.
Credit Agency Ratings
The borrowing interest rates under our revolving credit facility are based upon our ratings assigned by credit rating agencies. As of March 31, 2020, we were assigned the following investment grade corporate credit ratings on our senior unsecured notes and bonds: Moody’s Investors Service has assigned a rating of A3 with a “stable” outlook, Standard & Poor’s Ratings Group has assigned a rating of A- with a “stable” outlook, and Fitch Ratings has assigned a rating of BBB+ with a “stable” outlook.

Based on our ratings as of March 31, 2020, the facility interest rate was LIBOR, plus 0.775% with a facility commitment fee of 0.125%, for all-in drawn pricing of 0.90% over LIBOR. Our credit facility provides that the interest rate can range between: (i) LIBOR, plus 1.45% if our credit rating is lower than BBB-/Baa3 or unrated and (ii) LIBOR, plus 0.75% if our credit rating is A/A2 or higher. In addition, our credit facility provides for a facility commitment fee based on our credit ratings, which range from: (i) 0.30% for a rating lower than BBB-/Baa3 or unrated, and (ii) 0.10% for a credit rating of A/A2 or higher.
We also issue senior debt securities from time to time and our credit ratings can impact the interest rates charged in those transactions. If our credit ratings or ratings outlook change, our cost to obtain debt financing could increase or decrease. The credit ratings assigned to us could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies and we cannot assure you that our ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover, a rating is not a recommendation to buy, sell or hold our debt securities, preferred stock or common stock.

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Table of Obligations
The following table summarizes the maturity of each of our obligations as of March 31, 2020 (dollars in millions):
Year of
Maturity
Credit
Facility (1)

Notes
and
Bonds (2)

Term
Loan (3)

Mortgages
Payable (4)

Interest (5)

Ground
Leases Paid by
Realty Income (6)

Ground
Leases Paid
by Our
Tenants (7)

Other (8)

Totals

2020
—

—

250.0

82.6

196.5

1.3

10.2

14.5

555.1

2021
—

—

—

68.8

261.0

1.5

13.5

4.8

349.6

2022
—

950.0

—

111.8

257.8

1.5

13.4

—

1,334.5

2023
615.2

750.0

—

20.6

217.9

1.4

13.5

—

1,618.6

2024
—

350.0

250.0

112.1

172.8

1.4

13.6

—

899.9

Thereafter
—

3,991.2

—

10.8

1,086.2

18.7

69.1

—

5,176.0

Totals
$
615.2

$
6,041.2

$
500.0

$
406.7

$
2,192.2

$
25.8

$
133.3

$
19.3

$
9,933.7

(1) 
The initial term of the credit facility expires in March 2023 and includes, at our option, two six–month extensions. On April 9, 2020, we borrowed an additional $1.2 billion on our revolving credit facility.
(2) 
Excludes non-cash original issuance discounts and premiums recorded on notes payable of $6.2 million and deferred financing costs of $34.3 million.
(3) 
Excludes deferred financing costs of $849,000.
(4) 
Excludes both non–cash net premiums recorded on the mortgages payable of $2.6 million and deferred financing costs of $1.2 million.
(5) 
Interest on the term loans, notes, bonds, mortgages payable, and credit facility has been calculated based on outstanding balances at period end through their respective maturity dates.
(6) 
Realty Income currently pays the ground lessors directly for the rent under the ground leases.
(7) 
Our tenants, who are generally sub-tenants under ground leases, are responsible for paying the rent under these ground leases. In the event a tenant fails to pay the ground lease rent, we are primarily responsible.
(8) 
“Other” consists of $13.2 million of commitments under construction contracts and $6.1 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements.
Our revolving credit facility, term loans, and notes payable obligations are unsecured. Accordingly, we have not pledged any assets as collateral for these obligations.
No Unconsolidated Investments
We have no unconsolidated investments, nor do we engage in trading activities involving energy or commodity contracts.
Dividend Policy
Distributions are paid monthly to holders of shares of our common stock.
Distributions are paid monthly to the limited partners holding common units of Realty Income, L.P. on a per unit basis that is generally equal to the amount paid per share to our common stockholders.
In order to maintain our status as a REIT for federal income tax purposes, we generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our taxable income (excluding net capital gains), and we are subject to income tax to the extent we distribute less than 100% of our taxable income (including net capital gains). In 2019, our cash distributions to common stockholders totaled $852.1 million, or approximately 131.5% of our estimated taxable income of $648.0 million. Our estimated taxable income reflects non-cash deductions for depreciation and amortization. Our estimated taxable income is presented to show our compliance with REIT dividend requirements and is not a measure of our liquidity or operating performance. We intend to continue to make distributions to our stockholders that are sufficient to meet this dividend requirement and that will reduce or eliminate our exposure to income taxes. Furthermore, we believe our funds from operations and cash on hand are sufficient to support our current level of cash distributions to our stockholders. Our cash distributions to common stockholders in the first three months of 2020 totaled $233.8 million, representing 78.7% of our adjusted funds from operations available to common stockholders of $297.2 million. In comparison, our 2019 cash distributions to common stockholders totaled $852.1 million, representing 81.2% of our adjusted funds from operations available to common stockholders of $1.05 billion.

Future distributions will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, FFO, AFFO, cash flow from operations, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, or the Code, our debt service requirements, and any other factors the Board of Directors may deem relevant. In addition, our credit facility contains financial covenants that could limit the amount of distributions payable by us in the event

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of a default, and which prohibit the payment of distributions on the common or preferred stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facility.

Distributions of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income, except to the extent that we recognize capital gains and declare a capital gains dividend, or that such amounts constitute “qualified dividend income” subject to a reduced rate of tax. The maximum tax rate of non-corporate taxpayers for “qualified dividend income” is generally 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that certain holding requirements have been met with respect to the REIT’s stock and the REIT’s dividends are attributable to dividends received from certain taxable corporations (such as our taxable REIT subsidiaries) or to income that was subject to tax at the corporate or REIT level (for example, if we distribute taxable income that we retained and paid tax on in the prior taxable year). However, non-corporate stockholders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026.
Distributions in excess of earnings and profits generally will first be treated as a non-taxable reduction in the stockholders’ basis in their stock, but not below zero. Distributions in excess of that basis generally will be taxable as a capital gain to stockholders who hold their shares as a capital asset. Approximately 21.8% of the distributions to our common stockholders, made or deemed to have been made in 2019, were classified as a return of capital for federal income tax purposes.
RESULTS OF OPERATIONS
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with GAAP, and are the basis for our discussion and analysis of financial condition and results of operations. Preparing our consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. We believe that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. This summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019.

In order to prepare our consolidated financial statements according to the rules and guidelines set forth by GAAP, many subjective judgments must be made with regard to critical accounting policies. Management must make significant assumptions in determining the fair value of assets acquired and liabilities assumed. When acquiring a property for investment purposes, we typically allocate the cost of real estate acquired, inclusive of transaction costs, to: (1) land, (2) building and improvements, and (3) identified intangible assets and liabilities, based in each case on their relative estimated fair values. Intangible assets and liabilities consist of above-market or below-market lease value and the value of in-place leases, as applicable. Additionally, above–market rents on certain leases under which we are a lessor are accounted for as financing receivables amortizing over the lease term, while below–market rents on certain leases under which we are a lessor are accounted for as prepaid rent. In an acquisition of multiple properties, we must also allocate the purchase price among the properties. The allocation of the purchase price is based on our assessment of estimated fair value of the land, building and improvements, and identified intangible assets and liabilities and is often based upon the various characteristics of the market where the property is located. In addition, any assumed mortgages are recorded at their estimated fair values. The estimated fair values of our mortgages payable have been calculated by discounting the future cash flows using applicable interest rates that have been adjusted for factors, such as industry type, tenant investment grade, maturity date, and comparable borrowings for similar assets. The use of different assumptions in the allocation of the purchase price of the acquired properties and liabilities assumed could affect the timing of recognition of the related revenue and expenses.

Another significant judgment must be made as to if, and when, impairment losses should be taken on our properties when events or a change in circumstances indicate that the carrying amount of the asset may not be recoverable. A provision is made for impairment if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property.

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Key inputs that we utilize in this analysis include projected rental rates, estimated holding periods, capital expenditures, and property sales capitalization rates. If a property is held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell. The carrying value of our real estate is the largest component of our consolidated balance sheets. Our strategy of primarily holding properties, long-term, directly decreases the likelihood of their carrying values not being recoverable, thus requiring the recognition of an impairment. However, if our strategy, or one or more of the above assumptions were to change in the future, an impairment may need to be recognized. If events should occur that require us to reduce the carrying value of our real estate by recording provisions for impairment, they could have a material impact on our results of operations.
The COVID-19 pandemic and the measures taken to limit its spread are negatively impacting the economy across many industries, including the industries in which some of our tenants operate. These impacts may continue and increase in severity as the duration of the pandemic lengthens, which may, in turn, adversely impact the fair value estimates of our real estate and require the recording of impairments on our properties. As a result, we are evaluating certain key assumptions involving fair value estimates of our real estate and recording of impairments on our properties. We 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. However, as of March 31, 2020, we have determined that the COVID-19 pandemic and the measures taken to limit its spread have not had a material impact on our consolidated financial statements as of and for period ended March 31, 2020.

When assessing the collectability of future lease payments, one of the key factors we have considered during 2020 has been COVID-19. We generally assess collectability based on an analysis of creditworthiness, economic trends, and other facts and circumstances related to the applicable tenants. If the collection of substantially all of the future lease payments is less than probable, we will write-off the receivable balances associated with the lease and cease to recognize lease income, including straight-line rent, unless cash is received. As we collect the majority of our rent in advance and at this time we do not have any tenant specific information that would change our assessment that collection of substantially all of the future lease payments under our existing leases is probable, the impact of the COVID-19 pandemic on our tenants' ability to pay rent did not have a significant impact on our consolidated financial statements for the quarter ended March 31, 2020. However, there may be significant impacts in future periods that could change this assessment.
The following is a comparison of our results of operations for the three months ended March 31, 2020, to the three months ended March 31, 2019.
Total Revenue
The following summarizes our total revenue (dollars in thousands):
 
Three Months Ended March 31,
 
 
$ Increase
 
2020

 
2019

 
REVENUE
 
 
 
 
 
Rental (excluding reimbursable)
$
391,791

 
$
336,690

 
$
55,101

Rental (reimbursable)
20,366

 
17,347

 
3,019

Other
2,184

 
328

 
1,856

Total revenue
$
414,341

 
$
354,365

 
$
59,976

Rental Revenue (excluding reimbursable)
The increase in rental revenue (excluding reimbursable) in the first three months of 2020 compared to the first three months of 2019 is primarily attributable to:

•
The 59 properties (1.8 million square feet) we acquired in the first three months 2020, which generated $3.2 million of rent in the first three months of 2020;
•
The 779 properties (13.4 million square feet) we acquired in 2019, which generated $59.2 million of rent in the first three months of 2020, compared to $3.0 million in the first three months of 2019, an increase of $56.2 million;
•
Same store rents generated on 5,535 properties (86.9 million square feet) during the first three months of 2020 and 2019, increased by $670,000, or 0.2%, to $321.47 million from $320.8 million; partially offset by

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•
A net decrease in straight-line rent and other non-cash adjustments to rent of $790,000 in the first three months of 2020 as compared to the first three months of 2019;
•
A net decrease of $2.9 million relating to properties sold in the first three months of 2020 and throughout 2019 that were reported in continuing operations; and
•
A net decrease of $1.27 million relating to the aggregate of (i) rental revenue from properties (145 properties comprising 2.9 million square feet) that were available for lease during part of 2020 or 2019, (ii) rental revenue for eight properties under development, and (iii) lease termination settlements.  In aggregate, the revenues for these items totaled $5.56 million in the first three months of 2020, compared to $6.83 million in the first three months of 2019.
For purposes of determining the same store rent property pool, we include all properties that were owned for the entire year-to-date period, for both the current and prior year, except for properties during the current or prior year that; (i) were vacant at any time, (ii) were under development or redevelopment, or (iii) were involved in eminent domain and rent was reduced. Each of the exclusions from the same store pool are separately addressed within the applicable sentences above, explaining the changes in rental revenue for the period.
Of the 6,525 properties in the portfolio at March 31, 2020, 6,490, or 99.5%, are single-tenant properties and the remaining are multi-tenant properties. Of the 6,490 single-tenant properties, 6,396, or 98.6%, were net leased at March 31, 2020. Of our 6,396 leased single-tenant properties, 5,445 or 85.1% were under leases that provide for increases in rents through:
•
Base rent increases tied to a consumer price index (typically subject to ceilings);
•
Percentage rent based on a percentage of the tenants’ gross sales;
•
Fixed increases; or
•
A combination of two or more of the above rent provisions.
Percentage rent, which is included in rental revenue, was $1.2 million in the first three months of 2020, and $3.6 million in the first three months of 2019. We anticipate percentage rent to be less than 1% of rental revenue for 2020.
At March 31, 2020, our portfolio of 6,525 properties was 98.5% leased with 97 properties available for lease, as compared to 98.6% leased, with 94 properties available for lease at December 31, 2019, and 98.3% leased with 102 properties available for lease at March 31, 2019. It has been our experience that approximately 1% to 4% of our property portfolio will be unleased at any given time; however, it is possible that the number of properties available for lease could increase in the future, given the nature of economic cycles and other unforeseen global events, such as the ongoing COVID-19 pandemic and the measures taken to limit its spread.
Rental Revenue (reimbursable)
A number of our leases provide for contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses. The increase in tenant reimbursements for the periods presented is primarily due to the growth of our portfolio due to acquisitions.
Other Revenue
The increase in other revenue in the first three months of 2020 was primarily related to interest income recognized on financing receivables for certain leases with above-market terms as compared to the first three months of 2019.

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Total Expenses
The following summarizes our total expenses (dollars in thousands):
 
Three Months Ended March 31,
 
 
$ Increase (Decrease)
 
2020

 
2019

 
EXPENSES
 
 
 
 
 
Depreciation and amortization
$
164,585

 
$
137,517

 
$
27,068

Interest
75,925

 
70,020

 
5,905

Property (excluding reimbursable)
5,240

 
4,289

 
951

Property (reimbursable)
20,366

 
17,347

 
3,019

General and administrative (1)
20,964

 
15,108

 
5,856

Income taxes
2,763

 
1,445

 
1,318

Provisions for impairment
4,478

 
4,672

 
(194
)
Total expenses
$
294,321

 
$
250,398

 
$
43,923

Total revenue (2)
393,975

 
337,018

 


General and administrative expenses as a percentage of total revenue (1)(2)
4.4
%
 
4.5
%
 


Property expenses (excluding reimbursable) as a percentage of total revenue (2)
1.3
%
 
1.3
%
 


(1) General and administrative expenses for the first three months of 2020 included an executive severance charge related to the departure of our former CFO in March 2020. The total value of cash, stock compensation and professional fees incurred as a result of this severance was $3,463 and was recorded to general and administrative expense (see our discussion of Adjusted Funds from Operations Available to Common Stockholders, or AFFO, which is not a financial measure under generally accepted accounting principles). In order to present a normalized calculation of our general and administrative expenses as a percentage of total revenue for the first three months of 2020, we have excluded this executive severance charge to arrive at a normalized general and administrative amount of $17,501, which was used for our calculation.
(2) Excludes rental revenue (reimbursable).
Depreciation and Amortization
The increase in depreciation and amortization in the first three months of 2020 was primarily due to the acquisition of properties in 2019 and the first three months of 2020, which was partially offset by property sales in those same periods. As discussed in the sections entitled “Funds from Operations Available to Common Stockholders (FFO)” and “Adjusted Funds from Operations Available to Common Stockholders (AFFO),” depreciation and amortization is a non-cash item that is added back to net income available to common stockholders for our calculation of FFO and AFFO.

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Interest Expense
The following is a summary of the components of our interest expense (dollars in thousands):
 
Three Months Ended March 31,
 
 
2020

 
2019

Interest on our credit facility, term loans, notes, mortgages and interest rate swaps
$
72,196

 
$
66,976

Credit facility commitment fees
948

 
938

Amortization of debt origination and deferred financing costs
2,748

 
2,172

Loss on interest rate swaps
686

 
678

Amortization of net mortgage premiums
(354
)
 
(354
)
Amortization of net note premiums
(244
)
 
(292
)
Other items
(55
)
 
(98
)
Interest expense
$
75,925

 
$
70,020

 
 
 
 
Credit facility, term loans, mortgages and notes
 
 
 
Average outstanding balances (dollars in thousands)
$
7,858,024

 
$
6,752,789

Average interest rates
3.61
%
 
3.98
%
The increase in interest expense for the first three months of 2020 is primarily due to the May 2019 issuance of our 2.730% notes due 2034, the June 2019 issuance of our 3.250% notes due 2029 and higher interest on our mortgages payable and interest rate swaps, partially offset by the January 2020 repayment of our 5.750% notes due 2021 and lower interest on our term loans.
During the first three months of 2020, the weighted average interest rate on our:
•
Revolving credit facility outstanding borrowings of $615.2 million was 2.1%;
•
Term loans outstanding of $500.0 million (excluding deferred financing costs of $849,000) was 2.5%;
•
Mortgages payable of $406.7 million (excluding net premiums totaling $2.6 million and deferred financing costs of $1.2 million on these mortgages) was 4.9%;
•
Notes and bonds payable of $6.0 billion (excluding net unamortized original issue premiums of $6.2 million and deferred financing costs of $34.3 million) was 3.8%; and
•
Combined outstanding notes, bonds, mortgages, term loan and revolving credit facility borrowings of $7.6 billion (excluding all net premiums and deferred financing costs) was 3.6%.
Property Expenses (excluding reimbursable)
Property expenses (excluding reimbursable) consist of costs associated with unleased properties, non-net-leased properties and general portfolio expenses. Expenses related to unleased properties and non-net-leased properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections and legal fees. General portfolio costs include, but are not limited to, insurance, legal, property inspections, and title search fees. At March 31, 2020, 97 properties were available for lease, as compared to 94 at December 31, 2019, and 102 at March 31, 2019.

The increase in property expenses (excluding reimbursable) in the first three months of 2020 is primarily attributable to higher repairs and maintenance associated with our expanding portfolio size.
Property Expenses (reimbursable)
The increase in property expenses (reimbursable) in the first three months of 2020 was primarily attributable to the increased portfolio size, which contributed to higher contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses primarily due to our acquisitions in each period.
General and Administrative Expenses
General and administrative expenses are expenditures related to the operations of our company, including employee–related costs, professional fees, and other general overhead costs associated with running our business.


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General and administrative expenses increased during the first three months of 2020 primarily due to a severance charge of $3.5 million for our former CFO, who departed the company in March 2020, higher share-based compensation expense, higher corporate–level professional fees and higher payroll-related costs. In April 2020, we had 195 employees, as compared to 170 employees in April 2019.
Income Taxes
Income taxes are for city and state income and franchise taxes, and for U.K. income taxes paid by us and our subsidiaries. The increase in income taxes in the first three months of 2020 was primarily attributable to our U.K. investments, which contributed to higher U.K. income taxes as compared to the first three months of 2019.
Provisions for Impairment
The following table summarizes provisions for impairment during the periods indicated below (dollars in millions):
 
Three Months Ended March 31,
 
 
2020

 
2019

Total provisions for impairment
$
4.5

 
$
4.7

Number of properties:
 
 
 
Classified as held for sale
8

 
—

Classified as held for investment
1

 
—

Sold
7

 
11

Gain on Sales of Real Estate
The following table summarizes our properties sold during the periods indicated below (dollars in millions):
 
Three Months Ended
March 31,
 
 
2020

 
2019

Number of properties sold
17

 
19

Net sales proceeds
$
126.2

 
$
22.5

Gain on sales of real estate
$
38.5

 
$
7.3

Foreign Currency and Derivative Gains, Net
We borrow in the functional currencies of the countries in which we invest. Foreign currency gains and losses are primarily a result of intercompany debt and certain remeasurement transactions.

Loss on Extinguishment of Debt
In January 2020, we completed the early redemption on all $250.0 million in principal amount of outstanding 5.75% notes due January 2021, plus accrued and unpaid interest. As a result of the early redemption, we recognized a $9.8 million loss on extinguishment of debt.
Net Income Available to Common Stockholders
The following summarizes our net income available to common stockholders (dollars in millions, except per share data):
 
Three Months Ended March 31,
 
 
% Increase
 
2020

 
2019

 
Net income available to common stockholders
$
146.8

 
$
110.9

 
32.4
%
Net income per share (1)
$
0.44

 
$
0.37

 
18.9
%
(1) All per share amounts are presented on a diluted per common share basis.
The calculation to determine net income available to common stockholders includes impairments, gains from the sale of properties, foreign currency gains and losses, which can vary from period to period based on timing and significantly impact net income available to the Company and available to common stockholders.

-41-

Net income available to common stockholders in the first three months of 2020 was also impacted by a loss on extinguishment of debt due to the early redemption of the 5.750% Notes due 2021 in January 2021 and an executive severance charge for our former CFO in March 2020.
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate (Adjusted EBITDAre)
The National Association of Real Estate Investment Trusts (NAREIT) came to the conclusion that a NAREIT-defined EBITDA metric for real estate companies (i.e., EBITDA for real estate, or EBITDAre) would provide investors with a consistent measure to help make investment decisions among REITs. Our definition of “Adjusted EBITDAre” is generally consistent with the NAREIT definition, other than our adjustments to remove foreign currency and derivative gains and losses, the executive severance charge described below, and loss on extinguishment of debt charge as described below (which is consistent with our previous calculations of "Adjusted EBITDA"). We define Adjusted EBITDAre, a non–GAAP financial measure, for the most recent quarter as earnings (net income) before (i) interest expense, including non-cash loss (gain) on swaps, (ii) executive severance charges, (iii) loss on extinguishment of debt, (iv) income and franchise taxes, (v) real estate depreciation and amortization, (vi) impairment losses, (vii) gain on sales of real estate, and (viii) foreign currency and derivative gains and losses, net (as described in the Adjusted Funds from Operations section). Our Adjusted EBITDAre may not be comparable to Adjusted EBITDAre reported by other companies or as defined by NAREIT, and other companies may interpret or define Adjusted EBITDAre differently than we do. Management believes Adjusted EBITDAre to be a meaningful measure of a REIT’s performance because it is widely followed by industry analysts, lenders and investors. Management also believes the use of an annualized quarterly Adjusted EBITDAre metric is meaningful because it represents the company’s current earnings run rate for the period presented. The ratio of our total debt to our annualized quarterly Adjusted EBITDAre is also used to determine vesting of performance share awards granted to our executive officers. Adjusted EBITDAre should be considered along with, but not as an alternative to net income as a measure of our operating performance. Our ratio of net debt-to-Adjusted EBITDAre, which is used by management as a measure of leverage, is calculated as net debt (which we define as total debt per the consolidated balance sheet, less cash and cash equivalents) divided by annualized quarterly Adjusted EBITDAre.

The following table summarizes our EBITDAre calculation for the periods indicated below (dollars in thousands):
 
Three Months Ended March 31,
 
 
2020

2019

Net income
$
147,143

$
111,230

Interest
75,925

70,020

Loss on extinguishment of debt
9,819

—

Income taxes
2,763

1,445

Depreciation and amortization
164,585

137,517

Executive severance charge (1)
3,463

—

Provisions for impairment
4,478

4,672

Gain on sales of real estate
(38,506
)
(7,263
)
Foreign currency and derivative losses, net
1,564

—

Quarterly Adjusted EBITDAre
$
371,234

$
317,621

 
 
 
Net Debt
$
7,493,810

$
7,012,430

Annualized Adjusted EBITDAre (2)
$
1,484,936

$
1,270,484

Net Debt/Adjusted EBITDAre
5.0

5.5

(1) The executive severance charge represents the incremental costs incurred upon our former CFO's departure in March 2020, consisting of $1.6 million of cash, $1.8 million related to share-based compensation expense and $58,000 of professional fees.
(2) We calculate Annualized Adjusted EBITDAre by multiplying the Quarterly Adjusted EBITDAre by four.

-42-

FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (FFO)
The following summarizes our funds from operations available to common stockholders (FFO) (dollars in millions, except per share data):
 
Three Months Ended March 31,
 
 
% Increase
 
2020

 
2019

 
FFO available to common stockholders
$
277.1

 
$
245.7

 
12.8
%
FFO per share (1)
$
0.82

 
$
0.81

 
1.2
%
(1) All per share amounts are presented on a diluted per common share basis.
FFO in the first three months of 2020 were impacted by a loss on extinguishment of debt due to the early redemption of the 5.750% Notes due 2021 in January 2020 and an executive severance charge for our former CFO in March 2020.
The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable GAAP measure) to FFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts):
 
Three Months Ended March 31,
 
 
2020

 
2019

Net income available to common stockholders
$
146,827

 
$
110,942

Depreciation and amortization
164,585

 
137,517

Depreciation of furniture, fixtures and equipment
(126
)
 
(155
)
Provisions for impairment
4,478

 
4,672

Gain on sales of real estate
(38,506
)
 
(7,263
)
FFO adjustments allocable to noncontrolling interests
(154
)
 
(38
)
FFO available to common stockholders
$
277,104

 
$
245,675

FFO allocable to dilutive noncontrolling interests
369

 
—

Diluted FFO
$
277,473

 
$
245,675

 
 
 
 
FFO per common share, basic and diluted
$
0.82

 
$
0.81

 
 
 
 
Distributions paid to common stockholders
$
233,824

 
$
204,546

FFO available to common stockholders in excess of distributions paid to common stockholders
$
43,280

 
$
41,129

Weighted average number of common shares used for computation per share:
 
 
 
Basic
336,624,567

 
303,528,336

Diluted
337,439,634

 
303,819,878

We define FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trusts' definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus impairments of depreciable real estate assets, and reduced by gains on property sales.
We consider FFO to be an appropriate supplemental measure of a REIT’s operating performance as it is based on a net income analysis of property portfolio performance that adds back items such as depreciation and impairments for FFO. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. The use of FFO is recommended by the REIT industry as a supplemental performance measure. In addition, FFO is used as a measure of our compliance with the financial covenants of our credit facility.

-43-

ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (AFFO)
The following summarizes our adjusted funds from operations available to common stockholders (AFFO) (dollars in millions, except per share data):
 
Three Months Ended March 31,
 
 
% Increase
 
2020

 
2019

 
AFFO available to common stockholders
$
297.2

 
$
248.7

 
19.5
%
AFFO per share (1)
$
0.88

 
$
0.82

 
7.3
%
(1) All per share amounts are presented on a diluted per common share basis.
We consider AFFO to be an appropriate supplemental measure of our performance. Most companies in our industry use a similar measurement, but they may use the term “CAD” (for Cash Available for Distribution), “FAD” (for Funds Available for Distribution) or other terms.
The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable GAAP measure) to FFO and AFFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts):
 
Three Months Ended March 31,
 
 
2020

2019

Net income available to common stockholders
$
146,827

$
110,942

Cumulative adjustments to calculate FFO (1)
130,277

134,733

FFO available to common stockholders
277,104

245,675

Executive severance charge (2)
3,463

—

Loss on extinguishment of debt
9,819

—

Amortization of share-based compensation
3,742

2,764

Amortization of deferred financing costs (3)
1,360

1,040

Amortization of net mortgage premiums
(354
)
(354
)
Loss on interest rate swaps
686

678

Straight-line payments from cross-currency swaps (4)
723

—

Leasing costs and commissions
(138
)
(323
)
Recurring capital expenditures
—

(56
)
Straight-line rent
(7,782
)
(4,862
)
Amortization of above and below-market leases
6,430

4,114

Other adjustments (5)
2,170

58

AFFO available to common stockholders
$
297,223

$
248,734

AFFO allocable to dilutive noncontrolling interests
376

—

Diluted AFFO
$
297,599

$
248,734

 
 
 
AFFO per common share, basic and diluted
$
0.88

$
0.82

 
 
 
Distributions paid to common stockholders
$
233,824

$
204,546

 
 
 
AFFO available to common stockholders in excess of distributions paid to common stockholders
$
63,399

$
44,188

Weighted average number of common shares used for computation per share:
 
 
Basic
336,624,567

303,528,336

Diluted
337,439,634

303,819,878

(1) 
See reconciling items for FFO presented under “Funds from Operations Available to Common Stockholders (FFO).”
(2) 
The executive severance charge represents the incremental costs incurred upon our former CFO's departure in March 2020, consisting of $1.6 million of cash, $1.8 million of share-based compensation expense and $58,000 of professional fees.

-44-

(3) Includes the amortization of costs incurred and capitalized upon issuance of our notes payable, assumption of our mortgages payable and upon issuance of our term loans. The deferred financing costs are being amortized over the lives of the respective mortgages and term loans. No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included.
(4) Straight-line payments from cross-currency swaps represent quarterly payments in U.S. dollars received by us from counterparties in exchange for associated foreign currency payments. These USD payments are fixed and determinable for the duration of the associated hedging transaction.
(5) Includes adjustments allocable to noncontrolling interests, obligations related to financing lease liabilities, and foreign currency gains and losses as a result of intercompany debt and remeasurement transactions.
We believe the non-GAAP financial measure AFFO provides useful information to investors because it is a widely accepted industry measure of the operating performance of real estate companies that is used by industry analysts and investors who look at and compare those companies. In particular, AFFO provides an additional measure to compare the operating performance of different REITs without having to account for differing depreciation assumptions and other unique revenue and expense items which are not pertinent to measuring a particular company’s on-going operating performance. Therefore, we believe that AFFO is an appropriate supplemental performance metric, and that the most appropriate GAAP performance metric to which AFFO should be reconciled is net income available to common stockholders.
Presentation of the information regarding FFO and AFFO is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and AFFO in the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and AFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as alternatives to net income as an indication of our performance. FFO and AFFO should not be considered as alternatives to reviewing our cash flows from operating, investing, and financing activities. In addition, FFO and AFFO should not be considered as measures of liquidity, our ability to make cash distributions, or our ability to pay interest payments.
PROPERTY PORTFOLIO INFORMATION
At March 31, 2020, we owned a diversified portfolio:
•
Of 6,525 properties;
•
With an occupancy rate of 98.5%, or 6,428 properties leased and 97 properties available for lease;
•
Doing business in 51 separate industries;
•
Located in 49 U.S. states, Puerto Rico and the U.K.;
•
With approximately 106.0 million square feet of leasable space;
•
With a weighted average remaining lease term (excluding rights to extend a lease at the option of the tenant) of approximately 9.2 years; and
•
With an average leasable space per property of approximately 16,245 square feet; approximately 11,960 square feet per retail property and 224,499 square feet per industrial property.
At March 31, 2020, 6,428 properties were leased under net lease agreements. A net lease typically requires the tenant to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance. In addition, our tenants are typically subject to future rent increases based on increases in the consumer price index (typically subject to ceilings), additional rent calculated as a percentage of the tenants’ gross sales above a specified level, or fixed increases.

-45-

Industry Diversification
The following table sets forth certain information regarding our property portfolio classified according to the business of the respective tenants, expressed as a percentage of our total rental revenue:
Percentage of Rental Revenue (excluding reimbursable) by Industry
 
For the
Quarter Ended
March 31, 2020

 
 
For the Years Ended
 
 
 
Dec 31,
2019

 
 
Dec 31,
2018

 
 
Dec 31,
2017

 
 
Dec 31,
2016

 
 
Dec 31,
2015

 
U.S.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aerospace
0.7
%
 
 
0.8
%
 
 
0.8
%
 
 
0.9
%
 
 
1.0
%
 
 
1.1
%
 
Apparel stores
1.2

 
 
1.1

 
 
1.3

 
 
1.6

 
 
1.9

 
 
2.0

 
Automotive collision services
1.0

 
 
1.1

 
 
0.9

 
 
1.0

 
 
1.0

 
 
1.0

 
Automotive parts
1.7

 
 
1.6

 
 
1.7

 
 
1.3

 
 
1.3

 
 
1.4

 
Automotive service
2.2

 
 
2.3

 
 
2.2

 
 
2.2

 
 
1.9

 
 
1.9

 
Automotive tire services
2.0

 
 
2.2

 
 
2.4

 
 
2.6

 
 
2.7

 
 
2.9

 
Beverages
2.0

 
 
2.3

 
 
2.5

 
 
2.7

 
 
2.6

 
 
2.7

 
Child care
2.4

 
 
2.3

 
 
1.7

 
 
1.8

 
 
1.9

 
 
2.0

 
Consumer appliances
*

 
 
0.5

 
 
0.5

 
 
0.5

 
 
0.5

 
 
0.6

 
Consumer electronics
0.3

 
 
0.3

 
 
0.3

 
 
0.3

 
 
0.3

 
 
0.3

 
Consumer goods
0.6

 
 
0.6

 
 
0.7

 
 
0.8

 
 
0.9

 
 
0.9

 
Convenience stores
11.9

 
 
11.9

 
 
11.2

 
 
9.6

 
 
8.7

 
 
9.2

 
Crafts and novelties
0.7

 
 
0.6

 
 
0.7

 
 
0.6

 
 
0.6

 
 
0.6

 
Diversified industrial
0.6

 
 
0.7

 
 
0.8

 
 
0.9

 
 
0.9

 
 
0.8

 
Dollar stores
8.0

 
 
7.3

 
 
7.5

 
 
7.9

 
 
8.6

 
 
8.9

 
Drug stores
9.0

 
 
9.0

 
 
10.2

 
 
10.9

 
 
11.2

 
 
10.6

 
Education
0.2

 
 
0.2

 
 
0.3

 
 
0.3

 
 
0.3

 
 
0.3

 
Electric utilities
0.1

 
 
0.1

 
 
0.1

 
 
0.1

 
 
0.1

 
 
0.1

 
Entertainment
0.2

 
 
0.4

 
 
0.4

 
 
0.4

 
 
0.5

 
 
0.5

 
Equipment services
0.4

 
 
0.4

 
 
0.4

 
 
0.4

 
 
0.6

 
 
0.5

 
Financial services
1.9

 
 
2.1

 
 
2.3

 
 
2.4

 
 
1.8

 
 
1.7

 
Food processing
0.8

 
 
0.6

 
 
0.5

 
 
0.6

 
 
1.1

 
 
1.2

 
General merchandise
2.9

 
 
2.5

 
 
2.3

 
 
2.0

 
 
1.8

 
 
1.7

 
Government services
0.7

 
 
0.8

 
 
0.9

 
 
1.0

 
 
1.1

 
 
1.2

 
Grocery stores
5.0

 
 
4.9

 
 
5.0

 
 
4.4

 
 
3.1

 
 
3.0

 
Health and beauty
0.2

 
 
0.3

 
 
0.2

 
 
*

 
 
*

 
 
*

 
Health and fitness
7.2

 
 
7.5

 
 
7.4

 
 
7.5

 
 
8.1

 
 
7.7

 
Health care
1.6

 
 
1.4

 
 
1.5

 
 
1.4

 
 
1.5

 
 
1.7

 
Home furnishings
0.9

 
 
0.7

 
 
0.8

 
 
0.9

 
 
0.8

 
 
0.9

 
Home improvement
2.9

 
 
3.0

 
 
3.0

 
 
2.6

 
 
2.5

 
 
2.4

 
Machinery
0.1

 
 
0.1

 
 
0.1

 
 
0.1

 
 
0.1

 
 
0.1

 
Motor vehicle dealerships
1.5

 
 
1.9

 
 
1.9

 
 
2.1

 
 
1.9

 
 
1.6

 
Office supplies
0.2

 
 
0.2

 
 
0.2

 
 
0.2

 
 
0.3

 
 
0.3

 
Other manufacturing
0.6

 
 
0.6

 
 
0.7

 
 
0.8

 
 
0.8

 
 
0.7

 
Packaging
1.0

 
 
1.0

 
 
1.1

 
 
1.0

 
 
0.8

 
 
0.8

 
Paper
0.1

 
 
0.1

 
 
0.1

 
 
0.1

 
 
0.1

 
 
0.1

 
Pet supplies and services
0.7

 
 
0.5

 
 
0.5

 
 
0.6

 
 
0.6

 
 
0.7

 
Restaurants - casual dining
3.2

 
 
3.2

 
 
3.2

 
 
3.8

 
 
3.9

 
 
3.8

 
Restaurants - quick service
6.0

 
 
6.2

 
 
5.7

 
 
5.1

 
 
4.9

 
 
4.2

 
Shoe stores
0.2

 
 
0.3

 
 
0.5

 
 
0.6

 
 
0.7

 
 
0.7

 
Sporting goods
0.8

 
 
0.9

 
 
1.1

 
 
1.4

 
 
1.6

 
 
1.8

 
Telecommunications
0.5

 
 
0.5

 
 
0.6

 
 
0.6

 
 
0.6

 
 
0.7

 
Theaters
6.3

 
 
6.3

 
 
5.5

 
 
5.0

 
 
4.9

 
 
5.1

 
Transportation services
4.2

 
 
4.6

 
 
5.0

 
 
5.4

 
 
5.5

 
 
5.4

 
Wholesale clubs
2.5

 
 
2.7

 
 
3.0

 
 
3.3

 
 
3.6

 
 
3.8

 
Other
0.1

 
 
0.1

 
 
0.3

 
 
0.3

 
 
0.4

 
 
0.4

 
Total U.S.
97.3
%
 
 
98.7
%
 
 
100.0
%
 
 
100.0
%
 
 
100.0
%
 
 
100.0
%
 
U.K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Grocery stores
2.7

 
 
1.3

 
 
—

 
 
—

 
 
—

 
 
—

 
Health care
*

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
Theaters
*

 
 
*

 
 
—

 
 
—

 
 
—

 
 
—

 
Total U.K.
2.7
%
 
 
1.3
%
 
 
—

 
 
—

 
 
—

 
 
—

 
Totals
100.0
%
 
 
100.0
%
 
 
100.0
%
 
 
100.0
%
 
 
100.0
%
 
 
100.0
%
 
*
Less than 0.1%

-46-

Property Type Composition
The following table sets forth certain property type information regarding our property portfolio as of March 31, 2020 (dollars in thousands):
Property Type
Number of
Properties
Approximate
Leasable
Square Feet (1)
Rental Revenue for the
Quarter Ended
March 31, 2020 (2)

Percentage of
Rental Revenue

Retail
6,348
75,922,800
$
328,627

84.1
%
Industrial
119
26,715,400
41,887

10.7

Office
43
3,175,700
13,642

3.5

Agriculture
15
184,500
6,716

1.7

Totals
6,525
105,998,400
$
390,872

100.0
%
(1) 
Includes leasable building square footage. Excludes 3,300 acres of leased land categorized as agriculture at March 31, 2020.
(2) 
Includes rental revenue for all properties owned at March 31, 2020.  Excludes revenue of $919 from sold properties and rental revenue (reimbursable) of $20,366.
Tenant Diversification
The following table sets forth the 20 largest tenants in our property portfolio, expressed as a percentage of total rental revenue at March 31, 2020: 
Tenant
Number of
Leases

% of Rental
Revenue (1)

Walgreens
250

6.0
%
7-Eleven
403

4.7
%
Dollar General
764

4.4
%
FedEx
41

4.0
%
Dollar Tree / Family Dollar
550

3.4
%
LA Fitness
58

3.4
%
AMC Theatres
34

2.9
%
Regal Cinemas (Cineworld)
42

2.9
%
Wal-Mart / Sam's Club
54

2.5
%
Sainsbury's
16

2.4
%
Lifetime Fitness
16

2.4
%
Circle K (Couche-Tard)
283

1.9
%
BJ's Wholesale Clubs
15

1.8
%
CVS Pharmacy
88

1.6
%
Treasury Wine Estates
17

1.6
%
Super America (Marathon)
161

1.6
%
Kroger
22

1.6
%
GPM Investments / Fas Mart
206

1.4
%
TBC Corp
159

1.2
%
Home Depot
19

1.2
%
Totals
3,198

53.1
%
(1) 
Excludes rental revenue (reimbursable). Amounts for each tenant are calculated independently; therefore, the individual percentages may not sum to the total.

-47-

Lease Expirations
The following table sets forth certain information regarding the timing of the lease term expirations in our portfolio (excluding rights to extend a lease at the option of the tenant) and their contribution to rental revenue for the quarter ended March 31, 2020 (dollars in thousands):
Total Portfolio(1)
 
Expiring
Leases
Approx.
Leasable
Sq. Feet

Rental Revenue for
the Quarter Ended
March 31, 2020

% of
Rental
Revenue

Year
Retail
Non-Retail
2020
126
8
1,701,400

$
5,890

1.5
%
2021
330
15
3,880,100

14,236

3.7

2022
413
22
8,911,000

21,353

5.4

2023
551
23
10,288,700

31,905

8.2

2024
419
16
7,097,100

22,941

5.9

2025
457
18
7,805,000

28,238

7.2

2026
329
4
5,187,800

17,853

4.6

2027
563
6
7,303,300

24,528

6.3

2028
442
14
10,394,400

26,899

6.9

2029
524
6
8,983,200

27,951

7.2

2030
254
14
4,950,100

23,147

5.9

2031
323
25
6,297,900

29,007

7.4

2032
135
4
3,799,400

15,045

3.9

2033
283
3
3,683,900

18,304

4.7

2034
317
1
4,441,900

27,743

7.1

2035-2045
861
5
9,273,100

54,963

14.1

Totals
6,327
184
103,998,300

$
390,003

100.0
%
(1) 
The lease expirations for leases under construction are based on the estimated date of completion of those projects. Excludes revenue of $869 from expired leases, $919 from sold properties, and $20,366 of rental revenue (reimbursable) at March 31, 2020. Leases on our multi-tenant properties are counted separately in the table above.

-48-

Geographic Diversification
The following table sets forth certain state-by-state information regarding our property portfolio as of March 31, 2020 (dollars in thousands):
Location
Number of Properties
 
Percent Leased

Approximate Leasable
Square Feet
Rental Revenue
for the Quarter Ended
March 31, 2020 (1)

Percentage of Rental
Revenue

Alabama
228
 
98
%
2,148,700
$
7,883

2.0
%
Alaska
3
 
100

274,600
536

0.1

Arizona
153
 
100

2,085,300
8,821

2.3

Arkansas
102
 
100

1,183,200
3,562

0.9

California
230
 
99

6,598,300
34,206

8.8

Colorado
100
 
96

1,582,900
6,025

1.5

Connecticut
21
 
90

1,378,200
2,862

0.7

Delaware
19
 
100

101,400
690

0.2

Florida
432
 
98

4,697,800
21,186

5.4

Georgia
300
 
98

4,612,100
14,622

3.7

Idaho
14
 
93

103,200
436

0.1

Illinois
296
 
98

6,396,500
22,580

5.8

Indiana
204
 
99

2,565,600
10,389

2.7

Iowa
46
 
96

2,472,400
4,424

1.1

Kansas
122
 
96

2,256,800
6,307

1.6

Kentucky
93
 
100

1,826,100
5,347

1.4

Louisiana
139
 
96

1,917,100
6,254

1.6

Maine
27
 
100

277,800
1,473

0.4

Maryland
38
 
100

1,494,000
6,477

1.7

Massachusetts
59
 
95

942,800
4,554

1.2

Michigan
215
 
100

2,583,400
9,185

2.3

Minnesota
173
 
98

2,355,400
11,132

2.8

Mississippi
183
 
98

1,985,000
5,782

1.5

Missouri
188
 
96

3,023,000
9,780

2.5

Montana
12
 
100

89,100
504

0.1

Nebraska
62
 
98

866,100
2,365

0.6

Nevada
24
 
96

1,196,900
2,153

0.6

New Hampshire
14
 
100

321,500
1,418

0.4

New Jersey
78
 
99

1,222,600
6,869

1.8

New Mexico
60
 
100

504,200
1,995

0.5

New York
136
 
99

2,964,000
16,895

4.3

North Carolina
202
 
100

3,334,500
11,455

2.9

North Dakota
8
 
100

126,900
359

0.1

Ohio
342
 
98

6,716,700
17,414

4.5

Oklahoma
191
 
98

2,377,600
8,237

2.1

Oregon
29
 
100

624,300
2,565

0.7

Pennsylvania
224
 
100

2,272,300
10,766

2.8

Rhode Island
3
 
100

158,000
815

0.2

South Carolina
179
 
97

1,811,000
8,373

2.1

South Dakota
23
 
96

258,500
710

0.2

Tennessee
260
 
99

3,850,400
11,975

3.1

Texas
803
 
100

11,557,200
43,308

11.0

Utah
23
 
100

949,700
2,374

0.6

Vermont
1
 
100

65,500
191

*

Virginia
218
 
99

3,312,800
10,798

2.8

Washington
50
 
98

913,400
3,879

1.0

West Virginia
36
 
100

528,100
1,749

0.4

Wisconsin
127
 
98

3,062,100
8,102

2.1

Wyoming
9
 
100

63,900
369

0.1

Puerto Rico
4
 
100

28,300
149

*

U.K.
22
 
100

1,961,200
10,572

2.7

TotalsAverage
6,525
 
98
%
105,998,400
$
390,872

100.0
%
*
Less than 0.1%
(1) 
Includes rental revenue for all properties owned at March 31, 2020.  Excludes revenue of $919 from sold properties and $20,366 of tenant reimbursement revenue.

-49-

IMPACT OF INFLATION
Tenant leases generally provide for limited increases in rent as a result of increases in the tenants’ sales volumes, increases in the consumer price index (typically subject to ceilings), or fixed increases. We expect that inflation will cause these lease provisions to result in rent increases over time. During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation.
Moreover, our use of net lease agreements tends to reduce our exposure to rising property expenses due to inflation because the tenant is responsible for property expenses. Inflation and increased costs may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
As of March 31, 2020, the impact of recent accounting pronouncements on our business is not considered to be material.
OTHER INFORMATION
Our common stock is listed on the NYSE under the ticker symbol “O” with a CUSIP number of 756109-104. Our central index key number is 726728.
We maintain a corporate website at www.realtyincome.com. On our website we make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, Form 3s, Form 4s, Form 5s, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file these reports with the Securities and Exchange Commission, or SEC. None of the information on our website is deemed to be part of this report.
Item 3:    Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate changes primarily as a result of our credit facility, term loans, mortgages payable, and long-term notes and bonds used to maintain liquidity and expand our real estate investment portfolio and operations. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flow and to lower our overall borrowing costs. To achieve these objectives we issue long-term notes and bonds, primarily at fixed rates.
In order to mitigate and manage the effects of interest rate risks on our operations, we may utilize a variety of financial instruments, including interest rate swaps, interest rate locks and caps. The use of these types of instruments to hedge our exposure to changes in interest rates carries additional risks, including counterparty credit risk, the enforceability of hedging contracts and the risk that unanticipated and significant changes in interest rates will cause a significant loss of basis in the contract.  To limit counterparty credit risk we will seek to enter into such agreements with major financial institutions with favorable credit ratings.  There can be no assurance that we will be able to adequately protect against the foregoing risks or realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging activities.  We do not enter into any derivative transactions for speculative or trading purposes.
The following table presents by year of expected maturity, the principal amounts, average interest rates and estimated fair values of our fixed and variable rate debt as of March 31, 2020. This information is presented to evaluate the expected cash flows and sensitivity to interest rate changes (dollars in millions):

-50-

Expected Maturity Data
Year of Maturity
Fixed rate
debt

Weighted average rate
on fixed rate debt

Variable rate
debt

Weighted average rate
on variable rate debt

2020
$
332.6

3.20
%
$
—

—
%
2021
68.8

5.61

—

—

2022
1,061.8

3.43

—

—

2023
770.6

4.64

615.2

1.10

2024
712.1

3.97

—

—

Thereafter
4,002.1

3.80

—

—

Totals (1)
$
6,948.0

3.84
%
$
615.2

1.10
%
Fair Value (2)
$
6,918.7

 
$
615.2

 
(1) 
Excludes net premiums recorded on mortgages payable, net original issuance premiums recorded on notes payable and deferred financing costs on mortgages payable, notes payable, and term loans.  At March 31, 2020, the unamortized balance of net premiums on mortgages payable is $2.6 million, the unamortized balance of net original issuance premiums on notes payable is $6.2 million, and the balance of deferred financing costs on mortgages payable is $1.2 million, on notes payable is $34.3 million, and on term loans is $849,000.
(2) 
We base the estimated fair value of the publicly-traded fixed rate senior notes and bonds at March 31, 2020 on the indicative market prices and recent trading activity of our senior notes and bonds payable. We base the estimated fair value of our fixed rate and variable rate mortgages and private senior notes payable at March 31, 2020 on the relevant forward interest rate curve, plus an applicable credit-adjusted spread.  We believe that the carrying value of the credit facility balance and term loans balance reasonably approximate their estimated fair values at March 31, 2020.
The table above incorporates only those exposures that exist as of March 31, 2020. It does not consider those exposures or positions that could arise after that date. As a result, our ultimate realized gain or loss, with respect to interest rate fluctuations, would depend on the exposures that arise during the period, our hedging strategies at the time, and interest rates.
All of our outstanding notes and bonds have fixed interest rates. At March 31, 2020, all of our mortgages payable had fixed interest rates, except one variable rate mortgage on one property totaling $7.0 million, which has been swapped to a fixed interest rate. Interest on our revolving credit facility and term loan balances is variable. However, the variable interest rate feature on our term loans has been mitigated by interest rate swap agreements. Based on our revolving credit facility balance of $615.2 million at March 31, 2020, a 1% change in interest rates would change our interest rate costs by $6.2 million per year. On April 9, 2020, we borrowed an additional $1.2 billion under our revolving credit facility.

During 2019, we commenced foreign operations and acquired real property in the U.K. As a result, we are subject to currency fluctuations that may, from time to time, affect our financial condition and results of operations. Increases or decreases in the value of Sterling relative to the U.S. dollar impact the amount of net income we earn from our investments in the U.K. We mitigate these foreign currency exposures with non-U.S. denominated borrowings and cross-currency swaps. If we increase our international presence through investments in properties outside the U.S., we may also decide to transact additional business or borrow funds in currencies other than U.S. dollars.
Item 4:    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of and for the quarter ended March 31, 2020, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, under the supervision and with the participation of

-51-

management, including our Chief Executive Officer and Interim Principal Financial Officer. Based on the foregoing, our Chief Executive Officer and Interim Principal Financial Officer concluded that our disclosure controls and procedures were effective and were operating at a reasonable assurance level.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
PART II.    OTHER INFORMATION
Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the following risk factor, which supplements and should be read in conjunction with the information appearing under "Item 1A. Risk Factors" in Part I, Item 1A. Risk Factors in our Annual Report on Form 10–K for the fiscal year ended December 31, 2019.

The COVID-19 pandemic has disrupted our operations and is expected to continue to have an adverse effect on our business, results of operations, financial condition and liquidity.
In late 2019, COVID-19 was first reported in Wuhan, China, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The outbreak has spread globally and has led governments and other authorities around the world, including federal, state and local authorities in the United States and elsewhere, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders.

The COVID-19 pandemic has had, and other pandemics in the future could have, repercussions across global economies and financial markets. The COVID-19 pandemic and the measures taken to limit its spread have adversely impacted regional, national and global economic activity and have contributed to significant volatility and negative pressure in financial markets. The impact of the COVID-19 pandemic has been rapidly evolving and, as cases of COVID-19 have continued to increase and be identified, many countries, including the United States and United Kingdom, have reacted by, among other things, instituting quarantines and restricting travel. Many national, state and local governments, including in areas where we own properties, have also reacted by instituting quarantines, restrictions on travel, shelter-in-place orders, restrictions on types of business that may continue to operate, school closures, limitations on attendance at events or other gatherings, and social distancing requirements, and additional national, state and local governments may implement similar restrictions.
As a result, the COVID-19 pandemic and the measures taken to limit its spread are negatively impacting the global, national and regional economies generally and many industries, directly or indirectly, and those impacts are likely to continue and may increase in severity, including potentially triggering a national or global recession or a prolonged period of negative or limited economic growth. Factors that have contributed or may contribute to the adverse impact of the COVID-19 pandemic and the measures taken to limit its spread on the business, results of operations, financial condition and liquidity of us and our tenants include, without limitation, the following:
•
A complete or partial closure of, or other operational limitations or issues at, properties operated by our tenants resulting from government action (including quarantine, shelter-in-place or similar orders requiring that people remain in their homes) or tenant action;

-52-

•
Reduced economic activity, the deterioration in our or our tenants’ ability to operate in affected areas and any delays in the supply of products or services to our tenants may impact certain of our tenants’ businesses, results of operations, financial condition and liquidity and may cause certain of our tenants to be unable to meet their obligations to us in full, or at all, and to seek, whether through negotiation, restructuring or bankruptcy, reductions or deferrals in their rent payments and other obligations to us or early termination of their leases;
•
We may experience difficulties in leasing, selling or redeveloping vacant properties or renewing expiring or terminated leases on terms we consider acceptable, or at all;
•
We may experience difficulty accessing the bank lending, capital markets and other financial markets on attractive terms, or at all, and a severe disruption or instability in the national or global financial markets or deterioration in credit and financing conditions may adversely affect our cost of capital, our access to capital to acquire additional properties necessary to grow our business and to fund our business operations, our ability to pay dividends on our common stock, our ability to pay the principal of and interest on our indebtedness and our other liabilities on a timely basis, and our tenants’ ability to fund their business operations and meet their obligations to us and others;
•
The financial impact of the COVID-19 pandemic, could negatively impact our credit ratings, the interest rates on our borrowings, and, if the COVID-19 pandemic continues for an extended period of time, our future compliance with financial covenants under our credit facility and other debt instruments, which could result in a default and potentially an acceleration of indebtedness, any of which could negatively impact our ability to make additional borrowings under our revolving credit facility or incur other indebtedness, and pay dividends on our common stock and to pay the principal of and interest on our indebtedness and our other obligations when due;
•
The impact of the COVID-19 pandemic on the market value of our properties may require that we incur impairment charges, asset write-downs or similar charges;
•
The impact on the ability of our employees, including members of our management team or board of directors, to fulfill their duties to us as a result of the COVID-19 pandemic, either as a result of measures taken to limit its spread or as a result of infection; and
•
A general decline in business activity and demand for real estate transactions could adversely affect our ability to grow our portfolio of properties.

The extent to which the COVID-19 pandemic continues to impact our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or limit its impact, and the direct and indirect economic effects of the pandemic and containment measures. To date, the COVID-19 pandemic and the measures taken to limit its spread have adversely impacted and may continue to adversely impact, among other things, the ability of a number of our tenants’ to generate adequate, or in certain cases, any revenue from their businesses, the ability or willingness of many of our tenants to pay rent in full, or at all, or on a timely basis, and our ability to collect rent from our tenants. It may also adversely impact our ability to enforce remedies for the failure to pay rent, our occupancy levels, our ability to acquire properties or complete construction projects, and may otherwise negatively affect our business.

In addition, most of our tenants operate retail businesses that depend on customer traffic. As a result, conditions that lead to a decline in customer traffic (including quarantine, shelter-in-place or similar orders requiring that people remain in their homes or orders requiring business closures) have had and so long as those conditions continue to exist will continue to have an adverse effect on the business, results of operations, financial condition and liquidity of a number of our tenants, and their willingness or ability to pay rent, to renew expiring leases or to enter into new leases on terms favorable to us, or at all.
As a result of the foregoing, we cannot predict the number of tenants that will not pay rent in the future, nor can we predict whether tenants who have paid rent in the past will continue to do so. As the COVID-19 pandemic continues, tenants may cease to pay their rent obligations to us in full or at all, and tenants may elect not to renew their leases, seek to terminate their leases, seek relief from their leases (including through negotiation, restructuring or bankruptcy), or decline to renew expiring leases or enter into new leases, all of which may adversely impact our rental revenue and occupancy rates, generate additional expenses, result in impairment charges or other write-downs of assets, and adversely impact our results of operations, financial condition and liquidity. In addition, as we believe to be the case with many retail landlords, we have received many short-term rent relief requests, most often in the form of rent deferral requests, or requests for further discussion from tenants. We believe that not all tenant requests will ultimately result in modification agreements, nor have we relinquished our contractual rights under our lease agreements. April collections and rent relief requests to-date may not be indicative of collections or requests in any future period.


-53-

Likewise, the deterioration of global economic conditions as a result of the pandemic may ultimately lead to a further decrease in occupancy levels and rental rates across our portfolio as tenants reduce or defer their spending, institute restructuring plans or file for bankruptcy. Some of our major tenants have announced temporary closures of some or all of their properties or have substantially reduced their operations in response to the COVID-19 pandemic, and additional tenants may do so in the future. In addition, the measures taken to prevent the spread of COVID-19 (including quarantine, shelter-in-place or similar orders requiring that people remain in their homes) have led and may lead to further closures, or other operational issues at our properties, or delays in acquisition activities, construction projects, and other corporate actions, all of which may materially adversely impact our operations.
In addition, in light of the uncertain and rapidly evolving situation relating to the COVID-19 pandemic, we have taken certain precautionary measures within our organization intended to help reduce the risk of the virus to our employees, our tenants, and the communities in which we operate, including the following:
•
We have instructed all of our employees to work remotely;
•
We have suspended all non-essential travel worldwide for our employees; and
•
We have suspended employee attendance at industry events and in-person work-related meetings.
While we anticipate that the foregoing measures are temporary, we cannot predict the specific duration for which these precautionary measures will stay in effect, and we may elect to take additional measures as the information available to us continues to develop. These actions, and any future actions we may take in response to the COVID-19 pandemic, could further negatively impact our business, financial condition, results of operations and liquidity.
For the foregoing reasons, we expect that the impact of the COVID-19 pandemic and related containment measures, including the impact on regional, national and global economies, will likely adversely affect our business, results of operations, financial condition and liquidity, and, given unpredictability of the scope, severity and duration of the pandemic, such impacts may be material.

To the extent the COVID-19 pandemic and related containment measures continue to adversely affect regional, national and global economic conditions and financial markets, as well as the business, results of operations, financial conditions and liquidity of us and our tenants, it may also have the effect of heightening many of the risks described in this ‘‘Risk Factors’’ section and elsewhere in this Quarterly Report on Form 10-Q and many of the risks described under the caption ‘‘Risk Factors’’ and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2019, including the risks resulting from our significant indebtedness; our need to generate sufficient cash flows to service our indebtedness, to pay dividends on our common stock and provide for our other cash needs; our ongoing need for external financing; our ability to access borrowings under our credit facility; our ability to comply with the covenants contained in the agreements that govern our indebtedness; our dependency on key personnel; and the impact of negative market conditions or adverse events on our tenants. In addition, in light of the COVID-19 pandemic and the measures taken to limit its spread, our historical information regarding our business, properties, results of operations, financial condition or liquidity may not be representative of the future results of operations, financial condition, liquidity or other financial or operating results of us, our properties or our business.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
The following shares of stock were withheld for state and federal payroll taxes on the vesting of employee stock awards, as permitted under the 2012 Incentive Award Plan of Realty Income Corporation:
•
49,156 shares of stock, at a weighted average price of $73.63, in January 2020;
•
26,206 shares of stock, at a weighted average price of $78.79, in February 2020; and
•
8,021 shares of stock, at a weighted average price of $50.22, in March 2020.

-54-

Item 6:        Exhibits
Exhibit No.
 
Description
Articles of Incorporation and Bylaws
2.1
 
2.2
 
3.1
 
3.2
 
3.3
 
3.4
 
3.5
 
3.6
 
3.7
 
3.8
 
3.9
 
3.10
 
3.11
 
3.12
 
3.13
 
Instruments defining the rights of security holders, including indentures
4.1
 
4.2
 
4.3
 
4.4
 
4.5
 
4.6
 
4.7
 
4.8
 
4.9
 

-55-

4.10
 
4.11
 
4.12
 
4.13
 
4.14
 
4.15
 
4.16
 
4.17
 
4.18
 
4.19
 
4.20
 
4.21
 
4.22
 
4.23
 
4.24
 
4.25
 

4.26
 
Material Contracts
10.1
 
Certifications
*31.1
 
*31.2
 
*32
 
Interactive Data Files
*101
 
The following materials from Realty Income Corporation’s Quarterly Report on Form 10-Q for the period ended March 31, 2020 formatted in Inline Extensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.
*104
 
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in Inline Extensible Business Reporting Language.
* Filed herewith.


-56-

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
REALTY INCOME CORPORATION
 
 
Date: May 5, 2020
/s/ SEAN P. NUGENT
 
Sean P. Nugent
 
Interim Principal Financial Officer and Treasurer
 
(Principal Accounting Officer)

-57-
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