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TABLE OF CONTENTS
TABLE OF CONTENTS
Table of Contents
Filed Pursuant to Rule 424(b)(5)
Registration Statement No. 333-228157
The information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and the accompanying
prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus Supplement dated July 6, 2020
PROSPECTUS SUPPLEMENT
(To prospectus dated November 5, 2018)
$
3.250% Notes due 2031
We are offering $ aggregate principal amount of our 3.250% Notes due 2031 (the "notes"). The notes will
mature on January 15,
2031. We will pay interest on the notes on January 15 and July 15 of each year, commencing January 15, 2021. Interest on the notes will accrue from and including July 15,
2020. We may redeem the notes at any time in whole, or from time to time in part, at the redemption prices described in this prospectus supplement under the caption "Description of
NotesOptional Redemption." The notes will be our senior unsecured obligations.
The
notes offered hereby will constitute a further issuance of our 3.250% Notes due 2031, of which $600,000,000 aggregate principal amount was issued on May 8, 2020 and is
outstanding as of the date of this prospectus supplement (the "existing notes"). The notes offered hereby and the existing notes will constitute a single series of our debt securities under the
indenture referred to in this prospectus supplement. The notes offered hereby will have the same terms (except for date of original issuance, the first date on which interest thereon shall be payable
and the date from which interest thereon shall begin to accrue) and CUSIP number as the existing notes. However, for U.S. federal income tax purposes, the notes offered hereby will be deemed to have
the same issue date and issue price as the existing notes.
Realty
Income Corporation, The Monthly Dividend Company, is an S&P 500 company dedicated to providing stockholders with dependable monthly dividends that increase over time. We
are structured as a real estate investment trust, or REIT, requiring us annually to distribute at least 90% of our taxable income (excluding net capital gains) in the form of dividends to our
stockholders. Our monthly dividends are supported by the cash flow generated from real estate
owned under long-term, net lease agreements with commercial tenants. As of March 31, 2020, we owned a diversified portfolio of 6,525 properties located in 49 U.S. states, Puerto Rico and the
United Kingdom, with approximately 106.0 million square feet of leasable space leased to tenants doing business in 51 separate industries.
Investing in the notes involves risks. See "Risk Factors" beginning on page S-10 of this prospectus supplement.
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Per Note
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Total
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Public offering price(1)
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%
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$
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Underwriting discount
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%
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$
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Proceeds, before expenses, to Realty Income Corporation(1)
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%
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$
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(1)
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Plus
accrued interest from and including July 15, 2020 to, but excluding, the settlement date, totaling approximately $ (assuming the
settlement date is , 2020). Such accrued interest must be paid by the purchasers of the notes offered hereby. We expect that the settlement date of this offering
will be after July 15, 2020 and, as a result, investors will not be entitled to receive any payment of interest on July 15, 2020 on the notes they purchase in this
offering.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.
Delivery
of the notes will be made only in book-entry form through the facilities of The Depository Trust Company for the accounts of its participants, including Clearstream
Banking S.A. and Euroclear Bank SA/NV, as operator of the Euroclear System, against payment in New York, New York on or
about , 2020.
Joint Book-Running Managers
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Goldman Sachs & Co. LLC
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Barclays
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Credit Suisse
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The
date of this prospectus supplement is , 2020.
Table of Contents
TABLE OF CONTENTS
You
should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus and, if applicable, any free writing
prospectus we may provide you in connection with this offering. We have not, and the underwriters have not, authorized any person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities or soliciting an offer to buy these securities in
any jurisdiction where, or to any person to whom, the offer or sale of these securities is not permitted. You should assume that the information appearing in this prospectus supplement, the
accompanying prospectus, the documents incorporated by reference herein or therein and, if applicable, any free writing prospectus we may provide you in connection with this offering is accurate only
as of those documents' respective dates or, in the case of documents incorporated or deemed to be incorporated by reference herein or therein, as of the respective dates those documents were filed
with the Securities and Exchange Commission, or the SEC. Our business, financial condition, results of operations and prospects may have changed since those dates.
This
document is in two parts. The first part is this prospectus supplement, which adds to and updates information contained in the accompanying prospectus. The second part, the
prospectus, provides more general information, some of which may not apply to this offering. Unless otherwise
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expressly
stated or the context otherwise requires, when we refer to this prospectus, we are referring to both parts of this document combined. To the extent there is a conflict between the
information
contained in this prospectus supplement and the information contained in the accompanying prospectus, you should rely on the information in this prospectus supplement.
Before
purchasing any securities, you should carefully read both this prospectus supplement and the accompanying prospectus, together with the incorporated documents described under the
headings "Supplemental U.S. Federal Income Tax Considerations" in this prospectus supplement and "Incorporation by Reference" in this prospectus supplement and the accompanying prospectus, and any
free writing prospectus we may provide to you in connection with this offering. The descriptions of certain provisions of any instrument, agreement or other document appearing in this prospectus
supplement, the accompanying prospectus or any document incorporated or deemed to be incorporated by reference therein (including, without limitation, the descriptions of certain provisions of our
$3.0 billion revolving credit facility and term loan facility and the indenture pursuant to which the notes will be issued) are not complete and are subject to, and qualified in their entirety
by reference to, the terms and provisions of those instruments, agreements and other documents. You should carefully review such instruments, agreements and other documents in their entirety for
complete information on the terms and provisions thereof. See "Where You Can Find More Information" in the accompanying prospectus for information on how you can obtain copies of such instruments,
agreements and other documents.
No
action has been or will be taken in any jurisdiction by us or by any underwriter that would permit a public offering of these securities or possession or distribution of this
prospectus supplement, the accompanying prospectus or any related free writing prospectus where action for that purpose is required, other than in the United States. Unless otherwise expressly stated
or the context otherwise requires, references to "dollars" and "$" in this prospectus supplement, the accompanying prospectus and any related free writing prospectus are to United States dollars, and
references to "£" and "GBP" in this prospectus supplement, the accompanying prospectus and any related free writing prospectus are to the lawful currency of the United Kingdom.
None of this prospectus supplement, the accompanying prospectus nor any related free writing prospectus is a prospectus for the purposes of the Prospectus
Regulation (as defined below). This prospectus supplement, the accompanying prospectus and any related free writing prospectus have been prepared on the basis that any offer of notes in any Member
State of the European Economic Area (the "EEA") or in the United Kingdom (each, a "Relevant State") will only be made to a legal entity which is a qualified investor under the Prospectus Regulation
("Qualified Investors").
Accordingly any person making or intending to make an offer in that Relevant State of notes which are the subject of the offering contemplated in this prospectus
supplement, the accompanying prospectus and any related free writing prospectus may only do so with respect to Qualified Investors. Neither we nor the underwriters have authorized, nor do they
authorize, the making of any offer of notes other than to Qualified Investors. The expression "Prospectus Regulation" means Regulation (EU) 2017/1129.
PROHIBITION OF SALES TO EEA AND UNITED KINGDOM RETAIL INVESTORSThe notes are not intended to be offered, sold or otherwise made
available to and should not be offered, sold or otherwise made available to any retail investor in the EEA or in the United Kingdom. For these purposes, a retail investor means a person who is one (or
more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU, as amended ("MiFID II"); or (ii) a customer within the meaning of Directive
(EU) 2016/97, as amended (the "Insurance Distribution Directive"), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or
(iii) not a qualified investor as defined in the Prospectus Regulation. Consequently no key information document required by Regulation (EU) No 1286/2014, as amended (the "PRIIPs
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Regulation") for offering or selling the notes or otherwise making them available to retail investors in the EEA or in the United Kingdom has been prepared and therefore offering or selling the notes
or otherwise making them available to any retail investor in the EEA or in the United Kingdom may be unlawful under the PRIIPs Regulation.
The communication of this prospectus supplement, the accompanying prospectus, any related free writing prospectus and any other document or materials relating to
the issue of the notes offered hereby is not being made, and such documents and/or materials have not been approved, by an authorized person for the purposes of section 21 of the United
Kingdom's Financial Services and Markets Act 2000, as amended (the "FSMA"). Accordingly, such documents and/or materials are not being distributed to, and must not be passed on to, the general public
in the United Kingdom. The communication of such documents and/or materials as a financial promotion is only being made to those persons in the United Kingdom who have professional experience in
matters relating to investments and who fall within the definition of investment professionals (as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005, as amended (the "Financial Promotion Order")), or who fall within Article 49(2)(a) to (d) of the Financial Promotion Order, or who are any other persons to whom it may
otherwise lawfully be made under the Financial Promotion Order (all such persons together being referred to as "relevant persons"). In the United Kingdom, the notes offered hereby are only available
to, and any investment or investment activity to which this prospectus supplement, the accompanying prospectus and any related free writing prospectus relate will be engaged in only with, relevant
persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this prospectus supplement, the accompanying prospectus or any related free writing prospectus or any
of their contents.
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PROSPECTUS SUPPLEMENT SUMMARY
This summary does not contain all the information that may be important to you. You should read this entire prospectus
supplement and the accompanying prospectus and the documents incorporated and deemed to be incorporated by reference herein and therein, including the financial statements and related notes, and, if
applicable, any free writing prospectus we may provide you in connection with this offering before making an investment decision. Unless this prospectus supplement otherwise indicates or the context
otherwise requires, (a) the terms "Realty Income," "our," "us" and "we" as used in this prospectus supplement refer to Realty Income Corporation, a Maryland corporation, and its subsidiaries on
a consolidated basis, (b) references to our "$3.0 billion revolving credit facility," our "revolving credit facility" and similar references mean our $3.0 billion unsecured
revolving credit facility and references to our "$250.0 million term loan facility," our "term loan facility" and similar references mean our $250.0 million unsecured term loan facility
due March 24, 2024 , (c) references to our "top 20 tenants" mean, for any period, our 20 largest tenants based on percentage of total portfolio annualized rental revenue as of the last
day of such period, (d) the term "annualized rental revenue" at any date means monthly contractual rent in effect at such date, multiplied by 12, (e) the term "contractual rent" for any
period means the aggregate cash amount charged to tenants, inclusive of monthly base rent receivables, for such period, and (f) "investment grade tenants" means 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). For purposes of determining
the aggregate amount of borrowings outstanding under our revolving credit facility as of any specified date, borrowings denominated in GBP are translated into U.S. dollars using the applicable
exchange rates as in effect from time to time.
Realty Income
Realty Income Corporation, The Monthly Dividend Company, is an S&P 500 company dedicated to providing stockholders with dependable
monthly dividends that increase over time. We are structured as a real estate investment trust, or REIT, requiring us annually to distribute at least 90% of our taxable income (excluding net capital
gains) in the form of dividends to our stockholders. Our monthly dividends are supported by the cash flow generated from real estate owned under long-term, net lease agreements with commercial
tenants.
As
of March 31, 2020, we owned a diversified portfolio of 6,525 properties located in 49 U.S. states, Puerto Rico and the United Kingdom with approximately 106.0 million
square feet of leasable space leased to tenants doing business in 51 separate industries. Of the 6,525 properties in the portfolio, 6,490, or 99.5%, were single-tenant properties, of which 6,396 were
leased, and the remaining were multi-tenant properties. Our total portfolio of 6,525 properties at March 31, 2020 had a weighted average remaining lease term (excluding rights to extend a lease
at the option of the tenant) of approximately 9.2 years. Our principal executive offices are located at 11995 El Camino Real, San Diego, California 92130 and our telephone number is
(858) 284-5000.
Recent Developments
COVID-19 Pandemic
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 "Risk
FactorsThe 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 this prospectus supplement for more information regarding the actual and
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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. Rent collections for the quarter ended June 30, 2020 and rent relief
requests received to-date may not be indicative of collections or requests in any future period.
As
of July 1, 2020, we had collected the following percentages of rent for the periods set forth below:
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For the Month
Ended April 30,
2020
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For the Month
Ended May 31,
2020
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For the Month
Ended June 30,
2020
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For the Quarter
Ended June 30,
2020
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Contractual rent collected across total portfolio(1)(2)
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86.9%
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83.5%
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85.7%
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85.4%
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Contractual rent collected from top 20 tenants(1)(2)
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83.0%
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82.1%
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82.5%
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82.5%
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Contractual rent collected from investment grade tenants(1)(2)
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100.0%
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98.4%
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98.9%
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99.1%
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(1)
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For
purposes of calcuating contractual rent, U.K. rent (which is payable in pounds Sterling) was converted at the exchange rate in effect on May 1, 2020 for
rents collected for the month of April 2020, on June 1, 2020 for rents collected for the month of May 2020, and on July 1, 2020 for rents collected for the month of June 2020.
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(2)
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For
information on how we define our "contractual rent," "top 20 tenants" and "investment grade tenants," please see the first paragraph under the caption
"Prospectus Supplement Summary" above.
We
have either executed deferral agreements or maintain ongoing deferral discussions with tenants that account for a majority of the unpaid contractual rent for each of the months of
April, May and June 2020. We are still in the preliminary stages of collecting rent for the month of July 2020. As a result, we cannot predict the number of tenants that will not pay rent for the
month of July 2020, nor can we predict whether tenants who made contractual rent payments during the quarter ended June 30, 2020 will 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 for the quarter ended June 30, 2020 are indicative of our rental collections in July 2020 or thereafter. In addition, the foregoing
information does not purport to reflect our results of operations or financial condition for the second quarter of 2020. 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. On April 9, 2020, as a result of these uncertainties, we withdrew our previously issued earnings guidance for the year ending December 31, 2020.
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Capital Raising
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. A portion of the net proceeds of approximately $728.9 million (after deducting the underwriting discount but before deducting estimated expenses payable by
us) from the offering was used to repay a portion of the borrowings outstanding under our $3.0 billion unsecured revolving credit facility, and the remaining net proceeds have been used to fund
potential investment opportunities and/or for other general corporate purposes.
In
May 2020, we issued $600.0 million of 3.250% senior notes due 2031, which we sometimes refer to as the "existing notes." The public offering price for the existing notes was
98.987% of the principal amount for an effective yield to maturity of 3.364%. A portion of the net proceeds of approximately $590.0 million (after deducting the underwriting discount but before
deducting estimated expenses payable by us) from the offering was used to repay a portion of the borrowings outstanding under our $3.0 billion unsecured revolving credit facility, and the
remaining net proceeds have been or will be used to fund potential investment opportunities and/or for other general corporate purposes. The notes offered hereby will constitute a further issuance of
our 3.250% Notes due 2031.
Repayment of Term Loan
We repaid our outstanding $250.0 million unsecured term loan in full upon its maturity on June 30, 2020. We used borrowings under
our revolving credit facility and cash on hand to repay that loan. Our other $250.0 million unsecured term loan, which matures on March 24, 2024, remains outstanding.
Revolving Credit Facility and Credit Agency Ratings
In August 2019, we amended and restated our unsecured credit facility in order to allow borrowings in multiple currencies. Our credit facility
includes a $3.0 billion unsecured revolving credit facility and a $250.0 million unsecured term loan due March 24, 2024. Our credit facility previously included a second
$250.0 million unsecured term loan that was repaid in full on June 30, 2020 as described above under "Repayment of Term Loan". Our revolving credit facility matures in March
2023 and includes two six-month extensions that, subject to certain terms and conditions, can be exercised at our option. Our revolving credit facility also has a $1.0 billion expansion
feature, which is subject to obtaining lender commitments.
The
interest rates under our revolving credit facility are equal to a base interest rate (which is variable) plus a spread that is based on the ratings assigned to our senior unsecured
debt securities by credit rating agencies. As of July 1, 2020, Standard & Poor's Ratings Group had assigned a rating of A- with a
"stable" outlook, Moody's Investors Service had assigned a rating of A3 with a "stable" outlook and Fitch Ratings had assigned a rating of BBB+ with a "stable" outlook. As of July 1, 2020, our
investment grade credit ratings provided for financing of revolving credit borrowings at an interest rate equal to the London Interbank Offered Rate ("LIBOR") plus 0.775% with a facility commitment
fee of 0.125%, for all-in drawn pricing of 0.90% over LIBOR. Our revolving credit facility provides that the interest rate can range from: (i) LIBOR plus 1.45% if our credit rating is lower
than BBB/Baa3 or if our senior unsecured debt is unrated to (ii) LIBOR plus 0.75% if our credit rating is A/A2 or higher. In addition, our revolving credit facility provides for a facility
commitment fee based on our credit ratings, which ranges from: (i) 0.30% for a rating lower than BBB /Baa3 or if our senior unsecured debt is unrated, to (ii) 0.10% for a credit rating
of A/A2 or higher. Credit ratings are not a recommendation to buy, sell or hold our debt securities (including the notes offered hereby) and are subject to revision or withdrawal at any time. For
additional information regarding our credit ratings, see "Use of Proceeds" in this prospectus supplement. For information concerning the impact of the
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COVID-19
pandemic on our credit ratings, see "Risk FactorsThe 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
April 2020, we borrowed an additional $1.2 billion under our revolving credit facility to increase our cash position to $1.25 billion at that time, as a conservative
measure in light of the economic uncertainty regarding the impacts of the COVID-19 pandemic. As a result of the issuance of the existing notes during May 2020, stable rent collection trends, and
general optimism regarding our tenants' financial outlook, we repaid a substantial portion of our revolving credit facility borrowings during the second quarter of 2020. As of July 1, 2020, we
had approximately $628.6 million of borrowings outstanding under our revolving credit facility, including approximately £329.5 million of GBP-denominated borrowings, with a
remaining available borrowing capacity of approximately $2.4 billion, excluding the $1.0 billion accordion feature thereunder, which is subject to lender commitments. As of
July 1, 2020, we had a total of approximately $74.0 million in cash and cash equivalents, and a $300 million term deposit maturing on July 24, 2020.
Key Financial Covenants
The notes will require that we comply with certain financial covenants described in this prospectus supplement under "Description of
NotesAdditional Covenants of Realty Income." In general and subject to exceptions, these covenants provide: (i) that we may not incur any Debt (as defined below under "Description
of NotesAdditional Covenants of Realty Income") if, on a pro forma basis, our total Debt would exceed 60% of our Adjusted Total Assets (as defined below under "Description of
NotesAdditional Covenants of Realty Income"), (ii) that we may not incur any Debt if, on a pro forma basis, our debt service coverage ratio (calculated as described below under
"Description of NotesAdditional Covenants of Realty IncomeDebt Service Coverage") would be less than 1.5 to 1.0, (iii) that we may not incur any Secured Debt (as
defined below under "Description of NotesAdditional Covenants of Realty Income") if, on a pro forma basis, our total Secured Debt would exceed 40% of our Adjusted Total Assets, and
(iv) that we must maintain at all times Total Unencumbered Assets (as defined below under "Description of NotesAdditional Covenants of Realty Income") of not less than 150% of our
total outstanding Unsecured Debt (as defined below under "Description of NotesAdditional Covenants of Realty Income"). The following table shows the foregoing percentages and ratio as
required by those covenants as well as our actual percentages and ratio calculated as provided in those covenants as of, or, in the case of the debt service coverage ratio, for, the four quarters
ended March 31, 2020. These calculations, which are not based on generally accepted accounting principles, are presented to show our ability to incur additional debt under those covenants and
do not purport to reflect our liquidity, actual ability to incur or service debt or our future performance. These calculations do not reflect the impact of, among other things, the issuance and sale
of the notes offered hereby or the existing notes or the application of the estimated net proceeds therefrom or the $1.2 billion of additional borrowings we made under our revolving credit
facility on April 9, 2020 as described above under "Revolving Credit Facility and Credit Agency Ratings" or the application of the proceeds therefrom and, as a result, our actual
percentages and ratios after giving effect to this offering, the issuance and sale of the existing notes and those borrowings and the application of those proceeds will differ, perhaps significantly,
from those set forth below. Moreover, the foregoing is a very general overview of some of the terms of those covenants and those covenants are subject to a number of important exceptions and
limitations and you should carefully review the information, including the definitions of some of the capitalized terms used above, appearing under "Description of NotesAdditional
Covenants of Realty Income," as well as the indenture and the applicable officers' certificate under which the notes will be issued, for more information. In addition, as required by the debt service
coverage covenant referred to above, our debt service coverage ratio for the four quarters ended March 31, 2020 as set forth under the caption "Actual" in the following table has been
calculated on a pro forma basis on the assumption that (1) the
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incurrence
of any Debt 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) had occurred on the first day of such period, (2) the repayment or retirement of any of our other Debt since the first day of such four-quarter period had occurred on the
first day of such period (except that, in making such computation, the amount of Debt under any revolving credit facility, line of credit or similar facility shall be computed based upon the average
daily balance of such Debt during such period), and (3) any acquisition or disposition by us of any asset or group of assets since the first day of such four-quarter period (including by
merger, stock purchase or sale or asset purchase or sale), had occurred on the first day of such period. Such pro forma ratio has been prepared on the basis required by that debt service coverage
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 (1), (2) and (3) 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. In addition, as noted above, the debt service coverage ratio set forth under the caption "Actual" in the following table does not give effect to the issuance of the notes
offered by this prospectus supplement, or the issuance and sale of the existing notes or the $1.2 billion of additional borrowings we made under our revolving credit facility on April 9,
2020 or the application of the proceeds therefrom. See "Description of NotesAdditional Covenants of Realty IncomeDebt Service Coverage" for additional information on how this
pro forma ratio was computed.
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Note Covenants
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Required
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Actual
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Limitation on incurrence of total Debt
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60% of Adjusted Total Assets
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37.1
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%
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Limitation on incurrence of Secured Debt
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40% of Adjusted Total Assets
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2.0
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%
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Debt service coverage ratio
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1.5x
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5.5x
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(1)
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Maintenance of Total Unencumbered Assets
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150% of Unsecured Debt
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274.8
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%
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(1)
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The
notes will require that the debt service coverage ratio be computed for a period of four consecutive fiscal quarters. The debt service coverage ratio set forth
under the caption "Actual" is for the four quarters ended March 31, 2020. This ratio has been calculated on a pro forma basis as described in the paragraph immediately preceding this table and
is subject to the assumptions and uncertainties described in such paragraph. For additional information, see "Description of NotesAdditional Covenants of Realty IncomeDebt
Service Coverage."
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The Offering
For a more complete description of the terms of the notes specified in the following summary, see "Description of Notes"
in this prospectus supplement and "Description of Debt Securities" in the accompanying prospectus. As used under this caption "The Offering," references to "Realty Income," "our," "we"
and "us" mean Realty Income Corporation, a Maryland Corporation, excluding its subsidiaries.
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Issuer
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Realty Income Corporation
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Securities We Are Offering
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$ aggregate principal amount of our 3.250% Notes due 2031 (the
"notes") The notes offered hereby will constitute a further issuance of our 3.250% Notes due 2031, of which $600,000,000 aggregate principal amount was issued on May 8, 2020 and is outstanding as of the date of this prospectus supplement (the
"existing notes"). The notes offered hereby and the existing notes will constitute a single series of our debt securities under the indenture referred to in this prospectus supplement. The notes offered hereby will have the same terms (except for
date of original issuance, the first date on which interest thereon shall be payable and the date from which interest thereon shall begin to accrue) and CUSIP number as the existing notes. However, for U.S. federal income tax purposes, the notes
offered hereby will be deemed to have the same issue date and issue price as the existing notes. Upon completion of this offering, a total of $ aggregate principal amount of our
3.250% Notes due 2031 will be outstanding, including the existing notes.
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Maturity Date
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January 15, 2031
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Interest Rate
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3.250% per annum, accruing from July 15, 2020
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Interest Payment Dates
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Semi-annually in arrears on January 15 and July 15, commencing January 15, 2021. We expect that the
settlement date of this offering will be after July 15, 2020 and, as a result, the first interest payment date for the notes sold in this offering will be January 15, 2021 and investors will not be entitled to receive any payment of
interest on July 15, 2020 on the notes they purchase in this offering.
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Ranking
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The notes will be our senior unsecured obligations. The notes are not obligations of any of our subsidiaries and none of our subsidiaries has guaranteed the
notes. The notes will be effectively subordinated in right of payment to all indebtedness, guarantees and other liabilities of our subsidiaries from time to time outstanding and will be subordinated in right of payment to our secured indebtedness to
the extent of the value of the assets securing that indebtedness. None of our subsidiaries currently guarantees our $3.0 billion revolving credit facility or $250.0 million term loan facility, and therefore the notes currently rank equally
in right of payment with borrowings under these facilities. See "Risk FactorsAlthough these notes are referred to as 'senior' notes, they will be effectively subordinated to all liabilities of our subsidiaries, including any guarantees of our
indebtedness by any of our subsidiaries, and will be subordinated to our secured indebtedness to the extent of the assets securing that indebtedness."
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Use of Proceeds
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We intend to use the net proceeds we receive from this offering to increase our liquidity by repaying borrowings outstanding under our
$3.0 billion revolving credit facility and, to the extent not used for that purpose, to fund potential investment opportunities and for other general corporate purposes. On July 1, 2020, we had approximately $628.6 million of
outstanding borrowings under our revolving credit facility (including approximately £329.5 million of GBP-denominated borrowings). As of July 1, 2020, we had a total of approximately $74.0 million in cash and cash equivalents,
and a $300 million term deposit maturing on July 24, 2020. For information concerning potential conflicts of interest that may arise from the use of proceeds to repay borrowings under our $3.0 billion revolving credit facility, see
"Underwriting (Conflicts of Interest)Other Relationships" and "Underwriting (Conflicts of Interest)Conflicts of Interest" in this prospectus supplement.
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Limitations on Incurrence of Debt; Total Unencumbered Assets
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The notes will require that we comply with various covenants that, among other things, will:
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limit the ability of us
and our Subsidiaries to incur additional Debt,
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limit the ability of us
and our Subsidiaries to incur additional Debt if the ratio of our Consolidated Income Available for Debt Service to our Annual Debt Service Charge for the then most recently ended period consisting of four consecutive fiscal quarters is less than 1.5
to 1.0, calculated on a pro forma basis and on the basis of certain assumptions,
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limit the ability of us
and our Subsidiaries to incur additional Secured Debt, and
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require that we maintain
Total Unencumbered Assets of not less than 150% of the aggregate outstanding principal amount of our Unsecured Debt.
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The covenants referred to above are subject to a number of important exceptions and limitations and you should carefully review the
information, including the definitions of the capitalized terms used above, appearing in this prospectus supplement under "Description of Notes" and in the accompanying prospectus under "Description of Debt Securities," as well as the indenture (the
"Indenture") under which the notes offered hereby will be issued, for more information concerning such covenants and such exceptions and limitations.
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Sinking Fund
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The notes will not be entitled to the benefit of any sinking fund payments.
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Optional Redemption
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Prior to October 15, 2030 (the "Par Call Date"), the notes will be redeemable at any time in whole or from time to time in part at our
option at a redemption price equal to the greater of:
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(a) 100% of the principal amount of the notes to be redeemed, and
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(b) the sum of the present values of the remaining scheduled payments of principal of and interest on the notes to be redeemed (exclusive of
interest accrued to the applicable redemption date), assuming that the notes matured and that accrued and unpaid interest on the notes was payable on the Par Call Date, discounted to such redemption date on a semi-annual basis, assuming a 360-day
year consisting of twelve 30-day months, at the Treasury Rate (as defined) plus 40 basis points,
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plus, in the case of both clauses (a) and (b) above, accrued and unpaid interest on the principal amount of the notes being
redeemed to such redemption date.
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On and after the Par Call Date, the notes will be redeemable at any time in whole or from time to time in part at our option at a redemption
price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest on the principal amount of the notes being redeemed to the applicable redemption date.
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For additional information and the definition of "Treasury Rate" and other relevant definitions, see "Description of NotesOptional
Redemption" in this prospectus supplement.
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Certain U.S. Federal Income Tax Considerations
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For a discussion of certain material United States federal income tax considerations regarding our company and an investment in the notes offered by this
prospectus supplement, please see "Supplemental U.S. Federal Income Tax Considerations" in this prospectus supplement, as well as the discussion under the heading "United States Federal Income Tax Considerations" in Exhibit 99.1 to our Current
Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on February 22, 2019 pursuant to Item 8.01 of Form 8-K (the "February 2019 Form 8-K"), as amended and supplemented by the discussion under the
heading "Supplemental U.S. Federal Income Tax Considerations" in Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on May 8, 2020 pursuant to Item 8.01 of Form 8-K (the "May 2020 Form 8-K").
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Risk Factors
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An investment in the notes involves various risks and prospective investors should carefully consider the matters discussed under "Risk
Factors" in this prospectus supplement, as well as the other risks described in this prospectus supplement, the accompanying prospectus and the documents incorporated and deemed to be incorporated by reference therein, before making a decision to
invest in the notes.
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Conflicts of Interest
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As described above under "Use of Proceeds," we may use net proceeds from this offering to repay borrowings outstanding under our
$3.0 billion revolving credit facility. If we use proceeds to repay any such borrowings, then, because affiliates of many of the underwriters are lenders under our revolving credit facility, more than 5% of the net proceeds of this offering (not
including underwriting discounts and commissions) may be received by such affiliates. Nonetheless, in accordance with the Financial Industry Regulatory Authority, Inc. Rule 5121, the appointment of a qualified independent underwriter is not
necessary in connection with this offering because we, the issuer of the securities in this offering, are a real estate investment trust. For additional information, see "Underwriting (Conflicts of Interest)Other Relationships" and
"Underwriting (Conflicts of Interest)Conflicts of Interest" in this prospectus supplement.
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RISK FACTORS
In evaluating an investment in the notes, you should carefully consider the following risk factors and the risk factors
described under the captions "Forward-Looking Statements" in this prospectus supplement and "Risk Factors" in the accompanying prospectus and in our
Quarterly Report on Form 10-Q for the quarter ended March 31,
2020 and Annual Report on Form 10-K for the year ended
December 31, 2019, which are incorporated by reference in the accompanying prospectus, in addition to the other risks and uncertainties described in this prospectus supplement,
the accompanying prospectus, the documents incorporated and deemed to be incorporated by reference therein and, if applicable, any free writing prospectus we may provide you in connection with this
offering. As used under the captions "Risk Factors" in this prospectus supplement, in our
Quarterly Report on Form 10-Q for the quarter ended March 31,
2020 and in our Annual
Report on Form 10-K for the year ended December 31, 2019, references to our capital stock include both our common stock and any class or series of our preferred stock that
we may issue, references to our stockholders include holders of our common stock and holders of any class or series of our preferred stock that we may issue, and references to our debt securities
include the notes offered hereby and references to holders of our debt securities include holders of the notes offered hereby, in each case unless otherwise expressly stated or the context otherwise
requires.
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 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:
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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;
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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
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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;
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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;
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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, including the notes offered by this prospectus supplement, 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;
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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, including the notes offered by this prospectus supplement, and our other obligations when due;
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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;
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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
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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.
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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 or whether tenants who have deferred rent will pay such rent in the future. 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. Collections and rent relief requests to-date may not be indicative of collections or
requests in any future period.
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 experienced 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:
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We have instructed all of our employees to work remotely;
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We have suspended all non-essential travel worldwide for our employees; and
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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 elsewhere in this "Risk Factors"
section, many of the risks described in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 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
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on
our common stock, to pay the principal of and interest on our indebtedness, including the notes offered hereby, 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.
We are subject to risks associated with debt and capital stock financing.
We intend to incur additional indebtedness in the future, including borrowings under our $3.0 billion unsecured revolving credit
facility. The credit agreement governing our revolving credit facility also governs our $250.0 million unsecured term loan facility due March 24, 2024. At March 31, 2020, we had
$615.2 million of outstanding borrowings under our revolving credit facility (including approximately £282.8 million of GBP-denominated borrowings), a total of
$6.04 billion of outstanding unsecured senior debt securities (excluding unamortized original issuance premiums of $6.2 million and deferred financing costs of $34.3 million, and
also excluding $600 million aggregate principal amount of existing notes that we issued on May 8, 2020), $500.0 million of borrowings outstanding under our two term loan
facilities (excluding deferred financing costs of $849,000), of which one $250.0 million term loan matured on June 30, 2020 and was repaid in full, and approximately
$406.7 million of outstanding mortgage debt (excluding net unamortized premiums totaling $2.6 million and deferred financing costs of $1.2 million on this mortgage debt), and, at
July 1, 2020, we had approximately $628.6 million of outstanding borrowings under our revolving credit facility (including approximately £329.5 million of
GBP-denominated borrowings). Our revolving credit facility grants us the option, subject to obtaining lender commitments, to expand the borrowing limits thereunder to up to $4.0 billion. We
also may in the future enter into amendments and restatements of our current revolving credit facility and term loan facility, or enter into new revolving credit facilities or term loan facilities,
and any such amended, restated or replacement revolving credit facilities or term loan facilities may increase the amounts we are entitled to borrow, subject to customary conditions, compared to our
current revolving credit facility and term loan facility, or we may incur other indebtedness. To the extent that new indebtedness is added to our current debt levels, the related risks that we now
face would increase. As a result, we are and will be subject to risks associated with debt financing, including the risk that our cash flow could be insufficient to make required payments on our debt,
including the notes offered hereby. We also face variable interest rate risk as the interest rates on our revolving credit facility, our term loan and some of our mortgage debt are variable and could
therefore increase over time. We also face the risk that we may be unable to refinance or repay our debt, including the notes offered herein, as it comes due. Given past disruptions in the financial
markets and ongoing global financial uncertainties, including the impact of COVID-19 and of the United Kingdom's withdrawal from the European Union (referred to as Brexit), we also face the risk that
one or more of the participants in our revolving credit facility may not be able to lend us money.
In
addition, our revolving credit facility, our term loan facility and our mortgage loan documents contain provisions that could limit or, in certain cases, prohibit the payment of
dividends and other distributions to holders of our common stock and any outstanding preferred stock. In particular, our revolving credit facility and our $250.0 million term loan facility,
which are governed by the same credit agreement, provide that, if an event of default (as defined in the credit agreement) exists, we may not pay any dividends or make other distributions on (except
distributions payable in shares of a given class of our stock to the stockholders of that class), or repurchase or redeem, among other things, any shares
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of
our common stock or any outstanding preferred stock, during any period of four consecutive fiscal quarters in an aggregate amount in excess of the greater
of:
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the sum of (a) 95% of our adjusted funds from operations (as defined in the credit agreement) for that period plus (b) the
aggregate amount of cash distributions made to holders of our outstanding preferred stock, if any, for that period, and
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the minimum amount of cash distributions required to be made to our stockholders in order to maintain our status as a REIT for federal income
tax purposes and to avoid the payment of any income or excise taxes that would otherwise be imposed under specified sections of the Internal Revenue Code of 1986, as amended, or the Code, on income we
do not distribute to our stockholders,
except
that we may repurchase or redeem shares of our outstanding preferred stock, if any, with net proceeds from the issuance of shares of our common stock or preferred stock. The credit agreement
further provides that, in the event of a failure to pay principal, interest or any other amount payable thereunder when due or upon the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to us or with respect to one or more of our subsidiaries that in the aggregate meet a significance test set forth in the credit agreement, we and our subsidiaries (other
than our wholly-owned subsidiaries) may not pay any dividends or make other distributions on (except for (a) distributions payable in shares of a given class of our stock to the stockholders of
that class and (b) dividends and distributions described in the second bullet point above), or repurchase or redeem, among other things, any shares of our common stock or preferred stock. If
any such event of default under the credit agreement were to occur, it would likely have a material adverse effect on the market price of our outstanding common stock and any outstanding preferred
stock and on the market value of our debt securities, including the notes offered hereby, could limit the amount of dividends or other distributions payable to holders of our common stock and any
outstanding preferred stock or the amount of interest and principal we are able to pay on our indebtedness, including the notes offered hereby, or prevent us from paying those dividends, other
distributions, interest or principal altogether, and may adversely affect our ability to qualify, or prevent us from qualifying, as a REIT.
Our
indebtedness could also have other important consequences to holders of our common stock, any outstanding preferred stock and our debt securities, including the notes offered hereby,
including:
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Increasing our vulnerability to general adverse economic and industry conditions;
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Limiting our ability to obtain additional financing to fund future working capital, acquisitions, capital expenditures and other general
corporate requirements;
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Requiring the use of a substantial portion of our cash flow from operations for the payment of principal and interest on our indebtedness,
thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements;
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Limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and
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Putting us at a disadvantage compared to our competitors with less indebtedness.
If
we default under a credit facility, loan agreement or other debt instrument, the lenders will generally have the right to demand immediate repayment of the principal and interest on
all of their loans and, in the case of secured indebtedness, to exercise their rights to seize and sell the collateral. Moreover, a default under a single loan or debt instrument may trigger
cross-default or cross-acceleration provisions in other indebtedness and debt instruments, giving the holders of such other indebtedness and debt instruments similar rights to demand immediate
repayment and to seize and sell any collateral.
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Although these notes are referred to as "senior" notes, they will be effectively subordinated to all
liabilities of our subsidiaries, including any guarantees of our indebtedness by any of our subsidiaries, and will be subordinated to our secured indebtedness to the extent of the assets securing that
indebtedness.
The notes offered hereby will be our obligations exclusively and will not be the obligations of, or guaranteed by, any of our subsidiaries, nor
are any of our subsidiaries required to provide funds to us, whether by dividend, loan or otherwise, to make payments on the notes. As a result, the notes will be effectively subordinated in right of
payment to all existing and future indebtedness and other liabilities of our subsidiaries from time to time outstanding, including any guarantees of our indebtedness by any of our subsidiaries. In the
event of a bankruptcy, liquidation or similar proceedings involving any of our subsidiaries, the creditors of that subsidiary (including, in the case of any subsidiary that may in the future guarantee
any indebtedness outstanding under our revolving credit facility or $250.0 million term loan facility, the lenders under those facilities) will generally be entitled to payment of their claims
from the assets of that subsidiary before any of those assets are made available for distribution to us, except to the extent that we may also have a claim as a creditor of that subsidiary, in which
case our claims would still be effectively subordinated in right of payment to all existing and future secured debt of that subsidiary (to the extent of the value of the collateral pledged as security
therefor) and would be subordinated in right of payment to any existing and future indebtedness of the subsidiary senior to that held by us. As of March 31, 2020, our subsidiaries had
approximately $444.8 million of total indebtedness and other liabilities outstanding (excluding liabilities owed to us and other intercompany liabilities, below-market lease liabilities, and
operating lease liabilities) and we (including our subsidiaries) had approximately $406.7 million of secured indebtedness outstanding (excluding unamortized premiums and deferred financing
costs). None of our subsidiaries currently guarantees our borrowings outstanding under our revolving credit facility or under our $250.0 million term loan facility. However, under our revolving
credit facility and our $250.0 million term loan facility, if any of our subsidiaries guarantees or otherwise becomes obligated with respect to any of our or any of our subsidiaries' other
existing or future indebtedness (subject to limited exceptions), then any such subsidiary would be required to become a guarantor under those facilities. Furthermore, we may voluntarily cause any of
our subsidiaries to become a guarantor under our revolving credit facility and our $250.0 million term loan facility to the extent we consider appropriate to remain in compliance with certain
covenants under these facilities. Although the Indenture under which the notes will be issued and other debt instruments to which we are a party limit our ability and the ability of our subsidiaries
to incur additional indebtedness, both we and our subsidiaries have the right to incur substantial additional secured and unsecured indebtedness.
The
notes are unsecured and therefore will be subordinated in right of payment to all existing and future secured indebtedness of us and our subsidiaries to the extent of the value of
the assets securing such indebtedness. In the event of a bankruptcy, liquidation or similar proceeding involving us, our assets which serve as collateral for our secured indebtedness must first be
applied to repay our secured indebtedness before being applied to pay any of our other indebtedness or liabilities, including the
notes offered hereby. Likewise, in the event of a bankruptcy, liquidation or similar proceeding involving any of our subsidiaries, any assets of that subsidiary that serve as collateral for its
secured indebtedness must first be applied to repay such secured indebtedness before being applied to pay any of its other indebtedness or liabilities or, if applicable, being provided to us. As of
July 1, 2020, we (including our subsidiaries) had approximately $393.4 million of secured indebtedness outstanding (excluding amortized premiums and deferred financing costs). Further,
we may be required, under certain limited circumstances, to post cash collateral under our revolving credit facility. Our revolving credit facility includes a facility for the issuance of standby
letters of credit for our account, which letters of credit are to be issued by two of the lenders that are party to the revolving credit facility. Each other lender that is a party to the revolving
credit facility is obligated to reimburse such lenders if letters of credit are drawn upon, in an amount (the "L/C Reimbursement Amount") that is proportionate to its commitment to make loans under
the revolving credit facility. If any lender defaults in any funding
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obligation
it has under the revolving credit facility or becomes subject to a bankruptcy or insolvency proceeding, then we are required to immediately put up cash collateral in an amount equal to the
L/C Reimbursement Amount of that lender. In addition, we may be required to put up cash collateral if we extend the term of letters of credit available under our revolving credit facility beyond the
facility's expiration date.
An active trading market may not develop or be maintained for the notes.
Although the notes offered hereby will constitute part of an existing series of our outstanding notes, there is no established trading market
for such series of outstanding notes. Although the underwriters may make a market for the notes after we complete this offering, they have no obligation to do so and may discontinue making a market in
the notes at any time without notice. We have not listed and do not intend to apply for listing of the notes on any securities exchange.
The
liquidity of any market for the notes that may develop, and the price at which you may be able to sell your notes should any such market develop, will depend on a number of factors,
including prevailing interest rates, our financial condition and operating results, the number of holders of the notes, our credit ratings, our financial condition and results of operations, the
prospects for us and other companies in our industry generally, the market for similar securities, the interest of securities dealers in making a market in the notes and other factors. We cannot
assure you that any trading market for the notes will develop or, if developed, will continue, or as to the liquidity of any trading market for the notes that may develop or as to the price you may
receive should you wish to resell any notes you acquire in this offering. As a result, we cannot assure you that you will be able to sell any of your notes at a particular time, whether at a price you
consider acceptable or at all. Thus, you may be required to bear the financial risk of your investment in the notes indefinitely.
Negative market conditions or adverse events affecting our existing or potential tenants or the industries in
which they operate could have an adverse impact on our ability to attract new tenants, re-lease space, collect rent or renew leases, which could adversely affect our cash flow from operations and
inhibit growth.
Cash flow from operations depends in part on our ability to lease space to tenants on economically favorable terms and to collect rent from
tenants on a timely basis. We could be adversely affected by various facts and events over which we have limited or no control, such as:
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Lack of demand in areas where our properties are located;
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Inability to retain existing tenants and attract new tenants;
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Oversupply of space and changes in market rental rates;
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Declines in our tenants' creditworthiness and ability to pay rent, which may be affected by their operations, economic downturns and
competition within their industries from other operators;
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Defaults by and bankruptcies of tenants, failure of tenants to pay rent on a timely basis, or failure of tenants to comply with their
contractual obligations;
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The current COVID-19 pandemic (see "Risk FactorsThe 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." above) or other pandemics or outbreaks of illness, disease or virus that affect countries or regions
in which our tenants and their parent companies operate or in which our properties or corporate headquarters are located;
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Economic or physical decline of the areas where the properties are located; and
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Deterioration of physical condition of our properties.
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At
any time, any tenant may experience a downturn in its business that may weaken its operating results or overall financial condition. As a result, a tenant may delay lease
commencement, fail to make rental payments when due, decline to extend a lease upon its expiration, become insolvent or declare bankruptcy. Any tenant bankruptcy or insolvency, leasing delay or
failure to make rental payments when due could result in the termination of the tenant's lease and material losses to us.
If
tenants do not renew their leases as they expire, we may not be able to rent or sell the properties. Furthermore, leases that are renewed, and some new leases for properties that are
re-leased, may have terms that are less economically favorable than expiring lease terms, or may require us to incur significant costs, such as renovations, tenant improvements or lease transaction
costs. Negative market conditions may cause us to sell vacant properties for less than their carrying value, which could result in impairments. Any of these events could adversely affect our cash flow
from operations and our ability to make distributions to our stockholders and service our indebtedness, including the notes offered hereby. A significant portion of the costs of owning property, such
as real estate taxes, insurance and maintenance, are not necessarily reduced when circumstances cause a decrease in rental revenue from the properties. In a weakened financial condition, tenants may
not be able to pay these costs of ownership and we may be unable to recover these operating expenses from them.
Further,
the occurrence of a tenant bankruptcy or insolvency could diminish the income we receive from the tenant's lease or leases. In addition, a bankruptcy court might authorize the
tenant to terminate its leases with us. If that happens, our claim against the bankrupt tenant for unpaid future rent would be subject to statutory limitations that most likely would result in rent
payments that would be substantially less than the remaining rent we are owed under the leases or we may elect not to pursue claims against a tenant for terminated leases. In addition, any claim we
have for unpaid past rent, if any, may not be paid in full, or at all. Moreover, in the case of a tenant's leases that are not terminated as the result of its bankruptcy, we may be required or elect
to reduce the rent payable under those leases or provide other concessions, reducing amounts we receive under those leases. As a result, tenant bankruptcies may have a material adverse effect on our
results of operations and financial condition. Any of these events could adversely affect our cash flow from operations and our ability to make distributions to stockholders and service our
indebtedness, including the notes offered hereby.
At
March 31, 2020, 97 of our properties were available for lease or sale. At March 31, 2020, 128 of our properties under lease were unoccupied and available for sublease by
the tenants, all of which were current with their rent and other obligations. During the first three months ended March 31, 2020, none of our tenants accounted for more than 10% of our rental
revenue.
As
of March 31, 2020, our tenants in the "convenience store" industry accounted for approximately 11.9% of our rental revenue. A downturn in this industry could have a material
adverse effect on our financial position, results of operations, our ability to pay the principal of and interest on our debt securities and other indebtedness, including the notes offered hereby, and
to make distributions on our common stock and any outstanding preferred stock.
Individually,
each of the other industries in our property portfolio accounted for less than 10% of our rental revenue for the first three months of 2020. Nevertheless, downturns in
these industries could also adversely affect our tenants, which in turn could also have a material adverse effect on our financial position, results of operations and our ability to pay the principal
of and interest on our debt securities and other indebtedness, including the notes offered hereby, and to make distributions on our common stock and any outstanding preferred stock.
In
addition, some of our properties are leased to tenants that may have limited financial and other resources, and therefore, they are more likely to be adversely affected by a downturn
in their respective
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businesses,
including any downturns that may result from the COVID-19 pandemic, or in the regional, national, or international economy.
Furthermore,
we have made and may continue to make selected acquisitions of properties that fall outside our historical focus on freestanding, single-tenant, net-lease retail locations
in the United States. We may be exposed to a variety of new risks by expanding into new property types and/or new jurisdictions outside the United States and properties leased to tenants engaged in
non-retail businesses. These risks may include limited experience in managing certain types of new properties, new types of real estate locations and lease structures, and the laws and culture of
non-United States jurisdictions.
The notes are subject to early redemption.
As described under "Description of NotesOptional Redemption," we may at our option redeem the notes any time in whole, or from time
to time in part, at the redemption prices described therein. Consequently, your notes may be redeemed at times when prevailing interest rates are lower than the effective interest rate paid on your
notes. As a result, we cannot assure you that you will be able to reinvest your redemption proceeds in an investment with a return that is as high as the return you would have earned on the notes if
they had not been redeemed and that has a similar level of investment risk.
We are subject to risks related to recent proposals for reform regarding LIBOR.
Certain of our existing debt instruments and other financial arrangements, including our $3.0 billion revolving credit facility and our
$250.0 million term loan facility, provide for borrowings to be made at variable interest rates that use the London Interbank Offered Rate, or LIBOR (or metrics derived from or related to
LIBOR), as a benchmark for establishing the interest rate applicable to outstanding borrowings thereunder, and we may incur additional indebtedness or enter into new financial arrangements that use
LIBOR as a benchmark for establishing the interest rate for borrowing thereunder. In 2017, the United Kingdom's Financial Conduct Authority announced that it intends to stop persuading or compelling
banks to submit LIBOR rates after 2021. These reforms are expected to cause LIBOR to cease to exist and the adoption of alternative reference rates. While our revolving credit facility and our term
loan facility include provisions for establishing alternative reference rates in the event LIBOR shall no longer be available, the consequences of the adoption of any such alternative reference rates
cannot be predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us
and could also affect interest rates and other financing costs under our debt instruments and other financial arrangements, any of which could adversely affect our results of operations and financial
condition.
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FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the documents incorporated or deemed to be incorporated by reference therein
contain, and any free writing prospectus we may provide you in connection with this offering contains or may contain, 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, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
When used in this prospectus supplement, the accompanying prospectus, the documents incorporated or deemed to be incorporated by reference therein and any free writing prospectus we may provide you in
connection with this offering, the words "estimated," "anticipated," "expect," "believe," "intend" and similar expressions are intended to identify forward-looking statements. Forward-looking
statements include, without limitation, discussions of strategy, plans and intentions and statements regarding estimated or future results of operations, financial condition or prospects (including,
without limitation, estimated and future funds from operations and normalized and adjusted funds from operations and net income, estimated initial cash lease yields and initial weighted average cash
lease yields, estimated square footage of properties under development or expansion, the timing and terms of potential or planned acquisitions, statements regarding the payment, dependability and
amount of and potential increases in future common stock dividends, statements regarding future cash flow or cash generation and statements regarding our ability to meet our liquidity needs).
Forward-looking statements are subject to risks, uncertainties and assumptions about us, including, among other things:
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our access to capital and other sources of funding;
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our anticipated growth strategies;
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our intention to acquire additional properties and the timing of these acquisitions;
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our intention to sell properties and the timing of these property sales;
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our intention to re-lease vacant properties;
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anticipated trends in our business, including trends in the market for long-term net leases of freestanding, single-tenant properties;
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future expenditures for development projects; and
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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 or implied by the forward-looking statements. In particular,
forward-looking statements regarding estimated or future results of operations are based upon numerous assumptions and estimates and are inherently subject to substantial uncertainties and actual
results of operations may differ materially from those expressed or implied in the forward-looking statements, particularly if actual events differ from those reflected in the estimates and
assumptions upon which such forward-looking statements are based. Some of the factors that could cause actual results to differ materially are:
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our continued qualification as a real estate investment trust;
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general, domestic and foreign business and economic conditions;
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competition;
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fluctuating interest and currency rates;
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access to debt and equity capital markets;
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continued volatility and uncertainty in the credit markets and broader financial markets;
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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;
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impairments in the value of our real estate assets;
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changes in income tax laws and rates;
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the continued evolution of the COVID-19 pandemic and the measures taken to limit its spread, and its impacts on us, our business, our tenants,
or the economy generally;
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the timing and pace of reopening efforts at the local, state and national level in response to the COVID-19 pandemic;
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the outcome of any legal proceedings to which we are a party or which may occur in the future; and
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acts of terrorism and war.
Additional
factors that may cause future events and actual results, financial or otherwise, to differ, potentially materially, from those discussed in or implied by the forward-looking
statements include the risks and uncertainties discussed in the section "Risk Factors" in this prospectus supplement, 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 year ended December 31, 2019, and the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk
Factors" in our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2020, and also include risks and other information discussed in those and other documents that are incorporated by reference in this prospectus supplement and the
accompanying prospectus and that may be discussed in any free writing prospectus we may provide you in connection with this offering.
You
are cautioned not to place undue reliance on forward-looking statements contained in this prospectus supplement, the accompanying prospectus, the documents incorporated by reference
therein and any free writing prospectus we may provide you in connection with this offering. Those forward-looking statements are not guarantees of future performance and speak only as of the
respective dates of those documents or, in the case of documents incorporated by reference in the accompanying prospectus, as of the respective dates those documents were filed with the SEC, and we
undertake no obligation to update any information contained in this prospectus supplement, the accompanying prospectus, the documents incorporated by reference therein and any free writing prospectus
we may provide you in connection with this offering or to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after
the respective dates or filing dates, as the case may be, of those documents or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, the forward-looking events
discussed in this prospectus supplement, the accompanying prospectus, the documents incorporated by reference therein and any free writing prospectus we may provide you in connection with this
offering might not occur.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the notes offered by this prospectus supplement, after deducting the underwriting discount
but before deducting estimated expenses payable by us, and excluding approximately $ (assuming the settlement date for this offering
is , 2020) payable to us in respect
of interest accrued on the notes offered hereby for the period from and including July 15, 2020 to, but excluding, the settlement date for this offering, will be approximately
$ million.
We
intend to use the net proceeds we receive from this offering to increase our liquidity by repaying borrowings outstanding under our $3.0 billion revolving credit facility and,
to the extent not used for that purpose, to fund potential investment opportunities and for other general corporate purposes. As of July 1, 2020, we had approximately $628.6 million of
outstanding borrowings under our revolving credit facility (including approximately £329.5 million of GBP-denominated borrowings). As of July 1, 2020, we had a total of
approximately $74.0 million in cash and cash equivalents, and a
$300 million term deposit maturing on July 24, 2020. Borrowings under our revolving credit facility were generally used to acquire properties. Our revolving credit facility matures on
March 24, 2023, but may, at our option, be extended by up to two six-month extensions, subject to certain terms and conditions. As of July 1, 2020, the weighted average interest rate on
borrowings under the revolving credit facility was approximately 0.92% per annum. Borrowings under our revolving credit facility that we repay with net proceeds from this offering may be reborrowed,
subject to customary conditions.
Pending
application of the net proceeds for the purposes described above, we may temporarily invest the net proceeds in short-term government securities, short-term money market funds
and/or bank certificates of deposit.
Our
$3.0 billion revolving credit facility allows us to make and repay borrowings thereunder from time to time, subject to customary conditions, and we expect to make further
borrowings under our revolving credit facility in the future. Our revolving credit facility grants us the option to increase the amount of borrowings available thereunder by up to $1.0 billion,
subject to obtaining lender commitments and certain terms and conditions. The interest rates under our revolving credit facility are equal to a base interest rate (which is variable) plus a spread
that is determined on the basis of the ratings assigned to our senior unsecured debt securities by credit rating agencies. As of July 1, 2020, the interest rate under our revolving credit
facility was equal to LIBOR plus a spread of 0.775% with a facility commitment fee of 0.125%, for all in drawn pricing of 0.90% over LIBOR. The revolving credit facility provides that the interest
rate ranges from: (i) LIBOR plus a spread of 1.45% if our credit rating is lower than BBB/Baa3 or if our senior unsecured debt is unrated to (ii) LIBOR plus a spread of 0.75% if our
credit rating is A/A2 or higher. The interest rate on borrowings under our $250.0 million term loan facility is also subject to adjustment based on changes in our credit ratings. In addition,
our revolving credit facility provides for a facility commitment fee based on our credit ratings, which ranges from: (i) 0.30% if our credit rating is lower than BBB/Baa3 or if our senior
unsecured debt is unrated, to (ii) 0.10% if our credit rating is A/A2 or higher. As of July 1, 2020, we were assigned the following investment grade corporate credit ratings on our
senior unsecured notes and bonds: Moody's Investors Service had assigned a rating of A3 with a "stable" outlook, Standard & Poor's Ratings Group had assigned a rating of A- with a "stable"
outlook, and Fitch Ratings had assigned a rating of BBB+ with a "stable" outlook. Based on these ratings, our interest rates under our revolving credit facility and our $250.0 million term loan
facility are based on an A-/A3 credit rating. We also issue senior debt securities from time to time and our credit ratings can impact the interest rates on these debt securities. If our credit
ratings change, the interest rate under our credit facilities and any other debt financing of ours that provides for changes in interest rates if our credit ratings change, and the commitment fees
under our revolving credit facility, could increase or decrease. Likewise, the interest rates and commitment fees under our revolving credit facility and the interest rate on our $250.0 million
term loan facility and some of our mortgage indebtedness are variable and
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changes
in prevailing interest rates will result in changes in the interest rates under those borrowings and, in the case of our revolving credit facility, commitment fees, as well as the interest
rates on debt securities we may issue and other borrowings we may make from time to time.
Credit
ratings are not a recommendation to buy, sell or hold our debt securities (including the notes offered hereby) and are subject to revision or withdrawal at any time. 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, including the notes offered hereby or our common stock. For information concerning the potential impact of COVID-19 on our credit ratings, see "Risk
FactorsThe 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."
Affiliates
of many of the underwriters participating in this offering are lenders under our revolving credit facility and, accordingly, those lenders will receive net proceeds from the
repayment of borrowings under our revolving credit facility. See "Underwriting (Conflicts of Interest)Other Relationships" and "Underwriting (Conflicts of Interest)Conflicts
of Interest."
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DESCRIPTION OF NOTES
A general description of some of the terms of the notes offered hereby appears in the accompanying prospectus. The
following description of some of the particular terms of the notes offered by this prospectus supplement supplements and, to the extent inconsistent with the accompanying prospectus, replaces the
description of the general terms and provisions of the debt securities and the Indenture (as defined below) set forth in the accompanying prospectus. The following statements relating to the notes and
the Indenture describe certain terms and provisions of the notes and the Indenture and are not complete. These statements are qualified in their entirety by reference to the provisions of the notes,
the officers' certificate establishing the form and terms of the notes and the Indenture, including the definitions in the notes and Indenture of certain terms, and which have been or will be filed as
exhibits to the registration statement of which this prospectus supplement forms a part or as exhibits to the documents incorporated therein by reference and may be obtained as described under
"Where You Can Find More Information" in the accompanying prospectus. Unless otherwise expressly stated or the context otherwise requires, all references to the "Company," "Realty Income," "our,"
"we," and "us" appearing under this caption "Description of Notes" and under the caption "Description of Debt Securities" in the accompanying prospectus mean Realty Income Corporation, a Maryland
corporation, excluding its subsidiaries. Other
capitalized terms used under this caption, but not otherwise defined, shall have the meanings given to them in the accompanying prospectus or, if not defined in the accompanying prospectus, in the
Indenture.
The notes offered hereby will be part of an existing series of our debt securities (which are more fully described in the accompanying prospectus) to be issued
pursuant to an indenture dated as of October 28, 1998 (the "Indenture") between Realty Income and The Bank of New York Mellon Trust Company, N.A. (successor trustee to The Bank of New York), as
trustee (the "Trustee"). The terms of the notes include those provisions contained in the Indenture and the officers' certificate establishing the form and terms of the notes and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "TIA"). The notes are subject to all those terms, and investors are referred to the Indenture and the TIA for a statement
of those terms. Unless otherwise expressly stated or the context otherwise requires, all references under this caption "Description of Notes" to the "notes of this series" or "this series of notes"
shall include the notes offered by this prospectus supplement, the existing notes (as defined below) and any additional 3.250% Notes due 2031 that we may issue in the future pursuant to the
Indenture.
General
We are permitted by the Indenture to issue our debt securities thereunder from time to time in one or more series.
As
described below, we are also permitted by the Indenture, without the consent of the holders of any debt securities outstanding thereunder, to re-open a series of debt securities and
issue additional debt securities of that series.
The
$ aggregate principal amount of notes offered hereby will constitute a further issuance of our 3.250% Notes due 2031, of which $600,000,000 aggregate principal amount
was issued on May 8, 2020 and is outstanding as of the date of this prospectus supplement (the "existing notes"). The notes offered hereby and the existing notes will constitute a single series
of our debt securities under the Indenture. The notes offered hereby will have the same terms (except for date of original issuance, the first date on which interest thereon shall be payable and the
date from which interest thereon shall begin to accrue) and CUSIP number as the existing notes. However, for U.S. federal income tax purposes, the notes offered hereby will be deemed to have the same
issue date and issue price as the existing notes. Upon completion of this offering, a total of $ aggregate principal amount of our 3.250% Notes due 2031 will be outstanding,
including
the existing notes. Certain U.S. federal income tax consequences will arise from the fact that the notes offered hereby are being issued by re-opening
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an
existing series of our debt securities. For additional information, see "Supplemental U.S. Federal Income Tax Considerations" in this prospectus supplement.
The
fact that the notes offered by this prospectus supplement and the existing notes will constitute a single series of debt securities under the Indenture means that, in circumstances
where the Indenture provides for holders of the notes of this series to vote or take any other action, the notes offered by this prospectus supplement, the existing notes and any additional 3.250%
Notes due 2031 that we may issue in the future pursuant to the Indenture will vote or take such action as a single class.
The
Indenture does not limit the amount of debt securities that we may issue under the Indenture, and we may from time to time issue debt securities in one or more series up to the
aggregate amount authorized by us for each series. We may, without the consent of the holders of the notes offered by this prospectus supplement, the existing notes and any additional 3.250% Notes due
2031 that we may issue in the future pursuant to the Indenture, re-open this series of notes and issue additional notes of this series under the Indenture in addition to the notes offered pursuant to
this prospectus supplement and the existing notes, and any such additional notes of this series shall be part of the same series of debt securities under the Indenture as the notes offered by this
prospectus supplement and the existing notes.
The
notes will be issued only in fully registered form, without interest coupons, in denominations of $2,000 and integral multiples of $1,000 in excess thereof. The principal of, and
premium, if any, and interest on, the notes will be payable in U.S. dollars. The notes will be evidenced by one or more global notes (collectively, the "Global Note") in book-entry form, except under
the limited circumstances described below under "Book-Entry System." Notices or demands to or upon Realty Income in respect of the notes and the Indenture may be served and, if notes are
issued in definitive certificated form, such notes may be surrendered for payment, registration of transfer or exchange, at the office or agency of Realty Income maintained for such purpose in Los
Angeles, California, which shall initially be the office of the Trustee in Los Angeles, California.
Reference
is made to the section titled "Description of Debt SecuritiesCertain Covenants" in the accompanying prospectus and "Additional Covenants of Realty
Income" below for a description of certain covenants applicable to the notes of this series, including the notes offered by this prospectus supplement and the existing notes. Compliance with these
covenants generally may be waived, insofar as concerns the notes of this series, if the holders of a majority in principal amount of the outstanding notes of this series, including outstanding notes
offered by this prospectus supplement and outstanding existing notes, consent to such waiver. In addition, the discharge, defeasance and covenant defeasance provisions of the Indenture described under
"Description of Debt SecuritiesDischarge, Defeasance and Covenant Defeasance" in the accompanying prospectus will apply to the notes of this series, including the notes offered by this
prospectus supplement and the existing notes; covenant defeasance will be applicable, insofar as concerns the notes of this series, with respect to the covenants described in the accompanying
prospectus under "Description of Debt SecuritiesCertain Covenants" (except the covenant requiring Realty Income to preserve and keep in full force and effect its corporate existence) and
the covenants described below under "Additional Covenants of Realty Income."
Except
to the limited extent described under "Description of Debt SecuritiesMerger, Consolidation or Sale of Assets" in the accompanying prospectus or
"Additional Covenants of Realty Income" below, the Indenture does not contain any provisions that would afford holders of the notes of this series protection in the event of (1) a
highly leveraged or similar transaction involving Realty Income, (2) a change of control or management of Realty Income, or (3) a reorganization, restructuring, merger or similar
transaction involving Realty Income that may adversely affect the holders of the notes of this series. In addition, subject to compliance with the covenants set forth under "Additional
Covenants of Realty Income" below and, if applicable, covenants in other debt instruments and the covenant set forth under "Description of Debt SecuritiesMerger, Consolidation
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or
Sale of Assets" in the accompanying prospectus, Realty Income may, in the future, enter into certain transactions such as the sale of all or substantially all of its assets or the merger or
consolidation of Realty Income with another entity that could substantially increase the amount of Realty Income's indebtedness or substantially reduce Realty Income's assets, which may have an
adverse effect on Realty Income's ability to service its indebtedness, including the notes.
Ranking
The notes will be our senior unsecured obligations and will rank equally in right of payment with all of our other existing and future senior
unsecured indebtedness. The notes will be our obligations exclusively, however, and will not be the obligations of, or guaranteed by, any of our subsidiaries, nor are any of our subsidiaries required
to provide funds to us, whether by dividend, loan or otherwise, to make payments on the notes. The notes will therefore be effectively subordinated in right of payment to all existing and future
indebtedness and other liabilities of our subsidiaries from time to time outstanding, including any guarantees of our indebtedness by any of our subsidiaries, and will also be subordinated in right of
payment to all existing and future secured indebtedness of us and our subsidiaries to the extent of the value of the collateral pledged as security therefor. As of March 31, 2020 and
July 1, 2020, we (including our subsidiaries) had approximately $406.7 million and $393.4 million of secured indebtedness outstanding (excluding unamortized premiums and deferred
financing costs), respectively, and, as of March 31, 2020, our subsidiaries had approximately $444.8 million of total indebtedness and other liabilities outstanding (excluding
liabilities owed to us and other intercompany liabilities, below-market lease liabilities, and operating lease liabilities). Also, none of our subsidiaries currently guarantees our borrowings under
our revolving credit facility or our $250.0 million term loan
facility. As a result, the notes currently rank equally in right of payment with borrowings under these facilities. However, under those facilities, if any of our subsidiaries guarantees or otherwise
becomes obligated with respect to any of our or any of our subsidiaries' other existing or future indebtedness (subject to limited exceptions), then any such subsidiary would be required to become a
guarantor under our revolving credit facility and our $250.0 million term loan facility. Additionally, we may voluntarily cause any of our subsidiaries to become a guarantor under these
facilities to the extent we consider appropriate to remain in compliance with certain covenants under these facilities. See "Risk FactorsAlthough these notes are referred to as 'senior'
notes, they will be effectively subordinated to all liabilities of our subsidiaries, including any guarantees of our indebtedness by any of our subsidiaries, and will be subordinated to our secured
indebtedness to the extent of the assets securing that indebtedness." Although the Indenture and other debt instruments to which we are a party limit our ability and the ability of our subsidiaries to
incur additional indebtedness, both we and our subsidiaries have the right to incur substantial additional secured and unsecured indebtedness.
Interest and Maturity
The notes will mature on January 15, 2031. The notes are not entitled to the benefit of any sinking fund payments. The notes are subject
to redemption at Realty Income's option and are not subject to repayment or repurchase by Realty Income at the option of the Holders (as defined below). See "Optional Redemption" below.
As used herein, "Holder" means the person in whose name a note of this series is registered in the security register maintained by the Trustee.
The
notes offered hereby will bear interest at the rate of 3.250% per annum, accruing from July 15, 2020 or from the most recent interest payment date (as defined below) to which
interest has been paid on the notes, payable semi-annually in arrears on January 15 and July 15 of each year (the "interest payment dates"), commencing January 15, 2021, to the
persons in whose names the notes offered hereby are registered in the security register applicable to the notes of this series at the close of business on January 1 or July 1 (the
"regular record dates"), as the case may be, immediately before
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the
applicable interest payment date. Interest on the notes will be computed on the basis of a 360-day year of twelve 30-day months.
We expect that the settlement date of this offering will be after July 15, 2020 and, as a result, the first interest payment date for the notes sold in
this offering will be January 15, 2021 and investors will not
be entitled to receive any payment of interest on July 15, 2020 on the notes they purchase in this offering.
If
any interest payment date, the maturity date, any date fixed for redemption or any other day on which the principal of, premium, if any, or interest on a note becomes due and payable
falls on a day that is not a Business Day (as defined in the Indenture), the required payment may be made on the next Business Day as if it were made on the date the payment was due and no interest
will accrue on the amount so payable for the period from and after such interest payment date, maturity date, redemption date or other date, as the case may be.
Additional Covenants of Realty Income
Reference is made to the section titled "Description of Debt SecuritiesCertain Covenants" in the accompanying prospectus for a
description of certain covenants applicable to the notes of this series, including the notes offered by this prospectus supplement and the existing notes. In addition to the foregoing, the following
covenants of Realty Income will apply to the notes of this series, including the notes offered by this prospectus supplement and the existing notes, for the benefit of the Holders thereof:
Limitation on Incurrence of Total Debt. Realty Income will not, and will not permit any Subsidiary to, incur any Debt, other than
Intercompany Debt,
if, immediately after giving effect to the incurrence of such additional Debt and the application of the proceeds therefrom on a pro forma basis, the aggregate principal amount of all outstanding Debt
of Realty Income and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 60% of the sum of (1) Realty Income's Total Assets as of the end of the latest
fiscal quarter covered in Realty Income's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Securities and Exchange Commission
(the "SEC") (or, if such filing is not required under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the Trustee) prior to the incurrence of such additional Debt and
(2) the increase, if any, in Total Assets from the end of such quarter including, without limitation, any increase in Total Assets caused by the application of the proceeds of such additional
Debt (such increase together with Realty Income's Total Assets are referred to as the "Adjusted Total Assets").
Limitation on Incurrence of Secured Debt. Realty Income will not, and will not permit any Subsidiary to, incur any Secured Debt, other
than
Intercompany Debt, if, immediately after giving effect to the incurrence of such additional Secured Debt and the application of the proceeds therefrom on a pro forma basis, the aggregate principal
amount of all outstanding Secured Debt of Realty Income and its
Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 40% of Realty Income's Adjusted Total Assets.
Debt Service Coverage. Realty Income will not, and will not permit any Subsidiary to, incur any Debt, other than Intercompany Debt, if
the ratio of
Consolidated Income Available for Debt Service to the Annual Debt Service Charge for the period consisting of the four consecutive fiscal quarters most recently ended prior to the date on which such
additional Debt is to be incurred is less than 1.5 to 1.0, on a pro forma basis after giving effect to the incurrence of such Debt and the application of the proceeds therefrom, and calculated on the
assumption that (1) such Debt and any other Debt incurred by Realty Income or any of its Subsidiaries 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
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four-quarter
period) had occurred on the first day of such period, (2) the repayment or retirement of any other Debt of Realty Income or any of its Subsidiaries since the first day of such
four-quarter period had occurred on the first day of such period (except that, in making such computation, the amount of Debt under any revolving credit facility, line of credit or similar facility
shall be computed based upon the average daily balance of such Debt during such period), and (3) in the case of any acquisition or disposition by Realty Income or any Subsidiary of any asset or
group of assets since the first day of such four-quarter period, including, without limitation, by merger, stock purchase or sale, or asset purchase or sale, such acquisition or disposition had
occurred on the first day of such period with the appropriate adjustments with respect to such acquisition or disposition being included in such pro forma calculation. If the Debt giving rise to the
need to make the foregoing calculation or any other Debt incurred after the first day of the relevant four-quarter period bears interest at a floating rate then, for purposes of calculating the Annual
Debt Service Charge, the interest rate on such Debt shall be computed on a pro forma basis as if the average interest rate which would have been in effect during the entire such four-quarter period
had been the applicable rate for the entire such period.
Maintenance of Total Unencumbered Assets. Realty Income will maintain at all times Total Unencumbered Assets of not less than 150% of
the aggregate
outstanding principal amount of the Unsecured Debt of Realty Income and its Subsidiaries, computed on a consolidated basis in accordance with GAAP.
As
used herein:
"Annual
Debt Service Charge" as of any date means the amount which is expensed in any 12-month period for interest on Debt of Realty Income and its Subsidiaries.
"Consolidated
Income Available for Debt Service" for any period means Consolidated Net Income plus, without duplication, amounts which have been deducted in determining Consolidated Net
Income during such period for (1) Consolidated Interest Expense, (2) provisions for taxes of Realty Income and its Subsidiaries based on income, (3) amortization (other than
amortization of debt discount) and depreciation, (4) provisions for losses from sales or joint ventures, (5) provisions for impairment losses, (6) increases in deferred taxes and
other non-cash charges, (7) charges resulting from a change in accounting principles, and (8) charges for early extinguishment of debt, and less, without duplication, amounts which have
been added in determining Consolidated Net Income during such period for (a) provisions for gains from sales or joint ventures, and (b) decreases in deferred taxes and other non-cash
items.
"Consolidated
Interest Expense" for any period, and without duplication, means all interest (including the interest component of rentals on finance leases, letter of credit fees,
commitment fees and other like financial charges) and all amortization of debt discount on all Debt (including, without limitation, payment-in-kind, zero coupon and other like securities) but
excluding legal fees, title insurance charges, other out-of-pocket fees and expenses incurred in connection with the issuance of Debt and the amortization of any such debt issuance costs that are
capitalized, all determined for Realty Income and its Subsidiaries on a consolidated basis in accordance with GAAP.
"Consolidated
Net Income" for any period means the amount of consolidated net income (or loss) of Realty Income and its Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP.
"Debt"
means any indebtedness of Realty Income or any Subsidiary, whether or not contingent, in respect of (1) money borrowed or evidenced by bonds, notes, debentures or similar
instruments, (2) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance, trust deed, deed of trust, deed to secure debt, security agreement or any security interest existing on
property owned by Realty Income or any Subsidiary, (3) letters of credit or amounts representing the balance deferred and unpaid of the purchase price of any property except any such balance
that constitutes an accrued
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expense
or trade payable or (4) any lease of property by Realty Income or any Subsidiary as lessee that is reflected on Realty Income's consolidated balance sheet as a finance lease or as
indebtedness in accordance with GAAP, in the case of items of indebtedness under (1) through (3) above to the extent that any such items (other than letters of credit) would appear as
liabilities on Realty Income's consolidated balance sheet in accordance with GAAP, and also includes, to the extent not otherwise
included, any obligation of Realty Income or any Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise (other than for purposes of collection in the ordinary course of business),
indebtedness of another person (other than Realty Income or any Subsidiary) of the type referred to in (1), (2), (3) or (4) above (it being understood that Debt shall be deemed to be
incurred by Realty Income or any Subsidiary whenever Realty Income or such Subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof).
"Executive
Group" means, collectively, those individuals holding the offices of Chairman, Vice Chairman, Chief Executive Officer, President, Chief Operating Officer, or any Vice
President of Realty Income.
"GAAP"
means generally accepted accounting principles, as in effect from time to time, as used in the United States applied on a consistent basis.
"Intercompany
Debt" means indebtedness owed by Realty Income or any Subsidiary solely to Realty Income or any Subsidiary.
"Secured
Debt" means Debt secured by any mortgage, lien, charge, encumbrance, trust deed, deed of trust, deed to secure debt, security agreement, pledge, conditional sale or other title
retention agreement, finance lease, or other security interest or agreement granting or conveying security title to or a security interest in real property or other tangible assets.
"Subsidiary"
means (1) any corporation, partnership, joint venture, limited liability company or other entity the majority of the shares, if any, of the non-voting capital stock
or other equivalent ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by Realty Income, and the majority of the shares of the voting
capital stock or other equivalent ownership interests of which (except for directors' qualifying shares) are at the time directly or indirectly owned by Realty Income, any other Subsidiary or
Subsidiaries, and/or one or more individuals of the Executive Group (or, in the event of death or disability of any of such individuals, his/her respective legal representative(s), or such
individuals' successors in office as an officer of Realty Income), and (2) any other entity the accounts of which are consolidated with the accounts of Realty Income. The foregoing definition
of "Subsidiary" shall only be applicable with respect to this definition and the covenants and other definitions set forth herein under this caption "Additional Covenants of Realty
Income" and, insofar as the provisions described in the accompanying prospectus under "Description of Debt SecuritiesMerger, Consolidation or Sale of Assets" apply to the notes of this
series, the term "Subsidiary," as that term is used under the caption "Description of Debt SecuritiesMerger, Consolidation or Sale of Assets," shall have the meaning set forth in this
definition (instead of the meaning set forth in the accompanying prospectus).
"Total
Assets" as of any date means the sum of (1) Undepreciated Real Estate Assets and (2) all other assets of Realty Income and its Subsidiaries determined on a
consolidated basis in accordance with GAAP (but excluding accounts receivable and intangibles).
"Total
Unencumbered Assets" as of any date means Total Assets minus the value of any properties of Realty Income and its Subsidiaries that are encumbered by any mortgage, charge, pledge,
lien, security interest, trust deed, deed of trust, deed to secure debt, security agreement, or other encumbrance of any kind (other than those relating to Intercompany Debt), including the value of
any stock of any Subsidiary that is so encumbered, determined on a consolidated basis in accordance with GAAP; provided, however, that, in determining Total Unencumbered Assets as a percentage of
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outstanding
Unsecured Debt for purposes of the covenant set forth above under "Maintenance of Total Unencumbered Assets," all investments in any person that is not consolidated with
Realty Income for financial reporting purposes in accordance with GAAP shall be excluded from Total Unencumbered Assets to the extent that such investment would otherwise have been included. For
purposes of this definition, the value of each property shall be equal to the purchase price or cost of each such property and the value of any stock subject to any encumbrance shall be determined by
reference to the value of the properties owned by the issuer of such stock as aforesaid.
"Undepreciated
Real Estate Assets" as of any date means the amount of real estate assets of Realty Income and its Subsidiaries on such date, before depreciation and amortization,
determined on a consolidated basis in accordance with GAAP.
"Unsecured
Debt" means Debt of Realty Income or any Subsidiary that is not Secured Debt.
Optional Redemption
Unless otherwise expressly stated or the context otherwise requires, references to the "notes" appearing under this caption
"Optional Redemption" include the notes offered hereby and the existing notes, as well as any other notes of this series that we may issue from time to time under the Indenture upon a
re-opening of this series.
Prior
to October 15, 2030 (the "Par Call Date"), the notes will be redeemable at any time in whole or from time to time in part at the option of Realty Income at a redemption
price equal to the greater of:
-
(a)
-
100%
of the principal amount of the notes to be redeemed, and
-
(b)
-
the
sum of the present values of the remaining scheduled payments of principal of and interest on the notes to be redeemed (exclusive of interest accrued to the
applicable redemption date), assuming that the notes matured and that accrued and unpaid interest on the notes was payable on the Par Call Date, discounted to such redemption date on a semiannual
basis, assuming a 360 day year consisting of twelve 30 day months, at the Treasury Rate plus 40 basis points,
plus,
in the case of both clauses (a) and (b) above, accrued and unpaid interest on the principal amount of the notes being redeemed to such redemption date.
On
and after the Par Call Date, the notes will be redeemable at any time in whole or from time to time in part at the option of Realty Income at a redemption price equal to 100% of the
principal amount of the notes to be redeemed, plus accrued and unpaid interest on the principal amount of the notes being redeemed to the applicable redemption date.
Notwithstanding
the foregoing, installments of interest on notes that are due and payable on an interest payment date falling on or prior to a redemption date for the notes will be
payable to the persons who were the Holders of the notes (or one or more predecessor notes) registered as such at the close of business on the relevant regular record date according to their terms and
the provisions of the Indenture.
"Treasury
Rate" means, with respect to any redemption date for the notes:
-
(a)
-
the
yield, under the heading that represents the average for the immediately preceding week, appearing in, or available through, the most recently published
statistical release designated "H.15" or any successor publication which is published at least weekly by the Board of Governors of the Federal Reserve System (the "Federal Reserve") (or, in each case,
any companion online data resource published at least weekly by the Federal Reserve) and which establishes yields on actively traded United States Treasury securities adjusted to constant
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maturity
for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Par Call Date, yields for the two published maturities most closely
corresponding to the Comparable Treasury Issue shall be determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month)
or
-
(b)
-
if
such release (or any successor publication or release) is not published during the week preceding the calculation date or does not contain such yields, the rate
per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such redemption date.
For
purposes of the immediately preceding sentence, information shall be deemed "published" by the Federal Reserve if it is made available to the public generally, whether in physical form, on the
Federal Reserve's website or by other means. The Treasury Rate shall be calculated by the Company on the third New York Business Day preceding the applicable redemption date.
"Comparable
Treasury Issue" means, with respect to any redemption date for the notes, the United States Treasury security selected by the Independent Investment Banker as having a
maturity comparable to the remaining term of the notes to be redeemed (assuming that the notes matured on the Par Call Date) that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the notes to be redeemed (assuming that the notes matured on the Par
Call Date).
"Independent
Investment Banker" means, with respect to any redemption date for the notes, Citigroup Global Markets Inc. and its successors, BofA Securities, Inc. and its
successors, Barclays Capital Inc. and its successors, J.P. Morgan Securities LLC and its successors, or Wells Fargo Securities, LLC and its successors (whichever shall be
appointed by Realty Income) or, if all such firms or the respective successors, if any, to such firms, as the case may be, are unwilling or unable to select the Comparable Treasury Issue, an
independent investment banking institution of national standing appointed by Realty Income.
"Comparable
Treasury Price" means, with respect to any redemption date for the notes:
-
(a)
-
if
Realty Income obtains five or more Reference Treasury Dealer Quotations for such redemption date, the average of such Reference Treasury Dealer Quotations after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
-
(b)
-
if
Realty Income obtains fewer than five but more than one such Reference Treasury Dealer Quotations for such redemption date, the average of all such Reference
Treasury Dealer Quotations, or
-
(c)
-
if
Realty Income obtains only one such Reference Treasury Dealer Quotation for such redemption date, that Reference Treasury Dealer Quotation.
"New
York Business Day" means any day, other than a Saturday or a Sunday, that is not a day on which banking institutions in The City of New York are authorized or required by law,
regulation or executive order to close.
"Reference
Treasury Dealers" means, with respect to any redemption date for the notes, Citigroup Global Markets Inc., BofA Securities, Inc., Barclays Capital Inc.,
J.P. Morgan Securities LLC and Wells Fargo Securities, LLC and their respective successors (or their respective affiliates that are Primary Treasury Dealers, as defined below); provided,
however, that if any such firm or its successor (or, if applicable, any such affiliate), as the case may be, ceases to be a primary U.S. Government securities dealer in the United States (a "Primary
Treasury Dealer"), Realty Income shall substitute therefor another Primary Treasury Dealer.
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"Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date for the notes, the average, as determined by Realty Income, of the
bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal
amount) quoted in writing to Realty Income by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third New York Business Day preceding such redemption date.
Notice
of any redemption of the notes by Realty Income will be mailed at least 30 days but not more than 60 days before the applicable redemption date to each holder of
notes to be redeemed. If less than all of the outstanding notes are to be redeemed, the notes to be redeemed shall be selected, so long as the notes are in book-entry form, in accordance with the
applicable procedures of DTC (as defined below) or, if the notes are issued in definitive certificated form under the limited circumstances described below under "Book-Entry System," by
such method as the Trustee shall deem fair and appropriate.
Unless
Realty Income defaults in payment of the redemption price, on and after any redemption date interest will cease to accrue on the notes or portions thereof called for redemption.
Same-Day Settlement and Payment
Settlement for the notes will be made by the underwriters in immediately available funds. All payments of principal, premium, if any, and
interest in respect of the Global Notes will be made by Realty Income by wire transfer of immediately available funds to an account maintained by the payee in the United States.
If
notes of this series are issued in definitive certificated form under the limited circumstances described below, payments of interest on the certificated notes may be made, at our
option, by check mailed to the addresses of the persons entitled thereto, as such addresses appear in the register for the notes of this series, or by wire transfer to accounts maintained by the
payees in the United States; provided, however, that a Holder of $5 million or more in aggregate principal amount of notes of this series in definitive certificated form will be entitled to
receive payments of interest due on any interest payment date by wire transfer of immediately available funds to an account maintained by such Holder in the United States so long as such Holder has
given appropriate wire transfer instructions to the Trustee or a paying agent at least 15 calendar days prior to the applicable interest payment date. Any such wire transfer instructions will remain
in effect until revoked by such Holder or until such person ceases to be a Holder of $5 million or more in aggregate principal amount of notes of this series in definitive certificated form.
Payments
of principal of and premium, if any, and interest on notes of this series in definitive certificated form that are due and payable on the maturity date of the notes of this
series, any redemption date or any other date on which principal of the notes of this series is due and payable will be made by wire transfer of immediately available funds to accounts maintained by
the Holders thereof in the United States, so long as such Holders have given appropriate wire transfer instructions to the
Trustee or a paying agent, against surrender of such notes to the Trustee or a paying agent; provided that installments of interest on notes of this series in definitive certificated form that are due
and payable on any interest payment date falling on or prior to such maturity date, redemption date or other date on which principal of the notes of this series is payable will be paid in the manner
described in the preceding paragraph to the persons who were the Holders of the notes of this series (or one or more predecessor notes of this series) registered as such at the close of business on
the relevant regular record dates according to the terms and provisions of the notes of this series and the Indenture.
Book-Entry System
The following are summaries of certain rules and operating procedures of The Depository Trust Company, or DTC, that affect the payment of
principal, premium, if any, and interest on and transfers
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of
interests in the Global Notes. Upon issuance, the notes will only be issued in the form of one or more Global Notes which will be held by DTC or the Trustee as custodian for DTC and registered in
the name of Cede & Co., as nominee of DTC. Unless and until it is exchanged in whole or in part for notes in definitive form under the limited circumstances described below, a Global
Note may not be transferred except as a whole (1) by DTC to a nominee of DTC, (2) by a nominee of DTC to DTC or another nominee of DTC or (3) by DTC or any such nominee to a
successor of DTC or a nominee of such successor.
Ownership
of beneficial interests in a Global Note will be limited to persons that have accounts with DTC ("participants") or persons that may hold interests through participants. Upon
the issuance of a Global Note, DTC will credit, on its book-entry registration and transfer system, the participants' accounts with the respective principal amounts of the notes represented by such
Global Note beneficially owned by participants. Ownership of beneficial interests in the Global Note will be shown on, and the transfer of such ownership interests will be effected only through,
records maintained by DTC (with respect to interests of participants) and on the records of participants (with respect to interests of persons holding through participants). The laws of some states
may require that certain purchasers of securities take physical delivery of the securities in definitive form. These laws may limit or impair the ability to own, transfer or pledge beneficial
interests in the Global Note.
So
long as DTC or its nominee is the registered owner of a Global Note, DTC or its nominee, as the case may be, will be considered the sole Holder of the notes represented by such Global
Note for all
purposes under the Indenture. Except under the limited circumstances set forth below, owners of beneficial interests in a Global Note will not be entitled to have notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical delivery of such notes in certificated form and will not be considered the registered owners or Holders of such notes
under the Indenture. Accordingly, each person owning a beneficial interest in a Global Note must rely on the procedures of DTC and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any rights of a Holder of notes under the Indenture. Realty Income understands that under existing industry practices, if Realty
Income requests any action of Holders of notes or if an owner of a beneficial interest in a Global Note desires to give or take any action that a Holder of notes is entitled to give or take under the
Indenture, DTC would authorize the participants holding the relevant beneficial interests to give or take such action, and such participants would authorize beneficial owners owning through such
participants to give or take such action or would otherwise act upon the instructions of beneficial owners holding through them.
Principal,
premium, if any, and interest payments on a Global Note will be made to DTC or its nominee, as the case may be, as the registered owner of such Global Note. None of Realty
Income, the Trustee or any other agent of Realty Income or agent of the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of
beneficial ownership of interests in the Global Note or for maintaining, supervising or reviewing any records relating to beneficial ownership interests. Realty Income expects that DTC, upon receipt
of any payment of principal, premium, if any, or interest in respect of a Global Note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial
interests in such Global Note as shown on the records of DTC. Realty Income also expects that payments by participants to owners of beneficial interests in the Global Note held through such
participants will be governed by standing customer instructions and customary practice, as is now the case with securities held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such participants
The
Indenture provides that if (1) DTC notifies Realty Income that it is unwilling or unable to continue as depositary or if DTC ceases to be a clearing agency registered as such
under the Exchange Act at any time when the depositary is required to be so registered in order to act as depositary for the Global Notes of this series and a successor depositary is not appointed
within 90 days after Realty
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Income
receives such notice or learns of such ineligibility, (2) Realty Income determines that the notes of this series shall no longer be represented by Global Notes and executes and delivers
to the Trustee an officers' certificate to that effect or (3) an event of default (as defined in the accompanying prospectus under "Description of Debt SecuritiesEvents of Default,
Notice and Waiver") with respect to the notes of this series has occurred and is continuing and beneficial owners representing a majority in aggregate principal amount of the outstanding notes of this
series advise DTC to cease acting as depositary for the Global Notes, Realty Income will issue notes of this series in definitive form in exchange for interests in all outstanding Global Notes. Any
notes of this series issued in definitive form in exchange for interests in a Global Note will be registered in such name or names,
and will be issued in denominations of $2,000 and integral multiples of $1,000 in excess thereof, as DTC shall instruct the Trustee. It is expected that such instructions will be based upon directions
received by DTC from participants with respect to ownership of beneficial interests in a Global Note.
DTC
was created to hold securities of its participants and to facilitate the clearance and settlement of transactions among its participants in these securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. DTC's participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of which (and/or their representatives) own DTC. Access to the DTC book-entry system is also available to others, such as
banks, brokers and dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly.
Clearstream. Clearstream Banking, S.A. ("Clearstream"), is incorporated under the laws of Luxembourg as a professional depositary.
Clearstream
holds securities for its participating organizations ("Clearstream Participants"), and facilitates the clearance and settlement of securities transactions between Clearstream Participants through
electronic book-entry changes in accounts of Clearstream Participants, thereby eliminating the need for physical movement of certificates. Clearstream Participants include financial institutions
around the world, including securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, and may include one or more of the underwriters or their
affiliates. Indirect access to Clearstream is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Clearstream
Participant either directly or indirectly.
Distributions
with respect to the notes held beneficially through Clearstream will be credited to cash accounts of Clearstream Participants in accordance with its rules and procedures to
the extent received by DTC for Clearstream.
Euroclear. The Euroclear System ("Euroclear") was created to hold securities for participants of Euroclear ("Euroclear Participants"),
and to clear
and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates.
Euroclear is operated by Euroclear Bank SA/NV (the "Euroclear Operator"). Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional
financial intermediaries and may include one or more of the underwriters or their affiliates. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
Clearstream
and Euroclear will record the ownership interests of their participants in much the same way as DTC, and DTC will record the total ownership of each of the U.S. agents of
Clearstream and Euroclear, as participants in DTC. When interests in Global Notes are to be transferred from the account of a DTC participant to the account of a Clearstream Participant or a Euroclear
Participant,
the purchaser must send instructions to Clearstream or Euroclear through a Clearstream Participant or a Euroclear Participant at least one day prior to settlement. Clearstream or Euroclear, as the
case may be, will instruct its U.S. agent to receive the notes against payment. After settlement, Clearstream or
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Euroclear
will credit the notes to the Clearstream Participant's or Euroclear Participant's account, as applicable. Credit for the notes will appear on the next day (European time).
Because
settlement is taking place during New York business hours, DTC participants will be able to employ their usual procedures for sending the notes to the relevant U.S. agent acting
for the benefit of Clearstream Participants or Euroclear Participants. The sale proceeds will be available to the DTC seller on the settlement date. As a result, to a DTC participant, a cross-market
transaction will settle no differently than a trade between two DTC participants.
When
a Clearstream Participant or Euroclear Participant wishes to transfer interests in Global Notes to a DTC participant, the seller will be required to send instructions to Clearstream
or Euroclear through a Clearstream Participant or a Euroclear Participant at least one business day prior to settlement. In these cases, Clearstream or Euroclear will instruct its U.S. agent to
transfer these notes against payment for them. The payment will then be reflected in the account of the Clearstream Participant or the Euroclear Participant the following day, with the proceeds back
valued to the value date, which would be the preceding business day, when settlement occurs in New York. If settlement is not completed on the intended value date, that is, the trade fails, proceeds
credited to the Clearstream or Euroclear Participant's account will instead be valued as of the actual settlement date.
You
should be aware that you will only be able to make and receive deliveries, payments and other communications involving the notes through Clearstream and Euroclear on the days when
those clearing systems are open for business. Those systems may not be open for business on days when banks, brokers and other institutions are open for business in the United States. In addition,
because of time zone differences there may be problems with completing transactions involving Clearstream and Euroclear on the same business day as in the United States.
Although
we understand that DTC, Clearstream and Euroclear have agreed to the foregoing procedures in order to facilitate transfers, they are under no obligation to perform these
procedures, and these procedures may be modified or discontinued at any time.
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SUPPLEMENTAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
For a discussion of certain material United States federal income tax considerations regarding us and an investment in the notes offered hereby,
please see the discussion in Exhibit 99.1 to our Current Report on Form 8-K, filed
with the SEC on February 22, 2019 pursuant to Item 8.01 of Form 8-K (the "February 2019 Form 8-K"), as amended and supplemented by the discussion in
Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on
May 8, 2020 (the "May 2020 Form 8-K"). The February 2019 Form 8-K (including Exhibit 99.1 thereto) and the May 2020 Form 8-K (including
Exhibit 99.1 thereto) are incorporated by reference in this prospectus supplement and the accompanying prospectus and the discussion under the heading "United States Federal Income Tax
Considerations" in Exhibit 99.1 to the February 2019 Form 8-K, as amended and supplemented by the discussion under the heading "Supplemental U.S. Federal Income Tax Considerations" in
the May 2020 Form 8-K, supersedes and replaces, in its entirety, the discussion under the heading "United States Federal
Income Tax Considerations" in the accompanying prospectus and in the related registration statement on
Form S-3 (File No. 333-228157) filed by us with the SEC on November 5,
2018. The February 2019 Form 8-K and the May 2020 Form 8-K may be obtained as described under "Where You Can Find More Information" in the accompanying prospectus. The
discussion below is an amendment and supplement to, and is intended to be read together with, Exhibit 99.1 to the February 2019 Form 8-K, as amended and supplemented by
Exhibit 99.1 to the May 2020 Form 8-K. See "Incorporation by Reference" in the accompanying prospectus. Prospective investors in the notes offered hereby should consult their tax
advisors regarding the United States federal income and other tax considerations to them of the acquisition, ownership and disposition of the notes offered by this prospectus supplement.
Each
capitalized term used below, but not defined, in this "Supplemental U.S. Federal Income Tax Considerations" section has the meaning ascribed thereto in Exhibit 99.1 to the
February 2019 Form 8-K.
The following discussion supersedes and replaces, solely insofar as it relates to the notes offered hereby, the final sentence of the first paragraph under the
heading "United States Federal Income Tax ConsiderationsTaxation of Holders of Our Debt Securities" in Exhibit 99.1 to the February 2019 Form 8-K, as supplemented and
amended by Exhibit 99.1 to the May 2020 Form 8-K.
In
addition, this discussion is limited to persons purchasing the notes offered hereby for cash pursuant to this offering at the public offering price indicated on the cover page of this
prospectus supplement.
The following discussion, which relates solely to the notes offered hereby, is included as a new section following the first paragraph under the heading "United
States Federal Income Tax ConsiderationsTaxation of Holders of Our Debt Securities" in Exhibit 99.1 to the February 2019 Form 8-K, as supplemented and amended by
Exhibit 99.1 to the May 2020 Form 8-K.
For U.S. federal income tax purposes, we expect and the following discussion assumes that the notes offered hereby will be treated as issued in
a "qualified reopening" of the existing notes. For U.S. federal income tax purposes, debt instruments issued in a qualified reopening are deemed to be part of the same issue as the original debt
instruments. Under the treatment described in this paragraph, the notes offered hereby will have the same issue date and the same issue price as the existing notes for U.S. federal income tax
purposes.
The following discussion, which relates solely to the notes offered hereby, is included as a new section immediately following the heading "United States Federal
Income Tax ConsiderationsTaxation of Holders
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of Our Debt SecuritiesU.S. Holders" in Exhibit 99.1 to the February 2019 Form 8-K, as supplemented and amended by Exhibit 99.1 to the May 2020
Form 8-K.
Pre-Acquisition Accrued Interest. A portion of the price paid for a note offered hereby will be allocable to interest that "accrued"
prior to the
date the note is purchased ("pre-acquisition accrued interest"). We intend to take the position that, to the extent a portion of a U.S. holder's purchase price is allocable to pre-acquisition accrued
interest, a portion of the first stated interest payment equal to the amount of such pre-acquisition accrued interest will be treated as a nontaxable return of such pre-acquisition accrued interest to
the U.S. holder. Amounts treated as a nontaxable return of pre-acquisition accrued interest should reduce a U.S. holder's adjusted tax basis in the note offered hereby by a corresponding amount.
The following discussion supersedes and replaces, but only insofar as it relates to the notes offered hereby, the section under the heading "United States Federal
Income Tax ConsiderationsTaxation of Holders of Our Debt SecuritiesU.S. HoldersPayments of Interest" in Exhibit 99.1 to the February 2019 Form 8-K,
as supplemented and amended by Exhibit 99.1 to the May 2020 Form 8-K.
Payments of Interest. Interest on a debt security (other than pre-acquisition accrued interest) generally will be taxable to a U.S.
holder as
ordinary income at the time such interest is received or accrued, in accordance with such U.S. holder's method of tax accounting for U.S. federal income tax purposes.
The following discussion, which relates solely to the notes offered hereby, is included as a new section following the section under the heading "United States
Federal Income Tax ConsiderationsTaxation of Holders of Our Debt SecuritiesU.S. HoldersPayments of Interest" in Exhibit 99.1 to the February 2019
Form 8-K, as supplemented and amended by Exhibit 99.1 to the May 2020 Form 8-K.
Amortizable Bond Premium. If a U.S. holder purchases a note offered hereby for an amount (excluding any portion thereof allocable to
pre-acquisition
accrued interest) that exceeds the note's principal amount, the U.S. holder will be considered to have purchased the note with "amortizable bond premium" in an amount equal to the excess. Generally, a
U.S. holder may elect to amortize the premium as an offset to interest, using a constant-yield method, over the remaining term of the notes. However, because the notes may be optionally redeemed by us
for an amount in excess of their principal amount, special rules apply that could result in a deferral of the amortization of the bond premium until later in the term of the notes. Under the Treasury
Regulations, a U.S. holder may offset the stated interest income allocable to an accrual period with the bond premium allocable to the accrual period. If the bond premium allocable to an accrual
period exceeds the stated interest income allocable to the accrual period, the excess is treated as a bond premium deduction. However, the amount treated as a bond premium deduction is limited to the
amount by which such U.S. holder's total interest inclusions on the notes, in prior accrual periods exceed the total amount treated by such holder as a bond premium deduction in prior accrual periods.
If any of the excess bond premium is not deductible, that amount is carried forward to the next accrual period. If a U.S. holder elects to amortize bond premium, the U.S. holder must reduce its
adjusted tax basis in the notes by the amount of the bond premium used to offset interest income as set forth above. An election to amortize bond premium applies to all taxable debt obligations held
or subsequently acquired by the U.S. holder on or after the first day of the first taxable year to which the election applies and may be revoked only with the consent of the IRS.
The following discussion supersedes and replaces, but only insofar as it relates to the notes offered hereby, the third sentence under the heading "United States
Federal Income Tax ConsiderationsTaxation of Holders of Our Debt SecuritiesU.S. HoldersSale or Other Taxable Disposition" in Exhibit 99.1 to the February
2019 Form 8-K, as supplemented and amended by Exhibit 99.1 to the May 2020 Form 8-K.
A
U.S. holder's adjusted tax basis in a debt security generally will be equal to the amount the U.S. holder paid for the debt security, reduced by amortized bond premium and by any
pre-acquisition accrued interest previously received.
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UNDERWRITING (CONFLICTS OF INTEREST)
Subject to the terms and conditions contained in a purchase agreement between us and each of the underwriters named below, for whom Goldman
Sachs & Co. LLC, Barclays Capital Inc. and Credit Suisse Securities (USA) LLC are acting as representatives (the "representatives"), the underwriters have severally
agreed to purchase from us, and we have agreed to sell, the respective principal amounts of notes listed opposite their names below.
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|
|
|
|
Underwriter
|
|
Principal
Amount of
Notes
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|
Goldman Sachs & Co. LLC
|
|
$
|
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|
Barclays Capital Inc.
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|
|
|
|
Credit Suisse Securities (USA) LLC
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|
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|
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|
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|
|
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|
|
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|
|
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Total
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$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
purchase agreement provides that the obligations of the several underwriters to purchase the notes offered hereby are subject to certain conditions and that the underwriters are
required to purchase all of the notes offered by this prospectus supplement if any of these notes are purchased. If an underwriter defaults, the purchase agreement provides that the purchase
commitments of the non-defaulting underwriters may be increased or the purchase agreement may be terminated.
The
underwriters are offering the notes, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of certain legal matters by their counsel and other
conditions contained in the purchase agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
We
have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to
make in respect of any of these liabilities.
Commissions and Discounts
The representatives of the underwriters have advised us that the underwriters propose initially to offer the notes to the public at the public
offering price listed on the cover page of this prospectus supplement and may offer the notes to dealers at that price less a concession not in excess of % of the principal amount of the
notes. The underwriters may allow, and the dealers may reallow, a discount not in excess of % of the principal amount of the notes to other dealers. After the initial public offering,
the public offering price, concession and discount may be changed.
The
following table shows the underwriting discount to be paid to the underwriters by Realty Income Corporation.
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Per Note
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|
Total
|
|
Underwriting discount
|
|
|
|
%
|
$
|
|
|
The
expenses of this offering, not including the underwriting discount, are estimated at $1.0 million and are payable by Realty Income.
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No Prior Market
Although the notes offered hereby will constitute part of an existing series of our outstanding notes, there is no established trading market
for such outstanding notes. Although the underwriters may make a market for the notes after we complete this offering, they have no obligation to do so and may discontinue making a market in the notes
at any time without notice. We have not listed and do not intend to apply for listing of the notes on any securities exchange. We cannot assure you that a trading market for the notes will develop or,
if developed, that it will continue, or as to the liquidity of any trading market for the notes that may develop.
Price Stabilization and Short Positions
In connection with this offering of the notes, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the
market price of the notes. Specifically, the underwriters may overallot in connection with the offering of the notes, creating a short position. In addition, the underwriters may bid for, and
purchase, notes in the open market to cover short positions or to stabilize the price of the notes. Any of these activities may stabilize or maintain the market price of the notes above independent
market levels, but no representation is made hereby that the underwriters will engage in any of those transactions or of the magnitude of any effect that the transactions described above, if
commenced, may have on the market price of the notes. The
underwriters will not be required to engage in these activities, and if they engage in these activities, they may end any of these activities at any time without notice.
Delayed Settlement
We expect that the delivery of the notes will be made against payment therefor on or about the closing date specified on the cover page of this
prospectus supplement, which will be the business day following the date of this prospectus supplement.
Under rules of the SEC, trades in the secondary market generally are required to
settle in two business days, unless the parties to that trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes before the second business day prior to the closing date
specified on the cover page of this prospectus supplement will be required, by virtue of the fact that the normal settlement date for that trade would occur prior to the closing date for the issuance
of the notes, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement, and should consult their own advisors with respect to these matters.
Other Relationships
Many or all of the underwriters and/or their respective affiliates have provided and in the future may provide investment banking, commercial
banking and/or other financial services, including the provision of credit facilities, to us in the ordinary course of business for which they have received and may in the future receive compensation.
In particular affiliates of many of the underwriters participating in this offering are lenders under our $3.0 billion revolving credit facility. As described above under "Use of Proceeds," we
intend to use net proceeds from this offering to repay borrowings outstanding under our revolving credit facility. To the extent we use net proceeds to repay such borrowings, lenders that are
affiliated with underwriters of this offering will receive net proceeds from this offering through the repayment of those borrowings under our revolving credit facility.
In
addition, in the ordinary course of their business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt
and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities
activities may involve securities and/or instruments of ours or our affiliates. In the case of any underwriters or any of their respective
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affiliates
that have lending relationships with us, certain of those underwriters and/or their respective affiliates routinely hedge, and certain other of those underwriters and/or their respective
affiliates may hedge, their credit exposure to us consistent with their customary risk management policies. Typically, these underwriters and their respective affiliates would hedge such exposure by
entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities, including potentially the notes offered hereby. Any such
credit default swaps or short positions could adversely affect trading prices of the notes offered hereby. The underwriters and their respective affiliates may also make investment recommendations
and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such
securities and instruments.
Conflicts of Interest
As described above under "Use of Proceeds," we intend to use net proceeds from this offering to repay borrowings outstanding under our revolving
credit facility. To the extent we use net proceeds to repay such borrowings, then, because, as described above under "Other Relationships," affiliates of many of the underwriters are
lenders under our revolving credit facility, more than 5% of the net proceeds of this offering (not including underwriting discounts and commissions) may be received by such affiliates. Nonetheless,
in accordance with the Financial Industry Regulatory Authority Inc. Rule 5121, the appointment of a qualified independent underwriter is not necessary in connection with this offering
because we, the issuer of the securities in this offering, are a real estate investment trust.
Selling Restrictions
Prohibition of Sales to EEA and United Kingdom Retail Investors
The notes may not be offered, sold or otherwise made available to any retail investor in the EEA or in the United Kingdom. For the purposes of
this provision:
-
(a)
-
the
expression "retail investor" means a person who is one (or more) of the following:
-
(i)
-
a
retail client as defined in point (11) of Article 4(1) of MiFID II; or
-
(ii)
-
a
customer within the meaning of the Insurance Distribution Directive, where that customer would not qualify as a professional client as defined in point
(10) of Article 4(1) of MiFID II; or
-
(iii)
-
not
a qualified investor as defined in the Prospectus Regulation; and
-
(b)
-
the
expression "offer" includes the communication in any form and by any means of sufficient information on the terms of the offer and the notes to be offered so as
to enable an investor to decide to purchase or subscribe for the notes.
United Kingdom
Any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA in connection with the issue
or sale of the notes may only be communicated or caused to be communicated in circumstances in which Section 21(1) of the FSMA does not apply to Realty Income Corporation.
All
applicable provisions of the FSMA must be complied with in respect to anything done by any person in relation to the notes in, from or otherwise involving the United Kingdom.
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Canada
The notes may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in
National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities
Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant
Obligations. Any resale of the notes must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities
laws.
Securities
legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus supplement or the accompanying
prospectus (including any amendment hereto or thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit
prescribed by the securities legislation of the purchaser's province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province or
territory for particulars of these rights or consult with a legal advisor.
Pursuant
to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National
Instrument 33-105 Underwriting Conflicts ("NI 33-105"), the underwriters are not required to comply with the disclosure requirements of
NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Hong Kong
The contents of this prospectus supplement and the accompanying prospectus have not been reviewed or approved by any regulatory authority in
Hong Kong. This prospectus supplement and the accompanying prospectus do not constitute an offer or invitation to the public in Hong Kong to acquire the notes. The notes have not been and will not be
offered or sold in Hong Kong by means of any document other than (i) to "professional investors" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong ("SFO") and any rules
made thereunder, or (ii) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.
32) of Hong Kong (the "C(WUMP)O") or which do not constitute an offer to the public within the meaning of the C(WUMP)O; and no advertisement, invitation or document relating to the notes has
been or will be issued or has been or will be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which
are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to notes which are or are intended to be
disposed of only to persons outside Hong Kong or only to "professional investors" in Hong Kong as defined in the SFO and any rules made thereunder.
The
offer of the notes is personal to the person to whom this prospectus supplement and/or the accompanying prospectus have been delivered, and a subscription for the notes will only be
accepted from such person.
No
person to whom a copy of this prospectus supplement and/or the accompanying prospectus is issued may copy, issue or distribute this prospectus supplement and/or the accompanying
prospectus to any other person. You are advised to exercise caution in relation to the offer. If you are in any doubt about the contents of this prospectus supplement and/or the accompanying
prospectus, you should obtain independent professional advice.
Japan
The notes have not been and will not be registered for a public offering in Japan pursuant to Article 4, Paragraph 1 of the
Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as
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amended;
the "FIEA"). The notes have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account or benefit of any resident of Japan (which term
as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan or having its principal office in Japan) or to, or for the account or
benefit of, others for reoffering or resale, directly or indirectly, in Japan or to or for the account or benefit of any resident of Japan, except pursuant to an exemption from the registration
requirements of the FIEA and otherwise in compliance with the FIEA and any other applicable laws, regulations and ministerial guidelines of Japan in effect at the relevant time.
Singapore
This prospectus supplement and the accompanying prospectus have not been registered as a prospectus under the Securities and Futures Act,
Chapter 289 of Singapore (the "SFA") by the Monetary Authority of Singapore, and the offer of the notes in Singapore is made primarily pursuant to the exemptions under Sections 274 and
275 of the SFA. Accordingly, this prospectus supplement and the accompanying prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or
purchase of the notes may not be circulated or distributed, nor may the notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly,
to any person in Singapore other than (i) to an institutional investor (as defined under Section 4A of the SFA) (an "Institutional Investor") pursuant to Section 274 of the SFA,
(ii) to an accredited investor (as defined in Section 4A of the SFA) (an "Accredited Investor") or other relevant person (as defined in Section 275(2) of the SFA) (a "SFA Relevant
Person") and pursuant to Section 275(1) of the SFA, or to any person pursuant to an offer referred to in Section 275(1A) of the SFA, and in accordance with the conditions specified in
Section 275 of the SFA, and (where applicable) Regulation 3 of the Securities and Futures (Classes of Investors) Regulation 2018, or (iii) otherwise pursuant to, and in
accordance with, the conditions of any other applicable exemption or provision of the SFA.
It
is a condition of the offer that where the notes are subscribed for or acquired pursuant to an offer made in reliance on Section 275 of the SFA by a SFA Relevant Person which
is:
-
(a)
-
a
corporation (which is not an Accredited Investor), the sole business of which is to hold investments and the entire share capital of which is owned by one or more
individuals, each of whom is an Accredited Investor; or
-
(b)
-
a
trust (where the trustee is not an Accredited Investor), the sole purpose of which is to hold investments and each beneficiary of the trust is an individual who is
an Accredited Investor,
the
securities or securities-based derivatives contracts (each as defined in Section 2(1) of the SFA) of that corporation and the beneficiaries' rights and interest in that trust (howsoever
described) shall not be transferred within 6 months after that corporation or that trust has subscribed for or acquired the notes except:
-
(i)
-
to
an Institutional Investor, or an Accredited Investor or other SFA Relevant Person, or which arises from an offer referred to in Section 275(1A) of the SFA
(in the case of that corporation) or Section 276(4)(i)(B) of the SFA (in the case of that trust);
-
(ii)
-
where
no consideration is or will be given for the transfer; or
-
(iii)
-
where
the transfer is by operation of law.
Singapore's Securities and Futures Act Product ClassificationSolely for the purposes of its obligations pursuant to Sections 309B(1)(a) and
309B(1)(c) of the SFA, Realty Income Corporation has determined, and hereby notifies all relevant persons (as defined in Section 309A of the SFA) that the notes are "prescribed capital markets
products" (as defined in the Securities and Futures (Capital
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Markets
Products) Regulations 2018) and "Excluded Investment Products" (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on
Recommendations on Investment Products).
Switzerland
The notes may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange ("SIX") or on any other stock exchange or
regulated trading facility in Switzerland. This prospectus supplement and the accompanying prospectus do not constitute a prospectus within the meaning of and have been prepared without regard to the
disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing
Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this prospectus supplement, the accompanying prospectus or any other offering or marketing
material relating to the notes or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither
this prospectus supplement, the accompanying prospectus nor any other offering or marketing material relating to the offering, Realty Income or the notes has been or will be
filed with or approved by any Swiss regulatory authority. In particular, this prospectus supplement and the accompanying prospectus will not be filed with, and the offer of notes will not be
supervised by, the Swiss Financial Market Supervisory Authority, and the offer of notes has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (the
"CISA"). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the notes.
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LEGAL MATTERS
Certain legal matters relating to this offering, including the validity of the notes offered hereby, will be passed upon for us by
Latham & Watkins LLP, Costa Mesa, California. Certain matters relating to Maryland law in connection with this offering will be passed upon for us by Venable LLP, Baltimore,
Maryland. Sidley Austin LLP, San Francisco, California will act as counsel for the underwriters. As of July 1, 2020, William J. Cernius, a partner of Latham & Watkins LLP,
beneficially owned approximately 8,591 shares of our common stock and, as of July 1, 2020, Eric S. Haueter, a partner of Sidley Austin LLP, beneficially owned approximately 10,033 shares
of our common stock.
EXPERTS
The consolidated balance sheets of Realty Income Corporation and subsidiaries as of December 31, 2019 and 2018, and the related
consolidated statements of income and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial
statement schedule III (collectively, the consolidated financial statements), and management's assessment of the effectiveness of internal control over financial reporting as of
December 31, 2019, have been incorporated by reference in the accompanying prospectus in reliance upon the reports of KPMG LLP, independent registered public accounting firm,
incorporated by reference therein, and upon the authority of said firm as experts in accounting and auditing. The audit report covering the December 31, 2019 consolidated financial statements
refers to a change to the method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standard Codification Topic 842, Leases.
INCORPORATION BY REFERENCE
As described in the accompanying prospectus under the caption "Incorporation by Reference" and in this prospectus supplement under the caption
"Supplemental U.S. Federal Income Tax Considerations," we have incorporated by reference in this prospectus supplement and the accompanying prospectus specified documents that we have filed or may
file with the SEC, under the Exchange Act. However, no document, exhibit or information or portion thereof that we have "furnished" or may in the future "furnish" to (rather than "file" with) the SEC
shall be incorporated by reference into this prospectus supplement or the accompanying prospectus.
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PROSPECTUS
REALTY INCOME CORPORATION
Debt Securities
Common Stock
Preferred Stock
Depositary Shares
Warrants
Realty Income Corporation, a Maryland corporation, may from time to time offer and sell the securities identified above (collectively referred to
as our "securities"), in one or more offerings, in separate series or classes, and in amounts, at prices and on terms that will be set forth in one or more prospectus supplements to this prospectus or
other offering materials.
The
specific terms of the securities with respect to which this prospectus is being delivered will be set forth in the applicable prospectus supplement or other offering materials, which
will contain specific information about the offering and the amounts, prices and, if applicable, terms of the securities being offered.
The
specific terms of any securities we may offer may include limitations on actual, beneficial or constructive ownership and restrictions on transfer of the securities, in each case as
may be appropriate, among other purposes, to preserve our status as a real estate investment trust, or REIT, for United States federal income tax purposes. The applicable prospectus supplement or
other offering materials may also contain information, where applicable, about United States federal income tax considerations relevant to, and any exchange listing of, the securities covered by the
prospectus supplement or other offering materials, as the case may be. The applicable prospectus supplement may also add, update or change information contained in this prospectus with respect to that
offering or the securities being offered. You should carefully read this prospectus and the applicable prospectus supplement, as well as any other offering materials we provide you in connection with
any offering of securities, before you invest in any of our securities.
Our
securities may be offered directly, through agents designated from time to time by us, or to or through underwriters or dealers. If any agents or underwriters are involved in the
sale of any of our securities, their names, and any applicable purchase price, fee, commission or discount arrangement between or among them, will be set forth, or will be calculable from the
information set forth, in the applicable prospectus supplement
or other offering materials. See the sections of this prospectus entitled "Plan of Distribution" for more information. No securities may be sold without delivery of this prospectus and the applicable
prospectus supplement describing the method and terms of the offering of such securities.
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 4 OF THIS PROSPECTUS AND ANY SIMILAR SECTION CONTAINED IN THE APPLICABLE
PROSPECTUS SUPPLEMENT CONCERNING FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN OUR SECURITIES.
Our common stock is traded on the New York Stock Exchange under the symbol "O." On November 2, 2018, the last reported sale price of the
common stock on the New York Stock Exchange was $60.26 per share.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is November 5, 2018.
Table of Contents
TABLE OF CONTENTS
Table of Contents
ABOUT THIS PROSPECTUS
Unless this prospectus otherwise indicates or the context otherwise requires, all references to "Realty Income," "our,"
"us" and "we" in this prospectus mean Realty Income Corporation, a Maryland corporation, and its subsidiaries on a consolidated basis.
This
prospectus is part of an automatic shelf registration statement that we filed with the U.S. Securities and Exchange Commission, or the SEC, as a "well-known seasoned issuer" as
defined in Rule 405 under the Securities Act of 1933, as amended, or the Securities Act, using a "shelf" registration process for the delayed offering and sale of securities pursuant to
Rule 415 under the Securities Act. Under this shelf registration process, we may, from time to time, offer and sell any of the securities, or any combination of the securities, described in
this prospectus in one or more offerings. This prospectus only provides you with a general description of the securities that we may offer. Each time we sell securities, we will provide a prospectus
supplement and may provide you with a free writing prospectus or other offering materials (collectively, "offering materials") that will contain
specific information about the securities being offered and sold and the specific terms of that offering. The prospectus supplement or other offering materials may also add, update or change
information contained or incorporated by reference in this prospectus. If there is any inconsistency between the information in this prospectus and any applicable prospectus supplement or other
offering materials, you should rely on the information in the applicable prospectus supplement or other offering materials. Before purchasing any securities, you should carefully read this prospectus,
the applicable prospectus supplement and any other offering materials we may provide you in connection with the offering of those securities, together with the documents incorporated and deemed to be
incorporated by reference in this prospectus, which incorporated documents may be obtained as described under the headings "Where You Can Find More Information" and "Incorporation by Reference."
As
allowed by SEC rules, this prospectus does not contain all the information you can find in the registration statement or the exhibits to the registration statement. For further
information, we refer you to the registration statement, including its exhibits and any schedules. Statements contained or incorporated by reference in this prospectus about the provisions or contents
of any contract, agreement or any other document referred to are not complete. For each of these contracts, agreements or documents filed as an exhibit to the registration statement or a document
incorporated or deemed to be incorporated by reference in this prospectus, we refer you to the actual exhibit for a complete description of the matters involved, and any statements contained or
incorporated by reference in this prospectus or any prospectus supplement or any other offering materials we may provide you regarding those contracts, agreements or other documents are subject to,
and qualified in their entirety by reference to, the complete terms of those documents. You should rely only on the information contained or incorporated by reference in this prospectus and in any
supplement to this prospectus and, if applicable, any other offering materials we may provide you. We have not authorized any other person to provide you with any information or to make any
representations other than those contained or incorporated by reference in this prospectus, any applicable prospectus supplement or any other offering materials prepared by or on behalf of us or to
which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We will not offer or sell any
securities in any jurisdiction where, or to any person to whom, such offer or sale is not permitted. You should assume that the information appearing in this prospectus, the applicable prospectus
supplement and any other offering materials we may provide you in connection with an offering of securities is accurate only as of the respective dates of those documents, and that the information
appearing in any document incorporated or deemed to be incorporated by reference in this prospectus or any accompanying prospectus supplement is accurate only as of the respective dates on which those
documents were filed with the SEC, in each case unless we expressly indicate otherwise. Our business, financial condition, results of operations and prospects may have changed since those dates.
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This
prospectus, any accompanying prospectus supplement and any related offering materials we may provide you in connection with an offering of securities, and any documents incorporated
or deemed to be incorporated by reference in this prospectus contain or may contain information regarding the industry, markets, submarkets and sectors in which we operate or expect to operate or
related demographic data, all of which is based upon information from third party sources (which may include,
among other things, industry and governmental publications and websites and data prepared or made available by market research firms) and, in some cases, our own internal estimates. We believe that
these sources and estimates are reliable, but this information (whether obtained from third-party sources or based on our internal estimates) is subject to assumptions, estimates and other
uncertainties, and we have not independently verified any of this information and cannot guarantee its accuracy or completeness.
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THE COMPANY
Realty Income Corporation, The Monthly Dividend Company®, is an S&P 500 company dedicated to providing stockholders with
dependable monthly dividends that increase over time. We are structured as a real estate investment trust, or REIT, requiring us annually to distribute at least 90% of our taxable income (excluding
net capital gains) in the form of dividends to our stockholders. Our monthly dividends are supported by the cash flow generated from real estate owned under long-term, net lease agreements with
regional and national commercial tenants.
As
of September 30, 2018, we owned a diversified portfolio of 5,694 properties located in 49 states and Puerto Rico, with over 92.7 million square feet of leasable
space leased to 260 different commercial tenants doing business in 48 separate industries. Of the 5,694 properties in the portfolio at September 30, 2018, 5,666, or 99.5%, were
single-tenant properties, and the remaining were multi-tenant properties. At September 30, 2018, of the 5,666 single-tenant properties, 5,596 were leased with a weighted average
remaining lease term (excluding rights to extend a lease at the option of the tenant) of approximately 9.3 years.
Our
principal executive offices are located at 11995 El Camino Real, San Diego, California 92130 and our telephone number is (858) 284-5000. We were founded in 1969. Our common
stock is listed on The New York Stock Exchange, or NYSE, under the ticker symbol "O" with a cusip number of 756109-104. Our central index key number is 726728.
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RISK FACTORS
Investment in any securities offered pursuant to this prospectus and the applicable prospectus supplement involves risks. In evaluating an
investment in our securities, you should carefully consider the risk factors described under the caption "Risk Factors" in our most recent Annual Report on
Form 10-K and, if applicable, in any of our subsequent
Quarterly Reports on Form 10-Q, which are incorporated or
deemed to be incorporated by reference in this prospectus,as well as the other risks and uncertainties described in those documents, this prospectus, the applicable prospectus supplement and any other
offering materials we may provide to you in connection with an offering of our securities and the other documents incorporated and deemed to be incorporated by reference in this prospectus. The
occurrence of any of these risks might cause you to lose all or part of your investment in the offered securities. You should also carefully consider the risks described below in the section entitled
"Forward-Looking Statements."
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FORWARD-LOOKING STATEMENTS
This prospectus, any related prospectus supplements or other offering materials and the documents incorporated or deemed to be incorporated by
reference herein or therein contain or may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. When used in this prospectus, any related prospectus supplements or other offering materials and the
documents incorporated or deemed to be incorporated by reference herein or therein, the words "estimated," "anticipated," "expect," "believe," "intend" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements
include, without limitation, discussions of strategy, plans and intentions and statements regarding estimated or future results of operations, financial condition or prospects (including, without
limitation, estimated and future normalized and adjusted funds from operations and net income, estimated initial weighted average contractual lease rates, statements regarding the payment,
dependability and amount of or increases in future common stock dividends, statements regarding future cash flow or cash generation, and statements regarding our ability to meet our liquidity needs).
Forward-looking statements are subject to risks, uncertainties and assumptions about us, including, among other things:
-
-
our anticipated growth strategies;
-
-
our intention to acquire additional properties and the timing of these acquisitions;
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-
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; and
-
-
future expenditures for development projects.
Future
events and actual results, financial and otherwise, may differ materially from the results discussed in or implied by the forward-looking statements. In particular,
forward-looking statements regarding estimated or future results of operations are based upon numerous assumptions and
estimates and are inherently subject to substantial uncertainties and actual results of operations may differ materially from those expressed or implied in the forward-looking statements, particularly
if actual events differ from those reflected in the estimates and assumptions upon which such forward-looking statements are based. Some of the factors that could cause actual results to differ
materially are:
-
-
our continued qualification as a real estate investment trust;
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-
general business and economic conditions;
-
-
competition;
-
-
fluctuating interest rates;
-
-
access to debt and equity capital markets;
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-
continued 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;
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-
impairments in the value of our real estate assets;
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-
changes in the tax laws of the United States of America;
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-
-
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 future events and actual results, financial or otherwise, to differ, potentially materially, from those discussed in or implied by the forward-looking
statements include the risks and uncertainties discussed in the sections entitled "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations"
in our most recent Annual Report on Form 10-K and the sections entitled "Risk Factors" (if applicable) and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our subsequent Quarterly Reports on Form 10-Q (if any), and also include risks and other information discussed in other documents that are incorporated or deemed to be
incorporated by reference in this prospectus and in the prospectus supplement and any other offering materials relating to any offering of our securities.
You
are cautioned not to place undue reliance on forward-looking statements contained or incorporated by reference in this prospectus, any related prospectus supplements or other
offering materials. Those forward-looking statements are not guarantees of future performance and speak only as of the respective dates of those documents or, in the case of documents incorporated or
deemed to be incorporated by reference in this prospectus, as of the respective dates those documents were filed with the SEC and we undertake no obligation to update any such forward-looking
statements or to publicly release the results of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the respective dates or filing dates, as the case may be, of those documents or to reflect the occurrence of unanticipated events. In light of these risks and
uncertainties, the forward-looking events discussed in this prospectus, any related prospectus supplements or other offering materials, and the documents incorporated by reference herein and therein
might not occur.
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USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities as set forth in the applicable prospectus supplement.
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DESCRIPTION OF DEBT SECURITIES
General
This prospectus describes certain general terms and provisions of our debt securities. When we offer to sell a particular series of debt
securities, we will describe the specific terms of the series in a prospectus supplement, a pricing supplement or other offering materials. We will also indicate in the supplement or other offering
materials whether the general terms and provisions described in this prospectus apply to a particular series of debt securities. Our debt securities will be our direct obligations and they may be
secured or unsecured, senior or subordinated indebtedness. We
may issue our debt securities under one or more indentures. Each indenture and the certificate or certificates evidencing the debt securities of each series will be in the form filed or incorporated
by reference as an exhibit to the registration statement containing this prospectus, a post-effective amendment to the registration statement or a document incorporated by reference herein and may be
obtained as described below under "Where You Can Find More Information." The form of indenture is subject to any amendments or supplements that may be adopted from time to time. We will enter into
each indenture with a trustee and the trustee for each indenture may be the same. Each indenture will be subject to, and governed by, the Trust Indenture Act of 1939, as amended. Unless otherwise
expressly stated in the applicable prospectus supplement, the debt securities will be issued under an indenture dated as of October 28, 1998 between us and The Bank of New York Mellon Trust
Company, N.A., as successor trustee, a copy of which has been incorporated by reference as an exhibit to the registration statement containing this prospectus. Because this description of debt
securities is a summary, it does not contain all the information that may be important to you and this description is subject to, and qualified in its entirety by reference to, the form of the
applicable indenture and the certificate evidencing the debt securities of the applicable series. You should read the applicable indenture and the form of certificate evidencing the applicable debt
securities in their entirety to assure that you have all the important information you need to make any required decisions. Unless otherwise expressly stated or the context otherwise requires, all
references to the "Company," "Realty Income," "our," "we" and "us" and all similar references appearing under this caption "Description of Debt Securities" mean Realty Income Corporation, a Maryland
corporation, excluding its subsidiaries. All other capitalized terms used, but not defined, in this section shall have the meanings set forth in the applicable indenture.
Terms
The particular terms of any series of our debt securities will be described in a prospectus supplement or other offering materials.
Additionally, any applicable modifications of or additions to the general terms of our debt securities, described in this prospectus and in the applicable indenture, will also be described in a
prospectus supplement or other offering materials. Accordingly, for a description of the terms of any series of our debt securities, you must refer to both the prospectus supplement or other offering
materials, if any, relating to those debt securities and the description of the debt securities set forth in this prospectus. If any particular terms of our debt securities, described in a prospectus
supplement or other offering materials, differ from any of the terms described in this prospectus, then those terms as set forth in the relevant prospectus supplement or other offering materials will
control.
Except
as set forth in any prospectus supplement or other offering materials, our debt securities may be issued without limit as to aggregate principal amount, in one or more series, in
each case as established from time to time by our board of directors, a committee of the board of directors or as set forth in the applicable indenture or one or more supplements to that indenture.
All of our debt securities of one series need not be issued at the same time, and unless otherwise provided, a series may be reopened for issuance of additional debt securities without the consent of
the holders of the debt securities of that series.
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Each
indenture will provide that we may, but need not, designate more than one trustee for the indenture, each with respect to one or more series of our debt securities. Any trustee
under an indenture may resign or be removed with respect to one or more series of our debt securities, and a successor trustee may be appointed to act with respect to that series. If two or more
persons are acting as trustee to different series of our debt securities, each trustee shall be a trustee of a trust under the applicable indenture separate and apart from the trust administered by
any other trustee and, except as otherwise indicated in this prospectus, any action taken by a trustee may be taken by that trustee with respect to, and only with respect to, the one or more series of
debt securities for which it is trustee under the applicable indenture.
This
summary sets forth certain general terms and provisions of our indentures and our debt securities. For a detailed description of a specific series of debt securities, you should
consult the prospectus supplement or other offering materials for that series. The prospectus supplement or other offering materials will contain the following information, to the extent
applicable:
-
(1)
-
the
title and ranking of those debt securities;
-
(2)
-
the
aggregate principal amount of those debt securities and any limitation thereon;
-
(3)
-
the
price at which those debt securities will be issued and, if other than the principal amount of those debt securities, the portion of the principal amount payable
upon declaration of acceleration of the maturity thereof, or (if applicable) the portion of the principal amount of those debt securities that is convertible into other securities offered hereby, or
the method by which any convertible portion of those debt securities shall be determined;
-
(4)
-
if
those debt securities are convertible, the terms on which they are convertible, including the initial conversion price or rate and conversion period and, in
connection with the preservation of our status as a REIT, any applicable limitations on the ownership or transferability of the securities into which those debt securities are convertible;
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(5)
-
the
date or dates, or the method for determining the date or dates, on which the principal of those debt securities will be payable;
-
(6)
-
the
rate or rates (which may be fixed or variable), or the method by which the rate or rates shall be determined, at which those debt securities will bear interest,
if any;
-
(7)
-
the
date or dates, or the method for determining the date or dates, from which any interest will accrue, the dates upon which that interest will be payable, the
record dates for payment of that interest, or the method by which any of those dates shall be determined, the persons to whom that interest shall be payable, and the basis upon which that interest
shall be calculated if other than that of a 360-day year of twelve 30-day months;
-
(8)
-
the
place or places where the principal of (and premium, if any) and interest, if any, on debt securities will be payable, where debt securities may be surrendered
for conversion, registration of transfer or exchange and where notices or demands to or upon us relating to debt securities and the indenture may be served;
-
(9)
-
the
period or periods, if any, within which, the price or prices at which, and the terms and conditions upon which those debt securities may be redeemed, as a whole
or in part, at our option;
-
(10)
-
our
obligation, if any, to redeem, repay or purchase those debt securities pursuant to any sinking fund or analogous provision or at the option of a holder of those
debt securities, and the period or periods within which, the price or prices at which, and the terms and conditions upon which, those debt securities will be redeemed, repaid or purchased, as a whole
or in part, pursuant to this obligation;
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-
(11)
-
if
other than U.S. dollars, the currency or currencies in which those debt securities are denominated and payable, which may be a foreign currency or units of two
or more foreign currencies or a composite currency or currencies, and the terms and conditions relating thereto;
-
(12)
-
whether
the amount of payments of principal of (and premium, if any) or interest, if any, on those debt securities may be determined with reference to an index,
formula or other method (which index, formula or method may, but need not be based on a currency, currencies, currency unit or units or composite currency or currencies) and the manner in which those
amounts shall be determined;
-
(13)
-
whether
those debt securities will be issued in certificated and/or book-entry form, and, if in book-entry form, the identity of the depositary for those debt
securities;
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(14)
-
whether
those debt securities will be in registered or bearer form and, if in registered form, the denominations thereof if other than $2,000 and any integral
multiple of $1,000 in excess thereof and, if in bearer form, the denominations thereof and terms and conditions relating thereto;
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(15)
-
the
applicability, if any, of the defeasance and covenant defeasance provisions described herein or set forth in the applicable indenture, or any modification of
the indenture;
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(16)
-
any
deletions from, modifications of or additions to the events of default or our covenants with respect to those debt securities;
-
(17)
-
whether
and under what circumstances we will pay any additional amounts on those debt securities in respect of any tax, assessment or governmental charge and, if
so, whether we will have the option to redeem those debt securities in lieu of making this payment;
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(18)
-
the
subordination provisions, if any, relating to those debt securities;
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(19)
-
the
provisions, if any, relating to any security provided for those debt securities; and
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(20)
-
any
other terms of those debt securities.
If
the applicable prospectus supplement provides or other offering materials provide, we may issue the debt securities at a discount below their principal amount and provide for less
than the entire principal amount of the debt securities to be payable upon declaration of acceleration of the maturity thereof ("Original Issue Discount Securities"). In those cases, any material
United States federal income tax, accounting and other considerations applicable to Original Issue Discount Securities will be described in the applicable prospectus supplement or other offering
materials.
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable prospectus supplement or other offering materials, the debt securities of any series will be
issuable in denominations of $2,000 and integral multiples of $1,000 in excess thereof.
Unless
otherwise described in the applicable prospectus supplement or other offering materials, we will pay the principal of (and premium, if any) and interest on any series of debt
securities at the applicable trustee's corporate trust office, the address of which will be set forth in the applicable prospectus supplement or other offering materials, provided however, that unless
otherwise provided in the applicable prospectus supplement or other offering materials, we may make interest payments (1) by check mailed to the address of the person entitled to the payment as
that address appears in the applicable register for those debt securities, or (2) by wire transfer of funds to the person at an account maintained within the United States.
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Subject
to certain limitations imposed on debt securities issued in book-entry form, the debt securities of any series will be exchangeable for any authorized denomination of other debt
securities of the same series and of a like aggregate principal amount and tenor upon surrender of those debt securities at the office of any transfer agent we designate for that purpose. In addition,
subject to certain limitations imposed on debt securities issued in book-entry form, the debt securities of any series may be surrendered for conversion or registration of transfer thereof at the
office of any transfer agent we designate for that purpose. Every debt security surrendered for conversion, registration of transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer and the person requesting that transfer must provide evidence of title and identity satisfactory to us and the applicable transfer agent. No service charge will be made for any
registration of transfer or exchange of any debt securities, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. We may at any
time rescind the designation of any transfer agent appointed with respect to the debt securities of any series or approve a change in the location through which any transfer agent acts, except that we
will be required to maintain a transfer agent in each place of payment for that series. We may at any time designate additional transfer agents with respect to any series of debt securities.
Neither
we nor any trustee shall be required to:
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issue, register the transfer of, or exchange debt securities of any series if that debt security may be among those selected for redemption
during a period beginning at the opening of business 15 days before the mailing or first publication, as the case may be, of notice of redemption of those debt securities and ending at the
close of business on
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1.
-
the
day of mailing of the relevant notice of redemption if the debt securities of that series are issuable only in registered form, or
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2.
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the
day of the first publication of the relevant notice of redemption if the debt securities of that series are issuable in bearer form, or
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3.
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the
day of mailing of the relevant notice of redemption if those debt securities are issuable in both bearer and registered form and there is no publication; or
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register the transfer of or exchange any debt security in registered form, or portion thereof, so selected for redemption, in whole or in part,
except the unredeemed portion of any debt security being redeemed in part; or
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exchange any debt security in bearer form selected for redemption, except in exchange for a debt security of that series in registered form
that is simultaneously surrendered for redemption; or
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-
issue, register the transfer of or exchange any debt security that has been surrendered for repayment at the holder's option, except the
portion, if any, of that debt security not to be repaid.
No Protection in the Event of a Change of Control
Unless we state otherwise in the applicable prospectus supplement, the debt securities of any series will not contain any provisions which may
afford holders of the debt securities of such series protection in the event of a change of control of Realty Income or in the event of a highly leveraged transaction (whether or not such transaction
results in a change of control), which could adversely affect holders of debt securities.
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Merger, Consolidation or Sale of Assets
Each indenture will provide that we will not consolidate with, sell, lease or convey all or substantially all of our assets to, or merge with or
into, any person unless:
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either we shall be the continuing entity, or the successor person (if not us) formed by or resulting from the consolidation or merger or which
shall have received the transfer of the assets shall be a corporation organized and existing under the laws of the United States or any State thereof and shall expressly assume (1) our
obligation to pay the principal of (and premium, if any) and interest on all the debt securities issued under the indenture and (2) the due and punctual performance and observance of all the
covenants and conditions contained in the indenture and in the debt securities to be performed or observed by us;
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immediately after giving effect to the transaction and treating any indebtedness that becomes our obligation or the obligation of any
Subsidiary as a result of the transaction as having been incurred, and treating any liens on any property or assets of ours or any Subsidiary that are incurred, created or assumed as a result of the
transaction as having been created, incurred or assumed, by us or the Subsidiary at the time of the transaction, no event of default under the indenture, and no event that, after notice or the lapse
of time, or both, would become an event of default, shall have occurred and be continuing; and
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an officers' certificate and legal opinion covering these conditions shall be delivered to the trustee.
Certain Covenants
Existence. Except as permitted under the heading above entitled "Merger, Consolidation or Sale of Assets," we will be required
under
each indenture to do or cause to be done all things necessary to preserve and keep in full force and effect our corporate existence, all material rights (by charter, bylaws and statute) and all
material franchises; provided, however, that we shall not be required to preserve any right or franchise if our board of directors determines that the preservation thereof is no longer desirable in
the conduct of our business.
Maintenance of Properties. Each indenture will require us to cause all of our material properties used or useful in the conduct of our
business or
the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will require us to cause to be made all necessary
repairs, renewals, replacements, betterments and improvements to those properties, as in our judgment may be necessary so that the business carried on in connection with those properties may be
properly and advantageously conducted at all times; provided, however, that we and our Subsidiaries shall not be prevented from selling or otherwise disposing of these properties for value in the
ordinary course of business.
Insurance. Each indenture will require us to, and to cause each of our Subsidiaries to, keep in force upon all of our and their
properties and
operations policies of insurance carried with responsible companies in such amounts and covering all risks as shall be customary in the industry in accordance with prevailing market conditions and
availability.
Payment of Taxes and Other Claims. Each indenture will require us to pay or discharge or cause to be paid or discharged, before the
same shall become
delinquent, (a) all taxes, assessments and governmental charges levied or imposed on us or any of our Subsidiaries or upon the income, profits or property of us or any of our Subsidiaries and
(b) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a lien upon our property or the property of any Subsidiary; provided, however, that we shall not be
required to pay or discharge or cause to be paid or discharged
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any
tax, assessment, charge or claim the amount, applicability or validity of which we are contesting in good faith through appropriate proceedings.
Provisions of Financial Information. Whether or not we are subject to Section 13 or 15(d) of the Exchange Act, we will be required
by each
indenture, within 15 days after each of the respective dates by which we would have been required to file annual reports, quarterly reports and other documents with the SEC if we were subject
to those Sections of the Exchange Act to:
-
-
transmit by mail to all holders of debt securities issued under the indenture, as their names and addresses appear in the applicable register
for those debt securities, without cost to the holders, copies of the annual reports, quarterly reports and other documents that we would have been required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act if we were subject to those Sections;
-
-
file with the applicable trustee copies of the annual reports, quarterly reports and other documents that we would have been required to file
with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject to those Sections; and
-
-
supply promptly, upon written request and payment of the reasonable cost of duplication and delivery, copies of these documents to any
prospective holder of the debt securities.
Except
as may otherwise be provided in the prospectus supplement or other offering materials relating to any series of debt securities, the term "Subsidiary," as used in any indenture
means any other person of which more than 50% of (a) the equity or other ownership interests or (b) the total voting power of shares of capital stock or other ownership interests
entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, trustees or general or managing partners thereof is at the time owned by us or one or
more of our Subsidiaries or a combination thereof.
Additional Covenants. If we make any additional covenants with respect to any series of debt securities, those covenants will be set
forth in the
prospectus supplement or other offering materials relating to those debt securities.
Events of Default, Notice and Waiver
Unless otherwise provided in the applicable indenture, each indenture will provide that the following events are "events of default" for any
series of debt securities issued under it:
-
(1)
-
default
for 30 days in the payment of any installment of interest on any debt security of that series;
-
(2)
-
default
in the payment of the principal of (or premium, if any, on) any debt security of that series when due, whether at stated maturity or by declaration of
acceleration, notice of redemption, notice of option to elect repayment or otherwise;
-
(3)
-
default
in the deposit of any sinking fund payment, when and as due by the terms of any debt security of that series;
-
(4)
-
default
in the performance of any of our other covenants contained in the indenture or in any debt security of that series (other than a covenant added to the
indenture solely for the benefit of a series of debt securities issued thereunder other than that series), which continues for 60 days after written notice is given to us by the trustee or to
us and the trustee by the holders of at least 25% in principal amount of the outstanding debt securities of that series;
-
(5)
-
default
under any bond, debenture, note or other evidence of indebtedness for money borrowed by us or any of our Subsidiaries (including obligations under leases
required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles,
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but
not including any indebtedness or obligations for which recourse is limited to property purchased) in an aggregate principal amount in excess of $25,000,000 or under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by us or any of our Subsidiaries (including such leases, but not including
such indebtedness or obligations for which recourse is limited to property purchased) in an aggregate principal amount in excess of $25,000,000, whether the indebtedness exists at the date of the
relevant indenture or shall thereafter be created, which default shall have resulted in the indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have
become due and payable or which default shall have resulted in the obligation being accelerated, without the acceleration having been rescinded or annulled;
-
(6)
-
certain
events of bankruptcy, insolvency or reorganization with respect to us or any of our Significant Subsidiaries; or
-
(7)
-
any
other event of default provided with respect to a particular series of debt securities.
The
term "Significant Subsidiary" as used above has the meaning ascribed to the term in Rule 1-02 of Regulation S-X promulgated under the Securities Act, as the Regulation was in effect
on January 1, 1996.
If
an event of default under any indenture with respect to debt securities of any series at the time outstanding occurs and is continuing, then the applicable trustee or the holders of
not less than 25% in principal amount of the outstanding debt securities of that series may declare the principal amount (or, if the debt securities of that series are Original Issue Discount
Securities or Indexed Securities, that portion of the principal amount as may be specified in the terms thereof) of all the debt securities of that series to be due and payable immediately by written
notice thereof to us (and to the applicable trustee if given by the holders). However, at any time after the declaration of acceleration with respect to debt securities of a series has been made, but
before a judgment or decree for payment of the money due has been obtained by the applicable trustee, the holders of not less than a majority of the principal amount of the outstanding debt securities
of that series may rescind and annul the declaration and its consequences if:
-
-
we shall have deposited with the applicable trustee all required payments of the principal of (and premium, if any) and interest on the debt
securities of that series (other than principal that has become due solely as a result of the acceleration), plus certain fees, expenses, disbursements and advances of the applicable trustee; and
-
-
all events of default, other than the nonpayment of accelerated principal (or specified portion thereof), premium, if any, and interest with
respect to debt securities of that series, have been cured or waived as provided in the indenture.
Each
indenture will also provide that the holders of not less than a majority in principal amount of the outstanding debt securities of any series may waive any past default with respect
to that series and its consequences, except:
-
-
a default in the payment of the principal of (or premium, if any) or interest on any debt security of that series; or
-
-
a default in respect of a covenant or provision contained in the indenture that cannot be modified or amended without the consent of the holder
of each outstanding debt security of the series affected by the default.
Each
indenture will require each trustee to give notice of a default under the indenture to the holders of debt securities within 90 days unless the default shall have been cured
or waived, subject to certain exceptions; provided, however, that the trustee may withhold notice to the holders of any series
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of
debt securities of any default with respect to that series (except a default in the payment of the principal of (or premium, if any) or interest on any debt security of that series or in the
payment of any sinking fund installment in respect of any debt security of that series) if specified Responsible Officers of the trustee consider a withholding to be in those holders' interest.
Each
indenture will provide that no holders of debt securities of any series may institute any proceedings, judicial or otherwise, with respect to the indenture or for any remedy
thereunder, except in the case of failure of the trustee, for 60 days, to act after it has received a written request to institute proceedings in respect of an event of default from the holders
of not less than 25% in principal amount of the outstanding debt securities of that series, as well as an offer of indemnity reasonably satisfactory to it, and no direction inconsistent with the
written request has been given to the trustee during the 60-day period by holders of a majority in principal amount of the outstanding debt securities of that series. This provision will not prevent,
however, any holder of debt securities from instituting suit for the enforcement of payment of the principal of (and premium, if any) and interest on those debt securities at the respective due dates
thereof.
Each
indenture will provide that, subject to provisions in the Trust Indenture Act of 1939 relating to its duties in case of default, the trustee is under no obligation to exercise any
of its rights or powers under the indenture at the request or direction of any holders of any series of the debt securities then outstanding under the indenture, unless those holders shall have
offered to the trustee reasonable security or indemnity. The holders of not less than a majority in principal amount of the outstanding debt securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to the trustee, or of exercising any trust or power conferred upon the trustee; provided that the direction shall not
conflict with any rule of law or the indenture, and provided further that the trustee may refuse to follow any direction that may involve the trustee in personal liability or that may be unduly
prejudicial to the holders of debt securities of that series not joining in the direction to the trustee.
Within
120 days after the close of each fiscal year, we will be required to deliver to the trustee a certificate, signed by one of several specified officers, stating whether or
not the officer has knowledge of any default under the indenture and, if so, specifying each default and the nature and status thereof.
Modification of the Indenture
Modifications and amendments of any indenture will be permitted with the consent of the holders of not less than a majority in principal amount
of all outstanding debt securities
of each series issued under the indenture affected by the modification or amendment; provided, however, that no modification or amendment may, without the consent of the holder of each debt security
affected thereby:
-
-
change the stated maturity of the principal of, or any installment of principal of, or interest (or premium, if any) on any debt security;
-
-
reduce the principal amount of, or the rate or amount of interest on, or any premium payable on redemption of any debt security, or reduce the
amount of principal of an Original Issue Discount Security that would be due and payable upon declaration of acceleration of the maturity of the Original Issue Discount Security or would be provable
in bankruptcy, or adversely affect any right of repayment at the option of the holder of any debt security (or reduce the amount of premium payable upon any repayment);
-
-
change the place of payment, or the coin or currency, for payment of principal of (or premium, if any) or interest on any debt security;
-
-
impair the right to institute suit for the enforcement of any payment on or with respect to any debt security when due;
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-
-
reduce the above-stated percentage of outstanding debt securities of any series necessary to modify or amend the indenture to waive compliance
with certain provisions of the indenture or certain defaults and consequences under the indenture or to reduce the quorum or voting requirements set forth in the indenture; or
-
-
modify any of the foregoing provisions or any of the provisions relating to the waiver of certain past defaults or certain covenants, except to
increase the required percentage to effect the action or to provide that certain other provisions may not be modified or waived without the consent of the holder of each outstanding debt security
affected thereby.
The
holders of a majority in aggregate principal amount of outstanding debt securities of any series may, on behalf of all holders of debt securities of that series, waive (insofar as
that series is concerned) our compliance with certain restrictive covenants in the applicable indenture.
We,
along with the trustee, shall be permitted to modify and amend an indenture without the consent of any holder of debt securities for any of the following
purposes:
-
-
to evidence the succession of another person to our obligations under the indenture;
-
-
to add to our covenants for the benefit of the holders of all or any series of debt securities or to surrender any right or power conferred
upon us in the indenture;
-
-
to add events of default for the benefit of the holders of all or any series of debt securities;
-
-
to add or change any provisions of the indenture to provide that debt securities in bearer form may be registerable as to principal or to
change or eliminate any restrictions on the payment of principal of or any premium or interest on debt securities in bearer form or to make certain other provisions relating to debt securities in
bearer form, provided that such action shall not adversely affect the interests of the holders of the debt securities of any series in any material respect;
-
-
to change or eliminate any provisions of the indenture, provided that any such change or elimination does not apply to any outstanding debt
securities of a series created prior to the date of the amendment or supplement that are entitled to the benefit of that provision;
-
-
to secure the debt securities;
-
-
to establish the form or terms of debt securities of any series, including the provisions and procedures, if applicable, for the conversion of
debt securities into common stock or preferred stock;
-
-
to provide for the acceptance of appointment by a successor trustee or facilitate the administration of the trusts under the indenture by more
than one trustee;
-
-
to cure any ambiguity or to correct any defect or inconsistency in the indenture, or to make any other provisions with respect to matters or
questions arising under the indenture which shall not be inconsistent with the provisions of the indenture, provided, however, that such action shall not adversely affect the interests of holders of
debt securities of any series in any material respect; or
-
-
to supplement any of the provisions of the indenture to the extent necessary to permit or facilitate defeasance, covenant defeasance and
discharge of any series of debt securities, provided, however, that this action shall not adversely affect the interests of the holders of the debt securities of any series in any material respect.
Each
indenture will provide that in determining whether the holders of the requisite principal amount of outstanding debt securities of a series have given any request, demand,
authorization,
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direction,
notice, consent or waiver described in the indenture or whether a quorum is present at a meeting of holders of debt securities:
-
-
the principal amount of an Original Issue Discount Security that shall be deemed to be outstanding shall be the amount of the principal of that
security that would be due and payable as of the date of the determination upon declaration of acceleration of the maturity thereof;
-
-
the principal amount of any debt security denominated in a foreign currency that shall be deemed outstanding shall be the U.S. dollar
equivalent, determined on the issue date for the debt security, of the principal amount (or, in the case of an Original Issue Discount Security, the U.S. dollar equivalent on the issue date of the
debt security of the amount determined as provided in the first bullet above);
-
-
the principal amount of an Indexed Security that shall be deemed outstanding shall be the principal face amount of the Indexed Security at
original issuance, unless otherwise provided with respect to the Indexed Security in the applicable prospectus supplement; and
-
-
debt securities owned by us or any other obligor upon the debt securities or any affiliate of ours or of the other obligor shall be
disregarded.
Each
indenture will contain provisions for convening meetings of the holders of debt securities of a series. A meeting may be called at any time by the trustee, and also, upon our
request or request of the holders of at least 10% in principal amount of the outstanding debt securities of a series, in any case upon notice given as provided in the indenture. Except for any consent
or waiver that must be given by the holder of each debt security affected thereby, any resolution presented at a meeting or at
an adjourned meeting duly reconvened at which a quorum is present, may be adopted by the affirmative vote of the holders of a majority in principal amount of the outstanding debt securities of that
series; provided, however, that, except as referred to above, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that may be made,
given or taken by the holders of a specified percentage, which is less than a majority, in principal amount of the outstanding debt securities of the series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of the holders of the specified percentage in principal amount of the outstanding debt securities of that series. Any
resolution passed or decision taken at any meeting of holders of debt securities of any series duly held in accordance with the indenture will be binding on all holders of debt securities of that
series. The persons holding or representing a majority in principal amount of the outstanding debt securities of a series shall constitute a quorum for a meeting of holders of that series; provided,
however, that if any action is to be taken at a meeting with respect to a consent or waiver that may be given by the holders of not less than a specified percentage in principal amount of the
outstanding debt securities of that series, the persons holding or representing the specified percentage in principal amount of the outstanding debt securities of that series will constitute a quorum.
Notwithstanding
the foregoing provisions, each indenture will provide that if any action is to be taken at a meeting of holders of debt securities of any series with respect to any
request, demand, authorization, direction, notice, consent, waiver or other action that the indenture expressly provides may be made, given or taken by the holders of that series and one or more
additional series: (a) there shall be no minimum quorum requirement for the meeting and (b) the principal amount of the outstanding debt securities of all those series that are entitled
to vote in favor of the request, demand, authorization, direction, notice, consent, waiver or other action shall be taken into account in determining whether the request, demand, authorization,
direction, notice, consent, waiver or other action has been made, given or taken under the indenture.
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Discharge, Defeasance and Covenant Defeasance
Unless otherwise indicated in the applicable prospectus supplement or other offering materials, upon our request any indenture shall cease to be
of further effect with respect to any series of debt securities issued under the indenture specified in our request (except as to certain limited provisions of the indenture which shall survive) when
either (a) all debt securities of that series have been delivered to the trustee for cancellation or (b) all debt securities of that series have become due and payable or will become due
and payable within one year (or are scheduled for redemption within one year) and we have irrevocably deposited with the applicable trustee, in trust, funds in the currency or currencies, currency
unit or units or composite currency or currencies in which those debt securities are payable an amount sufficient to pay the entire indebtedness on those debt securities in
respect of principal (and premium, if any) and interest to the date of the deposit (if those debt securities have become due and payable) or to the stated maturity or redemption date, as the case may
be.
Each
indenture will provide that, unless otherwise indicated in the applicable prospectus supplement or other offering materials, we may elect either
to:
-
-
defease and be discharged from any and all obligations with respect to any series of debt securities (except for the obligation, if any, to pay
additional amounts in respect of certain taxes imposed on non-U.S. holders of debt securities and the obligations to register the transfer or exchange of the debt securities, to replace temporary or
mutilated, destroyed, lost or stolen debt securities, to maintain an office or agency in respect of the debt securities and to hold money for payment in trust) ("defeasance"); or
-
-
be released from our obligations with respect to certain covenants (which will be described in the relevant prospectus supplement or other
offering materials) applicable to the debt securities under the applicable indenture (which may include, subject to a limited exception, the covenants described under "Certain
Covenants"), and any omission to comply with these obligations shall not constitute a default or an event of default with respect to those debt securities ("covenant defeasance"),
in
either case upon our irrevocable deposit with the applicable trustee, in trust, of an amount, in the currency or currencies, currency unit or units or composite currency or currencies in which
those debt securities are payable at stated maturity, or Government Obligations (as defined below), or both, applicable to those debt securities that through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount sufficient to pay the principal of (and premium, if any) and interest on those debt securities, and any mandatory sinking fund
or analogous payments on those debt securities, on the scheduled due dates.
A
trust may only be established if, among other things, we have delivered to the applicable trustee an opinion of counsel (as specified in the applicable indenture) to the effect that
the holders of those debt securities will not recognize income, gain or loss for United States federal income tax purposes as a result of the defeasance or covenant defeasance and will be subject to
United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the defeasance or covenant defeasance had not occurred. Additionally, in
the case of defeasance, an opinion of counsel must refer to and be based on a ruling of the Internal Revenue Service (the "IRS") or a change in applicable United States federal income tax law
occurring after the date of the applicable indenture. In the event of defeasance, the holders of those debt securities will thereafter be able to look only to the trust fund for payment of principal
(and premium, if any) and interest.
"Government
Obligations" means securities that are (a) direct obligations of the United States of America or the government which issued the foreign currency in which the debt
securities of a particular series are payable, for the payment of which its full faith and credit is pledged, or (b) obligations of a person controlled or supervised by and acting as an agency
or instrumentality of the
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United
States of America or the government which issued the foreign currency in which the debt securities of that series are payable, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or the other government, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank or trust company as custodian with respect to any Government Obligation or a specific payment of interest on or principal of any Government Obligation held by a
custodian for the account of the holder of a depository receipt; provided, however, that (except as required by law) the custodian is not authorized to make any deduction from the amount payable to
the holder of the depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of the Government Obligation
evidenced by the depository receipt.
Unless
otherwise provided in the applicable prospectus supplement or other offering materials, if after we have deposited funds and/or Government Obligations to effect defeasance or
covenant defeasance with respect to debt securities of any series:
-
-
the holder of a debt security of that series is entitled to, and does, elect pursuant to the applicable indenture or the terms of that debt
security to receive payment in a currency, currency unit or composite currency other than that in which the deposit has been made in respect of that debt security, or
-
-
a Conversion Event (as defined below) occurs in respect of the currency, currency unit or composite currency in which the deposit has been
made,
then
the indebtedness represented by that debt security will be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any) and
interest on
that debt security as they become due out of the proceeds yielded by converting the amount so deposited in respect of that debt security into the currency, currency unit or composite currency in which
the debt security becomes payable as a result of the election or Conversion Event based on the applicable market exchange rate. "Conversion Event" means the cessation of use
of:
-
-
a currency, currency unit or composite currency both by the government of the country which issued the currency and for the settlement of
transactions by a central bank or other public institution of or within the international banking community; or
-
-
any currency unit or composite currency for the purposes for which it was established.
In
the event we effect a covenant defeasance with respect to any debt securities and those debt securities are declared due and payable because of the occurrence of any event of default,
other than an event of default due to a breach of any of the covenants as to which there has been covenant defeasance (which covenants would no longer be applicable to those debt securities as a
result of such covenant defeasance), the cash and Government Obligations on deposit with the applicable trustee may not be sufficient to pay amounts due on those debt securities at the time of the
acceleration resulting from the event of default. We would, however, remain obligated to make payment of the amounts due at the time of acceleration.
The
applicable prospectus supplement or other offering materials may further describe the provisions, if any, permitting the defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the debt securities of or within a particular series.
Conversion Rights
The terms and conditions, if any, upon which the debt securities are convertible into common stock, preferred stock or other securities offered
hereby will be set forth in the applicable prospectus supplement or other offering materials relating to those debt securities. The terms will include whether
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the
debt securities are convertible into common stock, preferred stock, or other securities offered hereby, and the conversion price or rate (or manner of calculation thereof), and may include, if
applicable, the conversion period, provisions as to whether conversion will be at our option or the option of the holders, the events requiring an adjustment of the conversion price or rate and
provisions affecting conversion in the event of the redemption of the debt securities and any restrictions on conversion, including restrictions directed at maintaining our REIT status.
Unclaimed Payments
We will be repaid for all amounts we pay to a paying agent or a trustee for the payment of the principal of or any premium or interest on any
debt security that remains unclaimed at the end of two years after the principal, premium or interest has become due and payable, and the holder of that debt security may look only to us for payment
of the principal, premium or interest.
Global Securities
The debt securities of a series may be issued in whole or in part in the form of one or more global securities (the "Global Securities") that
will be deposited with, or on behalf of, a depositary identified in the applicable prospectus supplement or other offering materials relating to that series. Global Securities may be issued in either
registered or bearer form and in either temporary or permanent form. The specific terms of the depositary arrangement with respect to a series of debt securities will be described in the applicable
prospectus supplement or other offering materials relating to that series.
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DESCRIPTION OF COMMON STOCK
We have authority to issue 370,100,000 shares of our common stock, $0.01 par value per share. As of September 30, 2018, we had
outstanding 295,145,532 shares of our common stock.
General
The following description of our common stock sets forth certain general terms and provisions of our common stock to which any prospectus
supplement or other offering materials may relate, including a prospectus supplement or other offering materials relating to shares of our
common stock that may be issuable upon conversion of our debt securities, preferred stock or depositary shares or upon exercise of our warrants. The statements below and elsewhere in this prospectus,
any accompanying prospectus supplement or any other offering materials we may provide you in connection with an offering of securities that describe certain terms and provisions of our common stock.
charter or bylaws do not purport to be complete,, do not contain all of the information that may be important to you, and are in all respects subject to, and qualified in their entirety by reference
to, the Maryland General Corporation Law, or MGCL, and the applicable provisions of our charter and bylaws, copies of which have been or will be filed or incorporated by reference as exhibits to the
registration statement of which this prospectus is a part or to a document incorporated or deemed to be incorporated by reference herein and may be obtained as described below under "Where You Can
Find More Information" and "Incorporation by Reference." The following description should be read in conjunction with the information appearing in this prospectus under the captions "Restrictions on
Ownership and Transfers of Stock" and "Certain Provisions of Maryland Law and Our Charter and Bylaws" (as such information may be amended or supplemented from time to time by information appearing in
documents that we file with the SEC after the date of this prospectus supplement that are incorporated or deemed to be incorporated by reference herein or by information appearing in the applicable
prospectus supplement or other offering materials we may provide you in connection with an offering of common stock) which provides important additional information about our common stock. Unless
otherwise expressly stated or the context otherwise requires, all references to "our company," "Realty Income," "our," "we" and "us" and all similar references appearing under this caption
"Description of Common Stock" mean Realty Income Corporation, a Maryland corporation, excluding its subsidiaries.
Terms
Subject to the preferential rights of any other class or series of our stock and to the provisions of our charter regarding the restrictions on
ownership and transfer of stock, holders of our common stock are entitled to receive dividends when, as and if authorized by our board of directors and declared by us out of assets legally available
therefor. The terms of any preferred stock we may issue in the future may provide for restrictions or prohibitions on the payment of dividends on, and the purchase of, our common stock and may also
provide for holders of that class or series of preferred stock to receive preferential distributions in the event of our liquidation, dissolution or winding up before any payments may be made on our
common stock. For additional information, see "General Description of Preferred Stock" in this prospectus and, if applicable, the articles supplementary classifying and designating shares of any class
or series of preferred stock we may subsequently issue, which will be filed or incorporated by reference as an exhibit to the registration statement of which this prospectus is a part or to a document
incorporated or deemed to be incorporated by reference in this prospectus or another document we file with the SEC, and the description of any such subsequently issued class or series of our preferred
stock contained in the applicable Registration Statement on Form 8-A, including any subsequently filed amendments and reports filed for purposes of updating such descriptions, all of which may
be obtained as described below under "Where You Can Find More Information" and "Incorporation by Reference."
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Our
charter authorizes our board of directors to classify and reclassify any unissued shares of our common stock or preferred stock into other classes or series of stock and to establish
the number of shares in each class or series and to set the terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption for each such class or series. Thus, the board of directors could cause the issuance of shares of preferred stock with dividend rights, rights to
distributions in the event of our liquidation, dissolution or winding up, voting rights or other rights that could adversely affect the rights of holders of our common stock or delay or prevent a
tender offer or change of control of our company that might involve a premium price for shares of our common stock or otherwise be in their best interests, any of which could adversely affect the
market price of our common stock. For additional information, see "General Description of Preferred Stock" and "Certain Provisions of Maryland Law and of our Charter and BylawsEffect of
Certain Provisions of Maryland Law and our Charter and Bylaws."
Subject
to the provisions of our charter regarding the restrictions on ownership and transfer of our common stock (see "Restrictions on Ownership and Transfers of Stock" below), each
outstanding share of our common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors (other than any directors to be elected
exclusively by holders of our outstanding preferred stock or any other class or series of our stock) and, except as provided with respect to any other class or series of stock, the holders of shares
of our common stock will possess the exclusive voting power.
Holders
of our common stock do not have cumulative voting rights in the election of directors, which means that holders of more than 50% of all the shares of our common stock voting for
the election of directors can elect all the directors standing for election (other than any directors to be elected exclusively by holders of our outstanding preferred stock or any other class or
series of our stock) at the time if they choose to do so, and the holders of the remaining shares of our common stock cannot elect any such directors. All of our directors currently serve a one year
term. Holders of shares of common stock do not have preemptive rights, which means they have no right under the charter, bylaws, or Maryland law to acquire any additional shares of common stock that
may be issued by us at a subsequent date. Holders of shares of common stock have no preference, conversion, exchange, sinking fund or redemption rights. Under Maryland law, stockholders generally are
not liable for the corporation's debts or obligations.
Under
the MGCL, a Maryland corporation generally cannot dissolve, amend its charter, merge, convert into another entity, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of business unless approved by its stockholders by the affirmative vote of two-thirds of the votes entitled to be cast on the
matter unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is set forth in the corporation's charter. Our charter provides that any such
action shall be effective if approved by the
affirmative vote of holders of shares entitled to cast a majority of all the votes entitled to be cast on the matter. Because the term "substantially all" of a company's assets is not defined in the
MGCL, it is subject to Maryland common law and to judicial interpretation and review in the context of the unique facts and circumstances of any particular transaction. Accordingly, there may be
uncertainty as to whether a sale of "substantially all" of our assets has taken place within the meaning of the MGCL provisions described above.
Restrictions on Ownership
For us to qualify as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, not more than 50% in value of our outstanding
stock may be owned, actually or constructively, by or for five or fewer individuals (defined in the Code to include certain entities) during the last half of a taxable year. To assist us in meeting
this requirement and certain other requirements relating to our tax
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status
as a REIT, among other purposes, our charter contains provisions intended to limit the actual, beneficial or constructive ownership by a single person or entity of our outstanding shares of
common stock. See "Restrictions on Ownership and Transfers of Stock" below.
Transfer Agent
The registrar and transfer agent for our common stock is Computershare Trust Company, N.A.
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GENERAL DESCRIPTION OF PREFERRED STOCK
We are authorized to issue 69,900,000 shares of preferred stock, $0.01 par value per share. As of September 30, 2018, no shares of
preferred stock were outstanding. For a description of some of the terms of any class or series of preferred stock we may issue in the future, see the articles supplementary classifying and
designating shares of such class or series of preferred stock, which will be filed or incorporated by reference as an exhibit to the registration statement of which this prospectus is a part or a
document incorporated or deemed to be incorporated by reference in this prospectus or other document we file with the SEC, and the description of such class or series of preferred stock contained in
the applicable Registration Statement on Form 8-A, including any subsequently filed amendments and reports filed for the purpose of updating such description, all of which may be obtained as
described below under "Where You Can Find More Information" and "Incorporation by Reference."
General
The following description of our preferred stock sets forth certain general terms and provisions of our preferred stock to which any prospectus
supplement or other offering materials may relate. The statements below describing our preferred stock are not complete, do not contain all of the information that may be important to you and are in
all respects subject to, and qualified in their entirety by reference to, the MGCL and the applicable provisions of our charter (including the applicable articles supplementary classifying and
designating shares of a class or series of preferred stock) and our bylaws, copies of which have been or will be filed or incorporated by reference as exhibits to the registration statement of which
this prospectus is a part or a document incorporated or deemed to be incorporated by reference herein and may be obtained as described below under "Where You Can Find More Information" and
"Incorporation by Reference." The following description should be read in conjunction with the information appearing in this prospectus under the captions "Restrictions on Ownership and Transfers of
Stock" and "Certain Provisions of Maryland Law and Our Charter and Bylaws" (as such information may be amended or supplemented from time to time by information appearing in documents that we file with
the SEC after the date of this prospectus supplement and that are incorporated by reference herein or by information appearing in the applicable prospectus supplement or other offering materials we
may provide you in connection with an offering of preferred stock), which provides important additional information about our preferred stock. You should review our charter and bylaws and the articles
supplementary classifying and designating shares of the applicable class or series of our preferred stock carefully before you invest. Unless otherwise expressly stated or the context otherwise
requires, as used under this caption "General
Description of Preferred Stock," references to "our company," "Realty Income," "our," "we" and "us," and all similar references mean Realty Income Corporation, a Maryland corporation, excluding its
subsidiaries, unless otherwise expressly stated or the context otherwise requires.
Our
charter authorizes our board of directors to classify and reclassify any unissued shares of common stock or preferred stock into, among other things, one or more classes or series of
preferred stock. Prior to the issuance of shares of each class or series, our board is required by the MGCL and our charter to determine the number of shares of such class or series and to set,
subject to the provisions of our charter regarding the restrictions on ownership and transfer of stock, the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as
to dividends or other distributions, qualifications and terms or conditions of redemption for each such class or series. Thus, the board of directors could authorize the issuance of shares of
preferred stock with dividend rights, rights to distributions in the event of our liquidation, dissolution or winding up, voting rights or other rights that could adversely affect the rights of
holders of our common stock or any other class or series of our preferred stock or which could have the effect of delaying or preventing a tender offer or a change of control of our company that might
involve a premium price for holders of our stock or
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otherwise
be in their best interests, any of which could adversely affect the market price of our common stock or any class or series of our preferred stock. For additional information, see "Certain
Provisions of Maryland Law and of our Charter and BylawsEffect of Certain Provisions of Maryland Law and our Charter and Bylaws."
You
should refer to the prospectus supplement or other offering materials relating to any class or series of our preferred stock offered thereby for specific terms of and other
information concerning such class or series of preferred stock, including:
-
(1)
-
the
title of such class or series of preferred stock;
-
(2)
-
the
number of shares of such class or series of preferred stock offered, the liquidation preference per share and the offering price of such class or series of
preferred stock;
-
(3)
-
the
dividend rate(s), period(s) and/or payment date(s), or method(s) of calculation thereof, applicable to such class or series of preferred stock;
-
(4)
-
whether
the dividends will be cumulative or not and, if cumulative, the date from which dividends on such class or series of preferred stock shall accumulate;
-
(5)
-
the
procedures for any auction and remarketing, if any, for such class or series of preferred stock;
-
(6)
-
the
provision for a sinking fund, if any, for such class or series of preferred stock;
-
(7)
-
any
voting rights of such class or series of preferred stock, which may include, among other things, the right to elect one or more directors;
-
(8)
-
the
provision for redemption, if applicable, of such class or series of preferred stock;
-
(9)
-
any
listing of such class or series of preferred stock on any securities exchange;
-
(10)
-
the
terms and conditions, if applicable, upon which such class or series of preferred stock will be convertible into common stock or other securities, including the
conversion price or rate (or manner of calculation thereof);
-
(11)
-
a
discussion of federal income tax considerations applicable to such class or series of preferred stock;
-
(12)
-
any
limitations on actual, beneficial or constructive ownership of, and restrictions on transfer of, such class or series of preferred stock, in each case as may be
appropriate to preserve our REIT status;
-
(13)
-
the
relative ranking and preferences of such class or series of preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of our
affairs;
-
(14)
-
whether
liquidation preferences on such class or series of preferred stock will be counted as liabilities of ours in determining whether distributions to
stockholders can be made under the MGCL;
-
(15)
-
any
limitations on issuance of any class or series of preferred stock ranking senior to or on a parity with such class or series of preferred stock as to dividend
rights or rights upon liquidation, dissolution or winding up of our affairs; and
-
(16)
-
any
other specific terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption of such class or series of preferred stock.
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Rank
Unless otherwise specified in the applicable prospectus supplement or other offering materials, the preferred stock of any class or series
offered by this prospectus and the applicable prospectus supplement will rank, with respect to the payment of dividends and the distribution of assets in the event of our liquidation, dissolution or
winding up:
-
-
senior to all classes or series of our common stock and to all other equity securities issued by us other than equity securities referred to in
the two immediately following bullet points;
-
-
on a parity with all equity securities issued by us the terms of which specifically provide that such equity securities rank on a parity with
the preferred stock of such class or series with respect to rights to the payment of dividends and the distribution of assets in the event of our liquidation, dissolution or winding up; and
-
-
junior to all equity securities issued by us the terms of which specifically provide that such equity securities rank senior to the preferred
stock of such class or series with respect to rights to the payment of dividends and the distribution of assets in the event of our liquidation, dissolution or winding up.
For
these purposes, the term "equity securities" does not include convertible debt securities.
Restrictions on Ownership
For us to qualify as a REIT under the Code, not more than 50% in value of our outstanding stock may be owned, actually or constructively, by or
for five or fewer individuals (defined in the Code to include certain entities) during the last half of a taxable year. To assist us in meeting this requirement and certain other requirements relating
to our tax status as a REIT, the articles supplementary establishing any class or series of preferred stock may contain provisions, which will be described in the applicable prospectus supplement or
other offering materials, intended to limit the actual, beneficial or constructive ownership by a single person or entity of our outstanding preferred stock. See "Restrictions on Ownership and
Transfers of Stock" below.
Transfer Agent
The transfer agent and registrar for any class or series of preferred stock will be set forth in the applicable prospectus supplement or other
offering materials.
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DESCRIPTION OF OTHER SECURITIES
We will set forth in the applicable prospectus supplement a description of any depositary shares or warrants that may be offered and sold
pursuant to this prospectus and such prospectus supplement. Among other things, we may issue depositary shares representing fractional interests in shares of a class or series of our preferred stock
and we may issue warrants exercisable for any of our other securities offered by this prospectus.
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RESTRICTIONS ON OWNERSHIP AND TRANSFERS OF STOCK
Internal Revenue Code Requirements
To maintain our REIT status under the Code, no more than 50% in value of our outstanding shares of stock may be owned, actually or
constructively, by or for five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year. In addition, if we, or an owner of 10% or more of our
stock, actually or constructively owns 10% or more of a tenant of ours (or a tenant of any partnership or limited liability company that is treated as a partnership for federal income tax purposes in
which we are a partner or member), the rent received by us (either directly or through one or more subsidiaries) from that tenant will not be qualifying income for purposes of the REIT gross income
tests of the Code. A REIT's stock must also be beneficially owned by 100 or more persons during at least 335 days of a taxable year of twelve months or during a proportionate part of a shorter
taxable year.
Transfer Restrictions in Charter
Because we expect to continue to qualify as a REIT, our charter contains restrictions on the ownership and transfer of our common stock which,
among other purposes, are intended to assist us in complying with applicable Code requirements. Our charter provides that, subject to certain specified exceptions, no person or entity may own, or be
deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (by value or by number of shares, whichever is more restrictive) of our outstanding shares of
common stock. We refer to this restriction as the "ownership limit." The constructive ownership rules of the Code are complex, and may cause shares of common stock owned actually or constructively by
a group of related individuals and/or entities to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of the shares of common stock (or the acquisition
of an interest in an entity that owns, actually or constructively, common stock) by an individual or entity, could nevertheless cause that individual or entity, or another individual or entity, to
constructively own more than 9.8% of our outstanding common stock and thus violate the ownership limit, or any other limit as provided in our charter or as otherwise permitted by our board of
directors. Our board of directors may, but in no event is required to, exempt from the ownership limit a particular stockholder if it determines that such ownership will not jeopardize our status as a
REIT. As a condition of such exemption, the board of directors may require a ruling from the Internal Revenue Service or an opinion of counsel satisfactory to it and/or undertakings or representations
from the applicant with respect to preserving our REIT status.
Our
charter further prohibits (1) any person from actually or constructively owning shares of our common stock that would result in our being "closely held" under
Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT, and (2) any person from transferring shares of our common stock if such transfer would result in shares of
our capital stock being beneficially owned by fewer than 100 persons (determined without reference to any rules of attribution).
Any
person who acquires or attempts to acquire actual or constructive ownership of shares of our common stock that would violate any of the foregoing restrictions on transferability and
ownership is required to give notice to us immediately and provide us with such other information as we may request in order to determine the effect of such transfer on our status as a REIT. The
foregoing restrictions on transferability and ownership will not apply if our board of directors determines that it is no longer in our best interest to attempt to qualify, or to continue to qualify,
as a REIT and such determination is approved by the holders of two-thirds of all shares entitled to vote on the matter, as required by our charter. Except as otherwise described above, any change in
the ownership limit would require an amendment to the charter.
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We
anticipate that any class or series of preferred stock that we issue in the future will be subject to similar restrictions. The restrictions on transfer applicable to any class or
series of preferred stock we issue will be described in the applicable prospectus supplement or other offering materials.
Effect of Violation of Transfer Provisions
According to our charter, if any purported transfer of common stock or any other event would result in any person violating the ownership limit
or such other limit as provided in the charter, or as otherwise permitted by our board of directors, or result in our being "closely held" under Section 856(h) of the Code, or otherwise cause
us to fail to qualify as a REIT, then the number of shares that would otherwise cause such violation or result will be transferred automatically to a trust, the beneficiary of which will be a
qualified charitable organization selected by us. Such automatic transfer shall be deemed to be effective as of the close of business on the business day prior to the date of such violative transfer.
Within
20 days of receiving notice from us of the transfer of shares to the trust, the trustee of the trust (who shall be designated by us and be unaffiliated with us and any
prohibited transferee or prohibited owner) will be required to sell such shares to a person or entity who could own the shares without violating the ownership limit, or any other limit as provided in
our charter or as otherwise permitted by our board of directors, and distribute to the prohibited transferee or prohibited owner, as applicable, an amount equal to the lesser of the price paid by the
prohibited transferee or prohibited owner for such shares or the net sales proceeds received by the trust for such shares. In the case of any event other than a transfer, or in the case of a transfer
for no consideration (such as a gift), the trustee will be required to sell such shares to a qualified person or entity and distribute to the prohibited owner an
amount equal to the lesser of the market price (determined as provided in our charter) of such shares as of the date of the event resulting in the transfer or the net sales proceeds received by the
trust for such shares. In either case, any proceeds in excess of the amount distributable to the prohibited transferee or prohibited owner, as applicable, will be distributed to the beneficiary. Prior
to a sale of any such shares by the trust, the trustee will be entitled to receive, in trust for the beneficiary, all dividends and other distributions paid by us with respect to such shares, and also
will be entitled to exercise all voting rights with respect to such shares.
Subject
to Maryland law, effective as of the date that such shares have been transferred to the trust, the trustee shall have the authority (at the trustee's sole discretion)
(1) to rescind as void any vote cast by a prohibited transferee or prohibited owner, as applicable, prior to the discovery by us that such shares have been transferred to the trust and
(2) to recast such vote in accordance with the desires of the trustee acting for the benefit of the beneficiary. However, if we have already taken irreversible corporate action, then the
trustee shall not have the authority to rescind and recast that vote. Any dividend or other distribution paid to the prohibited transferee or prohibited owner prior to the discovery by us that such
shares had been automatically transferred to a trust as described above will be required to be repaid to the trustee upon demand for distribution to the beneficiary. In the event that the transfer to
the trust as described above is not automatically effective (for any reason) to prevent violation of the ownership limit or any other limit as provided in our charter or as otherwise permitted by our
board of directors, then our charter provides that the transfer of such shares will be void.
In
addition, shares of our common stock held in the trust shall be deemed to have been offered for sale to us, or our designee, at a price per share equal to the lesser of (1) the
price per share in the transaction that resulted in such transfer to the trust (or, in the case of a devise or gift, the market price at the time of such devise or gift) and (2) the market
price on the date we, or our designee, accept such offer. We shall have the right to accept such offer until the trustee has sold the shares of common stock held in the trust. Upon such a sale to us,
the interest of the beneficiary in the shares sold shall terminate and the trustee shall distribute the net proceeds of the sale to the prohibited
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transferee
or prohibited owner, and any dividends or other distributions held by the trustee with respect to such shares will be paid to the beneficiary.
If
any purported transfer of shares of common stock would cause us to be beneficially owned by fewer than 100 persons, such transfer will be null and void in its entirety and the
intended transferee will acquire no rights to the stock.
All
certificates representing shares of our common stock will bear a legend referring to the restrictions described above. The foregoing ownership limitations could delay, defer or
prevent a transaction or a change in control of Realty Income that might involve a premium price for our common stock or otherwise be in the best interests of stockholders.
As
set forth in the Treasury Regulations promulgated under the Code, every owner of a specified percentage (or more) of the outstanding shares of our stock (including both common stock
and preferred stock) must file a completed questionnaire with us containing information regarding their ownership of such shares. Under current Treasury Regulations, the percentage will be set
between 0.5% and 5.0%, depending upon the number of record holders of our shares of stock. Under our charter, each common stockholder shall upon demand be required to disclose to us in writing such
information as we may request, in good faith, in order to determine the effect, if any, of such common stockholder's actual and constructive ownership of common stock on our status as a REIT and to
ensure compliance with the ownership limit, or any other limit as provided in our charter or as otherwise permitted by our board of directors.
The
transfer restrictions and limitations described above could delay or prevent a tender offer or change in control of our company or reduce the possibility that a third party will
attempt such a transaction, even if a tender offer or a change in control were in our stockholders' best interests or involved a premium price for our stock, which could adversely affect the market
price of our common stock or any class or series of our preferred stock.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of our charter and bylaws does not purport to be complete and is subject to, and
qualified in its entirety by reference to, our charter and bylaws, copies of which are incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and to
the MGCL. See "Where You Can Find More Information."
Election and Removal of Directors
Our charter and bylaws provide that our board of directors may establish the number of directors of our company as long as the number is not
fewer than the minimum number required under the MGCL, which is one, nor, unless our bylaws are amended, more than 15.
Pursuant
to our charter, each of our directors is elected by our stockholders to serve until the next annual meeting following his or her election and until his or her successor is duly
elected and qualifies.
Pursuant
to our bylaws, directors in uncontested elections are elected upon the affirmative vote of a majority of the total votes cast for and against such nominee at a duly called
meeting of stockholders, and directors in contested elections are elected by a plurality of all of the votes cast. In both uncontested and contested elections, holders of shares of our common stock
have no right to cumulative voting in the election of directors. Consequently, at each annual meeting of stockholders, the holders of a majority of the shares of our common stock will be able to elect
all of our directors.
Under
the MGCL and our bylaws, except as otherwise provided in the terms of any class or series of our stock, vacancies on our board of directors created by any reason other than an
increase in the number of directors may be filled by a majority of the remaining directors, even if the remaining directors do not constitute a quorum, and any vacancy in the number of directors
created by an increase in the number of directors may be filled by a majority vote of the entire board. Any individual elected to fill a vacancy will serve until the next annual meeting of
stockholders and until his or her successor is duly elected and qualifies.
Our
charter provides that, subject to the rights of holders of shares of one or more classes or series of preferred stock to elect or remove one or more directors, a director may be
removed only for cause and by the affirmative vote of stockholders entitled to cast a majority of the votes entitled to be cast generally in the election of directors.
Amendment to Charter and Bylaws
Except as provided in the MGCL, amendments to our charter must be advised by our board of directors and approved by the affirmative vote of our
stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. Our board of directors generally has the
power to amend our bylaws; provided, that, amendments to certain provisions in our bylaws related to a written statement required to be furnished to stockholders in the event of certain distributions,
our investment policy and restrictions, an annual report to stockholders and the definitions used in those sections of our bylaws must be approved by the affirmative vote of our stockholders entitled
to cast a majority of all of the votes entitled to be cast on the matter. Additionally, our bylaws may be amended by the affirmative vote of the holders of a majority of all votes entitled to be cast
on the matter pursuant to a binding proposal submitted for approval at any annual or special meeting of stockholders by any stockholder or group of up to five stockholders holding at least one percent
of the outstanding shares of our common stock for at least one year and who comply with the advance notice provisions in our bylaws. A stockholder proposal submitted under the bylaws may not alter or
repeal the amendment provisions of the bylaws or the provisions of the bylaws related to indemnification of our directors and officers, in either case, without the approval of the board of directors.
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Maryland Business Combination Act
Under the MGCL, certain "business combinations" (including certain issuances of equity securities) between a Maryland corporation and any person
who beneficially owns ten percent or more of the voting power of the corporation's outstanding voting stock, or an affiliate or associate of the corporation who beneficially owned ten percent or more
of the voting power at any time within the preceding two years, in each case referred to as an "interested stockholder," or an affiliate thereof, are prohibited for five years after the most recent
date on which the interested stockholder becomes an interested stockholder. Thereafter, any such business combination must be approved by two super-majority stockholder votes unless, among other
conditions, the corporation's common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by
the interested stockholder for its shares of common stock. The business combination provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by the board of
directors prior to the time that the interested stockholder becomes an interested stockholder. These provisions of the MGCL may delay, defer or prevent a transaction or a change of control of our
company that might involve a premium price for our common stock or any class or series of our preferred stock, or otherwise be in the best interests of our stockholders.
Maryland Control Share Acquisition Act
The MGCL provides that holders of "control shares" of a Maryland corporation acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares of stock owned by the acquirer, by officers of the corporation or by employees
who are directors of the corporation. "Control shares" are voting shares of stock which, if aggregated with all other such shares of stock previously acquired by the acquiror or in respect of which
the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power: (1) one-tenth or more but less than one-third, (2) one-third or more but less than a majority, or (3) a majority or more of all voting
power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
A
person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses), may compel the board of
directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders meeting.
If
voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to certain conditions
and limitations, the corporation may redeem for fair value any and all of the control shares (except those for which voting rights have previously been approved). Fair value is determined, without
regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or, if a meeting of stockholders is held at which the voting rights
of such shares are considered and not approved, as of the date of the meeting. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a
majority of the shares entitled to vote, all other stockholders may exercise appraisal rights, meaning that they may require us to repurchase their shares for their appraised value as determined
pursuant to the MGCL. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquiror in the control share
acquisition.
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The
control share acquisition statute does not apply to (1) shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or
(2) acquisitions exempted by the charter or bylaws of the corporation, adopted at any time before the acquisition of the shares.
As
permitted by the MGCL, our bylaws contain a provision exempting us from the control share acquisition statute. That bylaw provision states that the control share statute shall not
apply to any acquisition by any person of shares of our stock. Our board of directors may, without the consent of any of our stockholders, amend or eliminate this bylaw provision at any time, which
means that we would then become subject to the Maryland control share acquisition statute, and there can be no assurance that such provision will not be amended or eliminated by our board of directors
at any time in the future.
Subtitle 8
Subtitle 8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at
least three independent directors to elect, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to be
subject to any or all of five provisions, including:
-
-
a classified board;
-
-
a two-thirds vote requirement for removing a director;
-
-
a requirement that the number of directors be fixed only by vote of the board of directors;
-
-
a requirement that a vacancy on the board of directors be filled only by a vote of the remaining directors in office and for the remainder of
the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies; and
-
-
a majority requirement for the calling of a stockholder-requested special meeting of stockholders.
We
have not elected to be subject to any of the provisions of Subtitle 8, including the provisions that would permit us to classify our board of directors or increase the vote required
to remove a director without stockholder approval. Through provisions in our charter and bylaws unrelated to Subtitle 8, we (1) vest in our board of directors the exclusive power to fix the
number of directors and (2) require, unless called by our chairman, our chief executive officer, our president or our board of directors, the request of stockholders entitled to cast not less
than a majority of all the votes entitled to be cast at the meeting to call a special meeting of stockholders. The provisions of Subtitle 8 expressly provide that Subtitle 8 does not limit the power
of a Maryland corporation, by provision in its charter, to confer on the holders of any class or series of preferred stock the right to elect one or more directors or designate the terms and voting
powers of directors, which may vary among directors.
Special Meetings of Stockholders
Pursuant to our bylaws, our chairman, our chief executive officer, our president or our board of directors may call a special meeting of our
stockholders. Subject to the provisions of our bylaws, a special meeting of our stockholders to act on any matter that may properly be considered by our stockholders will also be called by our
secretary upon the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast at the meeting on such matter, accompanied by the information required
by our bylaws. Our secretary will inform the requesting stockholders of the reasonably estimated cost of preparing and delivering the notice of meeting (including our proxy materials), and the
requesting stockholder must pay such estimated cost before our secretary may prepare and deliver the notice of the special meeting.
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Proxy Access
Our bylaws include provisions permitting, subject to certain eligibility, procedural and disclosure requirements, qualifying stockholders, or a
qualifying group of no more than 20 stockholders, who have maintained continuous ownership of at least three percent of our outstanding shares of common stock for at least three years to require us to
include in our proxy materials for an annual meeting of stockholders a number of director nominees not to exceed the greater of two nominees or 20 percent of the number of directors up for
election.
Advance Notice of Director Nomination and New Business
Our bylaws provide that nominations of individuals for election as directors and proposals of business to be considered by stockholders at any
annual meeting may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of our board of directors or (3) by any stockholder who was a stockholder of
record as of the record date set by the board for the annual meeting, at the time of giving the notice required by our bylaws and at the time of the meeting, who is entitled to vote at the meeting in
the election of each individual so nominated or on such other proposed business and who has complied with the advance notice procedures and, if applicable, the proxy access provisions, of our bylaws.
Stockholders generally must provide notice to our secretary not earlier than the 150th day or later than 5:00 p.m., Pacific Time, on the 120th day before the first anniversary of
the date our proxy statement was released for the preceding year's annual meeting.
Only
the business specified in the notice of the meeting may be brought before a special meeting of our stockholders. Nominations of individuals for election as directors at a special
meeting of stockholders may be made only (1) by or at the direction of our board of directors, (2) by a stockholder that has requested that a special meeting be called for the purpose of
electing directors in compliance with our bylaws or (3) if the special meeting has been called in accordance with our bylaws for the purpose of electing directors, by a stockholder who is a
stockholder of record as of the record date set by the board for the special meeting, at the time of giving the notice required by our bylaws and at the time of the special meeting, who is entitled to
vote at the meeting in the election of each individual so nominated and who has complied with the advance notice procedures of our bylaws. Stockholders generally must provide notice to our secretary
not earlier than the 120th day before such special meeting or later than 5:00 p.m., Pacific Time, on the later of the 90th day before the special meeting or the tenth day after
the first public announcement of the date of the special meeting and the nominees of our board of directors to be elected at the meeting.
A
stockholder's notice must contain certain information specified by our bylaws about the stockholder, its affiliates and any proposed business or nominee for election as a director,
including information about the economic interest of the stockholder, its affiliates and any proposed nominee in us.
Effect of Certain Provisions of Maryland Law and our Charter and Bylaws
Our charter contains restrictions on ownership and transfer of our stock intended to, among other purposes, assist us in maintaining our status
as a REIT for United States federal and/or state income tax purposes. For example, our charter restricts any person or entity from acquiring actual or constructive ownership of more than 9.8% (by
value or by number of shares, whichever is more restrictive) of our outstanding shares of common stock. See "Restrictions on Ownership and Transfers of Stock." These restrictions could delay or
prevent a tender offer or change in control of our company or reduce the possibility that a third party will attempt such a transaction, even if a tender offer or a change of control were in our
stockholders' interests or involved a premium price for our common stock, which could adversely affect the market price of our common stock.
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Our
charter authorizes our board of directors to issue preferred stock of the company, including convertible preferred stock, without stockholder approval. The board of directors may
establish the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption of
any class or series of preferred stock we may issue, which may include voting rights and rights to convert such preferred stock into common stock. See "General Description of Preferred Stock." The
issuance of preferred stock could delay or prevent a tender offer or change in control of our company or reduce the possibility that a third party will attempt such a transaction, even if a tender
offer or a change of control were in our stockholders' interests or involved a premium price for our common stock or any class or series of our preferred stock, which could adversely affect the market
price of our common stock and any such class or series of preferred stock.
Our
charter and bylaws also provide that the number of directors may be established only by our board of directors, which prevents our stockholders from increasing the number of our
directors and filling any vacancies created by such increase with their own nominees. The provisions of our bylaws discussed above under the captions "Special Meetings of Stockholders"
and "Advance Notice of Director Nomination and New Business" require stockholders seeking to call a special meeting, nominate an individual for election as a director or propose other
business at an annual or special meeting to comply with certain notice and information requirements. These provisions, alone or in combination, could make it more difficult for our stockholders to
remove
incumbent directors or fill vacancies on our board of directors with their own nominees and could delay or prevent a proxy contest, tender offer or change in control of our company or reduce the
possibility that a third party will attempt such a contest or transaction, even if a proxy contest, tender offer or a change of control were in our stockholders' interests or involved a premium price
for our common stock or any class or series of our preferred stock, which could adversely affect the market price of our common stock and any such class or series of preferred stock.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain material U.S. federal income tax considerations regarding our election to be taxed as a REIT
and the acquisition, ownership and disposition of our capital stock or debt securities. Supplemental U.S. federal income tax considerations relevant to holders of the securities offered by this
prospectus (including warrants, preferred stock and depositary shares) may be provided in the prospectus supplement or a free writing prospectus that relates to those securities or a document
incorporated by reference in the prospectus supplement. For purposes of this discussion, references to "we," "our" and "us" mean only Realty Income Corporation and do not include any of its
subsidiaries, except as otherwise indicated. This discussion is for general information only and is not tax advice. The information under this caption "United States Federal Income Tax Considerations"
(a) supersedes and replaces in its entirety the information appearing in our
Form 8-K filed with the SEC on February 27, 2018
(including Exhibit 99.1 thereto) and (b) may be amended, supplemented or superseded (in whole or in part) from time to time by information in documents we subsequently file with the SEC
that are incorporated by reference in this prospectus.
The
information in this discussion is based on:
-
-
the Code;
-
-
current, temporary and proposed Treasury Regulations promulgated under the Code;
-
-
the legislative history of the Code;
-
-
administrative interpretations and practices of the IRS; and
-
-
court decisions;
in
each case, as of the date of this prospectus. In addition, the administrative interpretations and practices of the IRS include its practices and policies as expressed in private letter rulings that
are not binding on the IRS except with respect to the particular taxpayers who requested and received those rulings. The sections of the Code and the corresponding Treasury Regulations that relate to
qualification and taxation as a REIT are highly technical and complex. The following discussion sets forth certain material aspects of the sections of the Code that govern the U.S. federal income tax
treatment of a REIT, its stockholders and the holders of its debt securities. This discussion is qualified in its entirety by the applicable Code provisions, Treasury Regulations promulgated under the
Code, and administrative and judicial interpretations thereof. Potential tax reforms may result in significant changes to the rules governing U.S. federal income taxation. New legislation, Treasury
Regulations, administrative interpretations and practices and/or court decisions may significantly and adversely affect our ability to qualify as a REIT, the U.S. federal income tax consequences of
such qualification, or the U.S. federal income tax consequences of an investment in our capital stock or debt securities, including those described in this discussion. Moreover, the law relating to
the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT. Any such changes
could apply retroactively to transactions preceding the date of the change. We have not requested, and do not plan to request, any rulings from the IRS that we qualify as a REIT, and the statements in
this prospectus are not binding on the IRS or any court. Thus, we can provide no assurance that the tax considerations contained in this discussion will not be challenged by the IRS or will be
sustained by a court if challenged by the IRS. This summary does not discuss any state, local or non-U.S. tax consequences, or any tax consequences arising under any U.S. federal tax laws other than
U.S. federal income tax laws, associated with the acquisition, ownership or disposition of our capital stock or debt securities, or our election to be taxed as a REIT.
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Taxation of Our Company
General. We have elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with our taxable year
ended
December 31, 1994. We believe that we have been organized
and have operated in a manner that has allowed us to qualify for taxation as a REIT under the Code commencing with such taxable year, and we intend to continue to be organized and operate in this
manner. However, qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, including through actual operating results, asset
composition, distribution levels and diversity of stock ownership. Accordingly, no assurance can be given that we have been organized and have operated, or will continue to be organized and operate,
in a manner so as to qualify or remain qualified as a REIT. See "Failure to Qualify" for potential tax consequences if we fail to qualify as a REIT.
Latham &
Watkins LLP has acted as our tax counsel in connection with our filing of this prospectus and our election to be taxed as a REIT. Latham &
Watkins LLP has rendered an opinion to us, as of the date of this prospectus, to the effect that, commencing with our taxable year ending December 31, 1994, we have been organized and
have operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and our proposed method of operation will enable us to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that this opinion was based on various assumptions and representations as to factual matters, including representations made
by us in a factual certificate provided by one of our officers. In addition, this opinion was based upon our factual representations set forth in this prospectus. Moreover, our qualification and
taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, which are discussed below, including through actual operating results, asset composition,
distribution levels and diversity of stock ownership, the results of which have not been and will not be reviewed by Latham & Watkins LLP. Accordingly, no assurance can be given that our
actual results of operation for any particular taxable year have satisfied or will satisfy those requirements. Further, the anticipated U.S. federal income tax treatment described herein may be
changed, perhaps retroactively, by legislative, administrative or judicial action at any time. Latham & Watkins LLP has no obligation to update its opinion subsequent to the date of such
opinion.
Provided
we qualify for taxation as a REIT, we generally will not be required to pay U.S. federal corporate income taxes on our REIT taxable income that is currently distributed to our
stockholders. This treatment substantially eliminates the "double taxation" that ordinarily results from investment in a C corporation. A C corporation is a corporation that generally is required to
pay tax at the corporate level. Double taxation means taxation once at the corporate level when income is earned and once again at the stockholder level when the income is distributed. We will,
however, be required to pay U.S. federal income tax as follows:
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-
First, we will be required to pay regular U.S. federal corporate income tax on any undistributed REIT taxable income, including undistributed
capital gain.
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Second, if we have (1) net income from the sale or other disposition of "foreclosure property" held primarily for sale to customers in
the ordinary course of business or (2) other nonqualifying income from foreclosure property, we will be required to pay regular U.S. federal corporate income tax on this income. To the extent
that income from foreclosure property is otherwise
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qualifying
income for purposes of the 75% gross income test, this tax is not applicable. Subject to certain other requirements, foreclosure property generally is defined as property we acquired
through foreclosure or after a default on a loan secured by the property or a lease of the property. See "Foreclosure Property."
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Third, we will be required to pay a 100% tax on any net income from prohibited transactions. Prohibited transactions are, in general, sales or
other taxable dispositions of property, other than foreclosure property, held as inventory or primarily for sale to customers in the ordinary course of business.
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Fourth, if we fail to satisfy the 75% gross income test or the 95% gross income test, as described below, but have otherwise maintained our
qualification as a REIT because certain other requirements are met, we will be required to pay a tax equal to (1) the greater of (A) the amount by which we fail to satisfy the 75% gross
income test and (B) the amount by which we fail to satisfy the 95% gross income test, multiplied by (2) a fraction intended to reflect our profitability.
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Fifth, if we fail to satisfy any of the asset tests (other than a de minimis failure of the 5% or 10% asset tests), as described below, due to
reasonable cause and not due to willful neglect, and we nonetheless maintain our REIT qualification because of specified cure provisions, we will be required to pay a tax equal to the greater of
$50,000 or the U.S. federal corporate income tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail such test.
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Sixth, if we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT (other than a violation of the
gross income tests or certain violations of the asset tests, as described below) and the violation is due to reasonable cause and not due to willful neglect, we may retain our REIT qualification but
we will be required to pay a penalty of $50,000 for each such failure.
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Seventh, we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of
(1) 85% of our ordinary income for the year, (2) 95% of our capital gain net income for the year, and (3) any undistributed taxable income from prior periods.
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Eighth, if we acquire any asset from a corporation that is or has been a C corporation in a transaction in which our tax basis in the asset is
less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, and we subsequently recognize gain on the disposition of the asset during the
five-year period beginning on the date on which we acquired the asset, then we generally will be required to pay regular U.S. federal corporate income tax on this gain to the extent of the excess of
(1) the fair market value of the asset over (2) our adjusted tax basis in the asset, in each case determined as of the date on which we acquired the asset. The results described in this
paragraph with respect to the recognition of gain assume that the C corporation will refrain from making an election to receive different treatment under applicable Treasury Regulations on its tax
return for the year in which we acquire the asset from the C corporation. Under applicable Treasury Regulations, any gain from the sale of property we acquired in an exchange under Section 1031
(a like-kind exchange) or Section 1033 (an involuntary conversion) of the Code generally is excluded from the application of this built-in gains tax.
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Ninth, our subsidiaries that are C corporations, including our "taxable REIT subsidiaries" described below, generally will be required to pay
regular U.S. federal corporate income tax on their earnings.
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Tenth, we will be required to pay a 100% tax on any "redetermined rents," "redetermined deductions," "excess interest" or "redetermined TRS
service income," as described below under "Penalty Tax." In general, redetermined rents are rents from real property that are overstated as a result of services furnished to any of our
tenants by a taxable REIT subsidiary of ours. Redetermined deductions and excess interest generally represent amounts that are deducted by a taxable REIT subsidiary of ours for amounts paid to us that
are in excess of the amounts that would have been deducted based on arm's length negotiations. Redetermined TRS service income generally represents income of a taxable REIT subsidiary that is
understated as a result of services provided to us or on our behalf.
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Eleventh, we may elect to retain and pay income tax on our net capital gain. In that case, a stockholder would include its proportionate share
of our undistributed capital gain (to the extent we make a timely designation of such gain to the stockholder) in its income, would be deemed to have paid the tax that we paid on such gain, and would
be allowed a credit for its proportionate share of the tax deemed to have been paid, and an adjustment would be made to increase the tax basis of the stockholder in our capital stock.
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Twelfth, if we fail to comply with the requirement to send annual letters to our stockholders holding at least a certain percentage of our
stock, as determined under applicable Treasury Regulations, requesting information regarding the actual ownership of our stock, and the failure is not due to reasonable cause or is due to willful
neglect, we will be subject to a $25,000 penalty, or if the failure is intentional, a $50,000 penalty.
We
and our subsidiaries may be subject to a variety of taxes other than U.S. federal income tax, including payroll taxes and state and local income, property and other taxes on our
assets and operations.
From
time to time, we may own properties in other countries, which may impose taxes on our operations within their jurisdictions. To the extent possible, we will structure our activities
to minimize our non-U.S. tax liability. However, there can be no assurance that we will be able to eliminate our non-U.S. tax liability or reduce it to a specified level. Furthermore, as a REIT, both
we and our stockholders will derive little or no benefit from foreign tax credits arising from those non-U.S. taxes.
Requirements for Qualification as a REIT. The Code defines a REIT as a corporation, trust or association:
-
(1)
-
that
is managed by one or more trustees or directors;
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(2)
-
that
issues transferable shares or transferable certificates to evidence its beneficial ownership;
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(3)
-
that
would be taxable as a domestic corporation, but for Sections 856 through 860 of the Code;
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(4)
-
that
is not a financial institution or an insurance company within the meaning of certain provisions of the Code;
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(5)
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that
is beneficially owned by 100 or more persons;
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(6)
-
not
more than 50% in value of the outstanding stock of which is owned, actually or constructively, by five or fewer individuals, including certain specified
entities, during the last half of each taxable year; and
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(7)
-
that
meets other tests, described below, regarding the nature of its income and assets and the amount of its distributions.
The
Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a
taxable year of 12 months, or during a
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proportionate
part of a taxable year of less than 12 months. Conditions (5) and (6) do not apply until after the first taxable year for which an election is made to be taxed as a
REIT. For purposes of condition (6), the term "individual" includes a supplemental unemployment compensation benefit plan, a private foundation or a portion of a trust permanently set aside or
used exclusively for charitable purposes, but generally does not include a qualified pension plan or profit sharing trust.
We
believe that we have been organized and have operated in a manner that has allowed us, and will continue to allow us, to satisfy conditions (1) through (7) inclusive,
during the relevant time periods. In addition, our charter provides for restrictions regarding ownership and transfer of our shares that are intended to assist us in continuing to satisfy the share
ownership requirements described in conditions (5) and (6) above. A description of the share ownership and transfer restrictions relating to our capital stock is contained in the
discussion in this prospectus under the heading "Restrictions on Ownership and Transfers of Stock." These restrictions, however, do not ensure that we have previously satisfied, and may not ensure
that we will, in all cases, be able to continue to satisfy, the share ownership requirements described in conditions (5) and (6) above. If we fail to satisfy these share ownership
requirements, except as provided in the next sentence, our status as a REIT will terminate. If, however, we comply with the rules contained in applicable Treasury Regulations that require us to
ascertain the actual ownership of our shares and we do not know, or would not have known through the exercise of reasonable diligence, that we failed to meet the requirement described in
condition (6) above, we will be treated as having met this requirement. See "Failure to Qualify."
In
addition, we may not maintain our status as a REIT unless our taxable year is the calendar year. We have and will continue to have a calendar taxable year.
Ownership of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries. In the case of a REIT that
is a partner in a
partnership (for purposes of this discussion, references to "partnership" include a limited liability company treated as a partnership for U.S. federal income tax purposes, and references to "partner"
include a member in such a limited liability company), Treasury Regulations provide that the REIT will be deemed to own its proportionate share of the assets of the partnership based on its interest
in partnership capital, subject to special rules relating to the 10% asset test described below. Also, the REIT will be deemed to be entitled to its proportionate share of the income of that entity.
The assets and gross income of the partnership retain the same character in the hands of the REIT for purposes of Section 856 of the Code, including satisfying the gross income tests and the
asset tests. Thus, our pro rata share of the assets and items of income of any partnership or disregarded entity for U.S. federal income tax purposes in which we directly or indirectly own an interest
is treated as our assets and items of income for purposes of applying the requirements described in this discussion, including the gross income and asset tests described below. A brief summary of the
rules governing the U.S. federal income taxation of partnerships is set forth below in "Tax Aspects of the Subsidiary Partnerships and the Limited Liability Companies."
We
generally have control of our subsidiary partnerships and intend to operate them in a manner consistent with the requirements for our qualification as a REIT. We may from time to time
be a limited partner or non-managing member in some of our partnerships. If a partnership in which we own an interest takes or expects to take actions that could jeopardize our status as a REIT or
require us to pay tax, we may be forced to dispose of our interest in such entity. In addition, it is possible that a partnership could take an action which could cause us to fail a gross income or
asset test, and that we would not become aware of such action in time to dispose of our interest in the partnership or take other corrective action on a timely basis. In such a case, we could fail to
qualify as a REIT unless we were entitled to relief, as described below.
We
may from time to time own and operate certain properties through wholly-owned subsidiaries that we intend to be treated as "qualified REIT subsidiaries" under the Code. A corporation
will qualify as our qualified REIT subsidiary if we own 100% of the corporation's outstanding stock and do
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not
elect with the subsidiary to treat it as a "taxable REIT subsidiary," as described below. A qualified REIT subsidiary is not treated as a separate corporation, and all assets, liabilities and
items of income, gain, loss, deduction and credit of a qualified REIT subsidiary are treated as assets, liabilities and items of income, gain, loss, deduction and credit of the parent REIT for all
purposes under the Code, including all REIT qualification tests. Thus, in applying the U.S. federal income tax requirements described in this discussion, any qualified REIT subsidiaries we own are
ignored, and all assets, liabilities and items of income, gain, loss, deduction and credit of such corporations are treated as our assets, liabilities and items of income, gain, loss, deduction and
credit. A qualified REIT subsidiary is not subject to U.S. federal income tax, and our ownership of the stock of a qualified REIT subsidiary will not violate the restrictions on ownership of
securities, as described below under "Asset Tests."
Ownership of Interests in Taxable REIT Subsidiaries. We currently own an interest in a number of taxable REIT subsidiaries and
may acquire securities
in additional taxable REIT subsidiaries in the future. A taxable REIT subsidiary is a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) other than a REIT in
which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a taxable REIT subsidiary. If a taxable REIT subsidiary owns more than 35% of the
total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a taxable REIT subsidiary. Other than some activities relating to
lodging and health care facilities, a taxable REIT subsidiary may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A
taxable REIT subsidiary is subject to U.S. federal income tax as a regular C corporation. A REIT's ownership of securities of a taxable REIT subsidiary is not subject to the 5% or 10% asset test
described below. See "Asset Tests." For taxable years beginning after December 31, 2017, taxpayers are subject to a limitation on their ability to deduct net business interest
generally equal to 30% of adjusted taxable income, subject to certain exceptions. See "Annual Distribution Requirements." While not certain, this provision may limit the ability of our
taxable REIT subsidiaries to deduct interest, which could increase their taxable income.
Income Tests. We must satisfy two gross income requirements annually to maintain our qualification as a REIT. First, in each
taxable year we must
derive directly or indirectly at least 75% of our gross income (excluding gross income from prohibited transactions, certain hedging transactions and certain foreign currency gains) from investments
relating to real property or mortgages on real property, including "rents from real property," dividends from other REITs and, in certain circumstances, interest, or certain types of temporary
investments. Second, in each taxable year we must derive at least 95% of our gross income (excluding gross income from prohibited transactions, certain hedging transactions, and certain foreign
currency gains) from the real property investments described above or dividends, interest and gain from the sale or disposition of stock or securities, or from any combination of the foregoing. For
these purposes, the term "interest" generally does not include any amount received or accrued, directly or indirectly, if the determination of all or some of the amount depends in any way on the
income or profits of any person. However, an amount received or accrued generally will not be excluded from the term "interest" solely by reason of being based on a fixed percentage or percentages of
receipts or sales.
Rents
we receive from a tenant will qualify as "rents from real property" for the purpose of satisfying the gross income requirements for a REIT described above only if all of the
following conditions are met:
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The amount of rent is not based in whole or in part on the income or profits of any person. However, an amount we receive or accrue generally
will not be excluded from the term "rents from real property" solely because it is based on a fixed percentage or percentages of receipts or sales;
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-
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Neither we nor an actual or constructive owner of 10% or more of our capital stock actually or constructively owns 10% or more of the interests
in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined voting power of all classes of stock entitled to vote or 10% or more of
the total value of all classes of stock of the tenant. Rents we receive from such a tenant that is a taxable REIT subsidiary of ours, however, will not be excluded from the definition of "rents from
real property" as a result of this condition if at least 90% of the space at the property to which the rents relate is leased to third parties, and the rents paid by the taxable REIT subsidiary are
substantially comparable to rents paid by our other tenants for comparable space. Whether rents paid by a taxable REIT subsidiary are substantially comparable to rents paid by other tenants is
determined at the time the lease with the taxable REIT subsidiary is entered into, extended, and modified, if such modification increases the rents due under such lease. Notwithstanding the foregoing,
however, if a lease with a "controlled taxable REIT subsidiary" is modified and such modification results in an increase in the rents payable by such taxable REIT subsidiary, any such increase will
not qualify as "rents from real property." For purposes of this rule, a "controlled taxable REIT subsidiary" is a taxable REIT subsidiary in which the parent REIT owns stock possessing more than 50%
of the voting power or more than 50% of the total value of the outstanding stock of such taxable REIT subsidiary;
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Rent attributable to personal property, leased in connection with a lease of real property, is not greater than 15% of the total rent received
under the lease. If this condition is not met, then the portion of the rent attributable to personal property will not qualify as "rents from real property." To the extent that rent attributable to
personal property, leased in connection with a lease of real property, exceeds 15% of the total rent received under the lease, we may transfer a portion of such personal property to a taxable REIT
subsidiary; and
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-
We generally may not operate or manage the property or furnish or render services to our tenants, subject to a 1% de minimis exception and
except as provided below. We may, however, perform services that are "usually or customarily rendered" in connection with the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property. Examples of these services include the provision of light, heat, or other utilities, trash removal and general maintenance of common areas. In addition, we
may employ an independent contractor from whom we derive no revenue to provide customary services to our tenants, or a taxable REIT subsidiary (which may be wholly or partially owned by us) to provide
both customary and non-customary services to our tenants without causing the rent we receive from those tenants to fail to qualify as "rents from real property."
We
generally do not intend to take actions we believe will cause us to fail to satisfy the rental conditions described above. However, we may intentionally fail to satisfy some of these
conditions to the extent we determine, based on the advice of our tax counsel, that the failure will not jeopardize our tax status as a REIT. In addition, with respect to the limitation on the rental
of personal property, we generally have not obtained appraisals of the real property and personal property leased to tenants. Accordingly, there can be no assurance that the IRS will not disagree with
our determinations of value.
From
time to time, we may enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities may include entering into interest rate swaps,
caps, and floors, options to purchase these items, and futures and forward contracts. Income from a hedging transaction, including gain from the sale or disposition of such a transaction, that is
clearly identified as a hedging transaction as specified in the Code will not constitute gross income under, and thus will be exempt from, the 75% and 95% gross income tests. The term "hedging
transaction," as used above, generally means (A) any transaction we enter into in the normal course of our business primarily to manage risk of (1) interest rate changes or fluctuations
with respect to borrowings made or to be made by us to acquire or carry real estate assets, or (2) currency fluctuations with respect to an item of
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qualifying
income under the 75% or 95% gross income test or any property which generates such income and (B) new transactions entered into to hedge the income or loss from prior hedging
transactions, where the property or indebtedness which was the subject of the prior hedging transaction was extinguished or disposed of. To the extent that we do not properly identify such
transactions as hedges or we hedge with other types of financial instruments, the income from those transactions is not likely to be treated as qualifying income for purposes of the gross income
tests. We intend to structure any hedging transactions in a manner that does not jeopardize our status as a REIT.
From
time to time we may own properties or entities located outside the United States. These acquisitions could cause us to incur foreign currency gains or losses. Any foreign currency
gains, to the extent attributable to specified items of qualifying income or gain, or specified qualifying assets, however, generally will not constitute gross income for purposes of the 75% and 95%
gross income tests, and therefore will be excluded from these tests.
To
the extent our taxable REIT subsidiaries pay dividends or interest, our allocable share of such dividend or interest income will qualify under the 95%, but not the 75%, gross income
test (except that our allocable share of such interest would also qualify under the 75% gross income test to the extent the interest is paid on a loan that is adequately secured by real property).
We
will monitor the amount of the dividend and other income from our taxable REIT subsidiaries and will take actions intended to keep this income, and any other nonqualifying income,
within the limitations of the gross income tests. Although we expect these actions will be sufficient to prevent a violation of the gross income tests, we cannot guarantee that such actions will in
all cases prevent such a violation.
If
we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the year if we are entitled to relief under certain
provisions of the Code. We generally may make use of the relief provisions if:
-
-
following our identification of the failure to meet the 75% or 95% gross income tests for any taxable year, we file a schedule with the
IRS setting forth each item of our gross income for purposes of the 75% or 95% gross income tests for such taxable year in accordance with Treasury Regulations to be issued; and
-
-
our failure to meet these tests was due to reasonable cause and not due to willful neglect.
It
is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy the gross income
tests because nonqualifying income that we intentionally accrue or receive exceeds the limits on nonqualifying income, the IRS could conclude that our failure to satisfy the tests was not due to
reasonable cause. If these relief provisions do not apply to a particular set of circumstances, we will not qualify as a REIT. See "Failure to Qualify" below. As discussed above
inGeneral," even if these relief provisions apply, and we retain our status as a REIT, a tax would be imposed with respect to our nonqualifying income. We may not always be able to comply
with the gross income tests for REIT qualification despite periodic monitoring of our income.
Prohibited Transaction Income. Any gain that we realize on the sale of property (other than any foreclosure property) held as
inventory or otherwise
held primarily for sale to customers in the ordinary course of business, including any gain realized by our qualified REIT subsidiaries and our share of any gain realized by any of the partnerships in
which we own an interest, will be treated as income from a prohibited transaction that is subject to a 100% penalty tax, unless certain safe harbor exceptions apply. This prohibited transaction income
may also adversely affect our ability to satisfy the gross income tests for qualification as a REIT. Under existing law, whether property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. We intend to hold our properties for
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investment
with a view to long-term appreciation, to engage in the business of acquiring, developing and owning our properties and to make occasional sales of the properties as are consistent with our
investment objectives. We do not intend, and do not intend to permit any of the partnerships in which we own an interest, to enter into any sales that are prohibited transactions. However, the IRS may
successfully contend that some or all of the sales made by us or our subsidiary partnerships are prohibited transactions. We would be required to pay the 100% penalty tax on our allocable share of the
gains resulting from any such sales. The 100% penalty tax will not apply to gains from the sale of assets that are held through a taxable REIT subsidiary, but such income will be subject to regular
U.S. federal corporate income tax.
Penalty Tax. Any redetermined rents, redetermined deductions, excess interest or redetermined TRS service income we generate
will be subject to a
100% penalty tax. In general, redetermined rents are
rents from real property that are overstated as a result of any services furnished to any of our tenants by a taxable REIT subsidiary of ours, redetermined deductions and excess interest represent any
amounts that are deducted by a taxable REIT subsidiary of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on arm's length negotiations, and
redetermined TRS service income is income of a taxable REIT subsidiary that is understated as a result of services provided to us or on our behalf. Rents we receive will not constitute redetermined
rents if they qualify for certain safe harbor provisions contained in the Code.
We
do not believe we have been, and do not expect to be, subject to this penalty tax, although any rental or service arrangements we enter into from time to time may not satisfy the
safe-harbor provisions described above. These determinations are inherently factual, and the IRS has broad discretion to assert that amounts paid between related parties should be reallocated to
clearly reflect their respective incomes. If the IRS successfully made such an assertion, we would be required to pay a 100% penalty tax on any overstated rents paid to us, or any excess deductions or
understated income of our taxable REIT subsidiaries.
Asset Tests. At the close of each calendar quarter of our taxable year, we must also satisfy certain tests relating to the
nature and diversification
of our assets. First, at least 75% of the value of our total assets must be represented by real estate assets, cash, cash items and U.S. government securities. For purposes of this test, the term
"real estate assets" generally means real property (including interests in real property and interests in mortgages on real property or on both real property and, to a limited extent, personal
property), shares (or transferable certificates of beneficial interest) in other REITs, any stock or debt instrument attributable to the investment of the proceeds of a stock offering or a public
offering of debt with a term of at least five years (but only for the one-year period beginning on the date the REIT receives such proceeds), debt instruments of publicly offered REITs, and personal
property leased in connection with a lease of real property for which the rent attributable to personal property is not greater than 15% of the total rent received under the lease.
Second,
not more than 25% of the value of our total assets may be represented by securities (including securities of taxable REIT subsidiaries), other than those securities includable in
the 75% asset test.
Third,
of the investments included in the 25% asset class, and except for certain investments in other REITs, our qualified REIT subsidiaries and taxable REIT subsidiaries, the value of
any one issuer's securities may not exceed 5% of the value of our total assets , and we may not own more than 10% of the total vote or value of the outstanding securities of any one issuer. Certain
types of securities we may own are disregarded as securities solely for purposes of the 10% value test, including, but not limited to, securities satisfying the "straight debt" safe-harbor, securities
issued by a partnership that itself would satisfy the 75% income test if it were a REIT, any loan to an individual or an estate, any obligation to pay rents from real property and any security issued
by a REIT. In addition, solely for purposes of the 10% value test, the determination of our interest in the assets of a partnership in
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which
we own an interest will be based on our proportionate interest in any securities issued by the partnership, excluding for this purpose certain securities described in the Code. From time to time
we may own securities (including debt securities) of issuers that do not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT subsidiary. We intend that our ownership of any such
securities will be structured in a manner that allows us to comply with the asset tests described above.
Fourth,
not more than 20% (25% for taxable years beginning after July 30, 2008 and before January 1, 2018) of the value of our total assets may be represented by the
securities of one or more taxable REIT subsidiaries. We currently own 100% of the stock of certain corporations that have elected, together with us, to be treated as our taxable REIT subsidiaries, and
we may acquire securities in additional taxable REIT subsidiaries in the future. So long as each of these companies qualifies as a taxable REIT subsidiary of ours, we will not be subject to the 5%
asset test, the 10% voting securities limitation or the 10% value limitation with respect to our ownership of the securities of such companies. We believe that the aggregate value of our taxable REIT
subsidiaries has not exceeded, and in the future will not exceed, 20% (25% for taxable years beginning after July 30, 2008 and before January 1, 2018) of the aggregate value of our gross
assets. We generally do not obtain independent appraisals to support these conclusions. In addition, there can be no assurance that the IRS will not disagree with our determinations of value.
Fifth,
not more than 25% of the value of our total assets may be represented by debt instruments of publicly offered REITs to the extent those debt instruments would not be real estate
assets but for the inclusion of debt instruments of publicly offered REITs in the meaning of real estate assets, as described above (e.g., a debt instrument issued by a publicly offered REIT
that is not secured by a mortgage on real property).
The
asset tests must be satisfied at the close of each calendar quarter of our taxable year in which we (directly or through our qualified REIT subsidiaries or partnerships) acquire
securities in the applicable issuer, and also at the close of each calendar quarter in which we increase our ownership of securities of such issuer (including as a result of an increase in our
interest in any partnership that owns such securities). For example, our indirect ownership of securities of each issuer may increase as a result of our capital contributions to, or the redemption of
other partners' interests in, a partnership in which we have an ownership interest. Also, after initially meeting the asset tests at the close of any quarter, we will not lose our status as a REIT for
failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If we fail to satisfy an asset test because we acquire securities or other property during
a quarter (including as a result of an increase in our interest in any partnership), we may cure this failure by disposing of sufficient nonqualifying assets within 30 days after the close of
that quarter. We believe that we have maintained, and we intend to maintain, adequate records of the value of our assets to ensure compliance with the asset tests. If we fail to cure any noncompliance
with the asset tests within the 30-day cure period, we would cease to qualify as a REIT unless we are eligible for certain relief provisions discussed below.
Certain
relief provisions may be available to us if we discover a failure to satisfy the asset tests described above after the 30-day cure period. Under these provisions, we will be
deemed to have met the 5% and 10% asset tests if the value of our nonqualifying assets (i) does not exceed the lesser of (a) 1% of the total value of our assets at the end of the
applicable quarter or (b) $10,000,000, and (ii) we dispose of the nonqualifying assets or otherwise satisfy such tests within (a) six months after the last day of the quarter in
which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued. For violations of any of the asset tests due to reasonable
cause and not due to willful neglect and that are, in the case of the 5% and 10% asset tests, in excess of the de minimis exception described above, we may avoid disqualification as a REIT after the
30-day cure period by taking steps including (i) the disposition of sufficient nonqualifying assets, or the taking of other actions, which allow us to meet the asset tests within (a) six
months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time
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prescribed
by Treasury Regulations to be issued, (ii) paying a tax equal to the greater of (a) $50,000 or (b) the U.S. federal corporate income tax rate multiplied by the net
income generated by the nonqualifying assets, and (iii) disclosing certain information to the IRS.
Although
we believe we have satisfied the asset tests described above and plan to take steps to ensure that we satisfy such tests for any quarter with respect to which retesting is to
occur, there can be no assurance that we will always be successful, or will not require a reduction in our overall interest in an issuer (including in a taxable REIT subsidiary). If we fail to cure
any noncompliance with the asset tests in a timely manner, and the relief provisions described above are not available, we would cease to qualify as a REIT.
Annual Distribution Requirements. To maintain our qualification as a REIT, we are required to distribute dividends, other than
capital gain
dividends, to our stockholders in an amount at least equal to the sum of:
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90% of our REIT taxable income; and
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90% of our after-tax net income from foreclosure property, if any; minus
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the excess of the sum of certain items of non-cash income over 5% of our REIT taxable income.
For
these purposes, our REIT taxable income is computed without regard to the dividends paid deduction and our net capital gain. In addition, for purposes of this test, non-cash income
generally means income attributable to leveled stepped rents, original issue discount, cancellation of indebtedness, or a like-kind exchange that is later determined to be taxable.
In
addition, our REIT taxable income will be reduced by any taxes we are required to pay on any gain we recognize from the disposition of any asset we acquired from a corporation that is
or has been a C corporation in a transaction in which our tax basis in the asset is less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset,
within the five-year period following our acquisition of such asset, as described above under "General."
For
taxable years beginning after December 31, 2017, and except as provided below, our deduction for net business interest expense will generally be limited to 30% of our taxable
income, as adjusted for certain items of income, gain, deduction or loss. Any business interest deduction that is disallowed due to this limitation may be carried forward to future taxable years. If
we are subject to this interest expense limitation, our REIT taxable income for a taxable year may be increased. Taxpayers that conduct certain real estate businesses may elect not to have this
interest expense limitation apply to them, provided that they use an alternative depreciation system to depreciate certain property. We believe that we will be eligible to make this election. If we
make this election, although we would not be subject to the interest expense limitation described above, our depreciation deductions may be reduced and, as a result, our REIT taxable income for a
taxable year may be increased.
We
generally must pay, or be treated as paying, the distributions described above in the taxable year to which they relate. At our election, a distribution will be treated as paid in a
taxable year if it is declared before we timely file our tax return for such year and paid on or before the first regular dividend payment after such declaration, provided such payment is made during
the 12-month period following the close of such year. These distributions are treated as received by our stockholders in the year in which they are paid. This is so even though these distributions
relate to the prior year for purposes of the 90% distribution requirement. In order to be taken into account for purposes of our distribution requirement, except as provided below, the amount
distributed must not be preferentiali.e., every stockholder of the class of stock to which a distribution is made must be treated the same as every other stockholder of that class,
and no class of stock may be treated other than according to its dividend rights as a class. This preferential limitation will not apply to distributions made by us, provided we qualify as a "publicly
offered REIT." We believe that we are, and expect we will continue
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to
be, a "publicly offered REIT." To the extent that we do not distribute all of our net capital gain, or distribute at least 90%, but less than 100%, of our REIT taxable income, as adjusted, we will
be required to pay regular U.S. federal corporate income tax on the undistributed amount. We believe that we have made, and we intend to continue to make, timely distributions sufficient to satisfy
these annual distribution requirements and to minimize our corporate tax obligations.
We
expect that our REIT taxable income will be less than our cash flow because of depreciation and other non-cash charges included in computing REIT taxable income. Accordingly, we
anticipate that we generally will have sufficient cash or liquid assets to enable us to satisfy the distribution requirements described above. However, from time to time, we may not have sufficient
cash or other liquid assets to meet these distribution requirements due to timing differences between the actual receipt of income and actual payment of deductible expenses, and the inclusion of
income and deduction of expenses in determining our taxable income. In addition, we may decide to retain our cash, rather than distribute it, in order to repay debt or for other reasons. If these
timing differences occur, we may borrow funds to pay dividends or pay dividends in the form of taxable stock distributions in order to meet the distribution requirements, while preserving our cash.
Under
some circumstances, we may be able to rectify an inadvertent failure to meet the 90% distribution requirement for a year by paying "deficiency dividends" to our stockholders in a
later year, which may be included in our deduction for dividends paid for the earlier year. In that case, we may be able to avoid being taxed on amounts distributed as deficiency dividends, subject to
the 4% excise tax described below. However, we will be required to pay interest to the IRS based upon the amount of any deduction claimed for deficiency dividends. While the payment of a deficiency
dividend will apply to a prior year for purposes of our REIT distribution requirements, it will be treated as an additional distribution to our stockholders in the year such dividend is paid.
Furthermore,
we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of 85% of our ordinary income for such year, 95% of
our capital gain net income for the year and any undistributed taxable income from prior periods. Any ordinary income and net capital gain on which corporate income tax is imposed for any year is
treated as an amount distributed during that year for purposes of calculating this excise tax.
For
purposes of the 90% distribution requirement and excise tax described above, dividends declared during the last three months of the taxable year, payable to stockholders of record on
a specified date during such period and paid during January of the following year, will be treated as paid by us and received by our stockholders on December 31 of the year in which they are
declared.
Like-Kind Exchanges. We may dispose of real property that is not held primarily for sale in transactions intended to qualify as
like-kind exchanges
under the Code. Such like-kind exchanges are intended to result in the deferral of gain for U.S. federal income tax purposes. The failure of any such transaction to qualify as a like-kind exchange
could require us to pay U.S. federal income tax, possibly including the 100% prohibited transaction tax, or deficiency dividends, depending on the facts and circumstances surrounding the particular
transaction.
Tax Liabilities and Attributes Inherited in Connection with Acquisitions. From time to time, we may acquire other corporations or
entities and, in
connection with such acquisitions, we may succeed to the historical tax attributes and liabilities of such entities. For example, if we acquire a C corporation and subsequently dispose of its assets
within five years of the acquisition, we could be required to pay the built-in gain tax described above under "General." In addition, in order to qualify as a REIT, at the end of any
taxable year, we must not have any earnings and profits accumulated in a non-REIT year. As a result, if we acquire a C corporation, we must distribute the corporation's earnings and profits
accumulated prior to the acquisition before the end of the taxable year in which we acquire the corporation. We also could be required to pay the acquired entity's unpaid taxes even though such
liabilities arose prior to the time we acquired the entity.
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Moreover,
we may from time to time acquire other REITs through a merger or acquisition. If any such REIT failed to qualify as a REIT for any of its taxable years, such REIT would be
liable for (and we, as the surviving corporation in the merger or acquisition, would be obligated to pay) regular U.S. federal corporate income tax on its taxable income for such taxable years. In
addition, if such REIT was a C corporation at the time of the merger or acquisition, the tax consequences described in the preceding paragraph generally would apply. If such REIT failed to qualify as
a REIT for any of its previous taxable years, but qualified as a REIT at the time of such merger or acquisition, and we acquired such REIT's assets in a transaction in which our tax basis in the
assets of such REIT is determined, in whole or in part, by reference to such REIT's tax basis in such assets, we generally would be subject to tax on the built-in gain on each asset of such REIT as
described above if we were to dispose of the asset in a taxable transaction during the five-year period following such REIT's requalification as a REIT, subject to certain exceptions. Moreover, even
if such REIT qualified as a REIT at all relevant times, we would similarly be liable for other unpaid taxes (if any) of such REIT (such as the 100% tax on gains from any sales treated as "prohibited
transactions" as described above under "Prohibited Transaction Income").
Furthermore,
after our acquisition of another corporation or entity, the asset and income tests will apply to all of our assets, including the assets we acquire from such corporation or
entity, and to all of our income, including the income derived from the assets we acquire from such corporation or entity. As a result, the nature of the assets that we acquire from such corporation
or entity and the income we derive from those assets may have an effect on our tax status as a REIT.
Foreclosure Property. The foreclosure property rules permit us (by our election) to foreclose or repossess properties without
being disqualified as a
REIT as a result of receiving income that does not qualify under the gross income tests. However, in such a case, we would be subject to the U.S. federal corporate income tax on the net non-qualifying
income from the "foreclosure property," and the after-tax amount would increase the dividends we would be required to distribute to stockholders. See "Annual Distribution Requirements."
This corporate tax would not apply to income that qualifies under the REIT 75% income test.
Foreclosure
property treatment will end on the first day on which we enter into a lease of the applicable property that will give rise to income that does not qualify under the REIT 75%
income test, but will not end if the lease will give rise only to qualifying income under such test. Foreclosure property treatment also will end if any construction takes place on the property (other
than completion of a building or other improvement that was more than 10% complete before default became imminent). Foreclosure property treatment is generally available for an initial period of three
years and may, in certain circumstances, be extended for an additional three years.
Failure to Qualify. If we discover a violation of a provision of the Code that would result in our failure to qualify as a REIT,
certain specified
cure provisions may be available to us. Except with respect to violations of the gross income tests and asset tests (for which the cure provisions are described above), and provided the violation is
due to reasonable cause and not due to willful neglect, these cure provisions generally impose a $50,000 penalty for each violation in lieu of a loss of REIT status. If we fail to satisfy the
requirements for taxation as a REIT in any taxable year, and the relief provisions do not apply, we will be required to pay regular U.S. federal corporate income tax, including any applicable
alternative minimum tax for taxable years beginning before January 1, 2018, on our taxable income. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be
deductible by us. As a result, we anticipate that our failure to qualify as a REIT would reduce the cash available for distribution by us to our stockholders. In addition, if we fail to qualify as a
REIT, we will not be required to distribute any amounts to our stockholders and all distributions to stockholders will be taxable as regular corporate dividends to the extent of our current and
accumulated earnings and profits. In such event, corporate distributees may be eligible for the dividends-received deduction. In addition, non-corporate stockholders, including individuals, may be
eligible for the preferential tax
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rates
on qualified dividend income. 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. If we fail to qualify as a REIT, such stockholders may not claim this
deduction with respect to
dividends paid by us. Unless entitled to relief under specific statutory provisions, we would also be ineligible to elect to be treated as a REIT for the four taxable years following the year for
which we lose our qualification. It is not possible to state whether in all circumstances we would be entitled to this statutory relief.
Tax Aspects of the Subsidiary Partnerships and the Limited Liability Companies
General. From time to time, we may own, directly or indirectly, interests in various partnerships and limited liability
companies. We expect these
will be treated as partnerships or disregarded entities for U.S. federal income tax purposes. In general, entities that are treated as partnerships or disregarded entities for U.S. federal income tax
purposes are "pass-through" entities which are not required to pay U.S. federal income tax. Rather, partners of such partnerships are allocated their shares of the items of income, gain, loss,
deduction and credit of the partnership, and are potentially required to pay tax on this income, without regard to whether they receive a distribution from the partnership. We will include in our
income our share of these partnership items for purposes of the various gross income tests, the computation of our REIT taxable income, and the REIT distribution requirements. Moreover, for purposes
of the asset tests, we will include our pro rata share of assets held by these partnerships, based on our capital interests in each such entity. See "Taxation of Our
CompanyOwnership of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries." A disregarded entity is not treated as a separate entity for U.S. federal
income tax purposes, and all assets, liabilities and items of income, gain, loss, deduction and credit of a disregarded entity are treated as assets, liabilities and items of income, gain, loss,
deduction and credit of its parent that is not a disregarded entity for all purposes under the Code, including all REIT qualification tests.
Entity Classification. Our interests in the subsidiary partnerships and limited liability companies involve special tax
considerations, including the
possibility that the IRS might challenge the status of these entities as partnerships or disregarded entities for U.S. federal income tax purposes. For example, an entity that would otherwise be
treated as a partnership for U.S. federal income tax purposes may nonetheless be taxable as a corporation if it is a "publicly traded partnership" and certain other requirements are met. A partnership
would be treated as a publicly traded partnership if its interests are traded on an established securities market or are readily tradable on a secondary market or a substantial equivalent thereof,
within the meaning of applicable Treasury Regulations. We do not anticipate that any subsidiary partnership will be treated as a publicly traded partnership that is taxable as a corporation. However,
if any such entity were treated as a corporation, it would be required to pay an entity-level tax on its income. In this situation, the character of our assets and items of gross income would change
and could prevent us from satisfying the REIT asset tests and possibly the REIT income tests. See "Taxation of Our CompanyAsset Tests" and
"Income Tests." This, in turn, could prevent us from qualifying as a REIT. See "Failure to Qualify" for a discussion of the effect of our failure to meet these tests. In
addition, a change in the tax status of a subsidiary treated as a partnership or disregarded entity to a corporation might be treated as a taxable event. If so, we might incur a tax liability without
any related cash payment. We believe that each of our partnerships and limited liability companies are and will continue to be treated as partnerships or disregarded entities for U.S. federal income
tax purposes.
Allocations of Income, Gain, Loss and Deduction. A partnership agreement (or, in the case of a limited liability company treated
as a partnership for
U.S. federal income tax purposes, the limited liability company agreement) generally will determine the allocation of income and loss among partners. These allocations, however, will be disregarded
for tax purposes if they do not comply with
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the
provisions of Section 704(b) of the Code and the Treasury Regulations thereunder. Generally, Section 704(b) of the Code and the Treasury Regulations thereunder require that
partnership allocations respect the economic arrangement of the partners. If an allocation of partnership income or loss does not comply with the requirements of Section 704(b) of the Code and
the Treasury Regulations thereunder, the item subject to the allocation will be reallocated in accordance with the partners' interests in the partnership. This reallocation will be determined by
taking into account all of the facts and circumstances relating to the economic arrangement of the partners with respect to such item. We intend that the allocations of taxable income and loss in each
of the partnerships in which we own an interest from time to time comply with the requirements of Section 704(b) of the Code and the Treasury Regulations thereunder.
Tax Allocations With Respect to the Properties. Under Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated in a manner so that the contributing partner is charged with the
unrealized gain or benefits from the unrealized loss associated with the property at the time of the contribution. The amount of the unrealized gain or unrealized loss generally is equal to the
difference between the fair market value or book value and the adjusted tax basis of the contributed property at the time of contribution (this difference is referred to as a book-tax difference), as
adjusted from time to time. These allocations are solely for U.S. federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners.
Some of the partnerships in which we own an interest were formed by way of contributions of appreciated property. The relevant partnership and/or limited liability company agreements require that
allocations be made in a manner consistent with Section 704(c) of the Code. Under Section 704(c) of the Code we could be allocated less depreciation or more gain on sale with respect to
a contributed property than the amounts that would have been allocated to us if we had instead acquired the contributed property with an initial tax basis equal to its fair market value. Such
allocations might
adversely affect our ability to comply with the REIT distribution requirements. See "Taxation of Our CompanyRequirements for Qualification as a REIT" and "Annual
Distribution Requirements."
Any
property acquired by a subsidiary partnership in a taxable transaction will initially have a tax basis equal to its fair market value, and Section 704(c) of the Code generally
will not apply.
Partnership Audit Rules. The Bipartisan Budget Act of 2015 changed the rules applicable to U.S. federal income tax audits of
partnerships. Under the
new rules , among other changes and subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and any partner's distributive share
thereof) is determined, and taxes, interest, or penalties attributable thereto are assessed and collected, at the partnership level. Although it is uncertain how certain aspects of these new rules
will be implemented, it is possible that they could result in partnerships in which we directly or indirectly invest being required to pay additional taxes, interest and penalties as a result of an
audit adjustment, and we, as a direct or indirect partner of these partnerships, could be required to bear the economic burden of those taxes, interest, and penalties even though we, as a REIT, may
not otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment. The changes created by these new rules are sweeping and in many respects dependent
on the promulgation and finalization of further regulations or other guidance by the U.S. Department of the Treasury. Investors are urged to consult their tax advisors with respect to these changes
and their potential impact on their investment in our capital stock.
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Material U.S. Federal Income Tax Consequences to Holders of Our Capital Stock and Debt Securities
The following discussion is a summary of the material U.S. federal income tax consequences to you of acquiring, owning and disposing of our
capital stock or debt securities. This discussion is limited to holders who hold our capital stock or debt securities as "capital assets" within the meaning of Section 1221 of the Code
(generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a holder's particular circumstances. In addition, except where
specifically noted, it does not address consequences relevant to holders subject to special rules, including, without limitation:
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U.S. expatriates and former citizens or long-term residents of the United States;
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persons subject to the alternative minimum tax;
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U.S. holders (as defined below) whose functional currency is not the U.S. dollar;
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persons holding our capital stock or debt securities as part of a hedge, straddle or other risk reduction strategy or as part of a conversion
transaction or other integrated investment;
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banks, insurance companies, and other financial institutions;
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REITs or regulated investment companies;
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brokers, dealers or traders in securities;
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"controlled foreign corporations," "passive foreign investment companies," and corporations that accumulate earnings to avoid U.S. federal
income tax;
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S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors
therein);
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tax-exempt organizations or governmental organizations;
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persons subject to special tax accounting rules as a result of any item of gross income with respect to our capital stock or debt securities
being taken into account in an applicable financial statement;
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persons deemed to sell our capital stock or debt securities under the constructive sale provisions of the Code; and
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persons who hold or receive our capital stock pursuant to the exercise of any employee stock option or otherwise as compensation.
THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION
OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR CAPITAL STOCK OR DEBT SECURITIES ARISING UNDER
OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
For
purposes of this discussion, a "U.S. holder" is a beneficial owner of our capital stock or debt securities that, for U.S. federal income tax purposes, is or is treated
as:
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an individual who is a citizen or resident of the United States;
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a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia;
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an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
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a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more "United States persons" (within
the meaning of Section 7701(a)(30) of the Code) or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.
For
purposes of this discussion, a "non-U.S. holder" is any beneficial owner of our capital stock or debt securities that is neither a U.S. holder nor an entity treated as a partnership
for U.S. federal income tax purposes.
If
an entity treated as a partnership for U.S. federal income tax purposes holds our capital stock or debt securities, the tax treatment of a partner in the partnership will depend on
the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our capital stock or debt securities and the
partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
Taxation of Taxable U.S. Holders of Our Capital Stock
Distributions Generally. Distributions out of our current or accumulated earnings and profits will be treated as dividends and,
other than with
respect to capital gain dividends and certain amounts which have previously been subject to corporate level tax, as discussed below, will be taxable to our taxable U.S. holders as ordinary income when
actually or constructively received. See "Tax Rates" below. As long as we qualify as a REIT, these distributions will not be eligible for the dividends-received deduction in the case of
U.S. holders that are corporations or, except to the extent described in "Tax Rates" below, the preferential rates on qualified dividend income applicable to non-corporate U.S. holders,
including individuals. For purposes of determining whether distributions to holders of our capital stock are out of our current or accumulated earnings and profits, our earnings and profits will be
allocated first to our outstanding preferred stock, if any, and then to our outstanding common stock.
To
the extent that we make distributions on our capital stock in excess of our current and accumulated earnings and profits allocable to such stock, these distributions will be treated
first as a tax-free return of capital to a U.S. holder to the extent of the U.S. holder's adjusted tax basis in such shares of stock. This treatment will reduce the U.S. holder's adjusted tax basis in
such shares of stock by the amount of the excess of the distribution over our current and accumulated earnings and profits allocable to such stock, but not below zero. Distributions in excess of our
current and accumulated earnings and profits and in excess of a U.S. holder's adjusted tax basis in its shares will be taxable as capital gain. Such gain will be taxable as long-term capital gain if
the shares have been held for more than one year. Dividends we declare in October, November, or December of any year and which are payable to a holder of record on a specified date in any of these
months will be treated as both paid by us and received by the holder on December 31 of that year, provided we actually pay the dividend on or before January 31 of the following year.
U.S. holders may not include in their own income tax returns any of our net operating losses or capital losses.
Capital Gain Dividends. Dividends that we properly designate as capital gain dividends will be taxable to our taxable U.S.
holders as a gain from the
sale or disposition of a capital asset held for more than one year, to the extent that such gain does not exceed our actual net capital gain for the taxable year and may not exceed our dividends paid
for the taxable year, including dividends paid the following year that are treated as paid in the current year. U.S. holders that are corporations may, however, be required to treat up to 20% of
certain capital gain dividends as ordinary income. If we properly designate any portion of a dividend as a capital gain dividend, then, except as otherwise required by law, we presently intend to
allocate a portion of the total capital gain dividends paid or made available to holders of all classes of our capital stock for the year to the holders of each class of
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our
capital stock in proportion to the amount that our total dividends, as determined for U.S. federal income tax purposes, paid or made available to the holders of each such class of our capital
stock for the year bears to the total dividends, as determined for U.S. federal income tax purposes, paid or made available to holders of all classes of our capital stock for the year. In addition,
except as otherwise required by law, we will make a similar allocation with respect to any undistributed long-term capital gains which are to be included in our stockholders' long-term capital gains,
based on the allocation of the capital gain amount which would have resulted if those undistributed long-term capital gains had been distributed as "capital gain dividends" by us to our stockholders.
Retention of Net Capital Gains. We may elect to retain, rather than distribute as a capital gain dividend, all or a portion of
our net capital gains.
If we make this election, we would pay tax on our retained net capital gains. In addition, to the extent we so elect, our earnings and profits (determined for U.S. federal income tax purposes) would
be adjusted accordingly, and a U.S. holder generally would:
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include its pro rata share of our undistributed capital gain in computing its long-term capital gains in its return for its taxable year in
which the last day of our taxable year falls, subject to certain limitations as to the amount that is includable;
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be deemed to have paid its share of the capital gains tax imposed on us on the designated amounts included in the U.S. holder's income as
long-term capital gain;
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receive a credit or refund for the amount of tax deemed paid by it;
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increase the adjusted tax basis of its capital stock by the difference between the amount of includable gains and the tax deemed to have been
paid by it; and
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in the case of a U.S. holder that is a corporation, appropriately adjust its earnings and profits for the retained capital gains in accordance
with Treasury Regulations to be promulgated by the IRS.
Passive Activity Losses and Investment Interest Limitations. Distributions we make and gain arising from the sale or exchange by
a U.S. holder of our
capital stock will not be treated as passive activity income. As a result, U.S. holders generally will not be able to apply any "passive losses" against this income or gain. A U.S. holder generally
may elect to treat capital gain dividends, capital gains from the disposition of our capital stock and income designated as qualified dividend income, as described in "Tax Rates" below,
as investment income for purposes of computing the investment interest limitation, but in such case, the holder will be taxed at ordinary income rates on such amount. Other distributions made by us,
to the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation.
Dispositions of Our Capital Stock. Except as described below under "Taxation of Taxable U.S. Holders of Our Capital
StockRedemption or Repurchase by Us," if a U.S. holder sells or disposes of shares of our capital stock, it will recognize gain or loss for U.S. federal income tax purposes in an amount
equal to the difference between the amount of cash and the fair market value of any property received on the sale or other disposition and the holder's adjusted tax basis in the shares. This gain or
loss, except as provided below, will be long-term capital gain or loss if the holder has held such capital stock for more than one year. However, if a U.S. holder recognizes a loss upon the sale or
other disposition of capital stock that it has held for six months or less, after applying certain holding period rules, the loss recognized will be treated as a long-term capital loss to the extent
the U.S. holder received distributions from us which were required to be treated as long-term capital gains.
Redemption or Repurchase by Us. A redemption or repurchase of shares of our capital stock will be treated under Section 302
of the Code as a
distribution (and taxable as a dividend to the extent of our current and accumulated earnings and profits as described above under "Distributions
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Generally")
unless the redemption or repurchase satisfies one of the tests set forth in Section 302(b) of the Code and is therefore treated as a sale or exchange of the redeemed or repurchased
shares. The redemption or repurchase generally will be treated as a sale or exchange if it:
-
-
is "substantially disproportionate" with respect to the U.S. holder,
-
-
results in a "complete redemption" of the U.S. holder's stock interest in us, or
-
-
is "not essentially equivalent to a dividend" with respect to the U.S. holder,
all
within the meaning of Section 302(b) of the Code.
In
determining whether any of these tests has been met, shares of our capital stock, including common stock and other equity interests in us, considered to be owned by the U.S. holder by
reason of certain constructive ownership rules set forth in the Code, as well as shares of our capital stock actually owned by the U.S. holder, generally must be taken into account. Because the
determination as to whether any of the alternative tests of Section 302(b) of the Code will be satisfied with respect to the U.S. holder depends upon the facts and circumstances at the time
that the determination must be made, U.S. holders are advised to consult their tax advisors to determine such tax treatment.
If
a redemption or repurchase of shares of our capital stock is treated as a distribution, the amount of the distribution will be measured by the amount of cash and the fair market value
of any property received. See "Distributions Generally." A U.S. holder's adjusted tax basis in the redeemed or repurchased shares generally will be transferred to the holder's remaining
shares of our capital stock, if any. If a U.S. holder owns no other shares of our capital stock, under certain circumstances, such basis may be transferred to a related person or it may be lost
entirely. Proposed Treasury Regulations issued in 2009, if enacted in their current form, would affect the basis recovery
rules described above. It is not clear whether these proposed regulations will be enacted in their current form or at all. Prospective investors should consult their tax advisors regarding the U.S.
federal income tax consequences of a redemption or repurchase of our capital stock.
If
a redemption or repurchase of shares of our capital stock is not treated as a distribution, it will be treated as a taxable sale or exchange in the manner described under
"Dispositions of Our Capital Stock."
Tax Rates. The maximum tax rate for non-corporate taxpayers for (1) long-term capital gains, including certain "capital
gain dividends,"
generally is 20% (although depending on the characteristics of the assets which produced these gains and on designations which we may make, certain capital gain dividends may be taxed at a 25% rate)
and (2) "qualified dividend income" generally is 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 period requirements have been met and the REIT's dividends are attributable to dividends received from taxable corporations (such as its taxable REIT subsidiaries) or to income that
was subject to tax at the corporate/REIT level (for example, if the REIT distributed taxable income that it retained and paid tax on in the prior taxable year). Capital gain dividends will only be
eligible for the rates described above to the extent that they are properly designated by the REIT as "capital gain dividends." U.S. holders that are corporations may be required to treat up to 20% of
some capital gain dividends as ordinary income. In addition, non-corporate U.S. holders, 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.
Taxation of Tax-Exempt Holders of Our Capital Stock
Dividend income from us and gain arising upon a sale of shares of our capital stock generally should not be unrelated business taxable income,
or UBTI, to a tax-exempt holder, except as described
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below.
This income or gain will be UBTI, however, to the extent a tax-exempt holder holds its shares as "debt-financed property" within the meaning of the Code. Generally, "debt-financed property" is
property the acquisition or holding of which was financed through a borrowing by the tax-exempt holder.
For
tax-exempt holders that are social clubs, voluntary employee benefit associations or supplemental unemployment benefit trusts exempt from U.S. federal income taxation under
Sections 501(c)(7), (c)(9) or (c)(17) of the Code, respectively, income from an investment in our shares will constitute UBTI unless the organization is able to properly claim a deduction for
amounts set aside or placed in reserve for specific purposes so as to offset the income generated by its investment in our shares. These prospective investors should consult their tax advisors
concerning these "set aside" and reserve requirements.
Notwithstanding
the above, however, a portion of the dividends paid by a "pension-held REIT" may be treated as UBTI as to certain trusts that hold more than 10%, by value, of the
interests in the REIT. A REIT will not be a "pension-held REIT" if it is able to satisfy the "not closely held" requirement without relying on the "look-through" exception with respect to certain
trusts or if such REIT is not "predominantly held" by "qualified trusts." As a result of restrictions on ownership and transfer of our stock contained in our charter, we do not expect to be classified
as a "pension-held REIT," and as a result, the tax treatment described above should be inapplicable to our holders. However, because our common stock is (and, we anticipate, will continue to be)
publicly traded, we cannot guarantee that this will always be the case.
Taxation of Non-U.S. Holders of Our Capital Stock
The following discussion addresses the rules governing U.S. federal income taxation of the acquisition, ownership and disposition of our capital
stock by non-U.S. holders. These rules are complex, and no attempt is made herein to provide more than a brief summary of such rules. Accordingly, the discussion does not address all aspects of U.S.
federal income taxation and does not address other federal, state, local or non-U.S. tax consequences that may be relevant to a non-U.S. holder in light of its particular circumstances. We urge
non-U.S. holders to consult their tax advisors to determine the impact of U.S. federal, state, local and non-U.S. income and other tax laws and any applicable tax treaty on the acquisition, ownership
and disposition of shares of our capital stock, including any reporting requirements.
Distributions Generally. Distributions (including any taxable stock distributions) that are neither attributable to gains from
sales or exchanges by
us of United States real property interests, or USRPIs, nor designated by us as capital gain dividends (except as described below) will be treated as dividends of ordinary income to the extent that
they are made out of our current or accumulated earnings and profits. Such distributions ordinarily will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless the distributions
are treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder
maintains a permanent establishment in the United States to which such dividends are attributable). Under certain treaties, however, lower withholding rates generally applicable to dividends do not
apply to dividends from a REIT. Certain certification and disclosure requirements must be satisfied for a non-U.S. holder to be exempt from withholding under the effectively connected income
exemption. Dividends that are treated as effectively connected with a U.S. trade or business generally will not be subject to withholding but will be subject to U.S. federal income tax on a net basis
at the regular graduated rates, in the same manner as dividends paid to U.S. holders are subject to U.S. federal income tax. Any such dividends received by a non-U.S. holder that is a corporation may
also be subject to an additional branch profits tax at a 30% rate (applicable after deducting U.S. federal income taxes
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paid
on such effectively connected income) or such lower rate as may be specified by an applicable income tax treaty.
Except
as otherwise provided below, we expect to withhold U.S. federal income tax at the rate of 30% on any distributions made to a non-U.S. holder unless:
-
(1)
-
a
lower treaty rate applies and the non-U.S. holder furnishes an IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) evidencing eligibility for
that reduced treaty rate; or
-
(2)
-
the
non-U.S. holder furnishes an IRS Form W-8ECI (or other applicable documentation) claiming that the distribution is income effectively connected with the
non-U.S. holder's trade or business.
Distributions
in excess of our current and accumulated earnings and profits will not be taxable to a non-U.S. holder to the extent that such distributions do not exceed the adjusted tax
basis of the holder's capital stock, but rather will reduce the adjusted tax basis of such stock. To the extent that such distributions exceed the non-U.S. holder's adjusted tax basis in such capital
stock, they generally will give rise to gain from the sale or exchange of such stock, the tax treatment of which is described below. However, such excess distributions may be treated as dividend
income for certain non-U.S. holders. For withholding purposes, we expect to treat all distributions as made out of our current or accumulated earnings and profits. However, amounts withheld may be
refundable if it is subsequently
determined that the distribution was, in fact, in excess of our current and accumulated earnings and profits, provided that certain conditions are met.
Capital Gain Dividends and Distributions Attributable to a Sale or Exchange of United States Real Property Interests. Distributions to a non-U.S.
holder that we properly designate as capital gain dividends, other than those arising from the disposition of a USRPI, generally should not be subject to U.S. federal income taxation,
unless:
-
(1)
-
the
investment in our capital stock is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and,
if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable), in which case the non-U.S.
holder will be subject to the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also be subject to a branch profits tax of up to 30%, as
discussed above; or
-
(2)
-
the
non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other
conditions are met, in which case the non-U.S. holder will be subject to U.S. federal income tax at a rate of 30% on the non-U.S. holder's capital gains (or such lower rate specified by an applicable
income tax treaty), which may be offset by U.S. source capital losses of such non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S.
holder has timely filed U.S. federal income tax returns with respect to such losses.
Pursuant
to the Foreign Investment in Real Property Tax Act, which is referred to as "FIRPTA," distributions to a non-U.S. holder that are attributable to gain from sales or exchanges by
us of USRPIs, whether or not designated as capital gain dividends, will cause the non-U.S. holder to be treated as recognizing such gain as income effectively connected with a U.S. trade or business.
Non-U.S. holders generally would be taxed at the regular graduated rates applicable to U.S. holders, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case
of nonresident alien individuals. We also will be required to withhold and to remit to the IRS 21% of any distribution to non-U.S. holders attributable to gain from sales or exchanges by us of USRPIs.
Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a
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non-U.S.
holder that is a corporation. The amount withheld is creditable against the non-U.S. holder's U.S. federal income tax liability. However, any distribution with respect to any class of stock
that is "regularly traded," as defined by applicable Treasury Regulations, on an established securities market located in the United States is not subject to FIRPTA, and therefore, not subject to the
21% U.S. withholding tax described above, if the non-U.S. holder did not own more than 10% of such class of stock at any time during the one-year period ending on the date of the distribution.
Instead, such distributions generally will be treated as ordinary dividend distributions and subject to withholding in the manner described above with respect to ordinary dividends. In addition,
distributions to certain non-U.S. publicly traded shareholders that meet certain record-keeping and other requirements ("qualified shareholders") are exempt from FIRPTA, except to the extent owners of
such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore, distributions to "qualified foreign pension
funds" or entities all of the interests of which are held by "qualified foreign pension funds" are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of
these rules.
Retention of Net Capital Gains. Although the law is not clear on the matter, it appears that amounts we designate as retained
net capital gains in
respect of our capital stock should be treated with respect to non-U.S. holders as actual distributions of capital gain dividends. Under this approach, the non-U.S. holders may be able to offset as a
credit against their U.S. federal income tax liability their proportionate share of the tax paid by us on such retained net capital gains and to receive from the IRS a refund to the extent their
proportionate share of such tax paid by us exceeds their actual U.S. federal income tax liability. If we were to designate any portion of our net capital gain as retained net capital gain, non-U.S.
holders should consult their tax advisors regarding the taxation of such retained net capital gain.
Sale of Our Capital Stock. Except as described below under "Redemption or Repurchase by Us," gain realized by a non-U.S.
holder upon the
sale, exchange or other taxable disposition of our capital stock generally will not be subject to U.S. federal income tax unless such stock constitutes a USRPI. In general, stock of a domestic
corporation that constitutes a "United States real property holding corporation," or USRPHC, will constitute a USRPI. We believe that we are a USRPHC. Our capital stock will not, however, constitute a
USRPI so long as we are a "domestically controlled qualified investment entity." A "domestically controlled qualified investment entity" includes a REIT in which at all times during a five-year
testing period less than 50% in value of its stock is held directly or indirectly by non-United States persons, subject to certain rules. For purposes of determining whether a REIT is a "domestically
controlled qualified investment entity," a person who at all applicable times holds less than 5% of a class of stock that is "regularly traded" is treated as a United States person unless the REIT has
actual knowledge that such person is not a United States person. We believe, but cannot guarantee, that we are a "domestically controlled qualified investment entity." Because our common stock is
(and, we anticipate, will continue to be) publicly traded, no assurance can be given that we will continue to be a "domestically controlled qualified investment entity."
Even
if we do not qualify as a "domestically controlled qualified investment entity" at the time a non-U.S. holder sells our capital stock, gain realized from the sale or other taxable
disposition by a non-U.S. holder of such capital stock would not be subject to U.S. federal income tax under FIRPTA as a sale of a USRPI if:
-
(1)
-
such
class of stock is "regularly traded," as defined by applicable Treasury Regulations, on an established securities market such as the New York Stock Exchange;
and
-
(2)
-
such
non-U.S. holder owned, actually and constructively, 10% or less of such class of stock throughout the shorter of the five-year period ending on the date of the
sale or other taxable disposition or the non-U.S. holder's holding period.
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In
addition, dispositions of our capital stock by qualified shareholders are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified
shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore, dispositions of our capital stock by "qualified foreign pension funds" or entities all of the interests
of which are held by "qualified foreign pension funds" are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.
Notwithstanding
the foregoing, gain from the sale, exchange or other taxable disposition of our capital stock not otherwise subject to FIRPTA will be taxable to a non-U.S. holder if
either (a) the investment in our capital stock is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by
an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable), in which case the non-U.S. holder will be subject to
the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also be subject to the 30% branch profits tax (or such lower rate as may be
specified by an applicable income tax treaty) on such gain, as adjusted for certain items, or (b) the non-U.S. holder is a nonresident alien individual who is present in the United States for
183 days or more during the taxable year and certain other conditions are met, in which case the non-U.S. holder will be subject to a 30% tax on the non-U.S. holder's capital gains (or such
lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the
United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. In addition, even if we are a domestically controlled qualified investment
entity, upon disposition of our capital stock, a non-U.S. holder may be treated as having
gain from the sale or other taxable disposition of a USRPI if the non-U.S. holder (1) disposes of such stock within a 30-day period preceding the ex-dividend date of a distribution, any portion
of which, but for the disposition, would have been treated as gain from the sale or exchange of a USRPI and (2) acquires, or enters into a contract or option to acquire, or is deemed to
acquire, other shares of that stock during the 61-day period beginning with the first day of the 30-day period described in clause (1), unless such stock is "regularly traded" and the non-U.S.
holder did not own more than 10% of the stock at any time during the one-year period ending on the date of the distribution described in clause (1).
If
gain on the sale, exchange or other taxable disposition of our capital stock were subject to taxation under FIRPTA, the non-U.S. holder would be required to file a U.S. federal
income tax return and would be subject to regular U.S. federal income tax with respect to such gain in the same manner as a taxable U.S. holder (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals). In addition, if the sale, exchange or other taxable disposition of our capital stock were subject to taxation under
FIRPTA, and if shares of the applicable class of our capital stock were not "regularly traded" on an established securities market, the purchaser of such capital stock generally would be required to
withhold and remit to the IRS 15% of the purchase price.
Redemption or Repurchase by Us. A redemption or repurchase of shares of our capital stock will be treated under Section 302
of the Code as a
distribution (and taxable as a dividend to the extent of our current and accumulated earnings and profits) unless the redemption or repurchase satisfies one of the tests set forth in
Section 302(b) of the Code and is therefore treated as a sale or exchange of the redeemed or repurchased shares. See "Taxation of Taxable U.S. Holders of Our Capital
StockRedemption or Repurchase by Us." Qualified shareholders and their owners may be subject to different rules, and should consult their tax advisors regarding the application of such
rules. If the redemption or repurchase of shares is treated as a distribution, the amount of the distribution will be measured by the amount of cash and the fair market value of any property received.
See "Taxation of Non-U.S. Holders of Our Capital StockDistributions Generally" above. If the redemption or
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repurchase
of shares is not treated as a distribution, it will be treated as a taxable sale or exchange in the manner described above under "Sale of Our Capital Stock."
Taxation of Holders of Our Debt Securities
The following summary describes the material U.S. federal income tax consequences of acquiring, owning and disposing of our debt securities.
This discussion assumes the debt securities will be issued with less than a statutory de minimis amount of original issue discount for U.S. federal
income tax purposes. In addition, this discussion is limited to persons purchasing the debt securities for cash at original issue and at their original "issue price" within the meaning of
Section 1273 of the Code (i.e., the first price at which a substantial amount of the debt securities is sold to the public for cash).
Payments of Interest. Interest on a debt security generally will be taxable to a U.S. holder as ordinary income at the time such
interest is received
or accrued, in accordance with such U.S. holder's method of accounting for U.S. federal income tax purposes.
Sale or Other Taxable Disposition. A U.S. holder will recognize gain or loss on the sale, exchange, redemption, retirement or other
taxable
disposition of a debt security. The amount of such gain or loss generally will be equal to the difference between the amount received for the debt security in cash or other property valued at fair
market value (less amounts attributable to any accrued but unpaid interest, which will be taxable as interest to the extent not previously included in income) and the U.S. holder's adjusted tax basis
in the debt security. A U.S. holder's adjusted tax basis in a debt security generally will be equal to the amount the U.S. holder paid for the debt security. Any gain or loss generally will be capital
gain or loss, and will be long-term capital gain or loss if the U.S. holder has held the debt security for more than one year at the time of such sale or other taxable disposition. Otherwise, such
gain or loss will be short-term capital gain or loss. Long-term capital gains recognized by certain non-corporate U.S. holders, including individuals, generally will be taxable at reduced rates. The
deductibility of capital losses is subject to limitations.
Payments of Interest. Interest paid on a debt security to a non-U.S. holder that is not effectively connected with the non-U.S.
holder's conduct of a
trade or business within the United States generally will not be subject to U.S. federal income tax or withholding, provided that:
-
-
the non-U.S. holder does not, actually or constructively, own 10% or more of the total combined voting power of all classes of our voting
stock;
-
-
the non-U.S. holder is not a controlled foreign corporation related to us through actual or constructive stock ownership; and
-
-
either (1) the non-U.S. holder certifies in a statement provided to the applicable withholding agent under penalties of perjury that it
is not a United States person and provides its name and address; (2) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary
course of its trade or business and holds the debt security on behalf of the non-U.S. holder certifies to the applicable withholding agent under penalties of perjury that it, or the financial
institution between it and the non-U.S. holder, has received from the non-U.S. holder a statement under penalties of perjury that such holder is not a United States person and provides the applicable
withholding agent with a copy of such statement; or (3) the non-U.S. holder holds its debt security directly through a "qualified intermediary" (within the meaning of the applicable Treasury
Regulations) and certain conditions are satisfied.
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If
a non-U.S. holder does not satisfy the requirements above, such non-U.S. holder will be subject to withholding tax of 30%, subject to a reduction in or an exemption from withholding
on such interest as a result of an applicable tax treaty. To claim such entitlement, the non-U.S. holder must provide the applicable withholding agent with a properly executed IRS Form W-8BEN
or W-8BEN-E (or other applicable documentation) claiming a reduction in or exemption from withholding tax under the benefit of an income tax treaty between the United States and the country in which
the non-U.S. holder resides or is established.
If
interest paid to a non-U.S. holder is effectively connected with the non-U.S. holder's conduct of a trade or business within the United States (and, if required by an applicable
income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such interest is attributable), the non-U.S. holder will be exempt from the U.S. federal
withholding tax described above. To claim the exemption, the non-U.S. holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that interest paid on a debt
security is not subject to withholding tax because it is effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States.
Any
such effectively connected interest generally will be subject to U.S. federal income tax at the regular graduated rates. A non-U.S. holder that is a corporation may also be subject
to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected interest, as adjusted for certain items.
The
certifications described above must be provided to the applicable withholding agent prior to the payment of interest and must be updated periodically. Non-U.S. holders that do not
timely provide the applicable withholding agent with the required certification, but that qualify for a reduced rate under an applicable income tax treaty, may obtain a refund of any excess amounts
withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax
treaty.
Sale or Other Taxable Disposition. A non-U.S. holder will not be subject to U.S. federal income tax on any gain realized upon the sale,
exchange,
redemption, retirement or other taxable disposition of a debt security (such amount excludes any amount allocable to accrued and unpaid interest, which generally will be treated as interest and may be
subject to the rules discussed above in "Taxation of Holders of Our Debt SecuritiesNon-U.S. HoldersPayments of Interest")
unless:
-
-
the gain is effectively connected with the non-U.S. holder's conduct of a trade or business within the United States (and, if required by an
applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable); or
-
-
the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the
disposition and certain other requirements are met.
Gain
described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A non-U.S. holder that is a
corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain
items.
Gain
described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may
be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S.
federal income tax returns with respect to such losses.
Non-U.S.
holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.
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Information Reporting and Backup Withholding
U.S. Holders. A U.S. holder may be subject to information reporting and backup withholding when such holder receives payments on
our capital stock or
debt securities or proceeds from the sale or other taxable disposition of such stock or debt securities (including a redemption or retirement of a debt security). Certain U.S. holders are exempt from
backup withholding, including corporations and certain tax-exempt organizations. A U.S. holder will be subject to backup withholding if such holder is not otherwise exempt
and:
-
-
the holder fails to furnish the holder's taxpayer identification number, which for an individual is ordinarily his or her social security
number;
-
-
the holder furnishes an incorrect taxpayer identification number;
-
-
the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest or dividends;
or
-
-
the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and that the IRS
has not notified the holder that the holder is subject to backup withholding.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. holder's U.S. federal income
tax liability, provided the required information is timely furnished to the IRS. U.S. holders should consult their tax advisors regarding their qualification for an exemption from backup withholding
and the procedures for obtaining such an exemption.
Non-U.S. Holders. Payments of dividends on our capital stock or interest on our debt securities generally will not be subject to
backup withholding,
provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies
its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS
in connection with any dividends on our capital stock or interest on our debt securities paid to the non-U.S. holder, regardless of whether any tax was actually withheld. In addition, proceeds of the
sale or other taxable disposition of such stock or debt securities (including a retirement or redemption of a debt security) within the United States or conducted through certain U.S.-related brokers
generally will not be subject to backup withholding or information reporting, if the applicable withholding agent receives the certification described above and does not have actual knowledge or
reason to know that such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a disposition of such stock or debt securities conducted through a non-U.S.
office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies
of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in
which the non-U.S. holder resides or is established.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder's U.S. federal
income tax liability, provided the required information is timely furnished to the IRS.
Medicare Contribution Tax on Unearned Income
Certain U.S. holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends on
stock, interest on debt obligations, and capital gains from the sale or other disposition of stock or debt obligations, subject to certain limitations. U.S. holders should
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consult
their tax advisors regarding the effect, if any, of these rules on their ownership and disposition of our capital stock or debt securities.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such sections commonly referred to as the Foreign Account Tax
Compliance Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on
our capital stock, interest on our debt securities, or gross proceeds from the sale or other disposition of our capital stock or debt securities, in each case paid to a "foreign financial institution"
or a "non-financial foreign entity" (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the
non-financial foreign entity either certifies it does not have any "substantial United States owners" (as defined in the Code) or furnishes identifying information regarding each substantial United
States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and
is subject to the diligence and reporting requirements in clause (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it
undertake to identify accounts held by certain "specified United States persons" or "United States owned foreign entities" (each as defined in the Code), annually report certain information about such
accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an
intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under
the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our capital stock or interest on our debt
securities, and will apply to payments of gross proceeds from the sale or other disposition of such stock or debt securities on or after January 1, 2019. Because we may not know the extent to
which a distribution is a dividend for U.S. federal income tax purposes at the time it is made, for purposes of these withholding rules we may treat the entire distribution as a dividend.
Prospective
investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our capital stock or debt securities.
Other Tax Consequences
State, local and non-U.S. income tax laws may differ substantially from the corresponding U.S. federal income tax laws, and this discussion does
not purport to describe any aspect of the tax laws of any state, local or non-U.S. jurisdiction, or any U.S. federal tax other than the income tax. You should consult your tax advisor regarding the
effect of state, local and non-U.S. tax
laws with respect to our tax treatment as a REIT and on an investment in our capital stock or debt securities.
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PLAN OF DISTRIBUTION
We may sell the securities being offered by this prospectus and the applicable prospectus supplement from time to
time:
-
-
through underwriters or dealers;
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-
through agents;
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-
directly to one or more purchasers; or
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-
through a combination of any of these methods of sale.
We
will identify the specific plan of distribution, including any underwriters, dealers, agents or direct purchasers and their compensation in the applicable prospectus supplement.
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LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by Venable LLP, Baltimore, Maryland, and Latham &
Watkins LLP, Costa Mesa, California. Latham & Watkins LLP, Los Angeles, California, has issued an opinion to us regarding certain tax matters described under "United States
Federal Income Tax Considerations." Sidley Austin LLP, San Francisco, California will act as counsel for any underwriters or agents. As of November 2, 2018, William J. Cernius, a partner
of Latham & Watkins LLP, beneficially owned approximately 9,236 shares of our common stock. As of October 29, 2018, Eric S. Haueter, a partner of Sidley Austin LLP,
beneficially owned approximately 9,386 shares of our common stock.
EXPERTS
The consolidated balance sheets of Realty Income Corporation and subsidiaries as of December 31, 2017 and 2016, the related consolidated
statements of income, equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes and
financial statement schedule III (collectively, the consolidated financial statements), and management's assessment of the effectiveness of internal control over financial reporting as of
December 31, 2017, have been incorporated by reference in this prospectus in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information reporting requirements of the Exchange Act, and in accordance with these requirements, we file annual,
quarterly and current reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information are available to the public at the SEC's website at http://www.sec.gov. This is an internet site maintained by the SEC where reports, proxy and information statements and other information of companies
that file electronically with the SEC may be obtained.
Our
web site address is http://www.realtyincome.com. The information on, or that can be accessed through, our website is not a part of
this prospectus and is not incorporated or deemed to be incorporated by reference herein.
This
prospectus and any applicable prospectus supplement are part of a registration statement that we filed with the SEC and do not contain all of the information in the registration
statement. The full registration statement may be obtained from the SEC or us, as provided below. Forms or copies of the indenture pursuant to which any debt securities offered hereby will be issued
and other documents establishing the terms of the offered securities are or may be filed as exhibits to the registration statement or documents that are or will be incorporated or deemed to be
incorporated by reference in this prospectus. Statements in this prospectus or any prospectus supplement about these documents are not complete and each such statement is subject to, and qualified in
all respects by reference to, the document to which it refers. You should refer to the actual documents for a more complete description of the relevant matters. You may inspect copies of the
registration statement and the documents incorporated and deemed to be incorporated by reference in this prospectus at the SEC's website referred to above.
INCORPORATION BY REFERENCE
We "incorporate by reference" certain information we file with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is an important part of this prospectus, and any information contained in this prospectus, in any accompanying prospectus
supplement or in any document incorporated or deemed to be incorporated by reference in this prospectus will be deemed to have been modified or superseded to the extent that a statement contained in
this prospectus, or, if applicable, the accompanying prospectus supplement, in any other offering materials we may provide you in connection with the offering of securities, or in any other document
we subsequently file with the SEC that also is incorporated or deemed to be incorporated by reference in this prospectus, modifies or supersedes the original statement. Any statement so modified or
superseded will not be deemed, except as so modified or superseded, to be a part of this prospectus or any accompanying prospectus supplement. We incorporate by reference the documents listed below
and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this prospectus and the termination of the offering of securities
described in this prospectus; provided, however, that we are not incorporating by reference any documents, portions of documents, exhibits or other information that is deemed to have been "furnished"
to and not "filed" with the SEC:
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-
-
Our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2018, filed with the SEC on August 2, 2018;
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-
Our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2018, filed with the SEC on November 1, 2018; and
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Our Current Reports on
Form 8-K filed with the SEC on February 27, 2018 (as stated elsewhere in this prospectus, the information in such Form 10-K and in Exhibit 99.1 thereto has
been superseded and replaced in its entirety by the information appearing in this prospectus under the caption "United States Federal Income Tax considerations"),
March 14, 2018,
March 29, 2018,
April 4, 2018,
May 8, 2018 (but only the information filed under
Item 5.02 that is included in the first Report on Form 8-K that we filed on
May 8, 2018), May 22, 2018,
July 12, 2018,
October 17, 2018 (but only the information filed under Item 5.02)
and October 26, 2018.
You
may request a copy of the filings referred to above at no cost by writing or telephoning us at the following address:
Realty
Income Corporation
11995 El Camino Real
San Diego, CA 92130
Attention: Corporate Secretary
(858) 284-5000
Exhibits
to the filings will not be sent, however, unless those exhibits have specifically been incorporated by reference in this prospectus or any accompanying prospectus supplement.
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$
3.250% Notes due 2031
P R O S P E C T U S S U P P L E M E N T
, 2020
Goldman Sachs & Co. LLC
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