2015 ANNUAL REPORT
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LOGO
FOR POSITION
ONLY
G E N E R A T I N G S H A R E H O L D E R V A L U E
STRONG
PERFORMANCE
2015 TOTAL SHAREHOLDER RETURN
5.7%
REALTY INCOME
NASDAQ COMPOSITE
2.8%
EQUITY REIT INDEX
1.4%
S&P 500
0.2%
DOW JONES INDUSTRIAL AVERAGE
TABLE OF CONTENTS
HISTORICAL FINANCIAL PERFORMANCE 2
LETTER TO SHAREHOLDERS 4
HIGH-QUALITY PORTFOLIO 12
DISCIPLINED INVESTMENT PROCESS 16
CONSERVATIVE CAPITAL STRUCTURE 18
MONTHLY DIVIDENDS 19
2015 ANNUAL REPORT: FORM 10-K 20
COMPANY INFORMATION 89
COMPANY INFORMATION
EXECUTIVE OFFICERS
ADDITIONAL OFFICERS
Benjamin N. Fox
Senior Vice President,
Asset and Portfolio
Management
Robert J. Israel
Senior Vice President,
Research
Dawn Nguyen
Senior Vice President,
Portfolio Management
Joel Tomlinson
Senior Vice President,
Acquisitions
Cary J. Wenthur
Senior Vice President,
Acquisitions
Janeen S. Bedard
Vice President,
Administration
Stephen D. Burchett
Vice President,
Senior Legal Counsel
Theresa M. Casey
Vice President,
IT Enterprise Software
Elizabeth Cate
Vice President,
Portfolio Management
T.J. Chun
Vice President,
Investments
Ross Edwards
Vice President,
Corporate Leasing
Kristin K. Ferrell
Vice President,
Head of Lease Administration
Shannon C. Jensen
Vice President,
Associate General Counsel
and Assistant Secretary
Shannon Kehle
Vice President,
Human Resources
Scott A. Kohnen
Vice President,
Research
Sean P. Nugent
Vice President,
Controller
Jenette S. O’Brien
Vice President,
Asset Management
Jonathan Pong
Vice President,
Head of Capital Markets
and Investor Relations
Lori Satterfield
Vice President,
Senior Legal Counsel
Clint Schmucker
Vice President,
Information Technology
Ashley N. Wells
Vice President,
Research
Kyle B. Campbell
Associate Vice President,
Senior Legal Counsel,
Risk Management
Nicole A. Carr
Associate Vice President,
Director of Financial Reporting
Jill M. Cossaboom
Associate Vice President,
Assistant Controller
Teresa M. Glenn
Associate Vice President,
Human Resources and
Operations
Gregory M. Libby
Associate Vice President,
Property Management
13.0%
Top row left to right: Neil Abraham, John Case, Michael Pfeiffer | Bottom row left to right:
Sumit Roy, Paul Meurer
Neil Abraham
Executive Vice President,
Chief Investment Officer
John P. Case
Chief Executive Officer
Sumit Roy
President and Chief Operating
Officer
Paul M. Meurer
Executive Vice President,
Chief Financial Officer
and Treasurer
Michael R. Pfeiffer
Executive Vice President,
General Counsel and
Secretary
DIRECTORS
Top row left to right: Gregory McLaughlin, Kathleen Allen, Ronald Merriman, Priya Cherian Huskins,
Larry Chapman | Bottom row left to right: Michael McKee, John Case, Stephen Sterrett
Michael D. McKee
Chairman of the Board
of Directors
Chief Executive Officer,
Bentall Kennedy
John P. Case
Chief Executive Officer
Kathleen R. Allen, Ph.D.
Director, Center for Technology
Commercialization,
Marshall School of Business
University of Southern
California
A. Larry Chapman
Retired, Executive
Vice President,
Head of Commercial Real
Estate, Wells Fargo Bank
Priya Cherian Huskins
Partner, Woodruff-Sawyer & Co.
Gregory T. McLaughlin
President, PGA TOUR-
Champions Tour
Ronald L. Merriman
Retired Vice Chair, KPMG LLP
Stephen E. Sterrett
Retired, Senior Executive
Vice President,
Chief Financial Officer,
Simon Property Group, Inc.
Transfer Agent
Wells Fargo Shareowner Services
P.O. Box 64873
St. Paul, MN 55164
For shareholder administration and account
information please visit Wells Fargo’s website
at www.shareowneronline.com, call toll-free
at 1-877-218-2434, or email your questions
to stocktransfer@wellsfargo.com
Independent Registered
Public Accounting Firm
KPMG LLP
San Diego, CA
For Additional Corporate Information
Visit the Realty Income corporate
website at www.realtyincome.com
Contact your financial advisor, or contact Realty Income at:
Telephone: 858-284-5000, Email: ir@realtyincome.com
Copies of Realty Income’s Annual Report on
Form 10-K are available upon written request to:
REALTY INCOME CORPORATION
Attention: Investor Relations
11995 El Camino Real
San Diego, CA 92130
R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T 8 9
2015 PERFORMANCE RESULTS
6.6% AFFO PER SHARE GROWTH
5 DIVIDEND INCREASES
$1.26 BILLION OF ACQUISITIONS
98.4% PORTFOLIO OCCUPANCY
R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T 1
HISTORICAL FINANCIAL PERFORMANCE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Years Ended December 31,
Total revenue(1)
Net income available to common stockholders
Funds from operations (“FFO”)(2)
Adjusted funds from operations (“AFFO”)(2)
Dividends paid to common stockholders
PORTFOLIO (AT YEAR END)
2015
979,950
256,686
652,437
647,028
533,238
$
$
$
$
$
2014
895,157
227,558
562,889
561,661
479,256
$
$
$
$
$
Real estate at cost, before accumulated depreciation(3)
$ 12,296,782
$ 11,153,571
Number of properties
Gross leasable square feet
Portfolio occupancy rate
Remaining weighted average lease term in years
Number of commercial tenants(4)
Number of industries
Number of states
ACQUISITIONS/DISPOSITIONS (AT YEAR END)
Properties acquired(5)
Cost of properties acquired(5)
Properties sold
Net proceeds from sales of properties
PER COMMON SHARE DATA
Net income (diluted)
Funds from operations (“FFO”)(2)
Adjusted funds from operations (“AFFO”)(2)
Dividends paid
Annualized dividend amount(6)
Common shares outstanding
INVESTMENT RESULTS
Closing price per common share on December 31
Dividend yield(7)
Total return to shareholders(8)
4,538
76,051,700
98.4%
4,327
70,734,700
98.4%
10.0
240
47
49
286
10.2
234
47
49
506
1,259,230
$
1,401,959
38
65,817
1.09
2.77
2.74
2.271
2.292
250,416,757
51.63
4.4%
13.0%
$
$
$
$
$
$
$
46
107,234
1.04
2.58
2.57
2.192
2.201
224,881,192
47.71
5.9%
33.7%
$
$
$
$
$
$
$
$
(1) Total revenue includes amounts reclassified to income from discontinued operations, but excludes gain on sales, tenant reimbursements, and revenue from Crest Net Lease, a subsidiary of Realty Income.
(2) Refer to Management’s Discussion and Analysis for FFO and AFFO definition and reconciliation to net income available to common stockholders. For 2012 and 2013, FFO has been adjusted to add
back American Realty Capital Trust merger-related costs.
(3) Does not include properties held for sale.
(4) Commercial tenants are defined as retailers with over 50 locations and non-retailers with over $500 million in annual revenues.
(5) Includes new properties acquired and properties under development or expansion.
2 R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T
2013
759,798
203,634
462,030
463,139
409,222
$
$
$
$
$
2012
483,557
114,538
268,761
274,183
236,348
$
$
$
$
$
2011
421,644
132,779
249,392
253,372
219,297
$
$
$
$
$
2010
346,437
106,531
193,926
197,256
182,500
$
$
$
$
$
$
9,899,475
$
5,920,685
$
4,971,981
$
4,112,862
3,896
62,644,900
98.2%
10.8
205
47
49
958
4,670,169
75
134,150
1.06
2.41
2.41
2.147
2.186
207,485,073
37.33
5.3%
-1.8%
$
$
$
$
$
$
$
$
3,013
37,677,500
97.2%
11.0
150
44
49
423
1,164,924
44
50,586
0.86
2.02
2.06
1.772
1.821
133,452,411
40.21
5.1%
20.1%
$
$
$
$
$
$
$
$
2,634
27,369,000
96.7%
11.3
136
38
49
164
1,016,100
26
24,126
1.05
1.98
2.01
1.737
1.746
133,223,338
34.96
5.1%
7.3%
$
$
$
$
$
$
$
$
2,496
21,215,800
96.6%
11.4
122
32
49
186
713,534
28
27,181
1.01
1.83
1.86
1.722
1.731
118,058,988
34.20
6.6%
38.6%
$
$
$
$
$
$
$
$
(6) Annualized dividend amount reflects the December declared dividend rate per share multiplied by twelve.
(7) Dividend yield was calculated by dividing the dividend paid per share, during the year, by the closing share price on December 31 of the preceding year.
(8) Total return was calculated by dividing the net change in the share price during the year, plus the dividends paid per share during the year, by the closing share price on December 31 of the
preceding year.
Information on the financial performance for all years since the company's public listing in 1994 is available on our website at www.realtyincome.com.
R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T 3
DEAR FELLOW SHAREHOLDERS,
2015 represented a year of success and growth for our company, adding yet another
year to our long history of positive operating performance. I would like to thank our
dedicated team members who have worked diligently to continue generating value
for our shareholders. This “value” is created by consistently growing revenue, earnings,
and of course, increasing the monthly dividend.
We pride ourselves on the consistency of our performance
In April 2015, our company was added to the S&P 500 index,
and are pleased to have received market recognition for
a milestone that places us among the premier, large-cap,
this in 2015 when our company was added to the exclusive
publicly-traded companies. We are honored by this recognition
S&P High Yield Dividend Aristocrats® index. This index
and to be one of just 26 REITs and the only net lease REIT
includes companies in the S&P Composite 1500® that have
included in the index.
consistently increased their dividend every year for at least
20 years. For perspective, the index currently consists of 108
constituents and Realty Income is one of only six REITs to be
included in the index.
Inclusion in these indices is meaningful for many reasons,
most significant of which is the increased investor awareness it
brings to our company. We have added many new shareholders
and are pleased to have them join as fellow owners of The
Monthly Dividend Company®.
TOTAL REVENUE (1)
FOR THE YEARS (DOLLARS IN MILLIONS)
AFFO PER COMMON SHARE
FOR THE YEARS
2015
2014
2013
2012
2011
2010
$980.0
$895.2
$759.8
2015
2014
2013
2012
2011
2010
$483.6
$421.6
$346.4
(1) Total revenue includes amounts reclassified to income from discontinued operations, but
excludes gain on sales, tenant reimbursements, and revenue from Crest Net Lease,
a subsidiary of Realty Income.
4 R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T
$2.74
$2.57
$2.41
$2.06
$2.01
$1.86
MISSION
The consistency of the company’s performance is a reflection of
the steadfast commitment we have to our mission. Even though
market opportunities and conditions change from year to year,
we remain dedicated to our mission which is to manage our
real estate portfolio in a manner that supports providing our
shareholders with monthly dividends that increase over time.
This is the same mission that has guided us throughout our
47-year operating history and one that consistently positions
us for favorable results.
Achieving our mission involves effectively executing our
business plan. That plan is to:
Pay 12 monthly dividends
Raise the dividend
Remain disciplined in our acquisitions underwriting
approach
Acquire additional properties according to our selective
investment strategy
Maintain high occupancy through active portfolio and
asset management
Maintain a conservative balance sheet
We are pleased to report that during 2015 we successfully
executed on all aspects of this plan. Total revenue grew
by 9.5% to $980 million which drove earnings per share
growth of 6.6% to $2.74, as measured by Adjusted Funds
from Operations (AFFO). We paid 12 monthly dividends
and increased the dividend five times in 2015, and again
in February 2016, achieving a 5% increase in the dividend
compared to the same time a year earlier. We accomplished
these results by completing our third-largest amount of
property acquisitions in the company’s history, maintaining
consistently high portfolio occupancy, and successfully
accessing the public capital markets on favorable terms to
position our balance sheet well for future growth.
SHAREHOLDER RETURN
Our main focus is to provide monthly dividends to our
shareholders that help drive total shareholder return. In 2015,
our shareholders who owned our common stock for the full
calendar year realized a total return of 13%, which captures
the 8% increase in our stock price and the dividends we paid
during the year. Our company’s results compare favorably on
a relative basis to the returns of the broader market indices.
When compared to the more than 150 publicly-traded equity
Continue to grow investor interest in The Monthly Dividend
REITs in the United States, our total shareholder return placed
Company®
us in the top 20th percentile.
ANNUALIZED DIVIDENDS (1) AND DIVIDEND INCREASES
83 Dividend increases since 1994 NYSE listing
73 Consecutive quarterly increases
Compound average annual growth rate of 4.5%
Dividends paid for 47 years = over $3.8 billion
0
9
0
$
.
3
9
0
$
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5
4
9
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$
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6
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2
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4
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1
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2
2
$
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2
9
2
2
$
.
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
(1) Annualized dividend amount reflects the December declared dividend rate per share multiplied by 12.
R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T 5
We always like to remind our shareholders that our company’s
quality real estate locations that should generate favorable risk-
total return results do not always move in parallel with its
adjusted returns for our shareholders.
operating performance in any given year. Other factors beyond
our operating performance can impact the price of our shares
including, but not limited to, macroeconomic events, interest
rate trends, and conditions in the broader stock market.
The $1.26 billion in property acquisitions were purchased at an
average initial yield of 6.6%, which resulted in very attractive
investment spreads relative to our first-year weighted average
cost of capital. From a relative perspective, our average initial
Over the long term, however, our positive and consistent
yield in 2015 was lower than in previous years but we continued
operating performance has led to advances in our stock price
to maintain investment spreads well above our historical average
and dividends, resulting in a compound average annual total
given our cost of capital advantage. I will address our capital
shareholder return of 17% since our public
listing in 1994, as shown in the table on
the next page. We are proud of this result
and our goal is to continue advancing the
company in a manner to support sustainable
value creation for our shareholders.
ACQUISITIONS
Our real estate acquisitions continue to
During 2015, we
completed $1.26 billion
in property acquisitions
which notably exceeded
our estimate of $700
million to $1 billion at
this time last year.
markets activity a bit later.
Beyond increasing earnings, our acquisitions
strengthened the company by further
diversifying the portfolio and improving
our tenant credit quality. Diversification
continues to be central to our investment
strategy as it enhances the stability of
our lease revenue by limiting the amount
be the primary driver of our earnings growth. During 2015, we
of revenue we derive from any single tenant, industry or state.
completed $1.26 billion in property acquisitions which notably
The 286 properties acquired in 2015 are leased to 45 different
exceeded our estimate of $700 million to $1 billion at this time
tenants operating in 21 industries and located in 40 states. We
last year. This better-than-anticipated activity was a result of the
also welcomed 15 new tenants to our portfolio. Retail properties
attractive opportunities we found in the market that met our
continue to be our principal property type and comprised
investment parameters. In 2015, we generated and reviewed
87% of the acquisitions as a percentage of the rental revenue.
$31.7 billion in real estate acquisition opportunities, which
Approximately 46% of the rental revenue from our acquisitions
is the second-highest annual volume of sourced investment
was from tenants with investment-grade credit ratings. High-quality
opportunities in the company’s history. While the flow of
tenants contribute to the reliability of the cash flow generated from
opportunities remained active throughout the year, we continued
our properties. As we continue to grow the company’s portfolio, we
to be selective in what we pursued,
targeting those opportunities with
remain dedicated to our investment focus and discipline.
6 R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T
REALTY INCOME PERFORMANCE VS. MAJOR STOCK INDICES
REALTY
INCOME
EQUITY REIT
INDEX (1)
DOW JO NES
INDUSTRIAL
AVERAGE
S&P 500
NASDAQ
COMPOS ITE
DIVIDEND
YIELD
TOTAL
RETUR N (2 )
DIVIDEND
YIELD
TOTAL
RETURN ( 3)
DI VI DEND
YI EL D
TOTA L
RET URN ( 3)
DI VI DEND
YI EL D
TOTA L
RET URN ( 3)
DI VI DEND
YI EL D
TOTAL
RETURN (4)
10/18–12/31
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
10.5%
8.3%
7.9%
7.5%
8.2%
10.8%
42.0%
15.4%
14.5%
5.5%
10.5%
(8.7%)
8.9%
7.8%
6.7%
6.0%
5.2%
6.5%
5.5%
6.1%
7.3%
6.6%
5.1%
5.0%
4.5%
5.8%
4.6%
4.4%
31.2%
27.2%
26.9%
21.0%
32.7%
(9.2%)
34.8%
3.2%
(8.2%)
19.3%
38.6%
7.3%
20.1%
(1.8%)
33.7%
13.0%
17.0%
COMPOUND AVERAGE
ANNUAL TOTAL RETURN(5)
7.7%
7.4%
6.1%
5.5%
7.5%
8.7%
7.5%
7.1%
7.1%
5.5%
4.7%
4.6%
3.7%
4.9%
7.6%
3.7%
3.5%
3.8%
3.5%
3.9%
3.6%
3.9%
0.0%
15.3%
35.3%
20.3%
(17.5%)
(4.6%)
26.4%
13.9%
3.8%
37.1%
31.6%
12.2%
35.1%
(15.7%)
(37.7%)
28.0%
27.9%
8.3%
19.7%
2.9%
28.0%
2.8%
11.0%
2.9%
2.4%
2.2%
1.8%
1.7%
1.3%
1.5%
1.9%
2.6%
2.3%
2.2%
2.6%
2.5%
2.7%
3.6%
2.6%
2.6%
2.8%
3.0%
2.3%
2.3%
2.6%
(1.6%)
36.9%
28.9%
24.9%
18.1%
27.2%
(4.7%)
(5.5%)
(15.0%)
28.3%
5.6%
1.7%
19.0%
8.8%
(31.8%)
22.6%
14.0%
8.3%
10.2%
29.6%
10.0%
0.2%
9.8%
2.9%
2.3%
2.0%
1.6%
1.3%
1.1%
1.2%
1.4%
1.9%
1.8%
1.8%
1.9%
1.9%
2.1%
3.2%
2.0%
1.9%
2.3%
2.5%
2.0%
2.0%
2.2%
(1.2%)
37.6%
23.0%
33.4%
28.6%
21.0%
(9.1%)
(11.9%)
(22.1%)
28.7%
10.9%
4.9%
15.8%
5.5%
(37.0%)
26.5%
15.1%
2.1%
16.0%
32.4%
13.7%
1.4%
9.3%
0.5%
0.6%
0.2%
0.5%
0.3%
0.2%
0.3%
0.3%
0.5%
0.6%
0.6%
0.9%
0.8%
0.8%
1.3%
1.0%
1.2%
1.3%
2.6%
1.4%
1.3%
1.4%
(1.7%)
39.9%
22.7%
21.6%
39.6%
85.6%
(39.3%)
(21.1%)
(31.5%)
50.0%
8.6%
1.4%
9.5%
9.8%
(40.5%)
43.9%
16.9%
(1.8%)
15.9%
38.3%
13.4%
5.7%
9.3%
Note: All of these dividend yields are calculated as annualized dividends based on the last dividend paid in the applicable time period divided by the
closing price as of period end. Dividend yield sources: NAREIT website and Bloomberg, except for the 1994 NASDAQ dividend yield, which was sourced from
Datastream / Thomson Financial.
(1) FTSE NAREIT US Equity REIT Index, as per NAREIT website.
(2) Calculated as the difference between the closing stock price as of period end less the closing stock price as of previous period, plus dividends paid in
period, divided by closing stock price as of end of previous period. Does not include reinvestment of dividends for the annual percentages.
(3) Includes reinvestment of dividends. Source: NAREIT website and Factset.
(4) Price only index, does not include dividends. Source: Factset.
(5) All of these Compound Average Annual Total Return rates are calculated in the same manner: from Realty Income's NYSE listing on October 18, 1994
through December 31, 2015, and (except for NASDAQ) assuming reinvestment of dividends. Past performance does not guarantee future performance.
Realty Income presents this data for informational purposes only and makes no representation about its future performance or how it will compare in
performance to other indices in the future.
R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T 7
PORTFOLIO AND ASSET MANAGEMENT
We experienced a very active and successful year in 2015 with
our property portfolio management activities. Our portfolio of
4,538 properties performed well with high occupancy, positive
re-leasing results, and the strategic sale of non-core assets.
We ended 2015 with occupancy of 98.4% which continues to
remain at a high level. We maintained our high occupancy while
experiencing our most active year ever for lease expirations. We
re-leased 253 properties with leases expiring throughout the
year, surpassing our prior record of 203 properties in 2014.
We re-leased these properties to either existing or new tenants,
achieving rental rates that were 101% of the expiring rent. We
are gratified to not only retain but grow the cash flow generated
from our properties that came full cycle. Our 2015 results
are a testament to our effective underwriting approach that
has enabled us to selectively acquire properties that produce
favorable long-term, risk-adjusted returns.
activities collectively helped to maximize the cash flow from
our existing portfolio and thus the value generated for our
shareholders.
CAPITAL MARKETS ACTIVITY
We continue to enjoy access to attractively priced capital to
fund our business activities. In 2015, we took advantage of the
strength in our stock price and the favorable demand for our
shares to raise $1.2 billion in common equity capital, which
accounted for over 80% of the overall capital we raised during
the year. This further strengthened our balance sheet as we
entered 2016. At the beginning of this year, our balance sheet
was the healthiest it has been in more than 10 years. Common
equity represented 71% of our total market capitalization and
our fixed charge coverage ratio was 4.0x. While these levels
will fluctuate from year to year, we remain committed to our
conservative capital structure and intend to fund our balance
sheet with approximately two-thirds equity and one-third long-
term, fixed-rate debt. We believe this is a proven and prudent
We also enhance the value of our real estate portfolio through
way to manage our business, balancing the appeal of attractive
our asset management efforts. We continue to selectively sell
investment spreads while limiting financing risk.
properties in our portfolio that no longer meet our investment
criteria. In 2015, we sold 38 properties for $65.8 million and
realized attractive returns on these investments. Additionally,
we looked for opportunities in the existing portfolio to further
increase the returns on our assets. For example, we completed
building expansion and development opportunities and
partnered with our tenants on environmental initiatives to
generate incremental revenue from our properties. These
During 2015, we also recast and expanded our credit facility to
further enhance our liquidity and reduce borrowing costs. We
now maintain a $2.0 billion credit facility which offers additional
financial flexibility as we continue to grow our company.
RESOURCES
I continue to be impressed by the depth and breadth of
talent at our company. This past year we announced several
PORTFOLIO OCCUPANCY AT THE END OF EACH YEAR (1)
%
4
9
9
.
%
3
9
9
.
%
1
9
9
.
%
2
9
9
.
%
5
9
9
.
%
4
8
9
.
%
7
7
9
.
%
2
8
9
.
%
7
7
9
.
%
1
8
9
.
%
9
7
9
.
%
5
8
9
.
%
7
8
9
.
%
9
7
9
.
%
0
7
9
.
%
8
6
9
.
%
6
6
9
.
%
7
6
9
.
%
2
7
9
.
%
2
8
9
.
%
4
8
9
.
%
4
8
9
.
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
(1) Calculated by number of properties.
8 R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T
internal promotions, including the naming of Sumit Roy as
An extension of our mission as The Monthly Dividend
President. These promotions advanced high-performing and
Company® is to take an active role in the betterment of our
deserving team members into broader leadership roles, which
community. As part of our Corporate Responsibility Program,
have enabled them to have a greater impact on our company.
this past year we devoted 600 employee volunteer hours to
We also made some structural changes to the organization
charitable organizations, which included partnering with San
to remain prepared for continued growth and to ensure the
Diego Habitat for Humanity. Our team members helped paint,
company is organized to efficiently manage a larger business
landscape, and install roofing for several local homes. We also
and more active portfolio. Our team has embraced these
made a corporate donation to the organization and families
changes with agility and dedication,
which has made for a seamless
transition as we continue to operate
our business.
We have made similar structural
changes periodically throughout our
47-year operating history as the
company has evolved. Our goal is
always to maximize our operational
efficiency by ensuring that we have
As part of our Corporate
Responsibility Program, this
past year we devoted 600
employee volunteer hours
to charitable organizations,
which included partnering
with San Diego Habitat
for Humanity.
occupying the homes. We have had a
significant presence in San Diego County
since our founding in 1969 and we
believe it is important for us to continue
to impact our local community positively
as a responsible corporate citizen.
EARNINGS AND DIVIDENDS
Our activities collectively contributed
to our healthy 2015 earnings growth.
We continued to grow our AFFO, or the
the right people, processes, and systems in place. In 2015, our
cash earnings available to pay the dividend, while remaining
general and administrative expense as a percentage of revenue
committed to our conservative balance sheet structure. In
was 5%, the lowest in our history and the lowest amongst our
2015, we grew our AFFO per share by 6.6% to $2.74, which
peers in the net lease sector. We continue to capitalize on the
exceeds our 21-year average annual percentage growth.
scalability of our business platform, delivering the highest
This growth allowed us to increase the dividend five times
percentage of our revenue to our earnings of any publicly-
throughout the year, and again in February 2016, growing
traded net lease company.
the dividend by 5% as compared to February 2015. We are
R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T 9
pleased that the continued strength in our operations allowed
Also, over 90% of our rental revenue from our retail properties
us to increase the dividend, while maintaining a conservative
is generated from tenants with a service, non-discretionary,
payout ratio of approximately 83%, which provides a
and/or low price point component to their business. We
comfortable margin of safety.
believe these characteristics better position our tenants to
MACROECONOMIC ENVIRONMENT
AND OUR POSITION
As I write this letter, we continue
to operate in a domestic economy
characterized by low interest rates with
modest consumer spending growth amid
decreasing unemployment and moderate
gross domestic product growth. However,
when looking at the environment more
operate in a variety of economic environments and to compete
We believe we have created
a conservatively capitalized
real estate portfolio that
should, by design, perform
in virtually any economic
environment.
effectively with e-commerce. Additionally,
our tenant base is largely insulated from
the aforementioned global macroeconomic
trends as their businesses are primarily
domestically focused. Our track record of
maintaining high occupancy, which has
never been below 96% in our company’s
history, demonstrates the overall health of
broadly, we are seeing a strained global economy with falling
commodity prices and volatile financial markets. While we
cannot control the macroeconomic factors, or predict how
they might change in the future, we believe we have created a
our tenant base and the reliability of our revenue that supports
the monthly dividend.
OUTLOOK
As our company enters 2016, we remain positive regarding our
conservatively capitalized real estate portfolio that should, by
business outlook. During the first quarter of 2016, our share
design, perform in virtually any economic environment.
price closed at an all-time high of $62.11 helping drive our
Over our 47-year operating history, we have taken deliberate
steps to position our portfolio to be diversified by tenant,
industry, geography, and to a certain extent, property type,
which enhances the stability of our revenue. Our tenant credit
total market capitalization to more than $20 billion for the first
time in our history. Our total shareholder return year to date
places us in the top 5% of the entire REIT sector in terms of
performance.
profile remains strong, with 44% of our rental revenue today
We are excited about our growth prospects as we continue to
derived from investment-grade rated tenants.
source a high volume of attractive acquisition opportunities
We have conservatively underwritten non-
and remain disciplined and selective in our underwriting
investment-grade retail tenants who have
approach. We anticipate completing approximately
demonstrated their resilience throughout varying
$750 million in acquisitions in 2016 at attractive
economic environments in our company’s history.
investment spreads and consistent with our
1 0 R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T
investment strategy. At the beginning of 2016, we are realizing
this value is a result of our dedication to the dividend. Our
investment spreads at record highs and favorable risk-adjusted
mission as The Monthly Dividend Company® is to provide
returns. To fund our acquisition activities, we currently have
our shareholders with dependable monthly dividends that
approximately $1.6 billion available on our $2 billion credit
increase over time. This mission has served us well throughout
facility and we continue to have excellent access to long-term
our 47-year operating history, and will continue to guide the
and permanent capital.
Our existing portfolio remains healthy with an average
remaining lease term of 10 years. We expect occupancy in
2016 to remain around 98%, with same store rent growing
by approximately 1.3%, consistent with our 2015 results.
types of properties we acquire, tenants and industries we
pursue, capital we raise, and talents required of our team.
The dividend is integral to our culture, and as your CEO, I am
committed to continuing to execute our business plan to grow
your dividend responsibly.
We remain committed to our efforts to maximize the revenue
While we remain confident in our ability to operate the
generated from our real estate properties through our portfolio
company in a manner that supports our mission, we cannot
and asset management activities. These factors collectively
guarantee that we will be as successful in 2016 as we have
contribute to what we believe will be another year of favorable
been in the past. Therefore, we always remind our shareholders
operating results for the company.
how important it is to rely on Realty Income for only a portion
CONCLUSION
We are proud of our accomplishments in 2015. We had
another successful year of operating performance that led
to significant earnings and dividend growth. Our inclusion in
the S&P 500 index and our addition to the S&P High Yield
Dividend Aristocrats® index were milestones recognizing our
long history of success.
of their income needs. We thank you for your continued support
of our company and will keep you apprised of our progress
throughout the year.
Sincerely,
As we move into 2016 and beyond, we will operate the
company with the same disciplined approach in managing our
John P. Case
business to generate value for our shareholders. We believe
Chief Executive Officer
COMPARISON OF $100 INVESTED IN REALTY INCOME IN 1994 VS. MAJOR STOCK INDICES
$2,600
$2,100
$1,600
$1,100
$600
$100
REALTY INCOME
EQUITY REIT INDEX
DOW JONES INDUSTRIAL AVERAGE
STANDARD & POORS 500
NASDAQ COMPOSITE
$2,253
$911
$735
$665
$665
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T 1 1
HIGH-QUALITY
PORTFOLIO
Our real estate portfolio consists of 4,538 freestanding, commercial
properties that are diversified by tenant, industry, geography, and to a
certain extent, property type. At the end of 2015, the properties were
leased to 240 commercial tenants operating across 47 industries and
located in 49 states and Puerto Rico. The majority of our properties
continue to be retail, with the largest component outside of retail
being industrial properties, representing 12.8% of rental revenue. Our
tenant base continues to be healthy, with approximately 44% of our
annualized rental revenue generated from properties leased to tenants
with investment-grade credit ratings. Maintaining a diversified portfolio
leased to strong tenants helps ensure the stability of our revenue that
supports the payment of monthly dividends.
The strength of our portfolio is further enhanced by the experience of
our portfolio and asset management teams in maximizing the revenue
generated from our properties. As one of the most seasoned net lease
companies, we have re-leased or sold over 2,000 properties with
expiring leases throughout our history as a public company. This is
unprecedented and through our active re-leasing and selective property
sales, we have achieved stable occupancy that has never been below
96% in our company’s history.
TENANT DIVERSIFICATION – TOP 20 TENANTS
% OF
REVENUE(1)
6.9%
5.2%
4.6%
4.2%
4.2%
3.0%
2.7%
2.6%
2.4%
2.1%
NUMBER OF
PROPERTIES
TENANT
176
Walgreens*
39
FedEx*
524
Dollar General*
46
LA Fitness
457
Dollar Tree / Family Dollar
302
Circle K / The Pantry*
20
AMC Theatres
15
BJ's Wholesale Clubs
17
Diageo*
Regal Cinemas
23
*Investment-grade rated or subsidiaries of investment-grade rated companies.
(1) Based on annualized rental revenue as of 12/31/15.
1 2 R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T
TENANT
GPM Investments / Fas Mart
Rite Aid
Northern Tier Retail / SuperAmerica
Life Time Fitness
CVS Pharmacy*
TBC Corporation*
Walmart / Sam's Club*
NPC International
FreedomRoads / Camping World
Smart & Final
NUMBER OF
PROPERTIES
217
68
134
9
56
149
19
202
18
36
% OF
REVENUE(1)
2.1%
2.0%
2.0%
2.0%
1.9%
1.7%
1.3%
1.3%
1.2%
1.1%
PROPERTY TYPE COMPOSITION
Retail
Industrial
Office
Agriculture
NUMBER OF
PROPERTIES
% OF
REVENUE(1)
4,378
101
44
15
79.0%
12.8%
6.1%
2.1%
(1) Based on rental revenue for the quarter ended 12/31/15.
R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T 1 3
HIGH-QUALITY PORTFOLIO
47
INDUSTRIES
NO INDUSTRY REPRESENTS MORE
THAN 11% OF RENTAL REVENUE
INDUSTRY DIVERSIFICATION
INDUSTRY
Drug stores
Convenience stores
Dollar stores
Health & fitness
Transportation services
Theaters
Restaurants - quick service
Restaurants - casual
Wholesale clubs
Grocery stores
(1) Based on rental revenue for the quarter ended 12/31/15.
% OF REVENUE(1)
10.9%
8.8%
8.8%
8.4%
5.6%
5.0%
4.5%
3.7%
3.7%
2.8%
1 4 R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T
4,538
PROPERTIES
LOCATED IN 49 STATES AND PUERTO RICO
GEOGRAPHIC DIVERSIFICATION
<1
<1
<1
1.1
<1
<1
<1
<1
<1
<1
1.1
<1
<1
9.8
1.6
1.6
2.5
<1
1.6
3.3
1.6
3.4
<1
1.4
2.3
4.9
5.3
2.8
5.4
<1
1.5
3.0
2.9
3.0
2.7
1.6
1.6
4.1
9.1
1.2
<1
1.8
5.8
1.4
<1
1.0
1.7
<1
1.8
<1
% Represents percentage of rental revenue for the quarter ended 12/31/15.
R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T 1 5
DISCIPLINED
INVESTMENT PROCESS
We focus on acquiring freestanding, single-tenant commercial
properties leased to high-quality tenants under long-term
net lease agreements, typically in excess of 10 years. During
2015, we reviewed $31.7 billion of investment opportunities
that generally satisfied one or more of these criteria. These
opportunities went through a rigorous, multi-step internal
underwriting process that resulted in $1.26 billion acquired.
The process begins with a review of the real estate. We target
real estate located in significant markets or strategic locations
critical to generating revenue for the tenant. We examine the
property-level attributes such as access and visibility, the
demographic trends relative to the property’s intended use, and
the overall viability of the market.
In addition to the real estate, we also carefully review the
characteristics and financial strength of the tenant and its
industry. Our team of research professionals conducts a
thorough financial review and analysis of the tenant, which
includes an assessment of the store-level performance of the
retail operations to ensure we own the tenant’s high-performing
locations. Our team stays abreast of trends in the various
industries relative to the economic environment and frequently
meets with management representatives in these industries to
better understand the tenant's operations.
HIGHLY SELECTIVE
5,858
PROPERTIES
WORTH $31.7 BILLION WERE
REVIEWED
286
PROPERTIES
WORTH $1.26 BILLION WERE
ACQUIRED
1 6 R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T
ACQUISITIONS SELECTIVITY
FOR THE YEARS (DOLLARS IN BILLIONS)
AMOUNT
SOURCED
$5.7
AMOUNT
ACQUIRED
$0.7
SELECTIVITY(1)
12%
$13.3
$17.0
$39.4
$24.3
$31.7
$1.0
$1.2
$4.7
$1.4
$1.3
8%
7%
12%
6%
4%
2010
2011
2012
2013
2014
2015
(1) Selectivity is calculated as the amount of acquisitions acquired divided by the amount
of acquisitions sourced.
The information gathered on the real estate, tenant, and
industry determines the appropriate price for an investment.
Our cost of capital remains the lowest in the net lease sector,
so we have the advantage of achieving the widest investment
spreads while offering competitive pricing for particular
properties. We also ensure the real estate is appropriately
priced relative to replacement cost and leased at rental
rates that are in line with market rent in order to support the
long-term returns generated by each asset. Our Investment
Committee, comprised of select senior-level executives,
collectively reviews these characteristics and metrics to
decide which properties to acquire.
As we continue to grow the company’s
portfolio, we remain dedicated to our
investment focus and discipline.
R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T 1 7
CONSERVATIVE
CAPITAL STRUCTURE
Our commitment to the dividend is demonstrated by the way
or longer and 100% of our outstanding bonds are fixed-rate.
we manage our balance sheet. We believe it is important to
Our debt-to-EBITDA ratio was at a healthy 5.1x at the end
maintain a conservative capital structure that is primarily
of 2015. We maintain a $2.0 billion line of credit, which
equity-focused in order to protect the dividend. At the end of
provides us flexibility to close on acquisitions quickly and
2015, our total market capitalization was $18.2 billion, of
then opportunistically raise equity and/or long-term debt
which $13.0 billion or 71% was common equity.
when capital market dynamics are most advantageous to us.
When we use debt to fund our growth, we structure it in a
conservative manner. Over the life of the company, 91.5% of
the bonds we have issued have been for terms of 10 years
Our investment-grade credit ratings of Baa1/BBB+/BBB+
(Moody’s/S&P/Fitch) continue to provide us with a low cost
of unsecured debt.
Debt and Preferred to
Total Market Capitalization
Fixed Charge
Coverage Ratio
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
29%
33%
38%
40%
34%
33%
39%
42%
40%
31%
36%
4.0x
3.4x
3.0x
2.7x
2.9x
2.7x
2.7x
2.6x
3.1x
3.4x
3.6x
At the beginning of 2016, our balance
sheet was the healthiest it has
been in more than 10 years.
1 8 R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T
MONTHLY
DIVIDENDS
As The Monthly Dividend Company®, we remain committed to operating
our company in a manner that provides our shareholders with monthly
dividends that increase over time. At the core of every business decision
we make is the focus on protecting and growing the dividend. Our
commitment is evidenced by our track record of dividend performance.
Since our company’s listing on the NYSE in 1994, we have increased the
dividend every year at a compound average annual growth rate of 4.5%.
As a result of regular dividend increases, our shareholders’ current yield
on cost has grown over time. Many of our long-term shareholders have
received the equivalent of their original investment dollars in the form of
growing cash dividends.
To quantify the benefit to our shareholders of what we often refer to as
the “magic” of rising dividends over time, we consider a shareholder’s
investment in 1,000 Realty Income shares 10 years ago. As a result of the
dividends received and the dividend increases on these shares over time,
the shareholder’s yield on cost grows. Today, that shareholder would receive:
Our mission as The Monthly
Dividend Company® is to
provide our shareholders with
dependable monthly dividends
that increase over time.
10.6% OF THE ORIGINAL INVESTMENT
64.3%
84.2% INCREASE IN THE AMOUNT OF
DIVIDEND YIELD ON THE
ORIGINAL INVESTMENT
(VS. ORIGINAL YIELD OF 6.5%)
RETURNED TO THE SHAREHOLDER
THROUGH DIVIDENDS
ANNUAL DIVIDENDS PAID
TO THE SHAREHOLDER
R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T 1 9
2015 ANNUAL REPORT: FORM 10-K
Certain exhibits and schedules to the Form 10-K are not reproduced here, but can be
provided to you upon request or obtained from our website at www.realtyincome.com.
The Form 10-K includes the section 302 certifications filed with the SEC.
2 0 R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T
REALTY INCOME CORPORATION AND SUBSIDIARIES
Financial Information
Consolidated Balance Sheets ............................................................................................................... 22
Consolidated Statements of Income ..................................................................................................... 23
Consolidated Statements of Equity ....................................................................................................... 24
Consolidated Statements of Cash Flows .............................................................................................. 25
Notes to Consolidated Financial Statements ........................................................................................ 26
Consolidated Quarterly Financial Data ................................................................................................. 47
Reports of Independent Registered Public Accounting Firm ................................................................ 48
Business Description ............................................................................................................................ 50
Property Portfolio Information ............................................................................................................... 60
Forward-Looking Statements ................................................................................................................ 67
Management’s Discussion and Analysis of Financial Condition and Results of Operations ................ 68
General .............................................................................................................................................................. 68
Liquidity and Capital Resources ........................................................................................................................ 68
Results of Operations ........................................................................................................................................ 75
Funds from Operations Available to Common Stockholders (FFO) .................................................................. 80
Adjusted Funds from Operations Available to Common Stockholders (AFFO) ........................................... 81
Impact of Inflation .............................................................................................................................................. 83
Impact of Recent Accounting Pronouncements ................................................................................................ 83
Quantitative and Qualitative Disclosures About Market Risk ............................................................................ 83
Selected Financial Data ........................................................................................................................ 85
Controls and Procedures ...................................................................................................................... 86
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities ................................................................................................ 87
21
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
At December 31, 2015 and 2014
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
Real estate, at cost:
Land
Buildings and improvements
Total real estate, at cost
Less accumulated depreciation and amortization
Net real estate held for investment
Real estate held for sale, net
Net real estate
Cash and cash equivalents
Accounts receivable, net
Acquired lease intangible assets, net
Goodwill
Other assets, net
Total assets
LIABILITIES AND EQUITY
Distributions payable
Accounts payable and accrued expenses
Acquired lease intangible liabilities, net
Other liabilities
Lines of credit payable
Term loans
Mortgages payable, net
Notes payable, net
Total liabilities
Commitments and contingencies
Stockholders' equity:
Preferred stock and paid in capital, par value $0.01 per share,
69,900,000 shares authorized, 16,350,000 shares issued and
outstanding as of December 31, 2015 and December 31, 2014,
liquidation preference $25.00 per share
Common stock and paid in capital, par value $0.01 per share,
370,100,000 shares authorized, 250,416,757 shares issued and
outstanding as of December 31, 2015 and 224,881,192 shares issued
and outstanding as of December 31, 2014
Distributions in excess of net income
Total stockholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
$
$
$
$
2015
2014
9,767
3,286,004 $
9,010,778
12,296,782
(1,687,665 )
10,609,117
3,046,372
8,107,199
11,153,571
(1,386,871 )
9,766,700
14,840
9,781,540
3,852
64,386
1,039,724
15,470
107,650
11,865,870 $ 11,012,622
10,618,884
40,294
81,678
1,034,417
15,321
75,276
50,344 $
115,826
250,916
53,965
238,000
320,000
646,740
3,636,746
5,312,537
43,675
123,287
220,469
53,145
223,000
70,000
852,575
3,785,372
5,371,523
395,378
395,378
7,666,428
(1,530,210 )
6,531,596
6,464,987
(1,246,964 )
5,613,401
27,698
5,641,099
11,865,870 $ 11,012,622
21,737
6,553,333
The accompanying notes to consolidated financial statements are an integral part of these statements.
22
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2015, 2014 and 2013
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE
Rental
Tenant reimbursements
Other
Total revenue
EXPENSES
Depreciation and amortization
Interest
General and administrative
Property (including reimbursable)
Income taxes
Provisions for impairment
Merger-related costs
Total expenses
Gain on sales of real estate
Income from continuing operations
Income from discontinued operations
Net income
2015
2014
2013
$
976,865 $ 893,457 $ 748,218
24,944
37,118
42,015
7,047
2,930
4,405
780,209
933,505
1,023,285
409,215
233,079
49,298
55,352
3,169
10,560
-
374,661
216,366
51,085
53,871
3,461
4,126
-
760,673
703,570
306,769
181,442
56,881
38,851
2,350
290
13,013
599,596
22,243
39,205
-
284,855
269,140
180,613
-
2,800
65,670
284,855
271,940
246,283
Net income attributable to noncontrolling interests
(1,089 )
(1,305 )
(719 )
Net income attributable to the Company
Preferred stock dividends
Excess of redemption value over carrying value of
preferred shares redeemed
283,766
(27,080 )
270,635
(37,062 )
245,564
(41,930 )
-
(6,015 )
-
Net income available to common stockholders
$
256,686 $ 227,558 $ 203,634
Amounts available to common stockholders per common share:
Income from continuing operations, basic and diluted
Net income, basic and diluted
$
$
1.09 $
1.09 $
1.03 $
1.04 $
0.72
1.06
Weighted average common shares outstanding:
Basic
Diluted
235,767,932 218,390,885 191,754,857
236,208,390 218,767,885 191,781,622
The accompanying notes to consolidated financial statements are an integral part of these statements.
23
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements of Equity
Years Ended December 31, 2015, 2014, and 2013
(DOLLARS IN THOUSANDS)
Shares of
preferred
stock
Shares of
common
stock
Preferred
stock and
paid in
capital
Common
stock and Distributions
Total
paid in
capital
in excess of stockholders' Noncontrolling
net income
interests
equity
Total
equity
Balance, December 31, 2012
Net income
Distributions paid and payable
Shares issued in stock offerings,
net of offering costs
Shares issued in conjunction with
acquisition of ARCT, net of our
shares owned by ARCT
Issuance of preferred and
common units
Shares issued pursuant to
dividend reinvestment and
stock purchase plan, net
Share-based compensation, net
Balance, December 31, 2013
Net income
Distributions paid and payable
Shares issued in stock offerings,
net of offering costs
Redemption of common units
Reallocation of equity
Shares issued pursuant to
dividend reinvestment and
stock purchase plan, net
Preferred shares redeemed
Share-based compensation, net
Balance, December 31, 2014
Net income
Distributions paid and payable
Shares issued in stock offerings,
net of offering costs
Redemption of common units
Reallocation of equity
Shares issued pursuant to
dividend reinvestment and
stock purchase plan, net
Shares issued pursuant to
at-the-market program, net
Share-based compensation, net
25,150,000
-
-
133,452,411
-
-
609,363
-
-
2,572,092
-
-
(768,661 )
245,564
(468,697 )
2,412,794
245,564
(468,697 )
-
719
(1,371 )
2,412,794
246,283
(470,068 )
-
27,025,000
-
1,133,574
-
1,133,574
-
1,133,574
-
-
-
-
25,150,000
-
-
45,364,435
-
1,997,850
-
1,997,850
-
1,997,850
-
-
-
-
-
36,563
36,563
1,449,139
194,088
-
-
55,244
9,118
-
-
55,244
9,118
-
-
55,244
9,118
207,485,073
609,363
5,767,878
-
-
-
-
-
-
-
528,592
1,032
6,647
(991,794 )
270,635
(519,790 )
5,385,447
270,635
(519,790 )
35,911
1,305
(1,839 )
5,421,358
271,940
(521,629 )
-
-
-
528,592
1,032
6,647
-
(1,032 )
(6,647 )
528,592
-
-
-
-
-
13,800,000
35,000
-
-
(8,800,000 )
3,527,166
-
-
(213,985 )
157,285
-
-
(6,015 )
157,285
(220,000 )
-
33,953
-
3,553
-
3,553
-
-
-
157,285
(220,000 )
3,553
224,881,192 $
395,378 $
6,464,987 $
16,350,000
-
-
-
-
-
-
-
-
-
793,559
4,347
1,051
(1,246,964 ) $
283,766
(567,012 )
5,613,401 $
283,766
(567,012 )
27,698 $
1,089
(1,652 )
5,641,099
284,855
(568,664 )
-
-
-
793,559
4,347
1,051
-
(4,347 )
(1,051 )
793,559
-
-
-
-
-
17,000,000
168,182
-
-
-
-
-
-
7,608,354
-
360,700
-
360,700
-
360,700
-
-
714,301
44,728
-
-
35,747
6,037
-
-
35,747
6,037
-
-
35,747
6,037
Balance, December 31, 2015
16,350,000
250,416,757 $
395,378 $
7,666,428 $
(1,530,210 ) $
6,531,596 $
21,737 $
6,553,333
The accompanying notes to consolidated financial statements are an integral part of these statements.
24
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2015, 2014 and 2013
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to net income:
Depreciation and amortization
Income from discontinued operations
Amortization of share-based compensation
Non-cash rental adjustments
Amortization of net premiums on mortgages payable
Amortization of deferred financing costs
Loss (gain) on interest rate swaps
Gain on sales of real estate
Provisions for impairment on real estate
Change in assets and liabilities
Accounts receivable and other assets
Accounts payable, accrued expenses and other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in real estate
Improvements to real estate, including leasing costs
Proceeds from sales of real estate:
Continuing operations
Discontinued operations
Collection (issuance) of loans receivable
Restricted escrow deposits for Section 1031 tax-deferred exchanges
and pending acquisitions
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Cash distributions to common stockholders
Cash dividends to preferred stockholders
Borrowings on line of credit
Payments on line of credit
Proceeds from notes and bonds payable issued
Principal payment on notes payable
Principal payments on mortgages payable
Proceeds from term loans
Repayment of American Realty Capital Trust, Inc., or ARCT, line of credit
Repayment of ARCT term loan
Proceeds from common stock offerings, net
Redemption of preferred units
Redemption of preferred stock
Distributions to noncontrolling interests
Debt issuance costs
Proceeds from dividend reinvestment and stock purchase plan
Proceeds from At-the-Market (ATM) program
Other items, including shares withheld upon vesting
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
2015
2014
2013
$
284,855 $
271,940 $
246,283
409,215
-
10,391
(8,607 )
(7,482 )
9,044
3,043
(22,243 )
10,560
374,661
(2,800 )
11,959
(6,848 )
(12,891 )
8,335
1,349
(39,205 )
4,126
306,769
(65,670 )
20,785
(5,554 )
(9,481 )
9,364
(878 )
-
290
(2,641 )
6,168
692,303
(3,064 )
20,130
627,692
(2,116 )
19,114
518,906
(1,266,885 )
(11,541 )
(1,228,243 )
(6,032 )
(1,429,483 )
(8,507 )
65,817
-
-
88,688
6,918
350
8
126,785
(10,656 )
33,554
(1,179,055 )
(36,540 )
(1,174,859 )
(10,158 )
(1,332,011 )
(533,238 )
(27,080 )
1,448,000
(1,433,000 )
-
(150,000 )
(198,353 )
250,000
-
-
793,559
(6,750 )
-
(1,679 )
(10,259 )
363,029
36,348
(7,383 )
523,194
36,442
3,852
40,294 $
(479,256 )
(38,300 )
1,672,321
(1,577,321 )
598,594
-
(85,208 )
-
-
-
528,615
-
(220,000 )
(1,844 )
(5,505 )
158,462
-
(9,796 )
540,762
(6,405 )
10,257
3,852 $
(409,222 )
(41,930 )
2,624,700
(2,654,700 )
750,000
(100,000 )
(32,603 )
70,000
(317,207 )
(235,000 )
1,133,574
-
-
(1,216 )
(10,666 )
55,806
-
(13,422 )
818,114
5,009
5,248
10,257
$
For supplemental disclosures, see note 16.
The accompanying notes to consolidated financial statements are an integral part of these statements.
25
REALTY INCOME CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
1.
Organization and Operation
Realty Income Corporation ("Realty Income," the "Company," "we," "our" or "us") is organized as a Maryland
corporation. We invest in commercial real estate and have elected to be taxed as a real estate investment trust,
or REIT.
At December 31, 2015, we owned 4,538 properties, located in 49 states and Puerto Rico, containing over
76.0 million leasable square feet.
Information with respect to number of properties, square feet, average initial lease term and weighted average
contractual lease rate is unaudited.
2.
Summary of Significant Accounting Policies
Federal Income Taxes. We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as
amended, or the Code. We believe we have qualified and continue to qualify as a REIT. Under the REIT
operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable
income. Assuming our dividends equal or exceed our taxable net income, we generally will not be required to
pay federal corporate income taxes on such income. Accordingly, no provision has been made for federal
income taxes in the accompanying consolidated financial statements, except for the federal income taxes of our
taxable REIT subsidiaries. The income taxes recorded on our consolidated statements of income represent
amounts paid by Realty Income for city and state income and franchise taxes.
Earnings and profits that determine the taxability of distributions to stockholders differ from net income reported
for financial reporting purposes due to differences in the estimated useful lives and methods used to compute
depreciation and the carrying value (basis) of the investments in properties for tax purposes, among other
things.
We regularly analyze our various federal and state filing positions and only recognize the income tax effect in
our financial statements when certain criteria regarding uncertain income tax positions have been met. We
believe that our income tax positions would more likely than not be sustained upon examination by all relevant
taxing authorities. Therefore, no provisions for uncertain income tax positions have been recorded in our
financial statements.
Net Income per Common Share. Basic net income per common share is computed by dividing net income
available to common stockholders by the weighted average number of common shares outstanding during each
period. Diluted net income per common share is computed by dividing net income available to common
stockholders, plus income attributable to dilutive shares and convertible common units, for the period by the
weighted average number of common shares that would have been outstanding assuming the issuance of
common shares for all potentially dilutive common shares outstanding during the reporting period.
26
The following is a reconciliation of the denominator of the basic net income per common share computation to
the denominator of the diluted net income per common share computation.
Weighted average shares used for the basic net income
per share computation
Incremental shares from share-based compensation
Weighted average partnership common units convertible
to common shares that were dilutive
Weighted average shares used for diluted net
2015
2014
2013
235,767,932 218,390,885
59,978
123,436
191,754,857
26,765
317,022
317,022
-
income per share computation
236,208,390 218,767,885 191,781,622
Unvested shares from share-based compensation that
were anti-dilutive
106,103
51,749
59,629
Weighted average partnership common units convertible
to common shares that were anti-dilutive
417,060
523,847
851,568
Discontinued Operations. During the first quarter of 2014, the Financial Accounting Standards Board issued
guidance that changed the definition of discontinued operations by limiting discontinued operations reporting to
disposals of components of an entity that represent strategic shifts that have, or will have, a major effect on an
entity’s operations and financial results. We early adopted the requirements of this accounting pronouncement
in the first quarter of 2014.
Starting with the first quarter of 2014, the results of operations for all qualifying disposals and properties
classified as held for sale that were not previously reported in discontinued operations in our 2013 Annual
Report on Form 10-K are presented within income from continuing operations on our consolidated statements of
income. Prior to the date of adoption of Accounting Standards Update 2014-08 (ASU 2014-08), which amends
Topic 205, Presentation of Financial Statements, and Topic 360, Property, Plant, and Equipment, we reported,
in discontinued operations, the results of operations of properties that had either been disposed of or classified
as held for sale in financial statements issued.
Operations from ten properties were classified as held for sale at December 31, 2015, and are included in
income from continuing operations. We do not depreciate properties that are classified as held for sale.
If the property was previously reclassified as held for sale but the applicable criteria for this classification are no
longer met, the property is reclassified to real estate held for investment. A property that is reclassified to held
for investment is measured and recorded at the lower of (i) its carrying amount before the property was
classified as held for sale, adjusted for any depreciation expense that would have been recognized had the
property been continuously classified as held for investment, or (ii) the fair value at the date of the subsequent
decision not to sell.
No debt was assumed by buyers of our properties, or repaid as a result of our property sales.
For the year ended December 31, 2014, we recorded income from discontinued operations of $2.8 million, or
$0.01 per common share, basic and diluted. For the year ended December 31, 2013, we recorded income from
discontinued operations of $65.7 million, or $0.34 per common share, basic and diluted.
Revenue Recognition and Accounts Receivable. All leases are accounted for as operating leases. Under this
method, leases that have fixed and determinable rent increases are recognized on a straight-line basis over the
lease term. Any rental revenue contingent upon a tenant's sales is recognized only after the tenant exceeds
their sales breakpoint. Rental increases based upon changes in the consumer price indexes are recognized only
after the changes in the indexes have occurred and are then applied according to the lease agreements.
Contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses
are included in tenant reimbursements in the period when such costs are incurred.
We recognize an allowance for doubtful accounts relating to accounts receivable for amounts deemed
uncollectible. We consider tenant specific issues, such as financial stability and ability to pay, when determining
collectability of accounts receivable and appropriate allowances to record. The allowance for doubtful accounts
was $429,000 at December 31, 2015 and $765,000 at December 31, 2014.
27
Other revenue, which comprises property-related revenue not included in rental revenue or tenant
reimbursements, was $4.4 million in 2015, $2.9 million in 2014 and $7.0 million in 2013.
Principles of Consolidation. The accompanying consolidated financial statements include the accounts of
Realty Income and other entities for which we make operating and financial decisions (i.e. control), after
elimination of all material intercompany balances and transactions. We consolidate entities that we control and
record a noncontrolling interest for the portion that we do not own. Noncontrolling interest that was created or
assumed as part of a business combination was recognized at fair value as of the date of the transaction (see
note 11). We have no unconsolidated investments.
Cash Equivalents. We consider all short-term, highly liquid investments that are readily convertible to cash and
have an original maturity of three months or less at the time of purchase to be cash equivalents. Our cash
equivalents are primarily investments in United States government money market funds.
Gain on Sales of Properties. When real estate is sold, the related net book value of the applicable assets is
removed and a gain from the sale is recognized in our consolidated statements of income. We record a gain
from the sale of real estate provided that various criteria, relating to the terms of the sale and any subsequent
involvement by us with the real estate, have been met.
Allocation of the Purchase Price of Real Estate Acquisitions. When acquiring a property for investment
purposes, we typically allocate the fair value of real estate acquired to: (1) land, (2) building and improvements,
and (3) identified intangible assets and liabilities, based in each case on their estimated fair values. Intangible
assets and liabilities consist of above-market or below-market lease value of in-place leases, the value of in-
place leases, and tenant relationships, as applicable. In an acquisition of multiple properties, we must also
allocate the purchase price among the properties. The allocation of the purchase price is based on our
assessment of estimated fair value and is often based upon the expected future cash flows of the property and
various characteristics of the markets where the property is located. In addition, any assumed mortgages
receivable or payable and any assumed or issued noncontrolling interests are recorded at their estimated fair
values. The estimated fair values of our mortgages payable have been calculated by discounting the future cash
flows using applicable interest rates that have been adjusted for factors, such as industry type, tenant
investment grade, maturity date, and comparable borrowings for similar assets. The initial allocation of the
purchase price is based on management’s preliminary assessment, which may differ when final information
becomes available. Subsequent adjustments made to the initial purchase price allocation are made within the
allocation period, which does not exceed one year. The use of different assumptions in the allocation of the
purchase price of the acquired properties and liabilities assumed could affect the timing of recognition of the
related revenue and expenses.
Our estimated fair value determinations are based on management’s judgment, utilizing various factors,
including: (1) market conditions, (2) industry that the tenant operates in, (3) characteristics of the real estate, i.e.:
location, size, demographics, value and comparative rental rates, (4) tenant credit profile, (5) store profitability
and the importance of the location of the real estate to the operations of the tenant’s business, and/or (6) real
estate valuations, prepared either internally or by an independent valuation firm. Our methodologies for
measuring fair value related to the allocation of the purchase price of real estate acquisitions include both
observable market data (and thus should be categorized as level 2 on FASB’s three-level valuation hierarchy)
and unobservable inputs that reflect our own internal assumptions and calculations (and thus should be
categorized as level 3 on FASB’s three-level valuation hierarchy).
The fair value of the tangible assets of an acquired property with an in-place operating lease (which includes
land and buildings/improvements) is determined by valuing the property as if it were vacant, and the "as-if-
vacant" value is then allocated to land and buildings/improvements based on our determination of the fair value
of these assets. Our fair value determinations are based on a real estate valuation for each property, prepared
either internally or by an independent valuation firm, and consider estimates of carrying costs during the
expected lease-up periods, current market conditions, as well as costs to execute similar leases. In allocating
the fair value to identified intangibles for above-market or below-market leases, an amount is recorded based on
the present value of the difference between (i) the contractual amount to be paid pursuant to the in-place lease
and (ii) our estimate of fair market lease rate for the corresponding in-place lease, measured over the remaining
term of the lease.
28
The values of the above-market and below-market leases are amortized over the term of the respective leases,
including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of
income.
The aggregate value of other acquired intangible assets consists of the fair value of in-place leases and tenant
relationships, as applicable. The value of in-place leases, exclusive of the value of above-market and below-
market in-place leases, is amortized to depreciation and amortization expense over the remaining periods of the
respective leases.
If a lease was terminated prior to its stated expiration, all unamortized amounts relating to that lease would be
recorded to revenue or expense as appropriate.
In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based
on the present value of the estimated cash flows, which is calculated to account for either above or below-
market interest rates. Our assumed net debt premiums are amortized as a reduction to interest expense over
the remaining term of the respective mortgages.
In allocating noncontrolling interests, amounts are recorded based on the fair value of units issued at the date of
acquisition, as determined by the terms of the applicable agreement.
Depreciation and Amortization. Land, buildings and improvements are recorded and stated at cost. Major
replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated
over their estimated useful lives, while ordinary repairs and maintenance are expensed as incurred. Buildings
and improvements that are under redevelopment, or are being developed, are carried at cost and no
depreciation is recorded on these assets. Additionally, amounts essential to the development of the property,
such as pre-construction, development, construction, interest and other costs incurred during the period of
development are capitalized. We cease capitalization when the property is available for occupancy upon
substantial completion of tenant improvements, but in any event no later than one year from the completion of
major construction activity.
Properties are depreciated using the straight-line method over the estimated useful lives of the assets. The
estimated useful lives are as follows:
Buildings
Building improvements
Tenant improvements and lease commissions The shorter of the term of the related lease or useful life
Acquired in-place leases
25 years or 35 years
4 to 20 years
Remaining terms of the respective leases
Provision for Impairment. We review long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. A provision is made for
impairment if estimated future operating cash flows (undiscounted and without interest charges) plus estimated
disposition proceeds (undiscounted) are less than the current book value of the property. Key factors that we
utilize in this analysis include projected rental rates, estimated holding periods, historical sales and releases,
capital expenditures and property sales capitalization rates. If a property is classified as held for sale, it is
carried at the lower of carrying cost or estimated fair value, less estimated cost to sell, and depreciation of the
property ceases.
In 2015, we recorded total provisions for impairment of $10.6 million on three properties classified as held for
sale, four properties classified as held for investment, seven sold properties, and one property disposed of other
than by sale in the following industries: one in the convenience stores industry, one in the health and fitness
industry, one in the pet supplies and services industry, eleven in the restaurant-casual dining industry, and one
among the industry we classify as “other.” These properties were not previously classified as held for sale in
financial statements issued prior to the date of adoption of ASU 2014-08; accordingly, the provisions for
impairment are included in income from continuing operations on our consolidated statement of income for the
year ended December 31, 2015.
In 2014, Realty Income recorded total provisions for impairment of $4.6 million. Provisions for impairment of
$4.1 million are included in income from continuing operations on nine sold properties and two properties
classified as held for investment in the following industries: one in the consumer electronics industry, one in the
29
convenience stores industry, one in the home furnishings industry, two in the home improvement industry, and
six in the restaurant-casual dining industry. These properties were not previously classified as held for sale in
financial statements issued prior to the date of adoption of ASU 2014-08; accordingly, these provisions for
impairment are included in income from continuing operations on our consolidated statements of income.
Additionally during 2014, a provision for impairment of $510,000 is included in income from discontinued
operations on one sold property in the grocery store industry that was classified as held for sale as of December
31, 2013.
In 2013, Realty Income recorded total provisions for impairment of $3.0 million. Realty Income recorded
provisions for impairment of $2.7 million in income from discontinued operations on seven sold properties in the
following industries: one in the automotive parts industry, two in the child care industry, one in the grocery store
industry, one in the pet supplies and services industry, and two in the restaurant casual dining industry. Except
for a provision for impairment of $290,000 that was recorded in income from continuing operations for one
property in the auto service industry that was not previously classified as held for sale as of December 31, 2013,
the remaining provisions for impairment are included in income from discontinued operations on our
consolidated statement of income.
In 2013, Crest also recorded a provision for impairment of $308,000 on one sold property in the restaurant-
casual dining industry, which is included in income from discontinued operations.
Asset Retirement Obligations. We analyze our future legal obligations associated with the other-than-
temporary removal of tangible long-lived assets, also referred to as asset retirement obligations. When we
determine that we have a legal obligation to provide services upon the retirement of a tangible long-lived asset,
we record a liability for this obligation based on the estimated fair value of this obligation and adjust the carrying
amount of the related long-lived asset by the same amount. This asset is amortized over its estimated useful
life. The estimated fair value of the asset retirement obligation is calculated by discounting the future cash flows
using a credit-adjusted risk-free interest rate.
Goodwill. Goodwill is tested for impairment during the second quarter of each year as well as when events or
circumstances occur indicating that our goodwill might be impaired. Under the amendments issued in
conjunction with ASU No. 2011-08, Intangibles – Goodwill and Other (Topic 350), an entity, through an
assessment of qualitative factors, is not required to calculate the estimated fair value of a reporting unit, in
connection with the two-step goodwill impairment test, unless the entity determines that it is more likely than not
that its fair value is less than its carrying amount. We elected to continue testing goodwill for impairment during
the second quarter of each year as well as when events or circumstances occur, indicating that our goodwill
might be impaired. During our tests for impairment of goodwill during the second quarters of 2015, 2014 and
2013, we determined that the estimated fair values of our reporting units exceeded their carrying values. We did
not record any impairment on our existing goodwill during 2015, 2014 or 2013.
Equity Offering Costs. Underwriting commissions and offering costs have been reflected as a reduction of
additional paid-in-capital on our consolidated balance sheets.
Noncontrolling Interests. Noncontrolling interests are reflected on our consolidated balance sheets as a
component of equity. Noncontrolling interests are recorded initially at fair value based on the price of the
applicable units issued, and subsequently adjusted each period for distributions, contributions and the allocation
of net income attributable to the noncontrolling interests.
As consideration for two separate acquisitions during 2013, partnership units of Tau Operating Partnership, L.P.
and Realty Income, L.P. were issued to third parties. These common units (discussed in footnote 11) do not
have voting rights, are entitled to monthly distributions equal to the amount paid to our common stockholders,
and are redeemable in cash or our common stock, at our option and at a conversion ratio of one to one, subject
to certain exceptions. As the general partner for each of these partnerships, we have operating and financial
control over these entities, consolidate them in our financial statements, and record the partnership units held by
third parties as noncontrolling interests.
Use of Estimates. The consolidated financial statements were prepared in conformity with U.S. generally
accepted accounting principles, or GAAP, which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date
30
of the financial statements, and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Accounting Pronouncements. In April 2015, the Financial Accounting Standards Board, or FASB,
issued ASU 2015-03, which amends Topic 835, Other Presentation Matters. The amendments in this ASU
require that debt issuance costs be reported on the balance sheet as a direct reduction of the face amount of
the debt instrument they relate to, and should not be classified as a deferred charge, as was previously required
under the Accounting Standards Codification. ASU 2015-03 is effective, on a retrospective basis, for interim
and annual periods beginning after December 15, 2015; early adoption is permitted. We have not yet adopted
this ASU and do not expect it to have a material impact on our consolidated financial statements.
In September 2015, FASB, issued ASU 2015-16, which amends Topic 805, Business Combinations. The
amendments in this ASU require that we recognize purchase price allocation adjustments that are identified
during the measurement period in the reporting period in which the adjustment amounts are determined, and
eliminate the requirement to retrospectively account for these adjustments. ASU 2015-16 is effective, on a
prospective basis, for interim and annual periods beginning after December 15, 2015; early adoption is
permitted. We early adopted this ASU 2015-16 during the quarter ended September 30, 2015 and it did not
have a material impact on our consolidated financial statements.
Supplemental Detail for Certain Components of Consolidated Balance Sheets
3.
A. Acquired lease intangible assets, net, consist of the following
(dollars in thousands) at:
Acquired in-place leases
Accumulated amortization of acquired in-place leases
Acquired above-market leases
Accumulated amortization of acquired above-market leases
December 31,
2015
$ 1,056,715
(264,399 )
304,548
(62,447 )
December 31,
2014
$ 1,005,244
(177,722 )
252,581
(40,379 )
$ 1,034,417
$ 1,039,724
B. Other assets, net, consist of the following (dollars in thousands) at:
Deferred financing costs, net
Notes receivable issued in connection with property sales
Prepaid expenses
Credit facility origination costs, net
Impounds related to mortgages payable
Restricted escrow deposits
Corporate assets, net
Other items
December 31,
2015
20,490
17,905
14,258
10,226
5,860
4,179
2,313
45
75,276
$
$
$
December 31,
2014
23,274
18,342
14,137
4,171
5,789
36,540
2,600
2,797
107,650
$
C. Distributions payable consist of the following declared
distributions (dollars in thousands) at:
Common stock distributions
Preferred stock dividends
Noncontrolling interests distributions
December 31,
2015
$
47,963
2,257
124
December 31,
2014
41,268
2,257
150
$
$
50,344
$
43,675
D. Accounts payable and accrued expenses consist of the
following (dollars in thousands) at:
Notes payable - interest payable
Accrued costs on properties under development
Property taxes payable
Mortgages, term loans, credit line - interest payable and interest rate swaps
Other items
December 31,
2015
61,486
9,976
13,354
6,813
24,197
115,826
$
$
December 31,
2014
63,919
18,011
11,633
4,569
25,155
123,287
$
$
31
E. Acquired lease intangible liabilities, net, consist of the
following (dollars in thousands) at:
Acquired below-market leases
Accumulated amortization of acquired below-market leases
F. Other liabilities consist of the following
(dollars in thousands) at:
Rent received in advance
Security deposits
Capital lease obligations
Preferred units issued upon acquisition of ARCT
December 31,
December 31,
2015
288,412
(37,496 )
250,916
$
$
2014
$ 243,025
(22,556 )
$ 220,469
December 31,
2015
42,840
6,418
4,707
-
53,965
$
$
December 31,
2014
36,122
$
5,876
4,397
6,750
$
53,145
4.
We acquire land, buildings and improvements necessary for the successful operations of commercial tenants.
Investments in Real Estate
A. Acquisitions during 2015 and 2014
During 2015, we invested $1.26 billion in 286 new properties and properties under development or expansion
with an initial weighted average contractual lease rate of 6.6%. The 286 new properties and properties under
development or expansion are located in 40 states, will contain approximately 6.2 million leasable square feet,
and are 100% leased with a weighted average lease term of 16.5 years. The tenants occupying the new
properties operate in 21 industries and the property types consist of 87.3% retail and 12.7% industrial, based on
rental revenue. None of our investments during 2015 caused any one tenant to be 10% or more of our total
assets at December 31, 2015.
The $1.26 billion invested during 2015 was allocated as follows: $257.1 million to land, $937.1 million to
buildings and improvements, $105.8 million to intangible assets related to leases, and $40.9 million to intangible
liabilities related to leases and other assumed liabilities. There was no contingent consideration associated with
these acquisitions.
The properties acquired during 2015 generated total revenues of $43.4 million and income from continuing
operations of $21.1 million.
Of the $1.26 billion we invested during 2015, $195.4 million of the purchase price allocation is based on a
preliminary measurement of fair value that is subject to change. The allocation for these properties represents
our current best estimate of fair value, and we expect to finalize the valuations and complete the purchase price
allocations in 2016. During 2015, we finalized the purchase price allocations for $147.1 million invested in the
fourth quarter of 2014. There were no material changes to our consolidated balance sheets or income
statements as a result of these purchase price allocations being finalized.
In comparison, during 2014, we invested $1.4 billion in 506 new properties and properties under development or
expansion with an initial weighted average contractual lease rate of 7.1%. The 506 new properties and
properties under development or expansion are located in 42 states, contain approximately 9.8 million leasable
square feet, and are 100% leased with a weighted average lease term of 12.8 years. The tenants occupying the
new properties operate in 32 industries and the property types consist of 85.7% retail, 6.6% industrial, 6.4%
office, and 1.3% manufacturing, based on rental revenue.
The $1.4 billion invested during 2014 was allocated as follows: $295.6 million to land, $984.1 million to buildings
and improvements, $209.4 million to intangible assets related to leases, $901,000 to other assets, net, and
$87.4 million to intangible liabilities related to leases and other assumed liabilities. We also recorded mortgage
premiums of $604,000 associated with the mortgages acquired. There was no contingent consideration
associated with these acquisitions.
The properties acquired during 2014 generated total revenues of $75.1 million and income from continuing
operations of $27.8 million for year ended December 31, 2014.
32
The estimated initial weighted average contractual lease rate for a property is generally computed as estimated
contractual net operating income, which, in the case of a net leased property, is equal to the aggregate base
rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a tenant
could default on the payment of contractual rent, we cannot provide assurance that the actual return on the
funds invested will remain at the percentages listed above.
In the case of a property under development or expansion, the contractual lease rate is generally fixed such that
rent varies based on the actual total investment in order to provide a fixed rate of return. When the lease does
not provide for a fixed rate of return on a property under development or expansion, the estimated initial
weighted average contractual lease rate is computed as follows: estimated net operating income (determined by
the lease) for the first full year of each lease, divided by our projected total investment in the property, including
land, construction and capitalized interest costs. Of the $1.26 billion we invested during 2015, $45.8 million was
invested in 35 properties under development or expansion with an estimated initial weighted average
contractual lease rate of 9.7%. Of the $1.4 billion we invested during 2014, $81.9 million was invested in 40
properties under development or expansion with an estimated initial weighted average contractual lease rate of
8.4%.
B. Acquisition Transaction Costs
Acquisition transaction costs of $913,000 and $453,000 were recorded to general and administrative expense
on our consolidated statements of income during 2015 and 2014, respectively.
C. Investments in Existing Properties
During 2015, we capitalized costs of $11.5 million on existing properties in our portfolio, consisting of $748,000
for re-leasing costs, $7.6 million for recurring capital expenditures and $3.2 million for non-recurring building
improvements. In comparison, during 2014, we capitalized costs of $6.0 million on existing properties in our
portfolio.
D. Properties with Existing Leases
Of the $1.26 billion we invested during 2015, approximately $391.4 million was used to acquire 86 properties
with existing leases. In comparison, of the $1.4 billion we invested during 2014, approximately $957.4 million
was used to acquire 201 properties with existing leases. The value of the in-place and above-market leases is
recorded to acquired lease intangible assets, net on our consolidated balance sheets, and the value of the
below-market leases is recorded to acquired lease intangible liabilities, net on our consolidated balance sheets.
The values of the in-place leases are amortized as depreciation and amortization expense. The amounts
amortized to expense for all of our in-place leases, for 2015, 2014, and 2013 were $87.9 million, $83.6 million,
and $65.5 million, respectively.
The values of the above-market and below-market leases are amortized over the term of the respective leases,
including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of
income. The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-
market leases for 2015, 2014, and 2013 were $7.9 million, $8.0 million, and $8.2 million, respectively. If a lease
were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be
recorded to revenue or expense as appropriate.
The following table presents the estimated impact during the next five years and thereafter related to the
amortization of the acquired above-market and below-market lease intangibles and the amortization of the in-
place lease intangibles for properties held for investment at December 31, 2015 (in thousands):
2016
2017
2018
2019
2020
Thereafter
Totals
$
Net increase
(decrease) to
rental revenue
(8,075 )
(8,019 )
(7,771 )
(6,781 )
(6,108 )
45,569
$
Increase to
amortization
expense
89,858
88,669
86,174
76,109
70,915
380,591
$
8,815
$
792,316
33
5.
Credit Facility
In June 2015, we entered into a new $2.0 billion unsecured revolving credit facility, or our new credit facility,
which replaced our $1.5 billion credit facility that was scheduled to expire in May 2016. The initial term of our
new credit facility expires in June 2019 and includes, at our option, two six-month extensions. Our new credit
facility has a $1.0 billion accordion expansion option. Under our new credit facility, our current investment grade
credit ratings provide for financing at the London Interbank Offered Rate, commonly referred to as LIBOR, plus
0.90% with a facility commitment fee of 0.15%, for all-in drawn pricing of 1.05% over LIBOR. The borrowing rate
is subject to an interest rate floor. We also have other interest rate options available to us under our new credit
facility. Our new credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for
this obligation.
At December 31, 2015, credit facility origination costs of $10.2 million are included in other assets, net on our
consolidated balance sheet. This balance includes $9.1 million of new credit facility origination costs incurred
during 2015 as a result of entering into our new credit facility. These costs, as well as a portion of the costs
incurred as a result of entering into our previous credit facilities, are being amortized over the remaining term of
our new credit facility.
At December 31, 2015, we had a borrowing capacity of $1.76 billion available on our new credit facility (subject
to customary conditions to borrowing) and an outstanding balance of $238.0 million, as compared to an
outstanding balance of $223.0 million at December 31, 2014.
The weighted average interest rate on outstanding borrowings under our credit facilities was 1.2% during 2015
and 2014. At December 31, 2015, the effective interest rate was 1.2%. Our new and previous credit facilities
are and were subject to various leverage and interest coverage ratio limitations, and at December 31, 2015, we
remain in compliance with the covenants on our new credit facility.
6. Mortgages Payable
During 2015, we made $198.4 million in principal payments, including the repayment of 13 mortgages in full for
$191.0 million. No mortgages were assumed during 2015.
During 2014, we made $85.2 million in principal payments, including the repayment of six mortgages in full for
$77.8 million. Additionally, during 2014 we assumed mortgages totaling $166.7 million, excluding net premiums.
The mortgages are secured by the properties on which the debt was placed. We expect to pay off the
mortgages as soon as prepayment penalties make it economically feasible to do so.
During 2014, aggregate net premiums totaling $604,000 were recorded upon assumption of the mortgages for
above-market interest rates. Amortization of our net premiums is recorded as a reduction to interest expense
over the remaining term of the respective mortgages, using a method that approximates the effective-interest
method.
These mortgages contain customary covenants, such as limiting our ability to further mortgage each applicable
property or to discontinue insurance coverage without the prior consent of the lender. At December 31, 2015,
we remain in compliance with these covenants.
We did not incur any deferred financing costs on our mortgages assumed in 2014. The balance of our deferred
financing costs, which are classified as part of other assets, net, on our consolidated balance sheets, was
$553,000 at December 31, 2015 and $827,000 at December 31, 2014. These costs are being amortized over
the remaining term of each mortgage.
34
The following is a summary of all our mortgages payable as of December 31, 2015 and December 31, 2014,
respectively (dollars in thousands):
Weighted
Weighted Weighted
Average
Average
Effective Remaining
Interest Years Until
Maturity
Average
Stated
Interest
Rate(2)
Rate(3)
Number of
Properties(1)
Remaining
Principal
Balance
Unamortized
Premium
Balance, net
Mortgage
Payable
Balance
183
241
4.9%
5.0%
4.1%
4.0%
3.6
3.7
$
$
637,658
836,011
$
$
9,082
16,564
$ 646,740
$ 852,575
As Of
12/31/15
12/31/14
(1) At December 31, 2015, there were 44 mortgages on 183 properties, while at December 31, 2014, there were 57 mortgages on 241
properties. The mortgages require monthly payments, with principal payments due at maturity. The mortgages are at fixed interest rates,
except for four mortgages on 13 properties totaling $51.1 million at December 31, 2015, including net unamortized discounts. At
December 31, 2014, five mortgages on 14 properties totaling $74.5 million, including net unamortized discounts, were at variable interest
rates. After factoring in arrangements which limit our exposure to interest rate risk and effectively fix our per annum interest rates, our
variable rate mortgage debt includes two mortgages totaling $15.5 million at December 31, 2015, and three mortgages totaling
$39.1 million at December 31, 2014.
(2) Stated interest rates ranged from 2.0% to 6.9% at December 31, 2015 and December 31, 2014.
(3) Effective interest rates ranged from 2.2% to 8.9% at December 31, 2015, while effective interest rates ranged from 2.2% to 9.0% at
December 31, 2014.
The following table summarizes the maturity of mortgages payable, excluding net premiums of $9.1 million, as
of December 31, 2015 (dollars in millions):
Year of
Maturity
2016
2017
2018
2019
2020
Thereafter
Totals
7.
Term Loans
$
$
170.1
142.9
15.5
26.3
82.4
200.5
637.7
In June 2015, in conjunction with entering into our new credit facility, we entered into a $250 million senior
unsecured term loan maturing on June 30, 2020. Borrowing under this term loan bears interest at the current
one month LIBOR, plus 0.95%. In conjunction with this term loan, we also entered into an interest rate swap
which effectively fixes our per annum interest rate on this term loan at 2.67%.
In January 2013, in conjunction with our acquisition of American Realty Capital Trust, Inc., or ARCT, we entered
into a $70 million senior unsecured term loan maturing January 21, 2018. Borrowing under this term loan bears
interest at the current one month LIBOR, plus 1.2%. In conjunction with this term loan, we also entered into an
interest rate swap which effectively fixes our per annum interest rate on this term loan at 2.15%.
Deferred financing costs of $1.2 million incurred in conjunction with the $250 million term loan and $303,000
incurred in conjunction with the $70 million term loan are being amortized over the remaining terms of each term
loan. The net balance of these deferred financing costs, which was $1.2 million at December 31, 2015, and
$187,000 at December 31, 2014, is included in other assets, net on our consolidated balance sheets.
35
8.
Notes Payable
A. General
Our senior unsecured notes and bonds consisted of the following, sorted by maturity date (dollars in millions):
5.5% notes, issued in November 2003 and due in November 2015
5.95% notes, issued in September 2006 and due in September 2016
5.375% notes, issued in September 2005 and due in September 2017
2.0% notes, issued in October 2012 and due in January 2018
6.75% notes, issued in September 2007 and due in August 2019
5.75% notes, issued in June 2010 and due in January 2021
3.25% notes, issued in October 2012 and due in October 2022
4.65% notes, issued in July 2013 and due in August 2023
3.875% notes, issued in June 2014 and due in July 2024
4.125% notes, issued in September 2014 and due in October 2026
5.875% bonds, $100 issued in March 2005 and $150 issued in
June 2011, both due in March 2035
Total principal amount
Unamortized original issuance discounts
$
$
December 31,
2015
-
275
175
350
550
250
450
750
350
250
250
3,650
(13 )
$
3,637
$
December 31,
2014
150
275
175
350
550
250
450
750
350
250
250
3,800
(15 )
3,785
The following table summarizes the maturity of our notes and bonds payable as of December 31, 2015,
excluding unamortized original issuance discounts (dollars in millions):
Principal
Year of Maturity
2016
2017
2018
2019
2020
Thereafter
Totals
$
275
175
350
550
-
2,300
$
3,650
As of December 31, 2015, the weighted average interest rate on our notes and bonds payable was 4.7% and
the weighted average remaining years until maturity was 6.5 years.
Interest incurred on all of the notes and bonds was $179.5 million for 2015, $166.5 million for 2014 and
$138.9 million for 2013. The interest rate on each of these notes and bonds is fixed.
Our outstanding notes and bonds are unsecured; accordingly, we have not pledged any assets as collateral for
these or any other obligations. Interest on all of the senior note and bond obligations is paid semiannually.
All of these notes and bonds contain various covenants, including: (i) a limitation on incurrence of any debt
which would cause our debt to total adjusted assets ratio to exceed 60%; (ii) a limitation on incurrence of any
secured debt which would cause our secured debt to total adjusted assets ratio to exceed 40%; (iii) a limitation
on incurrence of any debt which would cause our debt service coverage ratio to be less than 1.5 times; and (iv)
the maintenance at all times of total unencumbered assets not less than 150% of our outstanding unsecured
debt. At December 31, 2015, we remain in compliance with these covenants.
B. Note Issuances
In September 2014, we issued $250 million of 4.125% senior unsecured notes due October 2026, or the 2026
Notes. The price to the investors for the 2026 Notes was 99.499% of the principal amount for an effective yield
of 4.178% per annum. A portion of the total net proceeds of approximately $246.4 million from this offering were
used to repay all outstanding borrowings under our credit facility, and the remaining proceeds were used for
other general corporate purposes, including additional property acquisitions.
36
In June 2014, we issued $350 million of 3.875% senior unsecured notes due July 2024, or the 2024 Notes. The
price to the investors for the 2024 Notes was 99.956% of the principal amount for an effective yield of 3.88% per
annum. The total net proceeds of approximately $346.7 million from these offerings were used to repay a
portion of the outstanding borrowings under our previous credit facility.
C. Note Repayment
In November 2015, we repaid $150 million of outstanding 5.5% notes, plus accrued and unpaid interest, using
proceeds from our October 2015 common stock offering and our new credit facility.
9. Redemption of Preferred Stock
In September 2014, we issued an irrevocable notice of redemption for all 8.8 million shares of our 6.75%
Monthly Income Class E Preferred Stock for $25 per share, plus accrued dividends. The redemption occurred
in October 2014. We incurred a charge of $6.0 million, representing the Class E preferred stock original
issuance costs that we paid in 2006.
10. Issuance of Common Stock
In October 2015, we issued 11,500,000 shares of common stock, including 1,500,000 shares purchased by the
underwriters upon the exercise of their option to purchase additional shares. After underwriting discounts and
other offering costs of $22.0 million, a portion of the net proceeds of $517.1 million was used to repay
borrowings under our new credit facility and the remaining portion was used for other general corporate
purposes, including acquisitions.
In April 2015, we issued 5,500,000 shares of common stock. After underwriting discounts and other offering
costs of $1.4 million, the net proceeds of $276.4 million were used to repay borrowings under our previous $1.5
billion unsecured credit facility.
In April 2014, we issued 13,800,000 shares of common stock, including 1,800,000 shares purchased by the
underwriters upon the exercise of their option to purchase additional shares. After underwriting discounts and
other offering costs of $22.8 million, the net proceeds of $528.6 million were used to repay borrowings under our
previous credit facility.
11. Noncontrolling Interests
In January 2013, we completed our acquisition of ARCT. We issued a total of 45,573,144 shares of our
common stock to ARCT shareholders and we received 208,709 shares of our common stock that were
previously held by ARCT. The total value of the 45,573,144 common shares was approximately $2 billion.
Equity issued as consideration for this transaction included common and preferred partnership units issued by
Tau Operating Partnership, L.P., or Tau Operating Partnership, the consolidated subsidiary which owns
properties acquired through the ARCT acquisition. Realty Income and its subsidiaries hold a 99.4% interest in
Tau Operating Partnership, and consolidate the entity.
In June 2013, we completed the acquisition of a portfolio of properties by issuing common partnership units in a
newly formed entity, Realty Income, L.P. The units were issued as consideration for the acquisition. At
December 31, 2015, the remaining units from this issuance represent a 1.4% ownership in Realty Income, L.P.
Realty Income holds the remaining 98.6% interests in this entity and consolidates the entity.
Neither of the common partnership units have voting rights. Both common partnership units are entitled
A.
to monthly distributions equal to the amount paid to common stockholders of Realty Income, and are
redeemable in cash or Realty Income common stock, at our option, and at a conversion ratio of one to one,
subject to certain exceptions. Noncontrolling interests with redemption provisions that permit the issuer to settle
in either cash or common stock, at the option of the issuer, were evaluated to determine whether temporary or
permanent equity classification on the balance sheet was appropriate. We determined that the units meet the
requirements to qualify for presentation as permanent equity.
37
The following table represents the change in the carrying value of all noncontrolling interests through
December 31, 2015 (dollars in thousands):
Carrying value at December 31, 2014
Reallocation of equity
Redemptions
Distributions
Allocation of net income
Carrying value at December 31, 2015
Carrying value at December 31, 2013
Reallocation of equity
Redemptions
Distributions
Allocation of net income
Carrying value at December 31, 2014
Tau Operating
Partnership units(1)
13,067
$
836
-
(722 )
229
13,410
$
Tau Operating
Partnership units(1)
13,489
$
-
-
(695 )
273
13,067
$
$
Realty Income, L.P.
units(2)
14,631
(1,887 )
(4,347 )
(930 )
860
8,327
$
$
Realty Income, L.P.
units(2)
22,422
(6,647 )
(1,032 )
(1,144 )
1,032
14,631
$
Total
27,698
(1,051 )
(4,347 )
(1,652 )
1,089
21,737
Total
35,911
(6,647 )
(1,032 )
(1,839 )
1,305
27,698
$
$
$
$
(1) 317,022 Tau Operating Partnership units were issued on January 22, 2013 and remained outstanding as of
December 31, 2015 and December 31, 2014.
(2) 534,546 Realty Income, L.P. units were issued on June 27, 2013, 499,546 units were outstanding as of December 31, 2014,
and 331,364 remain outstanding as of December 31, 2015.
The Tau Operating Partnership preferred units were recorded at fair value as of the date of acquisition.
B.
Since they were redeemable at a fixed price on a determinable date, we initially classified them in other liabilities
on our consolidated balance sheets. Payments on these preferred units were made monthly at a rate of 2% per
annum and were included in interest expense. As of December 31, 2014, the preferred units had a carrying
value of $6.75 million. In January 2015, we redeemed all 6,750 Tau Operating Partnership preferred units for
$1,000 per unit, plus accrued and unpaid distributions.
12.
Distributions Paid and Payable
Common Stock
A.
We pay monthly distributions to our common stockholders. The following is a summary of monthly distributions
paid per common share 2015 and 2014:
$
2015
0.1834167
0.1890000
0.1890000
0.1895000
0.1895000
0.1895000
0.1900000
0.1900000
0.1900000
0.1905000
0.1905000
0.1905000
$
2014
0.1821667
0.1821667
0.1821667
0.1824792
0.1824792
0.1824792
0.1827917
0.1827917
0.1827917
0.1831042
0.1831042
0.1831042
$
2013
0.1517500
0.1809167
0.1809167
0.1812292
0.1812292
0.1812292
0.1815417
0.1815417
0.1815417
0.1818542
0.1818542
0.1818542
$
2.2714167
$
2.1916254
$
2.1474587
Month
January
February
March
April
May
June
July
August
September
October
November
December
Total
38
The following presents the federal income tax characterization of distributions paid or deemed to be paid per
common share for the years:
Ordinary income
Nontaxable distributions
Totals
2015
1.7307023
0.5407144
2.2714167
$
$
2014
1.6483522
0.5432732
2.1916254
$
$
2013
1.3153791
0.8320796
2.1474587
$
$
At December 31, 2015, a distribution of $0.191 per common share was payable and was paid in January 2016.
At December 31, 2014, a distribution of $0.1834167 per common share was payable and was paid in January
2015.
Class E Preferred Stock
B.
Prior to the redemption of the Class E preferred stock in October 2014, dividends of $0.140625 per share were
paid monthly in arrears on the Class E preferred stock. We paid distributions to holders of our Class E preferred
stock totaling $12.7 million in 2014 and $14.9 million in 2013. For 2014, dividends paid per share in the amount
of $1.4484375 were characterized as ordinary income for federal income tax purposes, while in 2013, dividends
paid per share in the amount of $1.6875 were characterized as ordinary income for federal income tax
purposes.
Class F Preferred Stock
C.
Dividends of $0.138021 per share are paid monthly in arrears on the Class F preferred stock. We declared
dividends to holders of our Class F preferred stock totaling $27.1 million in 2015, 2014 and 2013. For 2015,
2014 and 2013, dividends paid per share of $1.656252 were characterized as ordinary income for federal
income tax purposes. At December 31, 2015, a monthly dividend of $0.138021 per share was payable and was
paid in January 2016. We are current in our obligations to pay dividends on our Class F preferred stock.
13.
Operating Leases
At December 31, 2015, we owned 4,538 properties in 49 states and Puerto Rico, plus an additional
A.
eight properties owned by Crest. Of the 4,538 properties, 4,519, or 99.6%, are single-tenant properties, and the
remaining are multi-tenant properties. At December 31, 2015, 71 properties were available for lease or sale.
Substantially all leases are net leases where the tenant pays property taxes and assessments, maintains the
interior and exterior of the building and leased premises, and carries insurance coverage for public liability,
property damage, fire and extended coverage.
Rent based on a percentage of a tenants' gross sales (percentage rents) was $4.5 million for 2015,
$3.6 million for 2014 and $2.9 million for 2013.
At December 31, 2015, minimum future annual rents to be received on the operating leases for the next five
years and thereafter are as follows (dollars in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
$
998,632
984,748
960,857
906,498
857,543
5,539,698
$
10,247,976
B.
than 10% of our total revenue for each of the years ended December 31, 2015, 2014 or 2013.
Major Tenants - No individual tenant's rental revenue, including percentage rents, represented more
14.
Gain on Sales of Real Estate
During 2015, we sold 38 investment properties for $65.8 million, which resulted in a gain of $22.2 million. The
results of operations for these properties are presented within continuing operations.
39
During 2014, we sold 46 investment properties for $107.2 million, which resulted in a gain of $42.1 million. Only
the results of operations specifically related to the properties classified as held for sale at December 31, 2013
and sold during the year were reclassified as discontinued operations.
During 2013, we sold 75 investment properties for $134.2 million, which resulted in a gain of $64.7 million. The
results of operations for these properties were reclassified as discontinued operations for all periods presented.
During 2015, Crest did not sell any properties. Crest sold one property for $820,000 and one property for
$597,000 during 2014 and 2013, respectively. Neither of these sales resulted in a gain. The results of
operations for these properties have been reclassified as discontinued operations.
15.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The disclosure for assets and
liabilities measured at fair value requires allocation to a three-level valuation hierarchy. This valuation hierarchy
is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.
Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value
measurement.
We believe that the carrying values reflected in our consolidated balance sheets reasonably approximate the fair
values for cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, line of credit
payable, term loans and all other liabilities, due to their short-term nature or interest rates and terms that are
consistent with market, except for our notes receivable issued in connection with property sales, mortgages
payable and our senior notes and bonds payable, which are disclosed below (dollars in millions):
At December 31, 2015
Notes receivable issued in connection with property sales
Mortgages payable assumed in connection with acquisitions, net
Notes and bonds payable, net of unamortized original issuance discounts
At December 31, 2014
Notes receivable issued in connection with property sales
Mortgages payable assumed in connection with acquisitions, net
Notes and bonds payable, net of unamortized original issuance discounts
$
$
Carrying value per
balance sheet
17.9
646.7
3,636.7
Carrying value per
balance sheet
18.3
852.6
3,785.4
$
$
Estimated fair
value
19.4
651.5
3,828.1
Estimated fair
value
20.1
857.9
4,092.8
The estimated fair values of our notes receivable issued in connection with property sales and our mortgages
payable have been calculated by discounting the future cash flows using an interest rate based upon the
relevant Treasury yield curve, plus an applicable credit-adjusted spread. Because this methodology includes
unobservable inputs that reflect our own internal assumptions and calculations, the measurement of estimated
fair values related to our notes receivable and mortgages payable is categorized as level three on the three-
level valuation hierarchy.
The estimated fair values of our senior notes and bonds payable are based upon indicative market prices and
recent trading activity of our senior notes and bonds payable. Because this methodology includes inputs that are
less observable by the public and are not necessarily reflected in active markets, the measurement of the
estimated fair values, related to our notes and bonds payable, is categorized as level two on the three-level
valuation hierarchy.
We record interest rate swaps on the consolidated balance sheet at fair value. The fair value of our interest rate
swaps are based on valuation techniques including discounted cash flow analysis on the expected cash flows of
each swap, using both observable and unobservable market-based inputs, including interest rate curves.
Because this methodology uses observable and unobservable inputs, the measurement of interest rate swaps is
categorized as level two on the three-level valuation hierarchy.
40
16.
Supplemental Disclosures of Cash Flow Information
Cash paid for interest was $229.5 million in 2015, $207.3 million in 2014, and $166.1 million in 2013.
Interest capitalized to properties under development was $594,000 in 2015, $444,000 in 2014, and $537,000 in
2013.
Cash paid for income taxes was $3.1 million in 2015, $3.7 million in 2014, and $2.1 million in 2013.
The following non-cash activities are included in the accompanying consolidated financial statements:
A. See “Provisions for Impairment” in note 2 for a discussion of provisions for impairments recorded by Realty
Income and Crest.
B. See note 9 for a discussion of the $6.0 million excess of redemption value over carrying value of preferred
shares subject to redemption charge recorded by Realty Income during 2014.
C. During 2014, we assumed mortgages payable to third-party lenders of $166.7 million, recorded $604,000 of
net premiums, and recorded $901,000 of interest rate swap value to other assets, net, related to property
acquisitions. During 2013, we assumed mortgages payable (excluding the mortgages payable discussed in
items D and E) of $81.3 million to third-party lenders and recorded $6.1 million of net premiums related to
property acquisitions.
D. During 2013, the following components were acquired in connection with our acquisition of ARCT: (1) real
estate investments and related intangible assets of $3.2 billion, (2) other assets of $19.5 million, (3) lines of
credit payable of $317.2 million, (4) a term loan for $235.0 million, (5) mortgages payable of $539.0 million,
(6) intangible liabilities of $79.7 million, (7) other liabilities of $29.0 million, and (8) noncontrolling interests of
$14.0 million.
E. During 2013, we acquired $55.9 million of real estate through the assumption of a $32.4 million mortgage
payable, the issuance of 534,546 units by Realty Income, L.P. and cash of $1.0 million.
F. During 2014, we applied $48.9 million of loans receivable to the purchase price of five acquired properties.
G. During 2014, we acquired real estate for $11.6 million via exchanges of our properties. During 2013, we
acquired real estate for $7.4 million via exchanges of our properties.
H. During 2013, we recorded receivables of $1.9 million for the taking of two investment properties as a result of
an eminent domain action.
I. Accrued costs on properties under development resulted in an increase in buildings and improvements and
accounts payable of $4.0 million and $5.5 million at December 31, 2014 and 2013, respectively.
17.
Employee Benefit Plan
We have a 401(k) plan covering substantially all of our employees. Under our 401(k) plan, employees may elect
to make contributions to the plan up to a maximum of 60% of their compensation, subject to limits under the
Code. We match 50% of each of our employee's salary deferrals up to the first 6% of the employee's eligible
compensation. Our aggregate matching contributions each year have been immaterial to our results of
operations.
18.
Common Stock Incentive Plan
In 2012, our Board of Directors adopted and stockholders approved the Realty Income Corporation 2012
Incentive Award Plan, or the 2012 Plan, to enable us to motivate, attract and retain the services of directors and
employees considered essential to our long-term success. The 2012 Plan offers our directors and employees an
opportunity to own stock in Realty Income or rights that will reflect our growth, development and financial
success. Under the terms of the 2012 plan, the aggregate number of shares of our common stock subject to
options, restricted stock, stock appreciation rights, restricted stock units and other awards, will be no more than
3,985,734 shares. The 2012 Plan has a term of ten years from the date it was adopted by our Board of
Directors.
The amount of share-based compensation costs recognized in general and administrative expense on our
consolidated statements of income was $10.4 million during 2015, $12.0 million during 2014, and $20.8 million
during 2013.
41
A. Restricted Stock
The following table summarizes our common stock grant activity under our 2012 Plan. Our outstanding
restricted stock vests over periods ranging from immediately to five years.
2015
2014
2013
Number of
shares
Weighted
average
price(1)
Number of
Weighted Number of
shares
average
price(1)
shares
Weighted
average
price(1)
527,176
161,949
(205,248 )
(27,595 )
$
$
$
$
29.02
50.87
37.70
45.58
722,263 $
262,655 $
(440,348 ) $
(17,394 ) $
23.37
39.87
36.88
39.07
895,550
484,060
(654,650 )
(2,697 )
$
$
$
$
19.94
41.13
30.91
37.30
Outstanding nonvested
shares, beginning of year
Shares granted
Shares vested
Shares forfeited
Outstanding nonvested
shares, end of each period
456,282
$
30.46
527,176 $
29.02
722,263
$
23.37
(1) Grant date fair value.
During 2015, we issued 161,949 shares of common stock under the 2012 Plan. These shares generally vest
over a five- year service period. However, one grant of 4,964 shares vested immediately, and of the 28,000
shares which are granted annually to our Board of Directors, 12,000 shares vested immediately, 8,000 shares
vest in one year following the grant (assuming continued service), and 8,000 shares vest over a three year
service period. Not included in the table above are 10,269 restricted stock units granted during 2015 that vest
over a five year service period and have the same economic rights as shares of restricted stock.
The vesting schedule for shares granted to non-employee directors is as follows:
− For directors with less than six years of service at the date of grant, shares vest in 33.33% increments on
each of the first three anniversaries of the date the shares of stock are granted;
− For directors with six years of service at the date of grant, shares vest in 50% increments on each of the first
two anniversaries of the date the shares of stock are granted;
− For directors with seven years of service at the date of grant, shares are 100% vested on the first
anniversary of the date the shares of stock are granted; and
− For directors with eight or more years of service at the date of grant, there is immediate vesting as of the
date the shares of stock are granted.
For shares granted on or after January 1, 2015, shares granted to employees typically vest in 20% increments
on each of the first five anniversaries of the grant date. For shares granted prior to December 2014, the typical
vesting schedule for shares granted to employees was as follows:
− For employees age 55 and below at the grant date, shares vest in 20% increments on each of the first five
anniversaries of the grant date;
− For employees age 56 at the grant date, shares vest in 25% increments on each of the first four
anniversaries of the grant date;
− For employees age 57 at the grant date, shares vest in 33.33% increments on each of the first three
anniversaries of the grant date;
− For employees age 58 at the grant date, shares vest in 50% increments on each of the first two
anniversaries of the grant date;
− For employees age 59 at the grant date, shares are 100% vested on the first anniversary of the grant date;
and
− For employees age 60 and above at the grant date, shares vest immediately on the grant date.
After being employed for six full months, all non-executive employees receive approximately 200 shares of
restricted stock which vests over a five year period. Additionally, depending on certain company performance
metrics or attainment of individual achievements, non-executive employees may receive grants of restricted
stock which vests over a five year period.
42
As of December 31, 2015, the remaining unamortized share-based compensation expense related to restricted
stock totaled $13.9 million, which is being amortized on a straight-line basis over the service period of each
applicable award. The amount of share-based compensation is based on the fair value of the stock at the grant
date. We define the grant date as the date the recipient and Realty Income have a mutual understanding of the
key terms and condition of the award, and the recipient of the grant begins to benefit from, or be adversely
affected by, subsequent changes in the price of the shares.
Due to a historically low turnover rate, we do not estimate a forfeiture rate for our nonvested shares.
Accordingly, unexpected forfeitures will lower share-based compensation expense during the applicable period.
Under the terms of our 2012 Plan, we pay non-refundable dividends to the holders of our nonvested shares.
Applicable accounting guidance requires that the dividends paid to holders of these nonvested shares be
charged as compensation expense to the extent that they relate to nonvested shares that do not or are not
expected to vest. However, since we do not estimate forfeitures given our historical trends, we did not record
any compensation expense related to dividends paid in 2015, 2014, or 2013.
As of December 31, 2015, 2014 and 2013, there were no common stock options outstanding for any of the
periods presented.
B. Performance Shares
During 2015 and 2014, we granted performance share awards, as well as dividend equivalent rights, to our
executive officers. The number of performance shares that vest is based on the achievement of the following
performance goals:
2015 Performance Awards
Metrics
Total shareholder return ("TSR") relative to MSCI US REIT Index
TSR relative to NAREIT Freestanding Index
Dividend per share growth rate
Debt-to-EBITDA ratio
2014 Performance Awards
Metrics
TSR relative to MSCI US REIT Index
TSR relative to NAREIT Freestanding Index
Debt-to-EBITDA ratio
Weighting
50%
20%
20%
10%
Weighting
60%
20%
20%
The performance shares are earned based on our performance, and vest 50% on the first and second
January 1 after the end of the three year performance period, subject to continued service. The performance
period for the 2014 performance awards began on January 1, 2014 and will end on December 31, 2016. The
performance period for the 2015 performance awards began on January 1, 2015 and will end on December 31,
2017.
The fair value of the performance shares was estimated on the date of grant using a Monte Carlo Simulation
model. The following table summarizes our performance share grant activity:
2015
Number of
performance
shares
2014
Weighted
average
price(1)
Number of
performance
shares
59,405
55,716
-
-
$
$
$
$
41.46
52.78
-
-
-
71,705
(4,067 )
(8,233 )
$
$
$
$
Weighted
average
price(1)
-
41.46
41.46
41.46
Outstanding nonvested
shares, beginning of year
Shares granted
Shares vested
Shares forfeited
Outstanding nonvested
shares, end of each period
115,121
$
46.94
59,405
$
41.46
(1) Grant date fair value.
43
As of December 31, 2015, the remaining share-based compensation expense related to the performance shares
totaled $3.2 million. The portion related to the market-based awards is being recognized on a straight-line basis
over the service period, and the portion related to the performance-based awards is being recognized on a
tranche-by-tranche basis over the service period.
19.
Dividend Reinvestment and Stock Purchase Plan
Our Dividend Reinvestment and Stock Purchase Plan, or the DRSPP, provides our common stockholders, as
well as new investors, with a convenient and economical method of purchasing our common stock and
reinvesting their distributions. The DRSPP also allows our current stockholders to buy additional shares of
common stock by reinvesting all or a portion of their distributions. The DRSPP authorizes up to 26,000,000
common shares to be issued. During 2015, we issued 7,608,354 shares and raised approximately $363.0
million under the DRSPP. During 2014, we issued 3,527,166 shares and raised approximately $158.5 million
under the DRSPP. During 2013, we issued 1,449,139 shares and raised approximately $55.6 million under the
DRSPP. From the inception of the DRSPP through December 31, 2015, we have issued 12,699,862 shares and
raised approximately $581.6 million.
In 2013, we revised our DRSPP so that we would pay for a majority of the plan-related fees, which were
previously paid by investors, and to institute a waiver approval process, allowing larger investors or institutions,
per a formal approval process, to purchase shares at a small discount, if approved by us. During 2015, we
issued 7,413,207 shares and raised $353.7 million under the waiver approval process. In 2014, we issued
3,330,556 shares and raised $150.0 million under the waiver approval process. In 2013, we issued 1,308,490
shares and raised $50.0 million under the waiver approval process. These shares are included in the total
activity noted in the preceding paragraph.
20.
At-the-Market (ATM) Program
In September 2015, we established an “at the market” equity distribution program, or our ATM program,
pursuant to which we can offer and sell up to 12,000,000 shares of common stock to, or through a consortium of
banks acting as our sales agents by means of ordinary brokers’ transactions on the NYSE or otherwise at
market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices.
During 2015, we issued 714,301 shares and raised approximately $36.3 million under the ATM program.
21.
Segment Information
We evaluate performance and make resource allocation decisions on an industry by industry basis. For financial
reporting purposes, we have grouped our tenants into 48 activity segments. All of the properties are
incorporated into one of the applicable segments. Because almost all of our leases require the tenant to pay
operating expenses, rental revenue is the only component of segment profit and loss we measure.
The following tables set forth certain information regarding the properties owned by us, classified according to
the business of the respective tenants (dollars in thousands):
44
Assets, as of December 31:
Segment net real estate:
2015
2014
Apparel
Automotive service
Automotive tire services
Beverages
Child care
Convenience stores
Dollar stores
Drug stores
Financial services
Grocery stores
Health and fitness
Health care
Home improvement
Restaurants-casual dining
Restaurants-quick service
Theaters
Transportation services
Wholesale club
30 other non-reportable segments
Total segment net real estate
Intangible assets:
Apparel
Automotive service
Automotive tire services
Beverages
Convenience stores
Dollar stores
Drug stores
Financial services
Grocery stores
Health and fitness
Health care
Home improvement
Restaurants-casual dining
Restaurants-quick service
Theaters
Transportation services
Wholesale club
Other non-reportable segments
Goodwill:
Automotive service
Automotive tire services
Child care
Convenience stores
Restaurants-casual dining
Restaurants-quick service
Other non-reportable segments
Other corporate assets
Total assets
$ 180,175
129,328
247,200
297,724
52,392
724,972
1,158,948
1,384,506
254,022
331,565
839,872
220,018
268,974
419,455
467,643
371,617
686,041
452,563
2,131,869
10,618,884
48,116
19,131
13,202
2,538
16,040
56,420
189,433
34,626
42,823
65,037
29,950
42,630
9,392
32,612
17,673
92,602
36,215
285,977
448
865
5,034
2,009
2,215
1,082
3,668
197,248
$
185,237
120,660
255,447
302,001
54,194
752,047
1,165,560
1,036,697
262,095
341,773
546,583
227,084
227,733
449,211
336,753
375,982
661,053
465,569
2,015,861
9,781,540
52,444
2,909
14,871
2,797
17,535
58,691
194,905
39,564
46,964
66,460
35,017
35,726
10,649
16,415
21,601
101,040
39,707
282,429
451
865
5,095
2,023
2,279
1,085
3,672
175,888
$ 11,865,870
$
11,012,622
45
Revenue for the years ended
December 31,
Segment rental revenue:
Apparel
Automotive service
Automotive tire services
Beverages
Child care
Convenience stores
Dollar stores
Drug stores
Financial services
Grocery stores
Health and fitness
Health care
Home improvement
Restaurants-casual dining
Restaurants-quick service
Theaters
Transportation services
Wholesale club
30 other non-reportable segments
Total rental revenue
Tenant reimbursements
Other revenue
Total revenue
2015
2014
2013
$
$
19,819
18,632
28,627
25,451
19,949
90,093
88,126
103,324
17,044
29,506
75,881
16,057
23,112
37,645
41,407
49,456
51,745
37,391
203,600
976,865
42,015
4,405
1,023,285
$
$
17,674
16,548
28,222
25,147
20,022
89,754
85,049
84,625
16,828
27,270
62,086
16,039
15,593
38,473
33,388
47,102
46,287
36,588
186,762
893,457
37,118
2,930
933,505
$
$
13,851
15,606
27,002
24,848
20,705
83,973
46,742
60,529
14,904
22,317
46,979
14,358
11,456
38,149
32,340
46,122
40,552
29,448
158,337
748,218
24,944
7,047
780,209
22.
Commitments and Contingencies
In the ordinary course of business, we are party to various legal actions which we believe are routine in nature
and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a
material adverse effect upon our consolidated financial position or results of operations.
At December 31, 2015, we had commitments of $714,000 for re-leasing costs, recurring capital expenditures,
and non-recurring building improvements. In addition, as of December 31, 2015, we had committed
$70.6 million under construction contracts, which is expected to be paid in the next twelve months.
We have certain properties that are subject to ground leases which are accounted for as operating leases. At
December 31, 2015, minimum future rental payments for the next five years and thereafter are as follows
(dollars in millions):
$
Ground
Leases
Paid by
Realty
Income (1)
1.5
1.5
1.6
1.4
1.4
23.3
$
Ground
Leases
Paid by
Our
Tenants (2)
13.3
13.3
13.3
13.2
13.0
119.0
$
$
30.7
$
185.1
$
Total
14.8
14.8
14.9
14.6
14.4
142.3
215.8
2016
2017
2018
2019
2020
Thereafter
Total
Realty Income currently pays the ground lessors directly for the rent under the ground leases.
Our tenants, who are generally sub-tenants under the ground leases, are responsible for paying the rent under
these ground leases. In the event a tenant fails to pay the ground lease rent, we are primarily responsible.
(1)
(2)
46
23.
Subsequent Events
In January 2016 and February 2016, we declared the following dividends, which will be paid in February 2016
and March 2016, respectively:
• $0.1985 per share to our common stockholders and
• $0.138021 per share to our Class F preferred stockholders.
During January and February of 2016, we repaid five mortgages in full for $129.6 million.
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Quarterly Financial Data
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(NOT COVERED BY REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM)
2015 (1)
Total revenue
Depreciation and amortization expense
Interest expense
Other expenses
Income from continuing operations
Income from discontinued operations
Net income
Net income available to common stockholders
Net income per common share
Basic
Diluted
Dividends paid per common share
2014 (1)
Total revenue
Depreciation and amortization expense
Interest expense
Other expenses
Income from continuing operations
Income from discontinued operations
Net income
Net income available to common stockholders
Net income per common share
Basic
Diluted
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year (2)
246,867 $
98,037
58,468
29,999
67,581
-
67,581
60,494
253,860 $
101,101
58,680
31,404
66,350
-
66,350
59,317
258,889 $
104,338
63,950
29,012
67,813
-
67,813
60,705
263,668 $ 1,023,285
409,215
105,739
233,079
51,982
118,379
27,962
284,855
83,111
-
-
284,855
83,111
256,686
76,171
0.27
0.27
0.5614167
0.26
0.25
0.5685000
0.26
0.26
0.5700000
0.31
0.31
0.5715000
1.09
1.09
2.2714167
221,572 $
89,970
51,720
26,237
54,916
3,077
57,993
47,179
228,646 $
92,894
52,712
22,783
62,221
20
62,241
51,420
235,713 $
95,260
52,814
24,987
73,627
-
73,627
57,941
247,573 $
96,537
59,120
38,536
78,374
(297 )
78,077
71,018
933,505
374,661
216,366
112,543
269,140
2,800
271,940
227,558
0.23
0.23
0.23
0.23
0.26
0.26
0.32
0.32
1.04
1.04
Dividends paid per common share
0.5614167
0.5685000
0.5700000
0.5715000
2.1916254
(1) The consolidated quarterly financial data includes revenues and expenses from our continuing and discontinued operations. The
results of operations related to certain properties, classified as held for sale or disposed of, have been reclassified to income from
discontinued operations. Additionally, tenant reimbursements have been reported as a component of total revenue and
reimbursable property expense have been reported as a component of total expenses. Therefore, some of the information may not
agree to our previously filed 10-Qs.
(2) Amounts for each period are calculated independently. The sum of the quarters may differ from the annual amount.
47
REALTY INCOME CORPORATION AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Realty Income Corporation:
We have audited the accompanying consolidated balance sheets of Realty Income Corporation and subsidiaries
as of December 31, 2015 and 2014, and the related consolidated statements of income, equity, and cash flows
for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements
are the responsibility of Realty Income Corporation’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Realty Income Corporation and subsidiaries as of December 31, 2015 and 2014, and the
results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2015, in conformity with U.S. generally accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, Realty Income Corporation changed its method
for reporting discontinued operations in 2014 due to the adoption of FASB Accounting Standards Update
No. 2014-08.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Realty Income Corporation’s internal control over financial reporting as of December 31, 2015,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 11, 2016
expressed an unqualified opinion on the effectiveness of Realty Income Corporation’s internal control over
financial reporting.
San Diego, California
February 11, 2016
48
REALTY INCOME CORPORATION AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm, Continued
The Board of Directors and Stockholders
Realty Income Corporation:
We have audited Realty Income Corporation’s internal control over financial reporting as of December 31, 2015,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Realty Income Corporation’s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on Realty Income
Corporation’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Realty Income Corporation maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2015, based on Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Realty Income Corporation and subsidiaries as of
December 31, 2015 and 2014, and the related consolidated statements of income, equity and cash flows for each
of the years in the three-year period ended December 31, 2015, and our report dated February 11, 2016 expressed
an unqualified opinion on those consolidated financial statements.
San Diego, California
February 11, 2016
49
REALTY INCOME CORPORATION AND SUBSIDIARIES
Business Description
THE COMPANY
Realty Income, The Monthly Dividend Company®, is an S&P 500 real estate company with the primary business
objective of generating dependable monthly cash dividends from a consistent and predictable level of cash flow
from operations. Our monthly dividends are supported by the cash flow from our property portfolio. We have in-
house acquisition, portfolio management, asset management, credit research, real estate research, legal,
finance and accounting, information technology, and capital markets capabilities. Over the past 47 years, Realty
Income has been acquiring and managing freestanding commercial properties that generate rental revenue
under long-term net lease agreements.
Realty Income (NYSE: O) was founded in 1969, and listed on the New York Stock Exchange, or NYSE, in 1994.
We elected to be taxed as a real estate investment trust, or REIT, requiring us to distribute dividends to our
stockholders aggregating at least 90% of our taxable income (excluding net capital gains).
We seek to increase earnings and distributions to stockholders through active portfolio management, asset
management and the acquisition of additional properties.
Generally, our portfolio and asset management efforts seek to achieve:
• Contractual rent increases on existing leases;
• Rent increases at the termination of existing leases, when market conditions permit;
• Optimum exposure to certain tenants and markets through re-leasing vacant properties and selectively
selling properties;
• Maximum asset-level returns on properties re-leased and/or sold;
• Optimum value of the existing portfolio by enhancing individual properties, pursuing alternative uses, and
deriving ancillary revenue; and
Investment opportunities in new asset classes for the portfolio.
•
At December 31, 2015, we owned a diversified portfolio:
• Of 4,538 properties;
• With an occupancy rate of 98.4%, or 4,467 properties leased and 71 properties available for lease;
• Leased to 240 different commercial tenants doing business in 47 separate industries;
• Located in 49 states and Puerto Rico;
• With over 76.0 million square feet of leasable space; and
• With an average leasable space per property of approximately 16,750 square feet; approximately 11,550
square feet per retail property and 216,550 square feet per industrial property.
Of the 4,538 properties in the portfolio, 4,519, or 99.6%, are single-tenant properties, and the remaining are
multi-tenant properties. At December 31, 2015, of the 4,519 single-tenant properties, 4,448 were leased with a
weighted average remaining lease term (excluding rights to extend a lease at the option of the tenant) of
approximately 10.0 years.
Our ten senior officers owned 0.2% of our outstanding common stock with a market value of $30.6 million at
January 29, 2016. Our directors and ten senior officers, as a group, owned 0.3% of our outstanding common
stock with a market value of $46.5 million at January 29, 2016.
Our common stock is listed on the NYSE under the ticker symbol "O" with a CUSIP number of 756109-104. Our
central index key number is 726728.
Our 6.625% Monthly Income Class F Cumulative Redeemable Preferred Stock, or the Class F preferred stock,
is listed on the NYSE under the ticker symbol “OprF” with a CUSIP number of 756109-807.
In January 2016, we had 132 employees, as compared to 125 employees in January 2015.
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We maintain a corporate website at www.realtyincome.com. On our website we make available, free of charge,
copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, Form 3s, Form 4s, Form 5s, current
reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we
electronically file these reports with the Securities and Exchange Commission, or SEC. None of the information
on our website is deemed to be part of this report.
RECENT DEVELOPMENTS
Increases in Monthly Dividends to Common Stockholders
We have continued our 47-year policy of paying monthly dividends. In addition, we increased the dividend five
times during 2015, and two times during 2016. As of February 2016, we have paid 73 consecutive quarterly
dividend increases and increased the dividend 84 times since our listing on the NYSE in 1994.
2015 Dividend increases
1st increase
2nd increase
3rd increase
4th increase
5th increase
2016 Dividend increases
1st increase
2nd increase
Month
Declared
Dec 2014
Jan 2015
Mar 2015
Jun 2015
Sep 2015
Month
Paid
Jan 2015
Feb 2015
Apr 2015
Jul 2015
Oct 2015
Dividend
per share
Increase
per share
$ 0.1834167 $ 0.0003125
0.1890000 0.0055833
0.1895000 0.0005000
0.1900000 0.0005000
0.1905000 0.0005000
Dec 2015
Jan 2016
Jan 2016
Feb 2016
$ 0.1910000 $ 0.0005000
$ 0.1985000 $ 0.0075000
The dividends paid per share during 2015 totaled approximately $2.2714167, as compared to approximately
$2.1916254 during 2014, an increase of $0.0798, or 3.6%.
The monthly dividend of $0.1985 per share represents a current annualized dividend of $2.382 per share, and
an annualized dividend yield of approximately 4.3% based on the last reported sale price of our common stock
on the NYSE of $55.79 on January 29, 2016. Although we expect to continue our policy of paying monthly
dividends, we cannot guarantee that we will maintain our current level of dividends, that we will continue our
pattern of increasing dividends per share, or what our actual dividend yield will be in any future period.
Acquisitions During 2015
During 2015, we invested $1.26 billion in 286 new properties and properties under development or expansion,
with an initial weighted average contractual lease rate of 6.6%. The 286 new properties and properties under
development or expansion are located in 40 states, will contain approximately 6.2 million leasable square feet,
and are 100% leased with a weighted average lease term of 16.5 years. The tenants occupying the new
properties operate in 21 industries and the property types consist of 87.3% retail and 12.7% industrial, based on
rental revenue. During 2015, none of our real estate investments caused any one tenant to be 10% or more of
our total assets at December 31, 2015.
The estimated initial weighted average contractual lease rate for a property is generally computed as estimated
contractual net operating income, which, in the case of a net leased property, is equal to the aggregate base
rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a tenant
could default on the payment of contractual rent, we cannot provide assurance that the actual return on the
funds invested will remain at the percentages listed above.
In the case of a property under development or expansion, the contractual lease rate is generally fixed such that
rent varies based on the actual total investment in order to provide a fixed rate of return. When the lease does
not provide for a fixed rate of return on a property under development or expansion, the estimated initial
weighted average contractual lease rate is computed as follows: estimated net operating income (determined by
the lease) for the first full year of each lease, divided by our projected total investment in the property, including
land, construction and capitalized interest costs. Of the $1.26 billion we invested during 2015, $45.8 million was
invested in 35 properties under development or expansion with an estimated initial weighted average
contractual lease rate of 9.7%. We may continue to pursue development or expansion opportunities under
similar arrangements in the future.
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PORTFOLIO DISCUSSION
Leasing Results
At December 31, 2015, we had 71 properties available for lease out of 4,538 properties in our portfolio, which
represents a 98.4% occupancy rate based on the number of properties in our portfolio. Since December 31,
2014, when we reported 70 properties available for lease out of 4,327 and a 98.4% occupancy rate, we:
• Had 283 lease expirations;
• Re-leased 253 properties; and
• Sold 29 vacant properties.
Of the 253 properties re-leased during 2015, 216 properties were re-leased to existing tenants, seven were re-
leased to new tenants without vacancy, and 30 were re-leased to new tenants after a period of vacancy. The
annual rent on these 253 leases was $37.46 million, as compared to the previous rent on these same properties
of $37.12 million, which represents a rent recapture rate of 100.9% on the properties re-leased during 2015.
At December 31, 2015, our average annualized rental revenue was approximately $13.31 per square foot on the
4,467 leased properties in our portfolio. At December 31, 2015, we classified ten properties with a carrying
amount of $9.8 million as held for sale on our balance sheet. The expected disposal of these properties does
not represent a strategic shift that will have a major effect on our operations and financial results.
Investments in Existing Properties
In 2015, we capitalized costs of $11.5 million on existing properties in our portfolio, consisting of $748,000 for
re-leasing costs, $7.6 million for recurring capital expenditures and $3.2 million for non-recurring building
improvements. In 2014, we capitalized costs of $6.0 million on existing properties in our portfolio.
As part of our re-leasing costs, we typically pay leasing commissions and sometimes provide tenant rent
concessions. Leasing commissions are paid based on the commercial real estate industry standard and any
rent concessions provided are minimal. We do not consider the collective impact of the leasing commissions or
tenant rent concessions to be material to our financial position or results of operations.
The majority of our building improvements relate to roof repairs, HVAC improvements, and parking lot
resurfacing and replacements. It is not customary for us to offer significant tenant improvements on our
properties as tenant incentives. The amounts of our capital expenditures can vary significantly, depending on
the rental market, tenant credit worthiness, the lease term and the willingness of tenants to pay higher rents
over the terms of the leases.
At-the-Market (ATM) Program
In September 2015, we established an “at the market” equity distribution program, or our ATM program,
pursuant to which we can offer and sell up to 12,000,000 shares of common stock to, or through a consortium of
banks acting as our sales agents by means of ordinary brokers’ transactions on the NYSE or otherwise at
market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices.
During 2015, we issued 714,301 shares and raised approximately $36.3 million under the ATM program.
New Credit Facility
In June 2015, we closed on a $2.25 billion unsecured credit facility, or our new credit facility. Our new credit
facility is comprised of a $2.0 billion revolving credit facility and a $250 million five-year unsecured term loan. As
of December 31, 2015, $1.76 billion was available on our new credit facility to fund additional acquisitions and
for other general corporate purposes.
Inclusion in S&P Indices
In January 2015, we were added to the S&P High Yield Dividend Aristocrats® index. In April 2015, we were
added to the S&P 500 index and are one of 26 REITs, and the only net lease REIT included in this index.
Issuance of Common Stock
In April 2015, we issued 5,500,000 shares of common stock. After underwriting discounts and other offering
costs of $1.4 million, the net proceeds of $276.4 million were used to repay borrowings under our previous
$1.5 billion unsecured credit facility.
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In October 2015, we issued 11,500,000 shares of common stock, including 1,500,000 shares purchased by the
underwriters upon the exercise of their option to purchase additional shares. After underwriting discounts and
other offering costs of $22.0 million, a portion of the net proceeds of $517.1 million was used to repay
borrowings under our new credit facility and the remaining portion was used for other general corporate
purposes, including acquisitions.
Dividend Reinvestment and Stock Purchase Plan
Our Dividend Reinvestment and Stock Purchase Plan, or the DRSPP, provides our common stockholders, as
well as new investors, with a convenient and economical method of purchasing our common stock and
reinvesting their distributions. The DRSPP also allows our current stockholders to buy additional shares of
common stock by reinvesting all or a portion of their distributions. The DRSPP authorizes up to 26,000,000
common shares to be issued. In 2013, we revised our DRSPP so that we would pay for a majority of the plan-
related fees, which were previously paid by investors, and to institute a waiver approval process, allowing larger
investors or institutions, per a formal approval process, to purchase shares at a small discount, if approved by
us. During 2015, we issued 7,608,354 shares and raised approximately $363.0 million under the DRSPP, of
which 7,413,207 shares and $353.7 million was raised under the waiver approval process.
Net Income Available to Common Stockholders
Net income available to common stockholders was $256.7 million in 2015, compared to $227.6 million in 2014,
an increase of $29.1 million. On a diluted per common share basis, net income was $1.09 in 2015, as compared
to $1.04 in 2014, an increase of $0.05, or 4.8%. Net income available to common stockholders for 2014 includes
a non-cash redemption charge of $6.0 million on the shares of Class E preferred stock that were redeemed in
October 2014, which represents $0.03 on a diluted per common share basis. This charge is for the excess of
redemption value over the carrying value of the Class E preferred stock and represents the original issuance
cost that was paid in 2006.
The calculation to determine net income available to common stockholders includes impairments and/or gains
from the sale of properties. The amount of impairments and/or gains varies from period to period based on the
timing of property sales and can significantly impact net income available to common stockholders.
Gains from the sale of properties during 2015 were $22.2 million, as compared to gains from the sale of
properties of $42.1 million during 2014.
Funds from Operations (FFO) Available to Common Stockholders
In 2015, our FFO increased by $89.5 million, or 15.9%, to $652.4 million, compared to $562.9 million in 2014.
On a diluted per common share basis, FFO was $2.77 in 2015, compared to $2.58 in 2014, an increase of
$0.19, or 7.4%. Our FFO in 2014 included a non-cash redemption charge of $6.0 million on the shares of
Class E preferred stock that were redeemed in October 2014, which represents $0.03 on a diluted per common
share basis.
Adjusted Funds from Operations (AFFO) Available to Common Stockholders
In 2015, our AFFO increased by $85.3 million, or 15.2%, to $647.0 million versus $561.7 million in 2014. On a
diluted per common share basis, AFFO was $2.74 in 2015, compared to $2.57 in 2014, an increase of $0.17, or
6.6%.
See our discussion of FFO and AFFO (which are not financial measures under generally accepted accounting
principles, or GAAP), later in the section entitled “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” in this annual report, which includes a reconciliation of net income available to
common stockholders to FFO and AFFO.
DIVIDEND POLICY
Distributions are paid monthly to holders of shares of our common stock and Class F preferred stock if, and
when, declared by our Board of Directors.
Distributions are paid monthly to the limited partners holding common units of Tau Operating Partnership, L.P.
and Realty Income, L.P., each on a per unit basis that is generally equal to the amount paid per share to our
common stockholders.
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In order to maintain our status as a REIT for federal income tax purposes, we generally are required to distribute
dividends to our stockholders aggregating annually at least 90% of our taxable income (excluding net capital
gains), and we are subject to income tax to the extent we distribute less than 100% of our taxable income
(including net capital gains). In 2015, our cash distributions to preferred and common stockholders totaled
$560.3 million, or approximately 136.9% of our estimated taxable income of $409.4 million. Our estimated
taxable income reflects non-cash deductions for depreciation and amortization. Our estimated taxable income is
presented to show our compliance with REIT dividend requirements and is not a measure of our liquidity or
operating performance. We intend to continue to make distributions to our stockholders that are sufficient to
meet this dividend requirement and that will reduce or eliminate our exposure to income taxes. Furthermore, we
believe our funds from operations are sufficient to support our current level of cash distributions to our
stockholders. Our cash distributions to common stockholders in 2015 totaled $533.2 million, representing 82.4%
of our adjusted funds from operations available to common stockholders of $647.0 million. In comparison, our
2014 cash distributions to common stockholders totaled $479.3 million, representing 85.3% of our adjusted
funds from operations available to common stockholders of $561.7 million.
The Class F preferred stockholders receive cumulative distributions at a rate of 6.625% per annum on the
$25.00 per share liquidation preference (equivalent to $1.65625 per annum per share). Dividends on our Class
F preferred stock are current.
Future distributions will be at the discretion of our Board of Directors and will depend on, among other things,
our results of operations, FFO, AFFO, cash flow from operations, financial condition, capital requirements, the
annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended,
or the Code, our debt service requirements, and any other factors the Board of Directors may deem relevant. In
addition, our new credit facility contains financial covenants that could limit the amount of distributions payable
by us in the event of a default, and which prohibit the payment of distributions on the common or preferred stock
in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on
borrowings under our new credit facility.
Distributions of our current and accumulated earnings and profits for federal income tax purposes generally will
be taxable to stockholders as ordinary income, except to the extent that we recognize capital gains and declare
a capital gains dividend, or that such amounts constitute "qualified dividend income" subject to a reduced rate of
tax. The maximum tax rate of non-corporate taxpayers for "qualified dividend income" is generally 20%. In
general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income,
except to the extent that certain holding requirements have been met with respect to the REIT’s stock and the
REIT’s dividends are attributable to dividends received from certain taxable corporations (such as our taxable
REIT subsidiaries) or to income that was subject to tax at the corporate or REIT level (for example, if we
distribute taxable income that we retained and paid tax on in the prior taxable year).
Distributions in excess of earnings and profits generally will first be treated as a non-taxable reduction in the
stockholders' basis in their stock, but not below zero. Distributions in excess of that basis generally will be
taxable as a capital gain to stockholders who hold their shares as a capital asset. Approximately 23.8% of the
distributions to our common stockholders, made or deemed to have been made in 2015, were classified as a
return of capital for federal income tax purposes. We estimate that in 2016, between 20% and 35% of the
distributions may be classified as a return of capital.
BUSINESS PHILOSOPHY AND STRATEGY
Investment Philosophy
We believe that owning an actively managed, diversified portfolio of commercial properties under long-term, net
leases produces consistent and predictable income. A net lease typically requires the tenant to be responsible
for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance.
In addition, tenants of our properties typically pay rent increases based on: (1) increases in the consumer price
index (typically subject to ceilings), (2) fixed increases, or (3) additional rent calculated as a percentage of the
tenants' gross sales above a specified level. We believe that a portfolio of properties under long-term, net leases
generally produces a more predictable income stream than many other types of real estate portfolios, while
continuing to offer the potential for growth in rental income.
Diversification is also a key component of our investment philosophy. We believe that diversification of the
portfolio by tenant, industry, geography, and, to a certain extent, property type leads to more predictable
54
investment results for our shareholders by reducing vulnerability that can come with any single concentration.
Our investment efforts have led to a diversified property portfolio that, as of December 31, 2015, consisted of
4,538 properties located in 49 states and Puerto Rico, leased to 240 different commercial tenants doing
business in 47 industries. Each of the 47 industries represented in our property portfolio individually accounted
for no more than 10.9% of our rental revenue for the quarter ended December 31, 2015. Since 1970, our
occupancy rate at the end of each year has never been below 96%. However, we cannot assure you that our
future occupancy levels will continue to equal or exceed 96%.
Investment Strategy
Our investment strategy is to act as a source of capital to regional and national tenants by acquiring and leasing
back their real estate locations. When identifying new properties for investment, we generally focus on acquiring
the real estate tenants consider important to the successful operation of their business. We generally seek to
acquire real estate that has the following characteristics:
• Properties that are freestanding, commercially-zoned with a single tenant;
• Properties that are in significant markets or strategic locations critical to generating revenue for regional and
national tenants (i.e. they need the property in which they operate in order to conduct their business);
• Properties that we deem to be profitable for the tenants and/or can generally be characterized as important
to the successful operations of the company’s business;
• Properties that are located within attractive demographic areas relative to the business of our tenants, and
have good visibility and easy access to major thoroughfares;
• Properties with real estate valuations that approximate replacement costs;
• Properties with rental or lease payments that approximate market rents; and
• Properties that can be purchased with the simultaneous execution or assumption of long-term, net lease
agreements, offering both current income and the potential for future rent increases.
We seek to invest in industries in which several, well-organized, regional and national tenants are capturing
market share through the selection of prime locations, service, quality control, economies of scale, strong
consumer brands, and advertising. In addition, we frequently acquire large portfolios of single-tenant properties
net leased to different tenants operating in a variety of industries. We have an internal team dedicated to
sourcing such opportunities, often using our relationships with various tenants, owners/developers, and advisers
to uncover and secure transactions. We also undertake thorough research and analysis to identify what we
consider to be appropriate property locations, tenants, and industries for investment. This research expertise is
instrumental to uncovering net lease opportunities in markets where we believe we can add value.
In selecting potential investments, we look for tenants with the following attributes:
• Tenants with reliable and sustainable cash flow;
• Tenants with revenue and cash flow from multiple sources;
• Tenants that are willing to sign a long-term lease (10 or more years); and
• Tenants that are large owners and users of real estate.
From a retail perspective, our investment strategy is to target tenants that have a service, non-discretionary,
and/or low-price-point component to their business. We believe these characteristics better position tenants to
operate in a variety of economic conditions and to compete more effectively with internet retailers. As a result of
the execution of this strategy, over 90% of our annualized retail rental revenue is derived from tenants with a
service, non-discretionary, and/or low price point component to their business. From a non-retail perspective,
we target industrial properties leased to Fortune 1000, primarily investment grade rated companies. We believe
rental revenue generated from businesses with these characteristics is generally more durable and stable.
After applying this investment strategy, we pursue those transactions where we can achieve an attractive
investment spread over our cost of capital and favorable risk-adjusted returns.
Underwriting Strategy
We believe the principal financial obligations for most of our tenants typically include their bank and other debt,
payment obligations to suppliers, and real estate lease obligations. Because we typically own the land and
building in which a tenant conducts its business or which are critical to the tenant’s ability to generate revenue,
we believe the risk of default on a tenant’s lease obligation is less than the tenant’s unsecured general
55
obligations. It has been our experience that tenants must retain their profitable and critical locations in order to
survive. Therefore, in the event of reorganization, they are less likely to reject a lease of a profitable or critical
location because this would terminate their right to use the property. Thus, as the property owner, we believe
that we will fare better than unsecured creditors of the same tenant in the event of reorganization. If a property is
rejected by the tenant during reorganization, we own the property and can either lease it to a new tenant or sell
the property. In addition, we believe that the risk of default on real estate leases can be further mitigated by
monitoring the performance of the tenants' individual locations and considering whether to proactively sell
locations that are weaker performers.
In order to be considered for acquisition, properties must meet stringent investment and credit requirements.
The properties must generate attractive current yields and the tenant must meet our credit criteria. We have
established a four-part analysis that examines each potential investment based on:
Industry, company, market conditions, and credit profile;
• Overall real estate characteristics, including property value and comparative rental rates;
•
• Store profitability for retail locations, if profitability data is available; and
• The importance of the real estate location to the operations of the tenants’ business.
Prior to entering into any transaction, our research department conducts a review of a tenant’s credit quality.
The information reviewed may include reports and filings, including any public credit ratings, financial
statements, debt and equity analyst reports, and reviews of corporate credit spreads, stock prices, market
capitalization, and other financial metrics. We conduct additional due diligence, including additional financial
reviews of the tenant and a more comprehensive review of the business segment and industry in which the
tenant operates. We continue to monitor our tenants’ credit quality on an ongoing basis by reviewing the
available information previously discussed, and providing summaries of these findings to management. We
estimate that approximately 44% of our annualized rental revenue comes from properties leased to investment
grade rated companies or their subsidiaries. At December 31, 2015, our top 20 tenants represent approximately
55% of our annualized revenue and eight of these tenants have investment grade credit ratings or are
subsidiaries of investment grade companies.
Asset Management Strategy
The active management of the property portfolio is an essential component of our long-term strategy. We
continually monitor our portfolio for any changes that could affect the performance of our tenants, our tenants’
industries and the locations in which we have invested. We also regularly analyze our portfolio with a view
towards optimizing its returns and enhancing its overall credit quality.
We regularly review and analyze:
• The quality of the underlying real estate locations;
• The performance of the various industries of our tenants; and
• The operation, management, business planning, and financial condition of our tenants.
We have an active asset management program that incorporates the sale of assets when we believe the
reinvestment of the sale proceeds will:
• Generate higher returns;
• Enhance the credit quality of our real estate portfolio;
• Extend our average remaining lease term; or
• Decrease tenant or industry concentration.
At December 31, 2015, we classified ten properties with a carrying amount of $9.8 million as held for sale on our
balance sheet. For 2016, we intend to continue our active disposition efforts to further enhance our real estate
portfolio and anticipate $50 to $75 million in property sales in 2016. We intend to invest these proceeds into
new property acquisitions, if there are attractive opportunities available. However, we cannot guarantee that we
will sell properties during 2016 at our estimated values or be able to invest the property sale proceeds in new
properties.
Capital Philosophy
Historically, we have met our long term capital needs by issuing common stock, preferred stock and long-term
unsecured notes and bonds. Over the long-term, we believe that common stock should be the majority of our
capital structure; however, we may issue additional preferred stock or debt securities. We may issue common
56
stock when we believe that our share price is at a level that allows for the proceeds of any offering to be
accretively invested into additional properties. In addition, we may issue common stock to permanently finance
properties that were financed by our new credit facility or debt securities. However, we cannot assure you that
we will have access to the capital markets at times and at terms that are acceptable to us.
Our primary cash obligations, for the current year and subsequent years, are included in the “Table of
Obligations,” which is presented later in this section. We expect to fund our operating expenses and other short-
term liquidity requirements, including property acquisitions and development costs, payment of principal and
interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to
common and preferred stockholders, primarily through cash provided by operating activities, borrowing on our
new credit facility and periodically through public securities offerings.
Conservative Capital Structure
We believe that our stockholders are best served by a conservative capital structure. Therefore, we seek to
maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. At
December 31, 2015, our total outstanding borrowings of senior unsecured notes and bonds, term loans,
mortgages payable and credit facility borrowings were $4.85 billion, or approximately 26.6% of our total market
capitalization of $18.22 billion.
We define our total market capitalization at December 31, 2015 as the sum of:
• Shares of our common stock outstanding of 250,416,757, plus total common units outstanding of 648,386,
multiplied by the last reported sales price of our common stock on the NYSE of $51.63 per share on
December 31, 2015, or $12.96 billion;
• Aggregate liquidation value (par value of $25.00 per share) of the Class F preferred stock of $408.8 million;
• Outstanding borrowings of $238.0 million on our new credit facility;
• Outstanding mortgages payable of $637.7 million, excluding net mortgage premiums of $9.1 million;
• Outstanding borrowings of $320.0 million on our term loans; and
• Outstanding senior unsecured notes and bonds of $3.65 billion, excluding unamortized original issuance
discounts of $13.3 million.
Impact of Real Estate and Credit Markets
In the commercial real estate market, property prices generally continue to fluctuate. Likewise, during certain
periods, the U.S. credit markets have experienced significant price volatility, dislocations, and liquidity
disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real
estate and U.S. credit markets carefully and, if required, will make decisions to adjust our business strategy
accordingly.
Universal Shelf Registration
In December 2015, we filed a shelf registration statement with the SEC, which is effective for a term of three
years and will expire in December 2018. This replaced our prior shelf registration statement. In accordance with
SEC rules, the amount of securities to be issued pursuant to this shelf registration statement was not specified
when it was filed and there is no specific dollar limit. The securities covered by this registration statement
include (1) common stock, (2) preferred stock, (3) debt securities, (4) depositary shares representing fractional
interests in shares of preferred stock, (5) warrants to purchase debt securities, common stock, preferred stock,
or depositary shares, and (6) any combination of these securities. We may periodically offer one or more of
these securities in amounts, prices and on terms to be announced when and if these securities are offered. The
specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in
detail in a prospectus supplement, or other offering materials, at the time of any offering.
$2.0 Billion Revolving Credit Facility
In June 2015, we entered into a new $2 billion unsecured revolving credit facility, which replaced our
$1.5 billion credit facility that was scheduled to expire in May 2016. The initial term of our new credit facility
expires in June 2019 and includes, at our option, two six-month extensions. Our new credit facility has a
$1.0 billion accordion expansion option. Under our new credit facility, our current investment grade credit
ratings provide for financing at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 0.9%,
with a facility commitment fee of 0.15%, for all-in drawn pricing of 1.05% over LIBOR. The borrowing rate is
subject to an interest rate floor. We also have other interest rate options available to us under our new credit
facility. Our new credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for
this obligation.
57
At December 31, 2015, we had a borrowing capacity of $1.76 billion available on our new credit facility and an
outstanding balance of $238.0 million. The interest rate on borrowings outstanding under our new credit facility,
at December 31, 2015, was 1.2% per annum. We must comply with various financial and other covenants in
our credit facility. At December 31, 2015, we remain in compliance with these covenants. We expect to use our
new credit facility to acquire additional properties and for other general corporate purposes. Any additional
borrowings will increase our exposure to interest rate risk.
We generally use our credit facility for the short-term financing of new property acquisitions. Thereafter, we
generally seek to refinance those borrowings with the net proceeds of long-term or permanent financing, which
may include the issuance of common stock, preferred stock or debt securities. We cannot assure you, however,
that we will be able to obtain any such refinancing, or that market conditions prevailing at the time of the
refinancing will enable us to issue equity or debt securities at acceptable terms.
Cash Reserves
We are organized to operate as an equity REIT that acquires and leases properties and distributes to
stockholders, in the form of monthly cash distributions, a substantial portion of our net cash flow generated from
leases on our properties. We intend to retain an appropriate amount of cash as working capital. At
December 31, 2015, we had cash and cash equivalents totaling $40.3 million.
We believe that our cash and cash equivalents on hand, cash provided from operating activities, and borrowing
capacity is sufficient to meet our liquidity needs for the next twelve months. We intend, however, to use
permanent or long-term capital to fund property acquisitions and to repay future borrowings under our new credit
facility.
Credit Agency Ratings
The borrowing interest rates under our new credit facility are based upon our ratings assigned by credit rating
agencies. We are currently assigned the following investment grade corporate credit ratings on our senior
unsecured notes and bonds: Moody’s Investors Service has assigned a rating of Baa1 with a “stable” outlook,
Standard & Poor’s Ratings Group has assigned a rating of BBB+ with a “stable” outlook to our senior notes, and
Fitch Ratings has assigned a rating of BBB+ with a “stable” outlook.
Based on our current ratings, the current facility interest rate is LIBOR plus 0.9% with a facility commitment fee
of 0.15%, for all-in drawn pricing of 1.05% over LIBOR. Our new credit facility provides that the interest rate can
range between: (i) LIBOR plus 1.55% if our credit rating is lower than BBB-/Baa3 or unrated and (ii) LIBOR plus
0.85% if our credit rating is A-/A3 or higher. In addition, our credit facility provides for a facility commitment fee
based on our credit ratings, which range from: (i) 0.3% for a rating lower than BBB-/Baa3 or unrated, and (ii)
0.125% for a credit rating of A-/A3 or higher.
We also issue senior debt securities from time to time and our credit ratings can impact the interest rates
charged in those transactions. If our credit ratings or ratings outlook change, our cost to obtain debt financing
could increase or decrease. The credit ratings assigned to us could change based upon, among other things,
our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating
agencies and we cannot assure you that our ratings will not be changed or withdrawn by a rating agency in the
future if, in its judgment, circumstances warrant. Moreover, a rating is not a recommendation to buy, sell or hold
our debt securities, preferred stock or common stock.
Notes Outstanding
As of December 31, 2015, we had $3.65 billion of senior unsecured note and bond obligations, excluding
unamortized original issuance discounts of $13.3 million. All of our outstanding notes and bonds have fixed
interest rates. Interest on all of our senior note and bond obligations is paid semiannually.
Mortgage Debt
As of December 31, 2015, we had $637.7 million of mortgages payable, all of which were assumed in
connection with our property acquisitions. Additionally, at December 31, 2015, we had net premiums totaling
$9.1 million on these mortgages. We expect to pay off the mortgages payable as soon as prepayment penalties
have declined to a level that would make it economically feasible to do so. During 2015, we made $198.4
million of principal payments, including the repayment of 13 mortgages in full for $191.0 million.
58
Term Loans
In June 2015, in conjunction with entering into our new credit facility, we entered into a $250 million senior
unsecured term loan maturing June 30, 2020. Borrowing under this term loan bears interest at LIBOR, plus
0.95%. In conjunction with this term loan, we also entered into an interest rate swap which effectively fixes our
per annum interest rate on this term loan at 2.67%.
In January 2013, in conjunction with our acquisition of American Realty Capital Trust, ARCT, we entered into a
$70 million senior unsecured term loan maturing in January 2018. Borrowing under the term loan bears interest
at LIBOR, plus 1.20%. In conjunction with this term loan, we also acquired an interest rate swap which
effectively fixes our per annum interest rate on this term loan at 2.15%.
No Unconsolidated Investments
We have no unconsolidated investments, nor do we engage in trading activities involving energy or commodity
contracts.
Corporate Responsibility
We are committed to providing an engaging, diverse, and safe work environment for our employees, to
upholding our corporate responsibilities as a public company operating for the benefit of our shareholders, and
to operating our company in an environmentally conscious manner. As The Monthly Dividend Company®, our
mission is to provide monthly dividends to our shareholders that increase over time. How we manage and use
the physical, financial and talent resources that enable us to achieve this mission, demonstrates our
commitment to corporate responsibility.
Social Responsibility and Ethics. An extension of our mission is our commitment to being socially responsible
and conducting our business according to the highest ethical standards. Our employees are awarded
compensation that is in line with those of our peers and competitors, including generous healthcare benefits for
employees and their families; participation in a 401(k) plan with a matching contribution by Realty Income;
competitive paid time-off benefits; and an infant-at-work program for new parents. Our employees have access
to members of our Board of Directors to report anonymously, if desired, any suspicion of misconduct by any
member of our senior management or executive team. We also have a longstanding commitment to equal
employment opportunity and adhere to all Equal Employer Opportunity Policy guidelines. We apply the
principles of full and fair disclosure in all of our business dealings, as outlined in our Corporate Code of
Business Ethics. We are also committed to dealing fairly with all of our customers, suppliers, and competitors.
Realty Income and our employees have taken an active role in supporting our communities through civic
involvement with charitable organizations and corporate donation. Focusing our impact on social and
environmentally sustainable areas our non-profit partnerships have resulted in 600 employee volunteer hours,
employee and corporate donations to fund local affordable housing, educations services to at-risk youth, funding
local foodbanks, and toys for under-served children. Our dedication to be a responsible corporate citizen has a
direct and positive impact in the communities in which we operate and contributes to the strength of our
reputation and our financial performance.
Corporate Governance. We believe that a company’s reputation for integrity and serving its shareholders
responsibly is of utmost importance. We are committed to managing the company for the benefit of our
shareholders and are focused on maintaining good corporate governance. Practices that illustrate this
commitment include:
• Our Board of Directors is comprised of eight directors, seven of which are independent, non-employee
directors;
• Our Board of Directors is elected on an annual basis;
• We employ a majority vote standard for uncontested elections;
• Our Compensation Committee of the Board of Directors works with independent consultants in conducting
annual compensation reviews for our key executives, and compensates each individual based on primarily
reaching certain performance metrics that determine the success of our company; and
• We adhere to all other corporate governance principles outlined in our “Corporate Governance Guidelines”
document on our website.
59
Environmental Practices. Our focus on conservationism is demonstrated by how we manage our day-to-day
activities at our corporate headquarters. At our headquarters, we promote energy efficiency and encourage
practices such as powering down office equipment at the end of the day, implementing file-sharing technology
and automatic “duplex mode” to limit paper use, adopting an electronic approval system, and carpooling to our
headquarters. With respect to technology, recycling and reuse practices, we encourage the use of recycled
products and the recycling of materials during our operations. Cell phones, wireless devices and office
equipment are recycled or donated whenever possible. In addition, our headquarters was constructed according
to the State of California energy efficiency standards (specifically following California Green Building Standards
Code and Title 24 of the California Code of Regulations), with features such as an automatic lighting control
system with light-harvesting technology, a Building Management System that monitors and controls energy use,
an energy-efficient PVC roof and heating and cooling system, and drought-tolerant landscaping with recycled
materials.
The properties in our portfolio are net leased to our tenants who are responsible for maintaining the buildings
and are in control of their energy usage and environmental sustainability practices. We remain active in working
with our tenants to promote environmental responsibility at the properties we own.
REALTY INCOME CORPORATION AND SUBSIDIARIES
Property Portfolio Information
At December 31, 2015, we owned a diversified portfolio:
• Of 4,538 properties;
• With an occupancy rate of 98.4%, or 4,467 properties leased and 71 properties available for lease;
• Leased to 240 different commercial tenants doing business in 47 separate industries;
• Located in 49 states and Puerto Rico;
• With over 76.0 million square feet of leasable space; and
• With an average leasable space per property of approximately 16,750 square feet; approximately 11,550
square feet per retail property and 216,550 square feet per industrial property.
At December 31, 2015, of our 4,538 properties, 4,467 were leased under net lease agreements. A net lease
typically requires the tenant to be responsible for monthly rent and certain property operating expenses
including property taxes, insurance, and maintenance. In addition, our tenants are typically subject to future rent
increases based on increases in the consumer price index (typically subject to ceilings), additional rent
calculated as a percentage of the tenants' gross sales above a specified level, or fixed increases.
At December 31, 2015, our 240 commercial tenants, which we define as retailers with over 50 locations and
non-retailers with over $500 million in annual revenues, represented approximately 95% of our annualized
revenue. We had 279 additional tenants, representing approximately 5% of our annualized revenue at
December 31, 2015, which brings our total tenant count to 519 tenants.
60
Industry Diversification
The following table sets forth certain information regarding Realty Income's property portfolio classified
according to the business of the respective tenants, expressed as a percentage of our total rental revenue:
Percentage of Rental Revenue(1)
For the
Quarter Ended
For the Years Ended
December 31, Dec 31,
Dec 31,
Dec 31,
Dec 31,
Dec 31,
2015
2015
2014
2013
2012
2011
2.0 %
2.0 %
1.9 %
1.7 %
1.4 %
Retail industries
Apparel stores
Automotive collision services
Automotive parts
Automotive service
Automotive tire services
Book stores
Child care
Consumer electronics
Convenience stores
Crafts and novelties
Dollar stores
Drug stores
Education
Entertainment
Equipment services
Financial services
General merchandise
Grocery stores
Health and fitness
Health care
Home furnishings
Home improvement
Jewelry
Motor vehicle dealerships
Office supplies
Pet supplies and services
Restaurants - casual dining
Restaurants - quick service
Shoe stores
Sporting goods
Theaters
Transportation services
Wholesale clubs
Other
2.0 %
0.9
1.5
1.9
2.8
*
2.0
0.3
8.8
0.5
8.8
1.0
1.4
1.9
2.9
*
2.0
0.3
9.2
0.5
8.9
10.9
10.6
0.3
0.5
0.1
1.3
1.5
2.8
8.4
1.0
0.7
2.5
0.1
1.6
0.3
0.7
3.7
4.5
0.5
1.7
5.0
0.1
3.7
0.3
0.5
0.1
1.3
1.4
3.0
7.7
1.0
0.7
2.4
0.1
1.6
0.3
0.7
3.8
4.2
0.5
1.8
5.1
0.1
3.8
0.8
1.3
1.8
3.2
*
2.2
0.3
0.8
1.2
2.1
3.6
*
2.8
0.3
1.1
1.0
3.1
4.7
0.1
4.5
0.5
10.1
11.2
16.3
0.5
9.6
9.5
0.4
0.5
0.1
1.4
1.2
3.0
7.0
1.1
0.7
1.7
0.1
1.6
0.4
0.7
4.3
3.7
0.1
1.6
5.3
0.1
4.1
0.5
6.2
8.1
0.4
0.6
0.1
1.5
1.1
2.9
6.3
1.1
0.9
1.6
0.1
1.6
0.5
0.8
5.1
4.4
0.1
1.7
6.2
0.1
3.9
0.3
2.2
3.5
0.7
0.9
0.1
0.2
0.6
3.7
6.8
-
1.0
1.5
-
2.1
0.8
0.6
7.3
5.9
0.1
2.5
9.4
0.2
3.2
0.9
1.2
3.7
5.6
0.1
5.2
0.5
18.5
0.2
-
3.8
0.7
1.0
0.2
0.2
0.6
1.6
6.4
-
1.1
1.7
-
2.2
0.9
0.7
10.9
6.6
0.2
2.7
8.8
0.2
0.7
0.1
*
*
*
0.1
0.1
Retail industries
81.4 %
81.1 %
80.4 %
79.8 %
86.7 %
88.6 %
61
Industry Diversification (continued)
Percentage of Rental Revenue(1)
For the
Quarter Ended
For the Years Ended
December 31, Dec 31,
Dec 31,
Dec 31,
Dec 31,
Dec 31,
2015
2015
2014
2013
2012
2011
1.1
2.5
0.5
1.0
0.1
0.9
0.1
0.3
0.4
1.2
0.3
1.2
0.6
0.2
0.1
*
0.7
0.8
0.1
0.2
0.6
5.5
0.2
1.1
2.7
0.6
0.9
0.1
0.8
0.1
0.4
0.4
1.2
0.3
1.2
0.7
0.2
0.1
0.1
0.7
0.8
0.1
0.2
0.7
5.3
0.2
1.2
2.8
0.5
0.9
0.1
0.5
0.1
0.5
0.4
1.4
0.3
1.3
0.7
0.2
0.1
0.2
0.7
0.8
0.1
0.8
0.7
5.1
0.2
1.2
3.3
0.6
1.0
0.1
0.2
*
0.4
0.5
1.5
-
1.4
0.8
0.2
0.1
0.2
0.6
0.9
0.2
0.9
0.7
5.3
0.1
0.9
5.1
0.1
0.1
-
0.1
-
0.3
0.4
1.3
-
0.1
*
-
*
0.1
-
0.7
0.1
-
0.8
2.2
1.0
0.5
5.6
-
-
-
-
-
0.2
0.3
0.7
-
0.1
*
-
-
-
-
0.4
0.1
-
0.7
1.6
1.2
Non-retail industries
Aerospace
Beverages
Consumer appliances
Consumer goods
Crafts and novelties
Diversified industrial
Electric utilities
Equipment services
Financial services
Food processing
General merchandise
Government services
Health care
Home furnishings
Insurance
Machinery
Other manufacturing
Packaging
Paper
Shoe stores
Telecommunications
Transportation services
Other
Non-retail industries
18.6 %
18.9 %
19.6 %
20.2 %
13.3 %
11.4 %
Totals
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
* Less than 0.1%
(1) Includes rental revenue for all properties owned by Realty Income at the end of each period presented, including
revenue from properties reclassified as discontinued operations. Excludes revenue from properties owned by Crest Net
Lease, Inc., or Crest.
62
Property Type Composition
The following table sets forth certain property type information regarding Realty Income’s property portfolio as of
December 31, 2015 (dollars in thousands):
Property Type
Retail
Industrial (2)
Office
Agriculture
Totals
Number of
Properties
4,378
101
44
15
Approximate
Leasable
Square Feet
50,592,800
21,871,200
3,403,200
184,500
Rental Revenue for
the Quarter Ended
December 31, 2015 (1)
199,518
32,423
15,329
5,330
$
Percentage of
Rental
Revenue
79.0 %
12.8
6.1
2.1
4,538
76,051,700
$
252,600
100.0 %
(1)
(2)
Includes rental revenue for all properties owned by Realty Income at December 31, 2015. Excludes revenue of $63
from properties owned by Crest and $68 from sold properties that were included in continuing operations.
Includes 14 Industrial properties formerly classified as Manufacturing properties which represent approximately 2%
of rental revenue for the quarter ended December 31, 2015. These properties are principally distribution facilities
used for light assemblage, processing, and/or storage. We re-classified these properties to our Industrial category to
better reflect their use and to clarify the categorization of our properties.
Tenant Diversification
The following table sets forth the largest tenants in Realty Income’s property portfolio, expressed as a
percentage of total rental revenue at December 31, 2015:
Tenant
Number of Properties
% of Rental Revenue
Walgreens
FedEx
Dollar General
LA Fitness
Dollar Tree / Family Dollar
Circle K / The Pantry
AMC Theaters
BJ's Wholesale Clubs
Diageo
Regal Cinemas
GPM Investments / Fas Mart
Rite Aid
Northern Tier Retail / SuperAmerica
Life Time Fitness
CVS Pharmacy
TBC Corporation
Walmart / Sam's Club
NPC International
FreedomRoads / Camping World
Smart & Final
176
39
524
46
457
302
20
15
17
23
217
68
134
9
56
149
19
202
18
36
6.9 %
5.2 %
4.6 %
4.2 %
4.2 %
3.0 %
2.7 %
2.6 %
2.4 %
2.1 %
2.1 %
2.0 %
2.0 %
2.0 %
1.9 %
1.7 %
1.3 %
1.3 %
1.2 %
1.1 %
63
Service Category Diversification for our Retail Properties
The following table sets forth certain information regarding the 4,378 retail properties included in the 4,538 total
properties owned by Realty Income at December 31, 2015, classified according to the business types and the
level of services they provide at the property level (dollars in thousands):
Number of
Retail
Properties
Retail Rental Revenue
for the Quarter Ended
December 31, 2015 (1)
Percentage of
Retail Rental
Revenue
Tenants Providing Services
Automotive collision services
Automotive service
Child care
Education
Entertainment
Equipment services
Financial services
Health and fitness
Health care
Theaters
Transportation services
Other
Tenants Selling Goods and Services
Automotive parts (with installation)
Automotive tire services
Convenience stores
Motor vehicle dealerships
Pet supplies and services
Restaurants - casual dining
Restaurants - quick service
Tenants Selling Goods
Apparel stores
Automotive parts
Book stores
Consumer electronics
Crafts and novelties
Dollar stores
Drug stores
General merchandise
Grocery stores
Home furnishings
Home improvement
Jewelry
Office supplies
Shoe stores
Sporting goods
Wholesale clubs
Total Retail Properties
* Less than 0.1%
49
236
206
15
10
2
118
87
26
45
2
8
804
63
186
762
22
13
298
498
1,842
28
78
1
7
11
981
293
71
70
59
54
4
9
2
32
32
1,732
4,378
$
$
2,367
4,826
5,040
863
1,188
310
3,256
21,232
1,093
12,691
229
70
53,165
1,504
7,124
22,210
4,047
735
8,714
11,463
55,797
5,067
2,170
104
803
1,175
22,120
26,119
3,666
7,110
1,744
5,605
175
765
176
4,390
9,367
90,556
199,518
1.2 %
2.4
2.5
0.4
0.6
0.2
1.6
10.7
0.6
6.4
0.1
*
26.7
0.8
3.6
11.1
2.0
0.4
4.4
5.7
28.0
2.5
1.1
*
0.4
0.6
11.1
13.1
1.8
3.5
0.9
2.8
0.1
0.4
0.1
2.2
4.7
45.3
100.0 %
(1)
Includes rental revenue for all retail properties owned by Realty Income at December 31, 2015. Excludes
revenue of $53,085 from non-retail properties, $63 from properties owned by Crest and $68 from sold
properties that were included in continuing operations.
64
Lease Expirations
The following table sets forth certain information regarding Realty Income's property portfolio regarding the
timing of the lease term expirations (excluding rights to extend a lease at the option of the tenant) on our 4,448
net leased, single-tenant properties as of December 31, 2015 (dollars in thousands):
Total Portfolio(1)
Initial Expirations(3)
Subsequent Expirations(4)
Number
of Leases
Expiring
Retail Non-Retail
Approx.
Leasable
Sq. Feet
Rental
Revenue
for the
Quarter
Ended
Dec 31,
% of
Total
Number
Rental of Leases
Expiring
2015 (2) Revenue
Rental
Revenue
for the
Quarter
Ended
Dec 31,
Rental
Revenue
for the
Quarter
Ended
Rental of Leases Dec 31,
% of
Total Number
2015 Revenue Expiring
% of
Total
Rental
2015 Revenue
146
202
298
248
184
252
233
353
193
322
243
491
287
396
80
361
-
1
9
10
12
13
17
20
12
16
3
3
5
4
11
23
3,315
913,200 $
2,040,400
5,987
3,892,100 12,182
3,878,400 13,359
4,180,700 13,110
5,579,900 15,849
7,456,000 15,104
6,458,700 21,920
4,168,500 11,504
5,556,000 20,347
3,141,500 11,469
5,443,000 20,453
5,986,900 16,193
6,488,200 19,469
1,703,100 11,474
7,467,400 37,706
1.3 %
2.4
4.9
5.4
5.3
6.3
6.0
8.8
4.6
8.2
4.6
8.2
6.5
7.8
4.6
15.1
1,295
63 $
2,559
54
170
8,431
174 11,143
114 10,709
184 13,933
220 14,308
358 21,028
195 11,222
311 19,595
234 11,124
460 19,064
283 15,930
371 19,193
80 11,319
342 37,216
0.5 %
1.0
3.4
4.5
4.3
5.6
5.7
8.4
4.5
7.9
4.5
7.6
6.5
7.7
4.5
14.9
83 $ 2,020
149 3,428
137 3,751
84 2,216
82 2,401
81 1,916
796
30
892
15
282
10
752
27
12
345
34 1,389
263
276
155
490
9
29
11
42
0.8 %
1.4
1.5
0.9
1.0
0.7
0.3
0.4
0.1
0.3
0.1
0.6
*
0.1
0.1
0.2
Year
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031 - 2043
Totals
4,289
159
74,354,000 $ 249,441
100.0 %
3,613 $ 228,069
91.5 %
835 $ 21,372
8.5 %
Less than 0.1%
Excludes 19 multi-tenant properties and 71 vacant properties. The lease expirations for properties under construction are based on the estimated date of
completion of those properties.
Excludes revenue of $3,160 from 19 multi-tenant properties and from 71 vacant properties at December 31, 2015, $68 from sold properties included in
continuing operations and $63 from properties owned by Crest.
Represents leases to the initial tenant of the property that are expiring for the first time.
Represents lease expirations on properties in the portfolio, which have previously been renewed, extended or re-tenanted.
*
(1)
(2)
(3)
(4)
65
Geographic Diversification
The following table sets forth certain state-by-state information regarding Realty Income's property portfolio as of
December 31, 2015 (dollars in thousands):
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Puerto Rico
Number of
Properties
149
3
109
54
167
70
24
18
329
239
--
12
161
145
38
90
61
91
10
35
82
148
155
132
139
4
37
22
19
70
30
90
155
7
235
128
27
148
4
137
13
221
449
17
5
143
42
13
53
4
4
Percent
Leased
99 %
100
98
100
100
99
91
100
99
99
--
100
99
100
95
98
98
99
90
100
96
99
99
98
96
100
100
100
100
99
100
99
99
100
97
99
100
99
100
99
100
96
98
100
100
98
98
100
100
100
100
Approximate
Leasable
Square Feet
1,220,600
275,900
1,611,600
797,400
5,273,700
1,003,000
534,900
93,000
3,976,700
3,348,000
--
87,000
4,578,500
1,456,700
2,936,000
1,643,400
1,023,000
1,029,500
145,300
861,300
760,400
1,537,200
1,376,800
1,608,200
2,810,000
67,100
780,400
413,000
315,800
697,400
293,200
2,422,600
2,120,900
66,000
6,013,000
1,532,100
593,400
1,854,500
157,200
996,000
152,100
2,769,700
8,298,200
890,500
98,000
2,893,300
690,800
272,500
1,598,000
49,600
28,300
$
Rental Revenue for
the Quarter Ended
December 31, 2015 (1)
4,093
681
6,227
1,749
24,773
3,999
2,502
495
14,693
10,396
--
739
13,337
6,955
4,004
4,166
3,744
3,098
889
4,485
3,482
5,797
8,215
4,116
8,621
190
2,815
773
1,475
4,339
883
12,310
6,778
136
13,711
4,015
2,040
7,332
809
4,659
274
7,538
23,401
1,975
482
7,543
2,882
979
3,635
221
149
Percentage of
Rental
Revenue
1.6 %
0.3
2.5
0.7
9.8
1.6
1.0
0.2
5.8
4.1
--
0.3
5.3
2.8
1.6
1.6
1.5
1.2
0.4
1.8
1.4
2.3
3.3
1.6
3.4
0.1
1.1
0.3
0.6
1.7
0.3
4.9
2.7
0.1
5.4
1.6
0.8
2.9
0.3
1.8
0.1
3.0
9.1
0.8
0.2
3.0
1.1
0.4
1.4
0.1
0.1
Totals\Average
4,538
98 %
76,051,700
$
252,600
100.0 %
(1)
Includes rental revenue for all properties owned by Realty Income at December 31, 2015. Excludes revenue of $63 from properties
owned by Crest and $68 from sold properties that were included in continuing operations.
66
REALTY INCOME CORPORATION AND SUBSIDIARIES
Forward-Looking Statements
This Annual Report on Form 10-K, including the documents incorporated by reference, contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. When used in
this annual report, the words “estimated”, “anticipated”, “expect”, “believe”, “intend” and similar expressions are
intended to identify forward-looking statements. Forward-looking statements include discussions of strategy,
plans, or intentions of management. Forward-looking statements are subject to risks, uncertainties, and
assumptions about Realty Income Corporation, including, among other things:
• Our anticipated growth strategies;
• Our intention to acquire additional properties and the timing of these acquisitions;
• Our intention to sell properties and the timing of these property sales;
• Our intention to re-lease vacant properties;
• Anticipated trends in our business, including trends in the market for long-term, net leases of freestanding,
single-tenant properties; and
• Future expenditures for development projects.
Future events and actual results, financial and otherwise, may differ materially from the results discussed in the
forward-looking statements. In particular, some of the factors that could cause actual results to differ materially
are:
• Our continued qualification as a real estate investment trust;
• General business and economic conditions;
• Competition;
• Fluctuating interest rates;
• Access to debt and equity capital markets;
• 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;
•
Impairments in the value of our real estate assets;
• Changes in the tax laws of the United States of America;
• The outcome of any legal proceedings to which we are a party or which may occur in the future; and
• Acts of terrorism and war.
Additional factors that may cause risks and uncertainties include those discussed in the sections entitled
“Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in this Annual Report.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the
date that this annual report was filed with the Securities and Exchange Commission, or SEC. While forward-
looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake
no obligation to publicly release the results of any revisions to these forward-looking statements that may be
made to reflect events or circumstances after the date of this annual report or to reflect the occurrence of
unanticipated events. In light of these risks and uncertainties, the forward-looking events discussed in this annual
report might not occur.
67
REALTY INCOME CORPORATION AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
Realty Income, The Monthly Dividend Company®, is an S&P 500 real estate company with the primary business
objective of generating dependable monthly cash dividends from a consistent and predictable level of cash flow
from operations. Our monthly dividends are supported by the cash flow from our property portfolio. We have in-
house acquisition, portfolio management, asset management, credit research, real estate research, legal,
finance and accounting, information technology, and capital markets capabilities. Over the past 47 years, Realty
Income has been acquiring and managing freestanding commercial properties that generate rental revenue
under long-term net lease agreements.
Realty Income (NYSE: O) was founded in 1969, and listed on the New York Stock Exchange, or NYSE, in 1994.
We elected to be taxed as a real estate investment trust, or REIT, requiring us to distribute dividends to our
stockholders aggregating at least 90% of our taxable income (excluding net capital gains).
We seek to increase earnings and distributions to stockholders through active portfolio management, asset
management and the acquisition of additional properties.
At December 31, 2015, we owned a diversified portfolio:
• Of 4,538 properties;
• With an occupancy rate of 98.4%, or 4,467 properties leased and 71 properties available for lease;
• Leased to 240 different commercial tenants doing business in 47 separate industries;
• Located in 49 states and Puerto Rico;
• With over 76.0 million square feet of leasable space; and
• With an average leasable space per property of approximately 16,750 square feet; approximately 11,550
square feet per retail property and 216,550 square feet per industrial property.
Of the 4,538 properties in the portfolio, 4,519, or 99.6%, are single-tenant properties, and the remaining are
multi-tenant properties. At December 31, 2015, of the 4,519 single-tenant properties, 4,448 were leased with a
weighted average remaining lease term (excluding rights to extend a lease at the option of the tenant) of
approximately 10.0 years.
LIQUIDITY AND CAPITAL RESOURCES
Capital Philosophy
Historically, we have met our long-term capital needs by issuing common stock, preferred stock and long-term
unsecured notes and bonds. Over the long term, we believe that common stock should be the majority of our
capital structure; however, we may issue additional preferred stock or debt securities. We may issue common
stock when we believe that our share price is at a level that allows for the proceeds of any offering to be
accretively invested into additional properties. In addition, we may issue common stock to permanently finance
properties that were financed by our credit facility or debt securities. However, we cannot assure you that we will
have access to the capital markets at times and at terms that are acceptable to us.
Our primary cash obligations, for the current year and subsequent years, are included in the “Table of
Obligations,” which is presented later in this section. We expect to fund our operating expenses and other short-
term liquidity requirements, including property acquisitions and development costs, payment of principal and
interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to
common and preferred stockholders, primarily through cash provided by operating activities, borrowing on our
new $2.0 billion credit facility and periodically through public securities offerings.
Conservative Capital Structure
We believe that our stockholders are best served by a conservative capital structure. Therefore, we seek to
maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. At
December 31, 2015, our total outstanding borrowings of senior unsecured notes and bonds, term loans,
mortgages payable and credit facility borrowings were $4.85 billion, or approximately 26.6% of our total market
capitalization of $18.22 billion.
68
We define our total market capitalization at December 31, 2015 as the sum of:
• Shares of our common stock outstanding of 250,416,757, plus total common units outstanding of 648,386,
multiplied by the last reported sales price of our common stock on the NYSE of $51.63 per share on
December 31, 2015, or $12.96 billion;
• Aggregate liquidation value (par value of $25.00 per share) of the Class F preferred stock of $408.8 million;
• Outstanding borrowings of $238.0 million on our new credit facility;
• Outstanding mortgages payable of $637.7 million, excluding net mortgage premiums of $9.1 million;
• Outstanding borrowings of $320.0 million on our term loans; and
• Outstanding senior unsecured notes and bonds of $3.65 billion, excluding unamortized original issuance
discounts of $13.3 million.
Mortgage Debt
As of December 31, 2015, we had $637.7 million of mortgages payable, all of which were assumed in
connection with our property acquisitions. Additionally, at December 31, 2015, we had net premiums totaling
$9.1 million on these mortgages. We expect to pay off the mortgages payable as soon as prepayment penalties
have declined to a level that will make it economically feasible to do so. During 2015, we made $198.4 million of
principal payments, including the repayment of 13 mortgages in full for $191.0 million.
Term Loans
In June 2015, in conjunction with entering into our new credit facility, we entered into a $250 million senior
unsecured term loan maturing June 30, 2020. Borrowing under this term loan bears interest at the current one
month LIBOR, plus 0.95%. In conjunction with this term loan, we also entered into an interest rate swap which
effectively fixes our per annum interest rate on this term loan at 2.67%.
In January 2013, in conjunction with our acquisition of ARCT, we entered into a $70 million senior unsecured
term loan maturing in January 2018. Borrowing under the term loan bears interest at LIBOR, plus 1.20%. In
conjunction with this term loan, we also acquired an interest rate swap which effectively fixes our per annum
interest rate on this term loan at 2.15%.
$2.0 Billion Revolving Credit Facility
In June 2015, we entered into a new $2 billion unsecured revolving credit facility, or our new credit facility, which
replaced our $1.5 billion credit facility that was scheduled to expire in May 2016. The initial term of our new
credit facility expires in June 2019 and includes, at our option, two six-month extensions. Our new credit facility
has a $1.0 billion accordion expansion option. Under our new credit facility, our current investment grade credit
ratings provide for financing at LIBOR, plus 0.9% with a facility commitment fee of 0.15%, for all-in drawn pricing
of 1.05% over LIBOR. The borrowing rate is subject to an interest rate floor. We also have other interest rate
options available to us under our new credit facility. Our new credit facility is unsecured and, accordingly, we
have not pledged any assets as collateral for this obligation.
At December 31, 2015, we had a borrowing capacity of $1.76 billion available on our new credit facility and an
outstanding balance of $238.0 million. The interest rate on borrowings outstanding under our new credit facility,
at December 31, 2015, was 1.2% per annum. We must comply with various financial and other covenants in
our credit facility. At December 31, 2015, we remain in compliance with these covenants. We expect to use our
new credit facility to acquire additional properties and for other general corporate purposes. Any additional
borrowings will increase our exposure to interest rate risk.
We generally use our credit facility for the short-term financing of new property acquisitions. Thereafter, we
generally seek to refinance those borrowings with the net proceeds of long-term or permanent financing, which
may include the issuance of common stock, preferred stock or debt securities. We cannot assure you, however,
that we will be able to obtain any such refinancing, or that market conditions prevailing at the time of the
refinancing will enable us to issue equity or debt securities at acceptable terms.
Notes Outstanding
As of December 31, 2015, we had $3.65 billion of senior unsecured note and bond obligations, excluding
unamortized original issuance discounts of $13.3 million. All of our outstanding notes and bonds have fixed
interest rates. Interest on all of our senior note and bond obligations is paid semiannually.
69
Cash Reserves
We are organized to operate as an equity REIT that acquires and leases properties and distributes to
stockholders, in the form of monthly cash distributions, a substantial portion of our net cash flow generated from
leases on our properties. We intend to retain an appropriate amount of cash as working capital. At
December 31, 2015, we had cash and cash equivalents totaling $40.3 million.
We believe that our cash and cash equivalents on hand, cash provided from operating activities, and borrowing
capacity is sufficient to meet our liquidity needs for the next twelve months. We intend, however, to use
permanent or long-term capital to fund property acquisitions and to repay future borrowings under our new credit
facility.
Acquisitions During 2015
During 2015, we invested $1.26 billion in 286 new properties and properties under development or expansion,
with an initial weighted average contractual lease rate of 6.6%. The 286 new properties and properties under
development or expansion are located in 40 states, will contain approximately 6.2 million leasable square feet,
and are 100% leased with a weighted average lease term of 16.5 years. The tenants occupying the new
properties operate in 21 industries and the property types consist of 87.3% retail and 12.7% industrial, based on
rental revenue. During 2015, none of our real estate investments caused any one tenant to be 10% or more of
our total assets at December 31, 2015.
The estimated initial weighted average contractual lease rate for a property is generally computed as estimated
contractual net operating income, which, in the case of a net leased property, is equal to the aggregate base
rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a tenant
could default on the payment of contractual rent, we cannot provide assurance that the actual return on the
funds invested will remain at the percentages listed above.
In the case of a property under development or expansion, the contractual lease rate is generally fixed such that
rent varies based on the actual total investment in order to provide a fixed rate of return. When the lease does
not provide for a fixed rate of return on a property under development or expansion, the estimated initial
weighted average contractual lease rate is computed as follows: estimated net operating income (determined by
the lease) for the first full year of each lease, divided by our projected total investment in the property, including
land, construction and capitalized interest costs. Of the $1.26 billion we invested during 2015, $45.8 million was
invested in 35 properties under development or expansion with an estimated initial weighted average
contractual lease rate of 9.7%. We may continue to pursue development or expansion opportunities under
similar arrangements in the future.
Portfolio Discussion
Leasing Results
At December 31, 2015, we had 71 properties available for lease out of 4,538 properties in our portfolio, which
represents a 98.4% occupancy rate based on the number of properties in our portfolio. Since December 31,
2014, when we reported 70 properties available for lease out of 4,327 and a 98.4% occupancy rate, we:
• Had 283 lease expirations;
• Re-leased 253 properties; and
• Sold 29 vacant properties.
Of the 253 properties re-leased during 2015, 216 properties were re-leased to existing tenants, seven were re-
leased to new tenants without vacancy, and 30 were re-leased to new tenants after a period of vacancy. The
annual rent on these 253 leases was $37.46 million, as compared to the previous rent on these same properties
of $37.12 million, which represents a rent recapture rate of 100.9% on the properties re-leased during 2015.
At December 31, 2015, our average annualized rental revenue was approximately $13.31 per square foot on the
4,467 leased properties in our portfolio. At December 31, 2015, we classified ten properties with a carrying
amount of $9.8 million as held for sale on our balance sheet. The expected disposal of these properties does
not represent a strategic shift that will have a major effect on our operations and financial results.
70
Investments in Existing Properties
In 2015, we capitalized costs of $11.5 million on existing properties in our portfolio, consisting of $748,000 for
re-leasing costs, $7.6 million for recurring capital expenditures and $3.2 million for non-recurring building
improvements. In 2014, we capitalized costs of $6.0 million on existing properties in our portfolio.
As part of our re-leasing costs, we typically pay leasing commissions and sometimes provide tenant rent
concessions. Leasing commissions are paid based on the commercial real estate industry standard and any
rent concessions provided are minimal. We do not consider the collective impact of the leasing commissions or
tenant rent concessions to be material to our financial position or results of operations.
The majority of our building improvements relate to roof repairs, HVAC improvements, and parking lot
resurfacing and replacements. It is not customary for us to offer significant tenant improvements on our
properties as tenant incentives. The amounts of our capital expenditures can vary significantly, depending on
the rental market, tenant credit worthiness, the lease term and the willingness of tenants to pay higher rents
over the terms of the leases.
Impact of Real Estate and Credit Markets
In the commercial real estate market, property prices generally continue to fluctuate. Likewise, during certain
periods, the U.S. credit markets have experienced significant price volatility, dislocations, and liquidity
disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real
estate and U.S. credit markets carefully and, if required, will make decisions to adjust our business strategy
accordingly.
Increases in Monthly Dividends to Common Stockholders
We have continued our 47-year policy of paying monthly dividends. In addition, we increased the dividend five
times during 2015, and two times during 2016. As of February 2016, we have paid 73 consecutive quarterly
dividend increases and increased the dividend 84 times since our listing on the NYSE in 1994.
2015 Dividend increases
1st increase
2nd increase
3rd increase
4th increase
5th increase
2016 Dividend increases
1st increase
2nd increase
Month
Declared
Dec 2014
Jan 2015
Mar 2015
Jun 2015
Sep 2015
Month
Paid
Jan 2015
Feb 2015
Apr 2015
Jul 2015
Oct 2015
Dividend
per share
Increase
per share
$ 0.1834167 $ 0.0003125
0.1890000 0.0055833
0.1895000 0.0005000
0.1900000 0.0005000
0.1905000 0.0005000
Dec 2015
Jan 2016
Jan 2016
Feb 2016
$ 0.1910000 $ 0.0005000
$ 0.1985000 $ 0.0075000
The dividends paid per share during 2015 totaled approximately $2.2714167, as compared to approximately
$2.1916254 during 2014, an increase of $0.0798, or 3.6%.
The monthly dividend of $0.1985 per share represents a current annualized dividend of $2.382 per share, and
an annualized dividend yield of approximately 4.3% based on the last reported sale price of our common stock
on the NYSE of $55.79 on January 29, 2016. Although we expect to continue our policy of paying monthly
dividends, we cannot guarantee that we will maintain our current level of dividends, that we will continue our
pattern of increasing dividends per share, or what our actual dividend yield will be in any future period.
Universal Shelf Registration
In December 2015, we filed a shelf registration statement with the SEC, which is effective for a term of three
years and will expire in December 2018. This replaced our prior shelf registration statement. In accordance with
SEC rules, the amount of securities to be issued pursuant to this shelf registration statement was not specified
when it was filed and there is no specific dollar limit. The securities covered by this registration statement
include (1) common stock, (2) preferred stock, (3) debt securities, (4) depositary shares representing fractional
interests in shares of preferred stock, (5) warrants to purchase debt securities, common stock, preferred stock,
or depositary shares, and (6) any combination of these securities. We may periodically offer one or more of
these securities in amounts, prices and on terms to be announced when and if these securities are offered. The
71
specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in
detail in a prospectus supplement, or other offering materials, at the time of any offering.
Issuance of Common Stock
In October 2015, we issued 11,500,000 shares of common stock, including 1,500,000 shares purchased by the
underwriters upon the exercise of their option to purchase additional shares. After underwriting discounts and
other offering costs of $22.0 million, a portion of the net proceeds of $517.1 million was used to repay
borrowings under our new credit facility and the remaining portion was used for other general corporate
purposes, including acquisitions.
In April 2015, we issued 5,500,000 shares of common stock. After underwriting discounts and other offering
costs of $1.4 million, the net proceeds of $276.4 million were used to repay borrowings under our previous $1.5
billion unsecured credit facility.
Dividend Reinvestment and Stock Purchase Plan
Our Dividend Reinvestment and Stock Purchase Plan, or the DRSPP, provides our common stockholders, as
well as new investors, with a convenient and economical method of purchasing our common stock and
reinvesting their distributions. The DRSPP also allows our current stockholders to buy additional shares of
common stock by reinvesting all or a portion of their distributions. The DRSPP authorizes up to 26,000,000
common shares to be issued. In 2013, we revised our DRSPP so that we would pay for a majority of the plan-
related fees, which were previously paid by investors, and to institute a waiver approval process, allowing larger
investors or institutions, per a formal approval process, to purchase shares at a small discount, if approved by
us. During 2015, we issued 7,608,354 shares and raised approximately $363.0 million under the DRSPP, of
which 7,413,207 shares and $353.7 million was raised under the waiver approval process.
At-the-Market (ATM) Program
In September 2015, we established an “at the market” equity distribution program, or our ATM program,
pursuant to which we can offer and sell up to 12,000,000 shares of common stock to, or through a consortium of
banks acting as our sales agents by means of ordinary brokers’ transactions on the NYSE or otherwise at
market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices.
During 2015, we issued 714,301 shares and raised approximately $36.3 million under the ATM program.
Credit Agency Ratings
The borrowing interest rates under our new credit facility are based upon our ratings assigned by credit rating
agencies. We are currently assigned the following investment grade corporate credit ratings on our senior
unsecured notes and bonds: Moody’s Investors Service has assigned a rating of Baa1 with a “stable” outlook,
Standard & Poor’s Ratings Group has assigned a rating of BBB+ with a “stable” outlook to our senior notes, and
Fitch Ratings has assigned a rating of BBB+ with a “stable” outlook.
Based on our current ratings, the current facility interest rate is LIBOR plus 0.9% with a facility commitment fee
of 0.15%, for all-in drawn pricing of 1.05% over LIBOR. Our new credit facility provides that the interest rate can
range between: (i) LIBOR plus 1.55% if our credit rating is lower than BBB-/Baa3 or unrated and (ii) LIBOR plus
0.85% if our credit rating is A-/A3 or higher. In addition, our credit facility provides for a facility commitment fee
based on our credit ratings, which range from: (i) 0.3% for a rating lower than BBB-/Baa3 or unrated, and (ii)
0.125% for a credit rating of A-/A3 or higher.
We also issue senior debt securities from time to time and our credit ratings can impact the interest rates
charged in those transactions. If our credit ratings or ratings outlook change, our cost to obtain debt financing
could increase or decrease. The credit ratings assigned to us could change based upon, among other things,
our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating
agencies and we cannot assure you that our ratings will not be changed or withdrawn by a rating agency in the
future if, in its judgment, circumstances warrant. Moreover, a rating is not a recommendation to buy, sell or hold
our debt securities, preferred stock or common stock.
72
Notes Outstanding
Our senior unsecured note and bond obligations consist of the following as of December 31, 2015, sorted by
maturity date (dollars in millions):
5.95% notes, issued in September 2006 and due in September 2016
5.375% notes, issued in September 2005 and due in September 2017
2.0% notes, issued in October 2012 and due in January 2018
6.75% notes, issued in September 2007 and due in August 2019
5.75% notes, issued in June 2010 and due in January 2021
3.25% notes, issued in October 2012 and due in October 2022
4.65% notes, issued in July 2013 and due in August 2023
3.875% notes, issued in June 2014 and due in July 2024
4.125% notes, issued in September 2014 and due in October 2026
5.875% bonds, $100 issued in March 2005 and $150 issued in
June 2011, both due in March 2035
Total principal amount
Unamortized original issuance discounts
$
$
$
275
175
350
550
250
450
750
350
250
250
3,650
(13 )
3,637
All of our outstanding notes and bonds have fixed interest rates and contain various covenants, which we
remain in compliance with at December 31, 2015. Additionally, interest on all of our senior note and bond
obligations is paid semiannually.
The following is a summary of the key financial covenants for our senior unsecured notes, as defined and
calculated per the terms of our senior notes and bonds. These calculations, which are not based on U.S. GAAP
measurements, are presented to investors to show our ability to incur additional debt under the terms of our
senior notes and bonds as well as to disclose our current compliance with such covenants, and are not
measures of our liquidity or performance. The actual amounts as of December 31, 2015 are:
Note Covenants
Limitation on incurrence of total debt
Limitation on incurrence of secured debt
Debt service coverage (trailing 12 months)(1)
Maintenance of total unencumbered assets
Required
≤ 60% of adjusted assets
≤ 40% of adjusted assets
≥ 1.5 x
≥ 150% of unsecured debt
Actual
39.0%
5.2%
4.5x
266.8%
(1) This covenant is calculated on a pro forma basis for the preceding four-quarter period on the assumptions that: (i) the incurrence of any
Debt (as defined in the covenants) incurred by us since the first day of such four-quarter period and the application of the proceeds
therefrom (including to refinance other Debt since the first day of such four-quarter period), (ii) the repayment or retirement of any of our
Debt since the first day of such four-quarter period, and (iii) any acquisition or disposition by us of any asset or group since the first day of
such four quarters had in each case occurred on January 1, 2015, and subject to certain additional adjustments. Such pro forma ratio has
been prepared on the basis required by that debt service covenant, reflects various estimates and assumptions and is subject to other
uncertainties, and therefore does not purport to reflect what our actual debt service coverage ratio would have been had transactions
referred to in clauses (i), (ii) and (iii) of the preceding sentence occurred as of January 1, 2015, nor does it purport to reflect our debt service
coverage ratio for any future period. The following is our calculation of debt service coverage at December 31, 2015 (in thousands, for
trailing twelve months):
Net income attributable to the Company
$
283,766
Plus: interest expense
Plus: provision for taxes
Plus: depreciation and amortization
Plus: provisions for impairment
Plus: pro forma adjustments
Less: gain on sales of real estate
Income available for debt service, as defined
Total pro forma debt service charge
Debt service coverage ratio
$
$
224,344
3,169
409,215
10,560
35,457
(22,243 )
944,268
211,384
4.5
73
Fixed Charge Coverage Ratio
Fixed charge coverage ratio is calculated in exactly the same manner as the debt service coverage ratio, except
that preferred stock dividends are also added to the denominator. Similar to debt service coverage ratio, we
consider fixed charge coverage ratio to be an appropriate supplemental measure of a company’s ability to make
its interest and preferred stock dividend payments. Our calculations of both debt service and fixed charge
coverage ratios may be different from the calculations used by other companies and, therefore, comparability
may be limited. The presentation of debt service and fixed charge coverage ratios should not be considered as
alternatives to any U.S. GAAP operating performance measures. Below is our calculation of fixed charges at
December 31, 2015 (in thousands, for the trailing twelve months):
Income available for debt service, as defined
Pro forma debt service charge plus preferred stock dividends
Fixed charge coverage ratio
$
$
944,268
238,464
4.0
Table of Obligations
The following table summarizes the maturity of each of our obligations as of December 31, 2015 (dollars in
millions):
Year of
Maturity
2016
2017
2018
2019
2020
Thereafter
Credit
Facility (1)
$
- $
-
-
238.0
-
-
Notes
and
Bonds (2)
275.0 $
175.0
350.0
550.0
-
2,300.0
Ground
Leases
Paid by
Realty
Ground
Leases
Paid by
Our
Interest (4) Income (5) Tenants (6)
Other (7)
Term Mortgages
Loan
Payable (3)
- $
-
70.0
-
250.0
-
170.1 $
142.9
15.5
26.3
82.4
200.5
205.1 $
180.1
161.7
145.0
117.5
451.8
1.5 $
1.5
1.6
1.4
1.4
23.3
13.3 $ 71.4 $
13.3
13.3
13.2
13.0
119.0
-
-
-
-
Totals
736.4
512.8
612.1
973.9
464.3
3,094.6
Totals
$ 238.0 $ 3,650.0 $ 320.0 $
637.7 $ 1,261.2 $ 30.7 $ 185.1 $ 71.4 $
6,394.1
(1) The initial term of the credit facility expires in June 2019 and includes, at our option, two six-month extensions.
(2) Excludes non-cash original issuance discounts recorded on the notes payable. The unamortized balance of the original issuance
discounts at December 31, 2015, is $13.3 million.
(3) Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums at
December 31, 2015, is $9.1 million.
(4) Interest on the term loans, notes, bonds, mortgages payable, and credit facility has been calculated based on outstanding balances as
of December 31, 2015 through their respective maturity dates.
(5) Realty Income currently pays the ground lessors directly for the rent under the ground leases.
(6) Our tenants, who are generally sub-tenants under ground leases, are responsible for paying the rent under these ground leases. In the
event a tenant fails to pay the ground lease rent, we are primarily responsible.
(7) “Other” consists of $70.6 million of commitments under construction contracts and $714,000 of commitments for tenant improvements
and leasing costs.
Our new credit facility, term loans, and notes payable obligations are unsecured. Accordingly, we have not
pledged any assets as collateral for these obligations.
Preferred Stock and Preferred Units Outstanding
In 2006, we issued 8,800,000 shares of Class E preferred stock at a price of $25.00 per share. In October 2014,
we redeemed all of the 8,800,000 shares of our Class E preferred stock for $25.00 per share, plus accrued
dividends. In the third quarter of 2014, we incurred a charge of $6.0 million, representing the Class E preferred
stock original issuance costs that we paid in 2006.
In February 2012, we issued 14,950,000 shares of our Class F preferred stock at $25.00 per share. In April
2012, we issued an additional 1,400,000 shares of Class F preferred stock at $25.2863 per share. Beginning
February 15, 2017, shares of our Class F preferred stock are redeemable at our option for $25.00 per share,
plus any accrued and unpaid dividends. Dividends on the shares of our Class F preferred stock are paid
monthly in arrears. We are current on our obligations to pay dividends on our Class F preferred stock.
74
No Unconsolidated Investments
We have no unconsolidated investments, nor do we engage in trading activities involving energy or commodity
contracts.
RESULTS OF OPERATIONS
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with GAAP, and are the basis for our
discussion and analysis of financial condition and results of operations. Preparing our consolidated financial
statements requires us to make a number of estimates and assumptions that affect the reported amounts and
disclosures in the consolidated financial statements. We believe that we have made these estimates and
assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We
continually test and evaluate these estimates and assumptions using our historical knowledge of the business,
as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may
differ from these estimates and assumptions. This summary should be read in conjunction with the more
complete discussion of our accounting policies and procedures included in note 2 to our consolidated financial
statements.
In order to prepare our consolidated financial statements according to the rules and guidelines set forth by
GAAP, many subjective judgments must be made with regard to critical accounting policies. One of these
judgments is our estimate for useful lives in determining depreciation expense for our properties. Depreciation
on a majority of our buildings and improvements is computed using the straight-line method over an estimated
useful life of 25 to 35 years for buildings and 4 to 20 years for improvements, which we believe are appropriate
estimates of useful life. If we use a shorter or longer estimated useful life, it could have a material impact on our
results of operations.
Management must make significant assumptions in determining the fair value of assets acquired and liabilities
assumed. When acquiring a property for investment purposes, we typically allocate the fair value of real estate
acquired to: (1) land, (2) building and improvements, and (3) identified intangible assets and liabilities, based in
each case on their estimated fair values. Intangible assets and liabilities consist of above-market or below-
market lease value of in-place leases, the value of in-place leases, and tenant relationships, as applicable. In
an acquisition of multiple properties, we must also allocate the purchase price among the properties. The
allocation of the purchase price is based on our assessment of estimated fair value and is often based upon the
expected future cash flows of the property and various characteristics of the market where the property is
located. In addition, any assumed mortgages receivable or payable and any assumed or issued noncontrolling
interests are recorded at their estimated fair values. The estimated fair values of our mortgages payable have
been calculated by discounting the future cash flows using applicable interest rates that have been adjusted for
factors, such as industry type, tenant investment grade, maturity date, and comparable borrowings for similar
assets. The initial allocation of the purchase price is based on management’s preliminary assessment, which
may differ when final information becomes available. Subsequent adjustments made to the initial purchase
price allocation are made within the allocation period, which does not exceed one year. The use of different
assumptions in the allocation of the purchase price of the acquired properties and liabilities assumed could
affect the timing of recognition of the related revenue and expenses.
Another significant judgment must be made as to if, and when, impairment losses should be taken on our
properties when events or a change in circumstances indicate that the carrying amount of the asset may not be
recoverable. A provision is made for impairment if estimated future operating cash flows (undiscounted and
without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book
value of the property. Key inputs that we utilize in this analysis include projected rental rates, estimated holding
periods, historical sales and releases, capital expenditures, and property sales capitalization rates. If a property
is held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell. The
carrying value of our real estate is the largest component of our consolidated balance sheets. Our strategy of
primarily holding properties, long-term, directly decreases the likelihood of their carrying values not being
recoverable, thus requiring the recognition of an impairment. However, if our strategy, or one or more of the
above assumptions were to change in the future, an impairment may need to be recognized. If events should
occur that require us to reduce the carrying value of our real estate by recording provisions for impairment, they
could have a material impact on our results of operations.
75
The following is a comparison of our results of operations for the years ended December 31, 2015, 2014
and 2013.
Rental Revenue
Rental revenue was $976.9 million for 2015, as compared to $893.5 million for 2014, an increase of $83.4
million, or 9.3%. Rental revenue was $748.2 million for 2013. The increase in rental revenue in 2015 compared
to 2014 is primarily attributable to:
• The 248 properties (5.6 million square feet) we acquired in 2015, which generated $41.9 million of rent
in 2015;
• The 479 properties (9.3 million square feet) we acquired in 2014, which generated $99.3 million of rent
in 2015, compared to $65.9 million in 2014, an increase of $33.4 million;
• Same store rents generated on 3,636 properties (58.1 million square feet) during 2015 and 2014,
increased by $10.2 million, or 1.3%, to $794.4 million from $784.2 million;
• A net increase in straight-line rent and other non-cash adjustments to rent of $4.0 million in 2015 as
compared to 2014;
• A net decrease of $8.4 million relating to properties sold in 2015 and during 2014 that were reported in
continuing operations; and
• A net increase of $2.3 million relating to the aggregate of (i) rental revenue from properties (137
properties comprising 1.2 million square feet) that were available for lease during part of 2015 or 2014,
(ii) rental revenue for 22 properties under development, and (iii) lease termination settlements. In
aggregate, the revenues for these items totaled $26.5 million in 2015, compared to $24.2 million in
2014.
For purposes of determining the same store rent property pool, we include all properties that were owned for the
entire year-to-date period, for both the current and prior year, except for properties during the current or prior
year that; (i) were vacant at any time, (ii) were under development or redevelopment, and (iii) were involved in
eminent domain and rent was reduced. Each of the exclusions from the same store pool are separately
addressed within the applicable sentences above, explaining the changes in rental revenue for the period.
Of the 4,538 properties in the portfolio at December 31, 2015, 4,519, or 99.6%, are single-tenant properties and
the remaining are multi-tenant properties. Of the 4,519 single-tenant properties, 4,448, or 98.4%, were net
leased with a weighted average remaining lease term (excluding rights to extend a lease at the option of the
tenant) of approximately 10.0 years at December 31, 2015. Of our 4,448 leased single-tenant properties, 3,938
or 88.5% were under leases that provide for increases in rents through:
• Base rent increases tied to a consumer price index (typically subject to ceilings);
• Percentage rent based on a percentage of the tenants' gross sales;
• Fixed increases; or
• A combination of two or more of the above rent provisions.
Percentage rent, which is included in rental revenue, was $4.5 million in 2015, $3.6 million in 2014, and
$2.9 million in 2013. Percentage rent in 2015 was less than 1% of rental revenue and we anticipate percentage
rent to be less than 1% of rental revenue in 2016.
Our portfolio of real estate, leased primarily to regional and national tenants under net leases, continues to
perform well and provides dependable lease revenue supporting the payment of monthly dividends to our
stockholders. At December 31, 2015, our portfolio of 4,538 properties was 98.4% leased with 71 properties
available for lease, as compared to 98.4% leased, with 70 properties available for lease at December 31, 2014.
It has been our experience that approximately 1% to 4% of our property portfolio will be unleased at any given
time; however, it is possible that the number of properties available for lease could exceed these levels in the
future.
Tenant Reimbursements
Contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses
were $42.0 million in 2015, compared to $37.1 million in 2014 and $24.9 million in 2013. The increase in tenant
reimbursements is primarily due to our acquisitions during 2014 and 2015. Our tenant reimbursements
approximate our reimbursable property expenses for any given period.
76
Other Revenue
Other revenue, which comprises property-related revenue not included in rental revenue or tenant
reimbursements, was $4.4 million in 2015, compared to $2.9 million in 2014 and $7.0 million in 2013.
Depreciation and Amortization
Depreciation and amortization was $409.2 million for 2015, compared to $374.7 million for 2014 and
$306.8 million for 2013. The increase in depreciation and amortization in 2015 and 2014 was primarily due to
the acquisition of properties in 2014 and 2015, which was partially offset by property sales in those same
periods. As discussed in the sections entitled "Funds from Operations (FFO) Available to Common
Stockholders” and “Adjusted Funds from Operations (AFFO) Available to Common Stockholders,” depreciation
and amortization is a non-cash item that is added back to net income available to common stockholders for our
calculation of FFO and AFFO.
Interest Expense
The following is a summary of the components of our interest expense (dollars in thousands):
Interest on our credit facility, term loans, notes, mortgages
and interest rate swaps
Credit facility commitment fees
Amortization of credit facility origination costs and
deferred financing costs
(Gain) loss on interest rate swaps
Dividend on preferred shares subject to redemption
Amortization of net mortgage premiums
Capital lease obligation
Interest capitalized
2015
2014
2013
$
226,207
2,854
$
215,830
2,661
$
182,974
1,930
8,741
3,043
-
(7,482 )
310
(594 )
8,219
1,349
1,526
(12,891 )
116
(444 )
7,434
(878 )
-
(9,481 )
-
(537 )
Interest expense
$
233,079
$
216,366
$
181,442
Credit facility, term loans, mortgages and notes
Average outstanding balances (dollars in thousands)
Average interest rates
$ 5,030,532
$ 4,628,438
$
3,892,089
4.43 %
4.62 %
4.67 %
The increase in interest expense from 2014 to 2015 was primarily due to the June 2014 issuance of our 3.88%
senior unsecured notes due July 2024, the September 2014 issuance of our 4.125% senior unsecured notes
due October 2026, the interest expense on the $250 million term loan that was entered into during June 2015,
and the payoff of mortgages during 2015 which reduced the amortization of net mortgage premiums.
Additionally, each quarter we adjust the carrying value of our interest rate swaps to fair value. Changes in the
fair value of our interest rate swaps are recorded directly to interest expense. We recorded a loss on interest
rate swaps of $3.0 million and $1.3 million during 2015 and 2014, respectively, and a gain on interest rate
swaps of $878,000 during 2013.
The increase in interest expense from 2013 to 2014 was primarily due to the July 2013 issuance of our 4.65%
senior unsecured notes due August 2023, the June 2014 issuance of our 3.88% senior unsecured notes due
July 2024, the September 2014 issuance of our 4.125% senior unsecured notes due October 2026, and an
increase in mortgages payable. The increase was partially offset by slightly lower average interest rates and the
repayment of our 5.375% senior unsecured notes in March 2013.
At December 31, 2015, the weighted average interest rate on our:
• Notes and bonds payable of $3.65 billion (excluding unamortized original issuance discounts of
$13.3 million) was 4.7%;
• Mortgages payable of $637.7 million (excluding net premiums totaling $9.1 million on these mortgages)
was 5.0%;
• Credit facility outstanding borrowings of $238.0 million was 1.2%;
• Term loans outstanding borrowings of $320.0 million was 1.2%; and
• Combined outstanding notes, bonds, mortgages, term loan and credit facility borrowings of $4.85 billion
was 4.4%.
77
General and Administrative Expenses
General and administrative expenses decreased by $1.8 million to $49.3 million for 2015, compared to
$51.1 million in 2014. General and administrative expenses were $56.9 million in 2013. Included in general and
administrative expenses are acquisition transaction costs of $913,000 for 2015, $453,000 for 2014, and
$2.1 million for 2013. General and administrative expenses slightly decreased during 2015 primarily due to
lower compensation costs, lower corporate insurance premiums, and lower proxy costs. General and
administrative expenses decreased during 2014 primarily due to lower stock compensation costs, including the
$3.7 million for accelerated vesting that occurred in July 2013, and lower acquisition transaction costs. In
January 2016, we had 132 employees, as compared to 125 employees in January 2015 and 116 employees in
January 2014.
Dollars in thousands
General and administrative expenses
Total revenue(1)
General and administrative expenses as a
percentage of total revenue
$
2015
49,298
981,270
$
2014
51,085
896,499
$
2013
56,881
761,159
5.0 %
5.7 %
7.5 %
(1) Excludes all tenant reimbursements revenue, as well as revenue included in discontinued operations and gain on sales.
Property Expenses (including tenant reimbursable expenses)
Property expenses consist of costs associated with unleased properties, leased properties and general portfolio
expenses, as well as contractually obligated reimbursable costs from tenants for recoverable real estate taxes
and operating expenses. Expenses related to unleased properties and expenses we are responsible for on
some of the leased properties include, but are not limited to, property taxes, maintenance, insurance, utilities,
property inspections, bad debt expense and legal fees. General portfolio expenses include, but are not limited
to, insurance, legal, property inspections, and title search fees. At December 31, 2015, 71 properties were
available for lease, as compared to 70 properties at December 31, 2014 and 70 properties at December 31,
2013.
Property expenses were $55.4 million (including $42.0 million in reimbursable expenses) in 2015 and
$53.9 million (including $37.1 million in reimbursable expenses) in 2014 and $38.9 million (including
$24.9 million in reimbursable expenses) in 2013. The increase in gross property expenses in 2015 is primarily
attributable to the increased portfolio size, which contributed to higher contractually obligated reimbursements
primarily due to our acquisitions during 2014 and 2015.
While the gross property expenses have increased, our net property expenses (net of tenant reimbursements)
has decreased during 2015 as compared to 2014. The net expenses have decreased primarily due to lower
portfolio vacancy, lower property insurance premiums and fewer one-time maintenance expenses.
Dollars in thousands
Property expenses net of tenant reimbursements
Total revenue(1)
Property expenses net of tenant reimbursements as a
percentage of total revenue
$
2015
13,337
981,270
$
2014
16,753
896,499
$
2013
13,907
761,159
1.4 %
1.9 %
1.8 %
(1) Excludes all tenant reimbursements revenue, as well as revenue included in discontinued operations and gain on sales.
Income Taxes
Income taxes were $3.2 million in 2015, compared to $3.5 million in 2014 and $2.4 million in 2013. These
amounts are for city and state income and franchise taxes paid by Realty Income and its subsidiaries. The
increase for 2014 is primarily related to higher city and state income and franchise taxes paid by Realty Income
and its subsidiaries, primarily related to increased portfolio size.
Provisions for Impairment
In 2015, we recorded total provisions for impairment of $10.6 million on three properties classified as held for
sale, four properties classified as held for investment, seven sold properties, and one property disposed of other
than by sale. These properties were not previously classified as held for sale in financial statements issued prior
to the date of adoption of Accounting Standards Update (ASU) 2014-08, which amends Topic 205,Presentation
of Financial Statements, and Topic 360, Property, Plant, and Equipment; accordingly, the provisions for
impairment are included in income from continuing operations on our consolidated statement of income for the
year ended December 31, 2015.
78
In 2014, Realty Income recorded total provisions for impairment of $4.6 million. Provisions for impairment of
$4.1 million are included in income from continuing operations on nine sold properties and two properties
classified as held for investment. These properties were not previously classified as held for sale in financial
statements issued prior to the date of adoption of ASU 2014-08; accordingly, these provisions for impairment
are included in income from continuing operations on our consolidated statements of income. Additionally, a
provision for impairment of $510,000 is included in income from discontinued operations on one sold property
that was classified as held for sale as of December 31, 2013.
In 2013, Realty Income recorded total provisions for impairment of $3.0 million. Realty Income recorded
provisions for impairment of $2.7 million in income from discontinued operations on seven sold properties.
Except for a provision for impairment of $290,000 that was recorded in income from continuing operations for
one property that was not previously classified as held for sale as of December 31, 2013, the remaining
provisions for impairment are included in income from discontinued operations on our consolidated statement of
income. In 2013, Crest also recorded a provision for impairment of $308,000 on one sold property which is
included in income from discontinued operations.
Merger-Related Costs
Merger-related costs include, but are not limited to, advisor fees, legal fees, accounting fees, printing fees and
transfer taxes related to our acquisition of ARCT. Merger-related costs were $13.0 million in 2013. On a diluted
per common share basis, these expenses represented $0.07 for 2013. No merger-related costs were incurred
in 2014 or 2015.
Gain on Sales of Real Estate
During 2015, we sold 38 investment properties for $65.8 million, which resulted in a gain of $22.2 million. The
results of operations for these properties are presented within continuing operations.
During 2014, we sold 46 investment properties for $107.2 million, which resulted in a gain of $42.1 million. Only
the results of operations specifically related to the properties classified as held for sale at December 31, 2013
and sold during 2014 were reclassified as discontinued operations.
During 2013, we sold 75 investment properties for $134.2 million, which resulted in a gain of $64.7 million. The
results of operations for these properties were reclassified as discontinued operations for all periods presented.
During 2015, Crest did not sell any properties. Crest sold one property for $820,000 and one property for
$597,000 during 2014 and 2013, respectively. Neither of these sales resulted in a gain. The results of
operations for these properties were reclassified as discontinued operations.
We have an active portfolio management program that incorporates the sale of assets when we believe the
reinvestment of the sale proceeds will:
• Generate higher returns;
• Enhance the credit quality of our real estate portfolio;
• Extend our average remaining lease term; or
• Decrease tenant or industry concentration.
At December 31, 2015, we classified real estate with a carrying amount of $9.8 million as held for sale on our
balance sheet. In 2016, we intend to continue our active disposition efforts to further enhance our real estate
portfolio and anticipate approximately $50 to $75 million in yet to be identified property sales for all of 2016. We
intend to invest these proceeds into new property acquisitions, if there are attractive opportunities available.
However, we cannot guarantee that we will sell properties during the next 12 months at our estimated values or
be able to invest the property sale proceeds in new properties.
Preferred Stock Dividends
Preferred stock dividends totaled $27.1 million in 2015, $37.1 million in 2014, and $41.9 million in 2013.
79
Excess of Redemption Value over Carrying Value of Preferred Shares Redeemed
In October 2014, we redeemed all 8,800,000 shares of our 6.75% Monthly Income Class E Cumulative
Redeemable Preferred Stock, or the Class E preferred stock, for $25.00 per share, plus accrued dividends. We
incurred a non-cash charge of $6.0 million. This charge is for the excess of redemption value over the carrying
value of the Class E preferred stock and represents the original issuance cost that was paid in 2006.
Net Income Available to Common Stockholders
Net income available to common stockholders was $256.7 million in 2015, compared to $227.6 million in 2014,
an increase of $29.1 million. On a diluted per common share basis, net income was $1.09 in 2015, as compared
to $1.04 in 2014, an increase of $0.05, or 4.8%. Net income available to common stockholders was
$203.6 million in 2013, or $1.06 on a diluted per common share basis. Net income available to common
stockholders for 2014 includes a non-cash redemption charge of $6.0 million on the shares of Class E preferred
stock that were redeemed in October 2014, which represents $0.03 on a diluted per common share basis. This
charge is for the excess of redemption value over the carrying value of the Class E preferred stock and
represents the original issuance cost that was paid in 2006. Net income available to common stockholders for
2013 was impacted by an unusually large gain on property sales, which represents $0.18 on a diluted per
common share basis. Additionally, net income available to common stockholders for 2013 includes $13.0
million of merger-related costs for the acquisition of ARCT, which represents $0.07 on a diluted per common
share basis, and $3.7 million for accelerated vesting of restricted shares that occurred in July 2013 from ten-
year vesting to five years, which represents $0.02 on a diluted per common share basis.
The calculation to determine net income available to common stockholders includes impairments and/or gains
from the sale of properties. The amount of impairments and/or gains varies from period to period based on the
timing of property sales and can significantly impact net income available to common stockholders.
Gains from the sale of properties during 2015 were $22.2 million, as compared to gains from the sale of
properties of $42.1 million during 2014.
Discontinued Operations
During the first quarter of 2014, the Financial Accounting Standards Board issued guidance that changed the
definition of discontinued operations by limiting discontinued operations reporting to disposals of components of
an entity that represent strategic shifts that have, or will have, a major effect on an entity’s operations and
financial results. We early adopted the requirements of this accounting pronouncement in the first quarter of
2014. Starting with the first quarter of 2014, the results of operations for all qualifying disposals and properties
classified as held for sale that were not previously reported in discontinued operations in our 2013 Annual
Report on Form 10-K are presented within income from continuing operations on our consolidated statements of
income. For 2014, we recorded income from discontinued operations of $2.8 million, or $0.01 per common
share, basic and diluted. For 2013, we recorded income from discontinued operations of $65.7 million, or $0.34
per common share, basic and diluted.
FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (FFO)
In 2015, our FFO increased by $89.5 million, or 15.9%, to $652.4 million, compared to $562.9 million in 2014.
On a diluted per common share basis, FFO was $2.77 in 2015, compared to $2.58 in 2014, an increase of
$0.19, or 7.4%. In 2013, FFO was $462.0 million, or $2.41 on a diluted per common share basis. Our FFO in
2014 included a non-cash redemption charge of $6.0 million on the shares of Class E preferred stock that were
redeemed in October 2014, which represents $0.03 on a diluted per common share basis. This charge is for the
excess of redemption value over the carrying value of the Class E preferred stock and represents the original
issuance cost that was paid in 2006. FFO in 2013 was normalized to exclude $13.0 million of merger-related
costs, which represents $0.07 on a diluted per common share basis for 2013. FFO for 2013 includes
$3.7 million for accelerated vesting of restricted shares that occurred in July 2013 from ten-year vesting to five
years, which represents $0.02 on a diluted per common share basis. All references to FFO for 2013 reflect the
adjustments for merger-related costs for the acquisition of ARCT.
80
The following is a reconciliation of net income available to common stockholders (which we believe is the most
comparable GAAP measure) to FFO. Also presented is information regarding distributions paid to common
stockholders and the weighted average number of common shares used for the basic and diluted computation
per share (dollars in thousands, except per share amounts):
Net income available to common stockholders
$
256,686 $
227,558
$
203,634
2015
2014
2013
Depreciation and amortization:
Continuing operations
Discontinued operations
Depreciation of furniture, fixtures and equipment
Provisions for impairment on investment properties:
Continuing operations
Discontinued operations
Gain on sales of investment properties:
Continuing operations
Discontinued operations
Merger-related costs (1)
FFO adjustments allocable to noncontrolling interests
409,215
374,661
306,769
-
(811 )
-
(482 )
10,560
4,126
-
510
(22,243 )
(39,205 )
-
-
(2,883 )
-
(970 )
(1,396 )
1,626
(288 )
290
2,738
-
(64,743 )
13,013
(1,009 )
FFO available to common stockholders
$
652,437 $
562,889 $
462,030
FFO per common share, basic and diluted (2)
$
2.77 $
2.58
$
2.41
Distributions paid to common stockholders
$
533,238 $
479,256
$
409,222
FFO in excess of distributions paid to
common stockholders
$
119,199 $
83,633
$
52,808
Weighted average number of common shares
used for computation per share:
Basic
Diluted (2)
235,767,932 218,390,885
191,754,857
235,891,368 218,450,863
191,781,622
(1) FFO for 2013 has been normalized to exclude ARCT merger-related costs.
(2) The computation of diluted FFO does not assume conversion of securities that are convertible to common
shares if the conversion of those securities would increase diluted FFO per share in a given period.
We define FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment
Trusts’ definition, as net income available to common stockholders, plus depreciation and amortization of real
estate assets, plus impairments of depreciable real estate assets, reduced by gains on property sales and
extraordinary items.
We consider FFO to be an appropriate supplemental measure of a REIT’s operating performance as it is based
on a net income analysis of property portfolio performance that adds back items such as depreciation and
impairments for FFO. The historical accounting convention used for real estate assets requires straight-line
depreciation of buildings and improvements, which implies that the value of real estate assets diminishes
predictably over time. Since real estate values historically rise and fall with market conditions, presentations of
operating results for a REIT, using historical accounting for depreciation, could be less informative. The use of
FFO is recommended by the REIT industry as a supplemental performance measure. In addition, FFO is used
as a measure of our compliance with the financial covenants of our new credit facility.
ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (AFFO)
In 2015, our AFFO increased by $85.3 million, or 15.2%, to $647.0 million, compared to $561.7 million in 2014.
On a diluted per common share basis, AFFO was $2.74 in 2015, compared to $2.57 in 2014, an increase of
$0.17, or 6.6%. In 2013, AFFO was $463.1 million, or $2.41 on a diluted per common share basis. We consider
AFFO to be an appropriate supplemental measure of our performance. Most companies in our industry use a
similar measurement, but they may use the term "CAD" (for Cash Available for Distribution), "FAD" (for Funds
Available for Distribution) or other terms.
81
The following is a reconciliation of net income available to common stockholders (which we believe is the most
comparable GAAP measure) to FFO and AFFO. Also presented is information regarding distributions paid to
common stockholders and the weighted average number of common shares used for the basic and diluted
computation per share (dollars in thousands, except per share amounts):
Net income available to common stockholders
Cumulative adjustments to calculate FFO (1)
$
256,686
$
227,558
$
203,634
395,751
335,331
258,396
FFO available to common stockholders
652,437
562,889
462,030
2015
2014
2013
Provisions for impairment on Crest properties
Excess of redemption value over carrying value
of preferred share redemptions
Amortization of share-based compensation
Amortization of deferred financing costs (2)
Amortization of net mortgage premiums
Gain on early extinguishment of debt
(Gain) loss on interest rate swaps
Leasing costs and commissions
Recurring capital expenditures
Straight-line rent
Amortization of above and below-market leases
Other adjustments (3)
-
-
10,391
5,294
(6,978 )
(504 )
3,043
(748 )
(7,606 )
(16,468 )
7,861
306
-
308
6,015
11,959
4,804
(9,208 )
(3,428 )
1,349
(821 )
(5,210 )
(14,872 )
8,024
160
-
20,785
4,436
(9,481 )
-
(878 )
(1,280 )
(7,227 )
(13,742 )
8,188
-
Total AFFO available to common stockholders (4)
$
647,028 $
561,661 $
463,139
AFFO per common share:
Basic
Diluted
$
$
2.74
$
2.74
$
2.57
$
2.57
$
2.42
2.41
Distributions paid to common stockholders
$
533,238
$
479,256
$
409,222
AFFO in excess of distributions paid to
common stockholders
$
113,790
$
82,405
$
53,917
Weighted average number of common shares
used for computation per share:
Basic
Diluted (4)
235,767,932
218,390,885
191,754,857
235,891,368
218,450,863
191,781,622
(1) See reconciling items for FFO presented under "Funds from Operations (FFO) Available to Common Stockholders."
(2)
Includes the amortization of costs incurred and capitalized upon issuance of our notes payable, assumption of our
mortgages payable and upon issuance of our term loans. The deferred financing costs are being amortized over the
lives of the respective mortgages and term loans. No costs associated with our credit facility agreements or annual
fees paid to credit rating agencies have been included.
(3)
Includes adjustments allocable to both non-controlling interests and capital lease obligations.
(4) The computation of diluted AFFO does not assume conversion of securities that are convertible to common shares if
the conversion of those securities would increase diluted AFFO per share in a given period.
We believe the non-GAAP financial measure AFFO provides useful information to investors because it is a
widely accepted industry measure of the operating performance of real estate companies that is used by
industry analysts and investors who look at and compare those companies. In particular, AFFO provides an
additional measure to compare the operating performance of different REITs without having to account for
differing depreciation assumptions and other unique revenue and expense items which are not pertinent to
measuring a particular company’s on-going operating performance. Therefore, we believe that AFFO is an
appropriate supplemental performance metric, and that the most appropriate GAAP performance metric to
which AFFO should be reconciled is net income available to common stockholders.
82
Presentation of the information regarding FFO and AFFO is intended to assist the reader in comparing the
operating performance of different REITs, although it should be noted that not all REITs calculate FFO and
AFFO in the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and AFFO
are not necessarily indicative of cash flow available to fund cash needs and should not be considered as
alternatives to net income as an indication of our performance. FFO and AFFO should not be considered as
alternatives to reviewing our cash flows from operating, investing, and financing activities. In addition, FFO and
AFFO should not be considered as measures of liquidity, of our ability to make cash distributions, or of our
ability to pay interest payments.
IMPACT OF INFLATION
Tenant leases generally provide for limited increases in rent as a result of increases in the tenants' sales
volumes, increases in the consumer price index (typically subject to ceilings), or fixed increases. We expect that
inflation will cause these lease provisions to result in rent increases over time. During times when inflation is
greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of
inflation.
Of our 4,538 properties in our portfolio, approximately 98.0% or 4,467 are leased to tenants under net leases
where the tenant is responsible for property expenses. Net leases tend to reduce our exposure to rising property
expenses due to inflation. Inflation and increased costs may have an adverse impact on our tenants if increases
in their operating expenses exceed increases in revenue.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
For information on the impact of recent accounting pronouncements on our business, see note 2 of the Notes to
the Consolidated Financial Statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate changes primarily as a result of our new credit facility, term loans, mortgages
payable, and long-term notes and bonds used to maintain liquidity and expand our real estate investment
portfolio and operations. Our interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flow and to lower our overall borrowing costs. To achieve these objectives we
issue long-term notes and bonds, primarily at fixed rates.
In order to mitigate and manage the effects of interest rate risks on our operations, we may utilize a variety of
financial instruments, including interest rate swaps and caps. The use of these types of instruments to hedge
our exposure to changes in interest rates carries additional risks, including counterparty credit risk, the
enforceability of hedging contracts and the risk that unanticipated and significant changes in interest rates will
cause a significant loss of basis in the contract. To limit counterparty credit risk we will seek to enter into such
agreements with major financial institutions with favorable credit ratings. There can be no assurance that we
will be able to adequately protect against the foregoing risks or realize an economic benefit that exceeds the
related amounts incurred in connection with engaging in such hedging activities. We do not enter into any
derivative transactions for speculative or trading purposes.
The following table presents by year of expected maturity, the principal amounts, average interest rates and
estimated fair values of our fixed and variable rate debt as of December 31, 2015. This information is presented
to evaluate the expected cash flows and sensitivity to interest rate changes (dollars in millions):
83
Expected Maturity Data
Year of maturity
2016
2017
2018
2019
2020
Thereafter
Totals (1)
$
Fixed rate
debt
444.9
308.3
365.3
554.5
82.2
2,478.7
$ 4,233.9
Fair Value (2)
$ 4,429.2
Weighted average
rate on fixed
Weighted average
rate on variable
$
rate debt Variable rate debt
0.2
9.5
70.3
259.8
250.2
21.7
5.45 %
5.63
2.15
6.74
4.99
4.50
4.78 %
$
$
611.7
608.3
rate debt
2.54 %
2.40
1.45
1.29
1.37
2.41
1.40 %
(1) Excludes net premiums recorded on mortgages payable and original issuance discounts recorded on notes payable. At
December 31, 2015, the unamortized balance of net premiums on mortgages payable was $9.1 million, and the unamortized
balance of original issuance discounts on notes payable was $13.3 million.
(2) We base the estimated fair value of the fixed rate senior notes and bonds at December 31, 2015 on the indicative market prices
and recent trading activity of our senior notes and bonds payable. We base the estimated fair value of our fixed rate and
variable rate mortgages at December 31, 2015 on the relevant Treasury yield curve, plus an applicable credit-adjusted spread.
We believe that the carrying value of the credit facility balance and term loans balance reasonably approximate their estimated
fair values at December 31, 2015.
The table incorporates only those exposures that exist as of December 31, 2015. It does not consider those
exposures or positions that could arise after that date. As a result, our ultimate realized gain or loss, with respect
to interest rate fluctuations, would depend on the exposures that arise during the period, our hedging strategies
at the time, and interest rates.
All of our outstanding notes and bonds have fixed interest rates. All of our mortgages payable, except four
mortgages totaling $51.1 million at December 31, 2015, including net unamortized discounts, have fixed interest
rates. After factoring in arrangements that limit our exposure to interest rate risk and effectively fix our per
annum interest rates, our variable rate mortgage debt includes two mortgages totaling $15.5 million at
December 31, 2015. Interest on our new credit facility and term loan balances is variable. However, the variable
interest rate feature on our term loans has been mitigated by interest rate swap agreements. Based on our new
credit facility balance of $238.0 million at December 31, 2015, a 1% change in interest rates would change our
interest costs by $2.4 million per year.
84
REALTY INCOME CORPORATION AND SUBSIDIARIES
Selected Financial Data
(NOT COVERED BY REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
As of or for the years ended December 31,
Total assets (book value)
Cash and cash equivalents
Total debt
Total liabilities
Total equity
Net cash provided by operating activities
Net change in cash and cash equivalents
Total revenue
Income from continuing operations
Income from discontinued operations
Net income
Preferred stock dividends
Excess of redemption value over carrying value
of preferred shares redeemed
Net income available to common stockholders
Cash distributions paid to common stockholders
Basic and diluted net income per common share
Cash distributions paid per common share
Cash distributions declared per common share
Basic weighted average number of common
2015
2014
2013
$ 11,865,870 $
11,012,622 $
40,294
4,841,486
5,312,537
6,553,333
692,303
36,442
1,023,285
284,855
-
284,855
(27,080 )
-
256,686
533,238
1.09
2.271417
2.279000
3,852
4,930,947
5,371,523
5,641,099
627,692
(6,405 )
933,505
269,140
2,800
271,940
(37,062 )
(6,015 )
227,558
479,256
1.04
2.191625
2.192875
9,924,441 $
10,257
4,166,840
4,503,083
5,421,358
518,906
5,009
780,209
180,613
65,670
246,283
(41,930 )
2012
2011
5,429,348 $ 4,404,492
4,165
2,040,284
2,149,638
2,254,854
298,952
(13,442 )
413,544
140,659
16,373
157,032
(24,253 )
5,248
2,869,853
3,016,554
2,412,794
326,469
1,083
484,581
141,895
17,257
159,152
(40,918 )
-
203,634
409,222
1.06
2.147459
2.177875
(3,696 )
114,538
236,348
0.86
1.771625
1.777875
-
132,779
219,297
1.05
1.736625
1.737875
shares outstanding
235,767,932
218,390,885
191,754,857
132,817,472
126,142,696
Diluted weighted average number of common
shares outstanding
236,208,390
218,767,885
191,781,622
132,884,933
126,189,399
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
We have had no disagreements with our independent registered public accounting firm on accounting matters or
financial disclosure, nor have we changed accountants in the two most recent fiscal years.
85
REALTY INCOME CORPORATION AND SUBSIDIARIES
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
As of and for the year ended December 31, 2015, we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures, under the supervision and with the participation of
management, including our Chief Executive Officer and Chief Financial Officer. Based on the foregoing, our
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective and were operating at a reasonable assurance level.
Management's Report on Internal Control Over Financial Reporting
Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief
Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles, and
includes those policies and procedures that:
(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and
(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Company's assets that could have a material effect on the financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting
for the Company.
Management has used the framework set forth in the report entitled "Internal Control--Integrated Framework
(2013)" published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the
effectiveness of the Company's internal control over financial reporting. Management has concluded that the
Company's internal control over financial reporting was effective as of the end of the most recent fiscal year.
KPMG LLP has issued an attestation report on the effectiveness of the Company's internal control over financial
reporting.
Submitted on February 11, 2016 by,
John P. Case, Chief Executive Officer
Paul M. Meurer, Executive Vice President, Chief Financial Officer, and Treasurer
86
Changes in Internal Controls
There were no changes to our internal control over financial reporting that occurred during the quarter ended
December 31, 2015 that have materially affected, or are reasonably likely to material affect, our internal control
over financial reporting. As of December 31, 2015, there were no material weaknesses in our internal controls,
and therefore, no corrective actions were taken.
Limitations on the Effectiveness of Controls
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting
objectives because of its inherent limitations. Internal control over financial reporting is a process that involves
human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human
failures. Internal control over financial reporting also can be circumvented by collusion or improper management
override. Because of such limitations, there is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial reporting. However, these inherent limitations are
known features of the financial reporting process. Therefore, it is possible to design into the process safeguards
to reduce, though not eliminate, this risk.
Certifications
John Case, Realty Income’s Chief Executive Officer, certified to the NYSE in 2015, pursuant to Section
303A.12(a) of the NYSE’s Listing Standards, that he was not aware of any violation of the NYSE corporate
governance listing standards by Realty Income. Furthermore, Realty Income filed with the SEC as exhibits to its
Annual Report on Form 10-K for the year ended December 31, 2015, the certifications by John Case and
Paul M. Meurer, Realty Income’s Chief Executive Officer and Chief Financial Officer, respectively, required
under Section 302 of the Sarbanes-Oxley Act.
REALTY INCOME CORPORATION AND SUBSIDIARIES
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
A. Our common stock is traded on the NYSE under the ticker symbol “O.” The following table shows the high
and low sales prices per share for our common stock as reported by the NYSE, and distributions declared per
share of common stock for the periods indicated.
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Price Per Share
of Common Stock
High
Low
$
$
52.41
48.88
52.66
55.54
45.11
44.98
45.83
49.65
$
$
45.65
43.15
44.23
47.95
37.01
40.21
40.56
40.71
Distributions
Declared (1)
$
0.5675000
0.5690000
0.5705000
0.5720000
$
2.2790000
$
0.5468126
0.5477501
0.5486876
0.5496251
$
2.1928754
(1) Common stock cash distributions are declared monthly by us based on financial results for the prior months. At
December 31, 2015, a distribution of $0.191 per common share had been declared and was paid in January 2016.
B. There were 10,051 registered holders of record of our common stock as of December 31, 2015. We estimate
that our total number of shareholders is over 354,000 when we include both registered and beneficial holders of
our common stock.
87
C. During the fourth quarter of 2015, 225 shares of stock, at a price of $49.61, and 18,645 shares of stock, at a
price of $51.63, were withheld for state and federal payroll taxes on the vesting of employee stock awards, as
permitted under the 2012 Incentive Award Plan of Realty Income Corporation.
Total Return Performance
Realty Income Corporation
Russell 2000
S&P 500
Realty Income Peer Group index*
SNL Triplenet REIT index
200
180
160
140
120
100
l
e
u
a
V
x
e
d
n
I
80
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
Index
Realty Income Corporation
Russell 2000
S&P 500
Realty Income Peer Group index*
SNL Triplenet REIT index
Period Ending
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
100.00
100.00
100.00
100.00
100.00
107.53
95.82
102.11
107.69
103.31
129.38
111.49
118.45
124.50
124.01
126.38
154.78
156.82
123.83
125.92
169.78
162.35
178.28
167.97
157.36
192.51
155.18
180.75
167.77
148.73
* Realty Income Peer Group index consists of 17 companies with an implied market capitalization between $2.7 billion and $23.9 billion as of
September 30, 2015.
88
STRONG
PERFORMANCE
2015 TOTAL SHAREHOLDER RETURN
5.7%
REALTY INCOME
NASDAQ COMPOSITE
2.8%
EQUITY REIT INDEX
1.4%
S&P 500
0.2%
DOW JONES INDUSTRIAL AVERAGE
TABLE OF CONTENTS
HISTORICAL FINANCIAL PERFORMANCE 2
LETTER TO SHAREHOLDERS 4
HIGH-QUALITY PORTFOLIO 12
DISCIPLINED INVESTMENT PROCESS 16
CONSERVATIVE CAPITAL STRUCTURE 18
MONTHLY DIVIDENDS 19
2015 ANNUAL REPORT: FORM 10-K 20
COMPANY INFORMATION 89
COMPANY INFORMATION
EXECUTIVE OFFICERS
ADDITIONAL OFFICERS
Benjamin N. Fox
Senior Vice President,
Asset and Portfolio
Management
Robert J. Israel
Senior Vice President,
Research
Dawn Nguyen
Senior Vice President,
Portfolio Management
Joel Tomlinson
Senior Vice President,
Acquisitions
Cary J. Wenthur
Senior Vice President,
Acquisitions
Janeen S. Bedard
Vice President,
Administration
Stephen D. Burchett
Vice President,
Senior Legal Counsel
Theresa M. Casey
Vice President,
IT Enterprise Software
Elizabeth Cate
Vice President,
Portfolio Management
T.J. Chun
Vice President,
Investments
Ross Edwards
Vice President,
Corporate Leasing
Kristin K. Ferrell
Vice President,
Head of Lease Administration
Shannon C. Jensen
Vice President,
Associate General Counsel
and Assistant Secretary
Shannon Kehle
Vice President,
Human Resources
Scott A. Kohnen
Vice President,
Research
Sean P. Nugent
Vice President,
Controller
Jenette S. O’Brien
Vice President,
Asset Management
Jonathan Pong
Vice President,
Head of Capital Markets
and Investor Relations
Lori Satterfield
Vice President,
Senior Legal Counsel
Clint Schmucker
Vice President,
Information Technology
Ashley N. Wells
Vice President,
Research
Kyle B. Campbell
Associate Vice President,
Senior Legal Counsel,
Risk Management
Nicole A. Carr
Associate Vice President,
Director of Financial Reporting
Jill M. Cossaboom
Associate Vice President,
Assistant Controller
Teresa M. Glenn
Associate Vice President,
Human Resources and
Operations
Gregory M. Libby
Associate Vice President,
Property Management
13.0%
Top row left to right: Neil Abraham, John Case, Michael Pfeiffer | Bottom row left to right:
Sumit Roy, Paul Meurer
Neil Abraham
Executive Vice President,
Chief Investment Officer
John P. Case
Chief Executive Officer
Sumit Roy
President and Chief Operating
Officer
Paul M. Meurer
Executive Vice President,
Chief Financial Officer
and Treasurer
Michael R. Pfeiffer
Executive Vice President,
General Counsel and
Secretary
DIRECTORS
Top row left to right: Gregory McLaughlin, Kathleen Allen, Ronald Merriman, Priya Cherian Huskins,
Larry Chapman | Bottom row left to right: Michael McKee, John Case, Stephen Sterrett
Michael D. McKee
Chairman of the Board
of Directors
Chief Executive Officer,
Bentall Kennedy
John P. Case
Chief Executive Officer
Kathleen R. Allen, Ph.D.
Director, Center for Technology
Commercialization,
Marshall School of Business
University of Southern
California
A. Larry Chapman
Retired, Executive
Vice President,
Head of Commercial Real
Estate, Wells Fargo Bank
Priya Cherian Huskins
Partner, Woodruff-Sawyer & Co.
Gregory T. McLaughlin
President, PGA TOUR-
Champions Tour
Ronald L. Merriman
Retired Vice Chair, KPMG LLP
Stephen E. Sterrett
Retired, Senior Executive
Vice President,
Chief Financial Officer,
Simon Property Group, Inc.
Transfer Agent
Wells Fargo Shareowner Services
P.O. Box 64873
St. Paul, MN 55164
For shareholder administration and account
information please visit Wells Fargo’s website
at www.shareowneronline.com, call toll-free
at 1-877-218-2434, or email your questions
to stocktransfer@wellsfargo.com
Independent Registered
Public Accounting Firm
KPMG LLP
San Diego, CA
For Additional Corporate Information
Visit the Realty Income corporate
website at www.realtyincome.com
Contact your financial advisor, or contact Realty Income at:
Telephone: 858-284-5000, Email: ir@realtyincome.com
Copies of Realty Income’s Annual Report on
Form 10-K are available upon written request to:
REALTY INCOME CORPORATION
Attention: Investor Relations
11995 El Camino Real
San Diego, CA 92130
R E A L T Y I N C O M E 2 0 1 5 A N N U A L R E P O R T 8 9
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