Realty Income
Annual Report 2019

Plain-text annual report

REALTY INCOME 2 0 1 9 A N N U A L R E P O R T Celebrating 25 Years on the New York Stock Exchange “The Company believes that owning a diversified portfolio of commercial properties operated under triple-net lease agreements may offer it one of the best opportunities for creating predictable results for its Shareholders.” – PROSPECTUS, 1994 TABLE OF CONTENTS 2 Company Performance 4 Letter to Shareholders 10 Historical Financial Performance 12 Real Estate Portfolio 16 Disciplined Investment Process 18 Conservative Capital Structure 19 Dependable Monthly Dividends 20 Corporate Responsibility 22 Select Financial Data 29 Company Information PERFORMANCE HIGHLIGHTS SINCE 1994 NYSE LISTING(1) 16.5% COMPOUND AVERAGE ANNUAL TOTAL SHAREHOLDER RETURN 5.0% ANNUAL AFFO PER SHARE GROWTH 4.5% COMPOUND AVERAGE ANNUAL DIVIDEND PER SHARE GROWTH 104 DIVIDEND INCREASES 89 CONSECUTIVE QUARTERLY DIVIDEND INCREASES 0 DIVIDEND REDUCTIONS (1) As of 12/31/19 1969 Realty Income is founded by William and Joan Clark 1994 Began trading on the New York Stock Exchange under the ticker symbol “0” 1996 Received investment-grade credit ratings from Moody’s Investors Service and Standard and Poor’s Rating Agency 2011 Completed $1.0 billion in annual property acquisitions for the first time 2013 Closed acquisition of American Realty Capital Trust for $3.2 billion 2015 Added to the S&P 500 index and the S&P High Yield Dividend Aristocrats® index 2016 Surpassed $1.0 billion in annual rental revenue 2017 Credit rating upgraded to ‘A3’ by Moody’s Investors Service 2018 Credit rating upgraded to ‘A-’ by Standard and Poor’s Rating Agency 2019 Celebrated the 50th anniversary of the company’s founding and the 25th anniversary of the company’s listing on the New York Stock Exchange Surpassed $6.7 billion in common stock dividends paid to shareholders Expanded internationally through property acquisitions in the United Kingdom REALTY INCOME 2019 ANNUAL REPORT 1 Company Performance COMPOUND AVERAGE ANNUAL TOTAL SHAREHOLDER RETURN SINCE 1994 NYSE LISTING (AS OF DECEMBER 31, 2019) R EA LTY INCOME EQUITY REIT I NDEX D OW JONES IND USTRIAL AV ERAGE N ASDAQ CO MPOSI TE S &P 5 00 10.8% 10.7% 10.3% 10.1% 16.5% COMPARISON OF $100 INVESTED IN REALTY INCOME IN 1994 VS. MAJOR STOCK INDICES(1) (AS OF DECEMBER 31, 2019) $3,777 $1,329 $1,326 $1,192 $1,140 $3.32 2019 AFFO PER SHARE $2.73(1) 2019 ANNUALIZED DIVIDEND PER SHARE REALTY INCOME EQUITY REIT INDEX DOW JONES INDUSTRIAL AVERAGE NASDAQ COMPOSITE S& P 50 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 (1) Refer to page 27 for additional information on the calculation of total shareholder return. EARNINGS AND DIVIDENDS COMPOUND AVERAGE ANNUAL GROWTH SINCE 1994 NYSE LISTING 5.0% AFFO PER SHARE GROWTH 4.5% DIVIDEND PER SHARE GROWTH 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 (1) Annualized dividend amount reflects the December declared dividend rate per share multiplied by 12. Information as of 12/31/2019. 2 REALTY INCOME 2019 ANNUAL REPORT 2019 PERFORMANCE HIGHLIGHTS TOTAL SHAREHOLDER RETURN AFFO PER SHARE GROWTH 21.3% 4.1% 3.0% $1.4 $3.7 BILLION RENTAL REVENUE DIVIDEND PER SHARE GROWTH BILLION INVESTMENT VOLUME $3.0 BILLION ATTRACTIVELY PRICED CAPITAL RAISED 98.6% PORTFOLIO OCCUPANCY 102.6% RECAPTURE RATE ON RE-LEASING ACTIVITY REALTY INCOME 2019 ANNUAL REPORT 3 Dear Fellow Shareholders, Realty Income had a milestone year in 2019 as we celebrated the 50th anniversary of our company’s founding, the 25th anniversary of our public listing on the New York Stock Exchange (NYSE), and another year of favorable operating results and shareholder returns. I am deeply proud of our company’s track record of success, humbled by the team’s many accomplishments, and extremely optimistic about our future. As I reflect on Realty Income’s bright prospects in this new decade, I am gratified that the mission which has guided the company since its inception remains core to our success. 4 REALTY INCOME 2019 ANNUAL REPORT William and Joan Clark founded Realty and the team to 194 employees. In addition, Income in 1969 with the mission to since our public listing in 1994, we have grown provide dependable monthly income that AFFO per share by a compound average increases over time. We have sustained this annual growth rate of 5%, increased total commitment to our shareholders, whom we market capitalization by a compound average consider loyal customers, to the present day, annual growth rate of 19.1%, and delivered as we were one of only a handful of REITs 16.5% compound average annual total that continued raising dividends through the shareholder return. Great Recession and, as of year-end 2019, we had paid 593 consecutive monthly dividends. That achievement led to Realty Income being added to the S&P 500 Dividend Aristocrats® index this year, making us one of only 64 companies in this exclusive group and one of only three REITs. I share this incredible honor with all of you and thank you from the bottom of my heart for the loyalty, hard work, and passion that makes this possible. Our dedication to the company’s mission has remained steadfast throughout this period of growth. However, the way we do business and serve our shareholders, clients, colleagues, and community has evolved. When we listed on the NYSE in 1994, our real estate portfolio of 628 properties was primarily concentrated in child care centers, restaurants, and automotive retailers. Today, our portfolio has expanded to include clients operating in 50 Since our founding, the company has grown industries. Similarly, ten years ago, our real its market capitalization to more than estate portfolio was entirely comprised of $32 billion, annual revenue to over $1.4 billion, retail properties. the real estate portfolio to 6,483 properties, REALTY INCOME 2019 ANNUAL REPORT 5 Today, our strategy has expanded to include to $3.32. This allowed us to increase the industrial properties, which represents nearly dividend five times throughout the year, and 12% of revenue. As we entered 2019, our real again in February 2020, raising the dividend estate portfolio was centered in the United by 3.1% as compared to February 2019. The States and Puerto Rico. Today, we serve continued strength of our operations enabled clients internationally to include properties us to increase the dividend while achieving located in the United Kingdom. an AFFO payout ratio of 81.7% in 2019, which We are excited about our international expansion, as it enhances our robust investment pipeline and represents a natural evolution of the company’s growth strategy. We believe the size of the European net lease market and the need for a large-scale, well-capitalized institutional real estate partner offers a propitious environment for we believe provided a comfortable margin of safety for our shareholders. In 2019, the shareholders who owned our common stock for the full calendar year realized a total return of 21.3%, which is comprised of the change to our stock price as well as the dividends paid throughout the year, assuming reinvestment of dividends. us to increase our total addressable market During 2019, we invested more than for growth, and that our company is ideally $3.7 billion in high-quality real estate, positioned to pursue this adjacent vertical acquiring only 6.5% of the $57 billion in given our standing as a leader in the net lease potential real estate transactions sourced industry. Our prospects are further enhanced and reviewed. Total international investments by our sector-leading cost of capital and during 2019 were $798 million, which ability to complete large-scale transactions includes our first international acquisition— without creating issues around tenant or a portfolio of 12 properties located in the industry concentration. Domestically, we will United Kingdom leased to Sainsbury’s, a continue to seek to capitalize on our size and leading grocer. We ended the year with scale advantages to drive favorable operating portfolio occupancy of 98.6% and achieved and financial results. a 102.6% rent recapture rate on re-leasing OUR 2019 RESULTS Our disciplined execution across all areas of our business culminates in healthy earnings and dividend growth. In 2019, we grew AFFO per share, or the cash earnings available to pay dividends to our shareholders, by 4.1% activity during the year. We remain very well-positioned with a conservative capital structure and strong liquidity, ending the year with a Net Debt-to-Adjusted EBITDAre of 5.5x and approximately $2.3 billion available on our $3.0 billion multi-currency revolving credit facility. 6 REALTY INCOME 2019 ANNUAL REPORT OUR TEAM - WE VALUE THOSE WE SERVE In 2019, we revisited and refined our values, with an acute focus on those we serve— our shareholders, clients, colleagues, and community. Here are some of the key values which guide us: Christie Kelly, former Global Chief Financial Officer of Jones Lang Lasalle Incorporated, to our board in 2019. We are One Team, and we are dedicated to ensuring that we have the right people, processes, and systems in place, while fostering an environment in which all employees can excel. In 2019, we completed We do business with integrity, respect, an employee engagement survey to assess, transparency and humility, because how analyze, and respond to employee sentiment. we act is more important than what we The results were positive, affirming the accomplish We do right by our clients, because their success is our success continued strength of our corporate culture; however, we continuously monitor opportunities for improvement and will conduct employee engagement surveys on We nurture and reward our team, so they an ongoing basis. Additionally, we emphasize will be inspired and engaged to give their investing in proprietary technology solutions best every day We prioritize diversity and inclusion, because we are all equal We aspire to give more than we take, in our community and the environment to ensure we have the tools to continue enhancing the scalability of our platform as we grow the company. As a service-driven business, we are dedicated not only to our shareholders, clients, and colleagues, but also to our Employees form the foundation of Realty community. We have maintained a significant Income’s corporate culture and are our presence in San Diego County since our most valuable assets. Our team consists founding in 1969, devoting over 900 hours of 194 dedicated team members across 13 in employee volunteer time in 2019. We departments, and the talent and commitment donate annually to a variety of charitable of our colleagues drive the company’s organizations and remain dedicated to success. Our collective achievements are operating our business in a socially and made possible through the guidance of environmentally responsible manner. the independent members of our Board of Environmental, social and governance Directors, and we were pleased to welcome (“ESG”) issues increasingly factor into a REALTY INCOME 2019 ANNUAL REPORT 7 company’s long-term prospects, and we are believe that the strength of our balance thus evolving our philosophy and strategy sheet, defensive nature of our real estate to take advantage of ESG opportunities portfolio, and overall credit quality of our and manage risks. We officially developed a tenant base support a resilient income stream Sustainability Department this year and are that can perform as consistently as it has for dedicating resources to numerous initiatives over 50 years. in 2020. As of the end of 2019, approximately half of MACROECONOMIC OUTLOOK our annualized rental revenue was generated We remain dedicated to creating long- term value across a variety of economic environments. This idea is core to our business, as we are focused on being a reliable safe harbor throughout all economic cycles. Although we believe our portfolio and investment strategies are well-positioned to deliver consistently on this goal, our team continuously monitors and analyzes macroeconomic factors and their potential impact on domestic and international economies. Considerations that could affect market performance include interest rate trends, the geopolitical climate, global trade, global health, and evolving consumer behavior. The U.S. presidential election, trade negotiations between the U.S. and China, Middle East geopolitical discussions, terms of the United Kingdom’s withdrawal from the European Union, enhanced volatility in oil prices, and the impact of a global pandemic are key topics we are monitoring in 2020. Recently, the COVID-19 global pandemic has significantly impacted the stability of the capital markets, the health of certain industries and subsectors, and has weakened the forecast for global economic output. Despite these challenges, we continue to from tenants, their subsidiaries or affiliated companies with an investment-grade credit rating. Additionally, 96% of our annualized retail rental revenue was generated from tenants with a service, non-discretionary, and/or low price point component to their business. We believe these characteristics allow our tenants to operate effectively in a variety of economic environments and to compete effectively with e-commerce. We view our tenants as clients, and we are committed to helping them keep the cost of occupancy low so they can grow their business over time, and we can, in turn, do the same. Macroeconomic and geopolitical uncertainty requires increased diligence and a commitment to stringent underwriting principles, but uncertainty also provides opportunity. Our international expansion is an example of capitalizing on uncertainty, as a historically weak British Pound, driven by Brexit uncertainty, contributed to favorable transactional and financing terms on our debut international acquisition. Further, historically-low interest rates in the U.K. provided favorable pricing on Sterling- denominated debt. 8 REALTY INCOME 2019 ANNUAL REPORT LOOKING AHEAD Our strong track record of performance, which now spans more than 50 years, continued throughout 2019; however, we constantly seek to continue building upon We are pleased to be included in the small group of REITs with at least two ‘A’ credit ratings by the major credit rating agencies, with ratings of ‘A3’ and ‘A-’ by Moody’s and S&P Global, respectively. our solid foundation. We entered 2020 CONCLUSION well-positioned with a conservatively capitalized balance sheet with strong liquidity, a healthy global investment pipeline, and an experienced team prepared to execute on opportunistic growth initiatives. Our size, scale, and cost of capital advantages are fundamental to our continued success. We believe that these advantages, which are key differentiators As I hope this letter shows, our strategy to ensure the stability and growth in earnings and dividends will continue to evolve, but our commitment to our mission is steadfast. Across all we do, we take the long view every day, in every relationship, to provide stability to the clients we serve, the team we nurture, the communities we support, and the people who invest in us. within the net lease sector, position us As we celebrated the 50th anniversary of our to effectively expand our addressable company’s founding and the 25th anniversary market internationally, as well as to execute of our public listing, we took important large-scale portfolio and sale-leaseback steps to position the company to drive transactions on a negotiated basis. favorable shareholder results throughout the The efficiency of our business demonstrates the scalability of our platform. In 2019, we generated more than $1.42 billion of revenue with approximately $1.34 billion of Adjusted EBITDAre. Effectively, for every dollar of revenue we generate, we retain approximately 94 cents as earnings for company’s next chapter. Most notably, our international expansion complements our domestic business and significantly increases our addressable market for growth. As we continue to grow our company, we remain cognizant of the values which have dictated our prior successes. investors. This enables us to effectively Thank you for your continued support, and expand our business across new verticals, for joining us on our journey to be a great and we continue to have the lowest general company and create a better world. and administrative expense ratio in the net lease sector. Sincerely, Our cost of capital, developed through our track record of performance and loyal shareholder support, affords us the ability to pursue high-quality transactions while Sumit Roy generating meaningful earnings growth. President & Chief Executive Officer REALTY INCOME 2019 ANNUAL REPORT 9 Historical Financial Performance (UNAUDITED; DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (1) For years prior to 2016, 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. Consistent with Realty Income’s financial reporting methodology changes, total revenue for 2016 and later includes revenue from Crest Net Lease (2) FFO and AFFO are non-GAAP financial measures. Refer to Management’s Discussion and Analysis in the Company’s 2019 Form 10-K for the definitions of FFO and AFFO and a reconciliation of each 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) Includes new properties acquired by Realty Income and Crest Net Lease and properties under development, redevelopment, or expansion (5) All share and per share amounts reflect the 2-for-1 stock split that occurred on December 31, 2004 (6) Annualized dividend amount reflects the December declared dividend rate per share multiplied by 12 1 0 REALTY INCOME 2019 ANNUAL REPORT 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 $329 $331 $296 $241 $198 $178 $150 $138 $121 $116 $105 $107 $108 $116 $99 $90 $90 $77 $191 $186 $190 $156 $130 $121 $105 $193 $192 $193 $159 $131 $126 $107 $178 $170 $158 $130 $109 $97 $84 $69 $95 $96 $78 $58 $78 $79 $65 $45 $67 $68 $58 $41 $66 $66 $56 $85 $41 $63 $62 $52 $68 $35 $52 $52 $44 $57 $32 $48 $47 $43 $52 $26 $40 $40 $37 $49 $15 $39 $39 $39 $3,439 $3,409 $3,239 $2,744 $2,096 $1,691 $1,533 $1,286 $1,178 $1,074 $1,017 $890 $700 $565 $515 $451 2,339 2,348 2,270 1,955 1,646 1,533 1,404 1,197 1,124 1,068 1,076 970 826 740 685 630 19 19 17 13 12 11 10 10 9 8 108 357 378 156 194 302 111 117 110 149 9 22 $58 $190 $534 $770 $487 $215 $372 $139 $156 $99 $181 $193 $142 $56 $65 29 $28 30 10 $7 30 13 23 43 35 35 35 21 $11 $23 $35 $23 $20 $40 $45 29 29 30 28 26 25 24 3 $9 24 5 $3 22 96.8% 97.0% 97.9% 98.7% 98.5% 97.9% 98.1% 97.7% 98.2% 97.7% 98.4% 99.5% 99.2% 99.1% 99.3% 99.4% 11.2 11.9 13.0 12.9 12.4 12.0 11.8 10.9 10.4 9.8 10.7 10.2 9.8 9.5 9.2 9.5 6 96 10 $4 14 5 62 7 $4 8 5 58 3 $1 7 4 4 $3 5 $4 5 19 16 25 $20 30 $1.03 $1.06 $1.16 $1.11 $1.12 $1.15 $1.08 $1.01 $0.99 $0.84 $0.76 $0.78 $0.74 $0.70 $0.63 $0.39 $1.84 $1.83 $1.89 $1.73 $1.62 $1.53 $1.47 $1.40 $1.33 $1.26 $1.23 $1.18 $1.11 $1.04 $1.00 $0.98 $1.86 $1.90 $1.92 $1.77 $1.63 $1.61 $1.50 $1.41 $1.34 $1.27 $1.24 $1.17 $1.10 $1.03 $0.98 $0.98 $1.707 $1.662 $1.560 $1.437 $1.346 $1.241 $1.181 $1.151 $1.121 $1.091 $1.043 $0.983 $0.946 $0.931 $0.913 $0.300 $1.72 $1.70 $1.64 $1.52 $1.40 $1.32 $1.20 $1.17 $1.14 $1.11 $1.08 $1.02 $0.96 $0.95 $0.93 $0.90 104 104 101 101 84 79 76 70 66 53 54 54 51 46 46 39 $25.91 $23.15 $27.02 $27.70 $21.62 $25.29 $20.00 $17.50 $14.70 $12.44 $10.31 $12.44 $12.72 $11.94 $11.25 $8.56 7.4% 6.1% 5.6% 6.7% 5.3% 6.2% 6.7% 7.8% 9.0% 10.6% 8.4% 7.7% 7.9% 8.3% 10.7% 9.9% 19.3% (8.2%) 3.2% 34.8% (9.2%) 32.7% 21.0% 26.9% 27.2% 31.2% (8.7%) 5.5% 14.5% 15.4% 42.0% 28.5% For the Years Ended December 31,2019201820172016201520142013201220112010Total revenue(1)$1,423$1,281 $1,170$1,060$980$895$760$484$422$346Net income available to common stockholders$436$364$302$288$257$228$204$115$133$107Funds from operations (“FFO”)(2)$1,040$903$773$735$652$563$462$269$249$194Adjusted funds from operations (“AFFO”)(2)$1,050$925$839$736$647$562$463$274$253$197Dividends paid to common stockholders$852$762$689$611$533$479$409$236$219$183AT YEAR ENDReal estate at cost, before accumulated depreciation and amortization(1) $19,518 $16,541 $15,016$13,864$12,297$11,154$9,899$5,921$4,972$4,113Number of properties 6,483 5,797 5,172 4,9444,5384,3273,8963,0132,6342,496Gross leasable square feet (millions)106939083767163382721Properties acquired(4)789764303505286506974423164186Cost of properties acquired(4)$3,715$1,797 $1,519$1,859$1,259$1,402$4,670$1,165$1,016$714Property dispositions931285977384675442628Net proceeds from property dispositions$109$142$167$91$66$107$134$51$24$27Number of industries50484747474747443832Portfolio occupancy rate98.6%98.6%98.4%98.3%98.4%98.4%98.2%97.2%96.7%96.6%Remaining weighted average lease term (years)9.29.29.59.810.010.210.811.011.311.4PER COMMON SHARE DATA(5)Net income (diluted)$1.38$1.26$1.10$1.13$1.09$1.04$1.06$0.86$1.05$1.01Funds from operations (“FFO”)(2)$3.29$3.12$2.82$2.88$2.77$2.58$2.41$2.02$1.98$1.83Adjusted funds from operations (“AFFO”)(2)$3.32$3.19$3.06$2.88$2.74$2.57$2.41$2.06$2.01$1.86Dividends paid$2.711$2.631$2.527$2.392$2.271$2.192$2.147$1.772$1.737$1.722Annualized dividend amount(6)$2.73$2.65$2.55$2.43$2.29$2.20$2.19$1.82$1.75$1.73Common shares outstanding (millions)334304284260250225207133133118INVESTMENT RESULTSClosing price on December 31,$73.63 $63.04 $57.02$57.48$51.63$47.71$37.33$40.21$34.96$34.20Dividend yield(7)(8)3.7%4.2%4.5%4.6%4.4%5.9%5.3%5.1%5.1%6.6%Total return to stockholders(9)21.1%15.2%3.6%16.0%13.0%33.7%(1.8%)20.1%7.3%38.6% 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 $329 $331 $296 $241 $198 $178 $150 $138 $121 $116 $105 $107 $108 $116 $99 $90 $90 $77 $191 $186 $190 $156 $130 $121 $105 $193 $192 $193 $159 $131 $126 $107 $178 $170 $158 $130 $109 $97 $84 $69 $95 $96 $78 $58 $78 $79 $65 $45 $67 $68 $58 $41 $66 $66 $56 $85 $41 $63 $62 $52 $68 $35 $52 $52 $44 $57 $32 $48 $47 $43 $52 $26 $40 $40 $37 $49 $15 $39 $39 $39 $3,439 $3,409 $3,239 $2,744 $2,096 $1,691 $1,533 $1,286 $1,178 $1,074 $1,017 $890 $700 $565 $515 $451 2,339 2,348 2,270 1,955 1,646 1,533 1,404 1,197 1,124 1,068 1,076 970 826 740 685 630 19 16 19 19 17 13 12 11 10 10 108 357 378 156 194 302 111 117 9 22 9 8 110 149 6 96 5 62 5 58 $58 $190 $534 $770 $487 $215 $372 $139 $156 $99 $181 $193 $142 $56 $65 25 $20 30 29 $28 30 10 $7 30 13 23 43 35 35 35 21 $11 $23 $35 $23 $20 $40 $45 29 29 30 28 26 25 24 3 $9 24 5 $3 22 10 $4 14 7 $4 8 3 $1 7 4 4 $3 5 $4 5 96.8% 97.0% 97.9% 98.7% 98.5% 97.9% 98.1% 97.7% 98.2% 97.7% 98.4% 99.5% 99.2% 99.1% 99.3% 99.4% 11.2 11.9 13.0 12.9 12.4 12.0 11.8 10.9 10.4 9.8 10.7 10.2 9.8 9.5 9.2 9.5 $1.03 $1.06 $1.16 $1.11 $1.12 $1.15 $1.08 $1.01 $0.99 $0.84 $0.76 $0.78 $0.74 $0.70 $0.63 $0.39 $1.84 $1.83 $1.89 $1.73 $1.62 $1.53 $1.47 $1.40 $1.33 $1.26 $1.23 $1.18 $1.11 $1.04 $1.00 $0.98 $1.86 $1.90 $1.92 $1.77 $1.63 $1.61 $1.50 $1.41 $1.34 $1.27 $1.24 $1.17 $1.10 $1.03 $0.98 $0.98 $1.707 $1.662 $1.560 $1.437 $1.346 $1.241 $1.181 $1.151 $1.121 $1.091 $1.043 $0.983 $0.946 $0.931 $0.913 $0.300 $1.72 $1.70 $1.64 $1.52 $1.40 $1.32 $1.20 $1.17 $1.14 $1.11 $1.08 $1.02 $0.96 $0.95 $0.93 $0.90 104 104 101 101 84 79 76 70 66 53 54 54 51 46 46 39 $25.91 $23.15 $27.02 $27.70 $21.62 $25.29 $20.00 $17.50 $14.70 $12.44 $10.31 $12.44 $12.72 $11.94 $11.25 $8.56 7.4% 6.1% 5.6% 6.7% 5.3% 6.2% 6.7% 7.8% 9.0% 10.6% 8.4% 7.7% 7.9% 8.3% 10.7% 9.9% 19.3% (8.2%) 3.2% 34.8% (9.2%) 32.7% 21.0% 26.9% 27.2% 31.2% (8.7%) 5.5% 14.5% 15.4% 42.0% 28.5% (7) Dividend yield was calculated by dividing the dividend paid per share, during the year, by the closing share price on December 31 or the last trading day of the preceding year. Dividend yield excludes special dividends (8) The 1994 dividend yield is based on the annualized dividends for the period from August 15, 1994 (the date of the consolidation of the predecessors to the Company) to December 31, 1994. The 1994 total return is based on the price change from the opening on October 18, 1994 (the Company’s first day of trading) to December 31, 1994 plus the annualized dividend yield (9) Total return 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 REALTY INCOME 2019 ANNUAL REPORT 1 1 For the Years Ended December 31,2019201820172016201520142013201220112010Total revenue(1)$1,423$1,281 $1,170$1,060$980$895$760$484$422$346Net income available to common stockholders$436$364$302$288$257$228$204$115$133$107Funds from operations (“FFO”)(2)$1,040$903$773$735$652$563$462$269$249$194Adjusted funds from operations (“AFFO”)(2)$1,050$925$839$736$647$562$463$274$253$197Dividends paid to common stockholders$852$762$689$611$533$479$409$236$219$183AT YEAR ENDReal estate at cost, before accumulated depreciation and amortization(1) $19,518 $16,541 $15,016$13,864$12,297$11,154$9,899$5,921$4,972$4,113Number of properties 6,483 5,797 5,172 4,9444,5384,3273,8963,0132,6342,496Gross leasable square feet (millions)106939083767163382721Properties acquired(4)789764303505286506974423164186Cost of properties acquired(4)$3,715$1,797 $1,519$1,859$1,259$1,402$4,670$1,165$1,016$714Property dispositions931285977384675442628Net proceeds from property dispositions$109$142$167$91$66$107$134$51$24$27Number of industries50484747474747443832Portfolio occupancy rate98.6%98.6%98.4%98.3%98.4%98.4%98.2%97.2%96.7%96.6%Remaining weighted average lease term (years)9.29.29.59.810.010.210.811.011.311.4PER COMMON SHARE DATA(5)Net income (diluted)$1.38$1.26$1.10$1.13$1.09$1.04$1.06$0.86$1.05$1.01Funds from operations (“FFO”)(2)$3.29$3.12$2.82$2.88$2.77$2.58$2.41$2.02$1.98$1.83Adjusted funds from operations (“AFFO”)(2)$3.32$3.19$3.06$2.88$2.74$2.57$2.41$2.06$2.01$1.86Dividends paid$2.711$2.631$2.527$2.392$2.271$2.192$2.147$1.772$1.737$1.722Annualized dividend amount(6)$2.73$2.65$2.55$2.43$2.29$2.20$2.19$1.82$1.75$1.73Common shares outstanding (millions)334304284260250225207133133118INVESTMENT RESULTSClosing price on December 31,$73.63 $63.04 $57.02$57.48$51.63$47.71$37.33$40.21$34.96$34.20Dividend yield(7)(8)3.7%4.2%4.5%4.6%4.4%5.9%5.3%5.1%5.1%6.6%Total return to stockholders(9)21.1%15.2%3.6%16.0%13.0%33.7%(1.8%)20.1%7.3%38.6% Real Estate Portfolio Our real estate portfolio of 6,483 properties primarily consists of freestanding, single-tenant commercial properties that are diversified by tenant, industry, geography, and property type. At the end of 2019, our properties were leased to tenants operating across 50 industries and located in 49 states, Puerto Rico and the United Kingdom. Most of our properties continue to be retail, with the largest asset type outside of retail being industrial properties. Our tenant base remains healthy with approximately half of our annualized rental revenue generated from properties leased to tenants, their subsidiaries or affiliated companies, with an investment-grade credit rating. Maintaining a diversified portfolio of quality real estate leased to strong tenants helps ensure the stability of revenue that supports the payment of monthly dividends. GEOGRAPHIC DIVERSIFICATION AS A % OF REVENUE(1) 1–2% 4–5% 2–3% 5–6% <1% 3–4% 6–11% TEXAS 11.0% CALIFORNIA 8.7% ILLINOIS 5.9% FLORIDA 5.5% OHIO 4.7% NEW YORK 4.3% (1) Based on rental revenue for the quarter ended 12/31/19 ALASKA, PUERTO RICO AND UNITED KINGDOM NOT TO SCALE 1 2 REALTY INCOME 2019 ANNUAL REPORT PROPERTY TYPE DIVERSIFICATION Property Type Retail Industrial Office Agriculture Number of Properties 6,305 120 43 15 % of Revenue(1) 83.0% 11.5% 3.7% 1.8% (1) Based on rental revenue for the quarter ended 12/31/19 TOP 10 INDUSTRIES % of Revenue(1) Industry 11.6% Convenience Stores 8.6% Drug Stores 7.3% Dollar Stores 7.3% Grocery Stores 7.3% Health and Fitness 6.7% Theaters 6.2% Restaurants - quick service 4.4% Transportation Services 3.1% Restaurants - casual dining 2.9% Home Improvement (1) Based on rental revenue for the quarter ended 12/31/19; The presentation of top 10 industries combines rental revenue contribution from U.S. and U.K. properties. “Diversification of the portfolio by industry type, tenant and geographic location is key to its objective of providing predictable investment results for its Shareholders.” – PROSPECTUS, 1994 REALTY INCOME 2019 ANNUAL REPORT 1 3 Real Estate Portfolio (continued) The strength of our portfolio is further enhanced by the experience of our Asset Management and Real Estate Operations 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 3,100 properties with expiring leases throughout our history as a public company. This is unprecedented in our sector and, as a result, we have achieved stable occupancy that has never been below 96% at year-end since 1994 while achieving a long-term average rent recapture rate above 100% on re-leasing activity since 1996. PORTFOLIO OCCUPANCY(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 . % 3 . 8 9 % 4 8 9 . % 6 8 9 . % 6 8 9 . 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 (1) Calculated at the end of each year by the number of properties 1 4 REALTY INCOME 2019 ANNUAL REPORT TENANT DIVERSIFICATION % of Revenue(1) Number of Leases Tenant Walgreens* 7-Eleven* Dollar General* FedEx* 250 403 752 41 6.1% 4.8% 4.4% 4.0% 3.5% 3.4% 3.0% 2.9% 2.6% 2.4% 2.1% 1.9% 1.8% 1.7% 1.7% 1.6% 1.6% 1.4% 1.3% 1.2% 550 Dollar Tree / Family Dollar* 58 34 42 54 15 14 LA Fitness AMC Theatres Regal Cinemas (Cineworld) Walmart / Sam's Club* Sainsbury's Lifetime Fitness 285 Circle K (Couche-Tard)* 15 88 17 BJ's Wholesale Clubs CVS Pharmacy* Treasury Wine Estates 161 Super America (Marathon)* 22 206 159 17 Kroger* GPM Investments / Fas Mart TBC Corp* Home Depot* (1) Based on annualized rental revenue as of 12/31/19 *Investment-grade rated “Our Asset Management and Real Estate Operations teams generate long-term value in the portfolio through active asset management, driving internal growth and positioning the portfolio for stability through any economic environment.” – Benjamin N. Fox, Executive Vice President, Asset Management & Real Estate Operations REALTY INCOME 2019 ANNUAL REPORT 1 5 Disciplined Investment Process “When the Partnerships were formed, the General Partners believed, and continue to believe, that this investment strategy remains viable during a variety of economic and real estate conditions over an extended period of time.” – PROSPECTUS, 1994 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 2019, we reviewed approximately $57 billion of investment opportunities that generally satisfied one or more of these criteria. These opportunities underwent a rigorous, multi-step internal underwriting and legal diligence process, resulting in the selection of over $3.7 billion of real estate investments completed during the year. The process begins with a review of the real estate. We target properties located in significant markets or strategic locations critical to generating revenue for the tenant. We examine the property-level attributes such as access and signage, demographic trends relative to the property’s intended use, potential alternative uses, and overall viability of the market. In addition to the real estate, we also carefully review the characteristics, credit, and overall financial strength of the tenant and its industry. Our team of research professionals conducts a thorough financial review and analysis of the tenant, including an assessment of the store- level performance of the retail operations, when available, to try to identify the tenant’s highest- performing locations. Our team stays abreast of trends in the various industries and frequently meets with management representatives within these industries to better understand our tenants’ operations. The information gathered on the real estate, lease characteristics, tenant, and industry 1 6 REALTY INCOME 2019 ANNUAL REPORT informs the appropriate price for an investment. Our goal is to ensure the real estate that we acquire is appropriately priced relative to replacement cost and leased at rental rates that are generally in line with market rent in order to support strong long-term investment returns generated by each asset. Our Investment Committee collectively reviews these characteristics and metrics to make investment decisions. In addition, investment opportunities above a certain investment amount require approval by our Board of Directors. We believe this rigorous selection process maintains the quality of our investment portfolio and supports the stability of our cash flow over time. “Our strategic focus continues to be on meaningfully increasing our growth rate while maintaining our conservative risk profile. Our international platform is the first of various initiatives that are intended to achieve this goal by significantly expanding our total addressable market. We are pleased with the strength of the international investment outlook and look forward to judiciously growing the international business and other initiatives in the coming years.” – Neil Abraham, Executive Vice President, Chief Strategy Officer TOTAL REVENUE(1) (DOLLARS IN MILLIONS) $1,423 $49 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 (1) See page 10, footnote 1, for the definition of total revenue “Our size, scale, and cost of capital are important competitive advantages within the net lease sector, and we believe we are uniquely positioned to pursue large-scale portfolio and sale- leaseback transactions on a negotiated basis. To generate investment activity, our Acquisitions Department establishes and maintains strong relationships with tenants, property owners, developers, brokers, and advisors.” – Mark Hagan, Executive Vice President, Chief Investment Officer ACQUISITIONS SELECTIVITY (DOLLARS IN BILLIONS) Amount Sourced Amount Acquired Selectivity(1) $5.7 $13.3 $17.0 $39.4 $24.3 $31.7 $28.5 $30.4 $32.1 $57.4 $0.71 $1.02 $1.16 $4.67 $1.40 $1.26 $1.86 $1.52 $1.80 $3.72 12% 8% 7% 12% 6% 4% 7% 5% 6% 7% Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (1) Selectivity is calculated as the amount of acquisitions acquired divided by the amount of acquisitions sourced “The investment objectives of the Partnerships were and continue to be to preserve original capital by owning real estate properties with no loans or encumbrances; to produce monthly spendable income by preleasing each property to commercial retail tenants under long-term, triple-net lease agreements; and to hold properties to allow for the potential for long-term capital appreciation.” – PROSPECTUS, 1994 REALTY INCOME 2019 ANNUAL REPORT 1 7 Conservative Capital Structure Our commitment to the dividend is demonstrated by the way we manage our balance sheet. We believe it is important to maintain a conservative capital structure that is primarily equity-focused in order to protect the dividend. At the end of 2019, our total market capitalization was $32.5 billion, of which $24.6 billion, or 75.6%, was common equity. When we use debt to fund our growth, we strive to structure it in a conservative manner. Currently, 100% of our outstanding bonds are fixed rate and unsecured with a weighted average term to maturity of 8.3 years. As of December 31, 2019, our Net Debt-to-Adjusted EBITDAre(1) ratio was healthy at 5.5x and our fixed charge coverage ratio of 5.0x was the highest in our company’s history. We maintain a $3.0 billion multi-currency unsecured revolving line of credit, which provides us flexibility to close on acquisitions quickly and then opportunistically raise equity and/or long-term debt when capital market dynamics are most favorable to us. Our investment-grade credit ratings of A3/A- (Moody’s/S&P) continue to provide us with a low cost of public unsecured debt. (1) Adjusted EBITDAre is a non-GAAP financial measure. Refer to Management’s Discussion and Analysis in the Company’s 2019 Form 10-K for a definition and reconciliation to net income. “Our collective efforts strive to perpetuate Realty Income’s 25-year track record of providing above-average total shareholder return with below-average volatility. Our access to well-priced capital is an important competitive advantage, and we continue to believe a conservative capital structure positions us well throughout various economic environments.” – Jonathan Pong, Senior Vice President, Head of Capital Markets and Finance CONSERVATIVE CAPITAL STRUCTURE AT 12/31/19 75.6% COMMON EQUITY 24.4% DEBT 1 8 REALTY INCOME 2019 ANNUAL REPORT Dependable Monthly Dividends As The Monthly Dividend Company®, we remain committed to operating our company in a manner that provides our shareholders with dependable monthly dividends that increase over time. At the core of every business decision we make is the focus on positioning and preparing our portfolio and balance sheet to continue generating predictable cash flow. 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 approximately 4.5% and have never reduced the dividend. We are one of only three REITs in the S&P 500 Dividend Aristocrats® index, which includes S&P 500 constituents that have increased their dividend every year for the last 25 consecutive years. “The investment objectives of the Company will be to pay regular cash dividends to its Shareholders from a portfolio of properties under long- term, triple-net lease agreements.” – PROSPECTUS, 1994 CONSISTENT DIVIDEND GROWTH ANNUALIZED DIVIDENDS PER SHARE AND DIVIDEND INCREASES(1) 4.5% COMPOUND AVERAGE ANNUAL GROWTH RATE 89 CONSECUTIVE QUARTERLY INCREASES 104 DIVIDEND INCREASES SINCE 1994 NYSE LISTING $2.73 $0.90 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 (1) Annualized dividend amount reflects the December declared dividend rate per share multiplied by 12. All information as of December 31, 2019. REALTY INCOME 2019 ANNUAL REPORT 1 9 Corporate Responsibility We are committed to conducting our business according to the highest ethical standards. We are dedicated to operating our business in an environmentally conscious manner and upholding our corporate responsibilities as a public company for the benefit of our stakeholders - our shareholders, clients, colleagues, and community. In recent years, our environmental, social, and governance (“ESG”) efforts have quickly evolved from commitments to action. We continue to focus on how best to institutionalize efforts for a lasting and positive impact. We strive to be a leader in the net lease industry in ESG initiatives. We believe that our commitment to corporate responsibility, which encompasses ESG principles, is critical to our performance and long-term success, and that we all have a shared responsibility to our community and the planet. That responsibility starts with our workforce and is demonstrated through sound governance and our ethical operating behaviors. The Nominating and Corporate Governance Committee of our Board of Directors has direct oversight of ESG matters. In 2019, we approved resources needed to advance our sustainability agenda, including appointing a new dedicated Associate Vice President of Sustainability. We envision developments in the coming years as we build out the strategy, by and on behalf of our internal and external stakeholders, while engaging all levels of our organization in the process. “Our focus is to conduct our business with the utmost integrity, transparency, respect and humility. We emphasize this in our interactions with all of our stakeholders, including our shareholders, clients, colleagues and our community.” – Mike Pfeiffer, Executive Vice President, Chief Administrative Officer, General Counsel and Secretary We believe our dedication to corporate responsibility fosters our ability to grow in a sustainable manner. Highlights of various environmental initiatives during 2019 include: • Established a Sustainability Department • Appointed a new dedicated Associate Vice President of Sustainability • Expanded property acquisition diligence to collect important environmental efficiency characteristics and green building certifications when available • Continued tenant engagement to discuss sustainable operations • Partnered with certain tenants to implement solar and electric vehicle charging installations • Added a “Green Lease” clause to lease templates • Our internal Green Team engaged in several community volunteer events focused on positively impacting the environment • Increased employee engagement with a quarterly Green Team newsletter and additional educational events hosted throughout the year Relationships with our stakeholders are key to our success. Additionally, our corporate partners help us achieve our mission. Accordingly, we assess ways in which we can generate and sustain value for all stakeholders. • Reviewed breakroom and restroom supplies to substitute with recyclable, biodegradable or Forest Stewardship Council (FSC) sourced materials • Reduced single-use disposables at our corporate headquarters 2 0 REALTY INCOME 2019 ANNUAL REPORT 2019 HIGHLIGHTS DONATED TO 39 CHARITIES CONTRIBUTED 900+ VOLUNTEERS HOURS RECYCLED 25,714 POUNDS OF PAPER Highlights of various social initiatives during 2019 include: • Launched our first Employee Engagement Survey • Participated in our Annual San Diego Habitat for Humanity volunteer day and donation • Enhanced onsite and offsite employee training opportunities • Increased our philanthropic efforts through employee charity donation match and “Dollars for Doers” volunteerism program “Our continued commitment to corporate responsibility has united our employees while strengthening our company’s culture. A culture that promotes individual philanthropy, employee engagement, and encourages personal and professional growth. A positive workplace that inspires new thinking that attracts and retains world-class talent. Together, we’re a socially responsible employer with an aligned culture that in turn supports our domestic and international growth.” – Shannon Kehle, Senior Vice President, Human Resources • Introduced new policies and events which support gender equity and diversity, such as expanded support for parental, maternity, and disability leave • Instituted a new professionally appropriate dress code policy to accommodate our active workforce Highlights of various governance initiatives during 2019 include: • Announced the appointment of Christie Kelly to the Board of Directors • Maintained Nominating and Corporate Governance Board Committee oversight on ESG • Engaged with shareholders representing 34% of ownership Additional information on Realty Income’s commitment to Corporate Responsibility may be found at www.realtyincome.com/ corporate-responsibility. REALTY INCOME 2019 ANNUAL REPORT 2 1 SELECT FINANCIAL DATA(1) 23 Consolidated Balance Sheets 24 Consolidated Statements of Income and Comprehensive Income 25 Consolidated Statements of Equity 26 Consolidated Statements of Cash Flows (1) This financial data is derived from our audited financial statements found in the company’s 2019 Form 10-K 2 2 REALTY INCOME 2019 ANNUAL REPORT REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets At December 31, 2019 and 2018 (Dollars in thousands, except 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 Lease intangible assets, net Other assets, net Total assets LIABILITIES AND EQUITY Distributions payable Accounts payable and accrued expenses Lease intangible liabilities, net Other liabilities Line of credit payable Term loans, net Mortgages payable, net Notes payable, net Total liabilities Commitments and contingencies Stockholders’ equity: Common stock and paid in capital, par value $0.01 per share, 740,200,000 shares authorized, 333,619,106 shares issued and out- standing as of December 31, 2019 and 370,100,000 shares authorized, 303,742,090 shares issued and outstanding as of December 31, 2018 Distributions in excess of net income Accumulated other comprehensive loss Total stockholders’ equity Noncontrolling interests Total equity Total liabilities and equity 2019 2018 $ 5,684,034 $ 4,682,660 13,833,882 19,517,916 11,858,806 16,541,466 (3,117,919) (2,714,534) 16,399,997 13,826,932 96,775 16,585 16,496,772 13,843,517 54,011 181,969 1,493,383 328,661 10,387 144,991 1,199,597 61,991 $ 18,554,796 $ 15,260,483 $ 76,728 $ 67,789 177,039 333,103 262,221 704,335 499,044 410,119 6,288,049 8,750,638 133,765 310,866 127,109 252,000 568,610 302,569 5,376,797 7,139,505 12,873,849 10,754,495 (3,082,291) (2,657,655) (17,102) (8,098) 9,774,456 8,088,742 29,702 32,236 9,804,158 8,120,978 $ 18,554,796 $ 15,260,483 The accompanying notes to consolidated financial statements are an integral part of these statements and may be found in the company’s 2019 Form 10-K. REALTY INCOME 2019 ANNUAL REPORT 2 3 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements of Income and Comprehensive Income Years ended December 31, 2019, 2018 and 2017 (Dollars in thousands, except per share data) REVENUE Rental (including reimbursable) $ 1,484,818 $ 1,321,546 $ 1,212,306 2019 2018 2017 Other Total revenue EXPENSES Depreciation and amortization Interest General and administrative Property (including reimbursable) Income taxes Provisions for impairment Total expenses Gain on sales of real estate Foreign currency and derivative gains, net Loss on extinguishment of debt Net income Net income attributable to noncontrolling interests Net income attributable to the Company Preferred stock dividends Excess of redemption value over carrying value of preferred shares redeemed 6,773 6,292 3,462 1,491,591 1,327,838 1,215,768 593,961 290,991 66,483 88,585 6,158 40,186 1,086,364 29,996 2,255 — 437,478 (996) 436,482 — — 539,780 266,020 84,148 66,326 5,340 26,269 987,883 24,643 — — 364,598 (984) 363,614 — — 498,788 247,413 58,446 69,480 6,044 14,751 894,922 40,898 — (42,426) 319,318 (520) 318,798 (3,911) (13,373) Net income available to common stockholders $ 436,482 $ 363,614 $ 301,514 Amounts available to common stockholders per common share: Net income, basic and diluted $ 1.38 $ 1.26 $ 1.10 Weighted average common shares outstanding: Basic Diluted Other comprehensive income: 315,837,012 289,427,430 273,465,680 316,159,277 289,923,984 273,936,752 Net income available to common stockholders $ 436,482 $ 363,614 $ 318,798 Foreign currency translation adjustment Unrealized loss on derivatives, net 186 (9,190) — (8,098) — — Comprehensive income available to common stockholders $ 427,478 $ 355,516 $ 318,798 The accompanying notes to consolidated financial statements are an integral part of these statements and may be found in the company’s 2019 Form 10-K. 2 4 REALTY INCOME 2019 ANNUAL REPORT REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements of Equity Years ended December 31, 2019, 2018 and 2017 (Dollars in thousands) Shares of preferred stock Shares of common stock Preferred stock and paid in capital Common stock and paid in capital Distributions in excess of net income Accumulated other comprehensive loss Balance, December 31, 2016 16,350,000 260,168,259 $ 395,378 $ 8,228,594 $ (1,857,168) $ Net income Distributions paid and payable Share issuances, net of costs — — — Preferred shares redeemed (16,350,000) Reallocation of equity Share-based compensation, net Balance, December 31, 2017 Net income Other comprehensive loss Distributions paid and payable Share issuances, net of costs Contributions by noncontrolling interests Redemption of common units Reallocation of equity Share-based compensation, net Balance, December 31, 2018 Net income Other comprehensive loss Distributions paid and payable Share issuances, net of costs Additions to noncontrolling interests Redemption of common units Reallocation of equity Share-based compensation, net — — — — — — — — — — — — — — — — — — — — — — 23,957,741 — — 87,685 — — — — — 318,798 (701,020) 1,388,080 — (395,378) — (13,373) — — (485) 8,075 — — 284,213,685 $ — $ 9,624,264 $ (2,252,763) $ Total stockholders’ equity Noncontrolling interests Total equity $ 6,766,804 $ 20,249 $ 6,787,053 318,798 520 319,318 (701,020) (2,047) (703,067) 1,388,080 (408,751) (485) 8,075 — — 485 — 1,388,080 (408,751) — 8,075 $ 7,371,501 $ 19,207 $ 7,390,708 — — — — — — — — — — — — 19,304,878 — 88,182 — 135,345 — — — — — — — — — — — 1,119,297 — 2,829 (774) 8,879 363,614 363,614 — (8,098) (8,098) 984 — 364,598 (8,098) (768,506) — — — — — — — — — — — (768,506) (1,996) (770,502) 1,119,297 — 1,119,297 — 18,848 18,848 2,829 (5,581) (2,752) (774) 8,879 774 — — 8,879 303,742,090 $ — $ 10,754,495 $ (2,657,655) $ (8,098) $ 8,088,742 $ 32,236 $ 8,120,978 — — — 29,818,978 — — — 58,038 — — — — — — — — — — — 2,117,983 — (6,866) (653) 8,890 436,482 — 436,482 996 437,478 — (9,004) (9,004) — (9,004) (861,118) — — — — — — — — — — — (861,118) (1,296) (862,414) 2,117,983 — 2,117,983 — 11,370 11,370 (6,866) (14,257) (21,123) (653) 653 — 8,890 — 8,890 Balance, December 31, 2019 — 333,619,106 $ — $ 12,873,849 $ (3,082,291) $ (17,102) $ 9,774,456 $ 29,702 $ 9,804,158 The accompanying notes to consolidated financial statements are an integral part of these statements and may be found in the company’s 2019 Form 10-K. REALTY INCOME 2019 ANNUAL REPORT 2 5 REALTY INCOME CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Years ended December 31, 2019, 2018 and 2017 (Dollars in thousands) Flows CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to net income: Depreciation and amortization Loss on extinguishment of debt Amortization of share-based compensation Non-cash revenue adjustments Amortization of net premiums on mortgages payable Amortization of net (premiums) discounts on notes payable Amortization of deferred financing costs Loss (gain) on interest rate swaps Foreign currency and derivative gains, net 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 Insurance and other proceeds received Collection of loans receivable Non-refundable escrow deposits 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 Principal payment on term loan Proceeds from notes and bonds payable issued Principal payment on notes payable Proceeds from term loan Payments upon extinguishment of debt Principal payments on mortgages payable Redemption of preferred stock Proceeds from common stock offerings, net Proceeds from dividend reinvestment and stock purchase plan Proceeds from At-the-Market (ATM) program Redemption of common units Distributions to noncontrolling interests Net receipts on derivative settlements Debt issuance costs Other items, including shares withheld upon vesting Net cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, beginning of period Cash, cash equivalents and restricted cash, end of period 2019 2018 2017 $ 437,478 $ 364,598 $ 319,318 593,961 — 13,662 (9,338) (1,415) (995) 9,795 2,752 (2,255) (29,996) 40,186 (8,954) 24,056 1,068,937 (3,572,581) (23,536) 108,911 — — (14,603) (3,501,809) (852,134) — 2,816,632 (2,365,368) (70,000) 897,664 — — — (20,723) — 845,061 8,437 1,264,518 (21,123) (1,342) 4,881 (9,129) (4,772) 2,492,602 (9,796) 49,934 21,071 $ 71,005 539,780 — 27,267 (7,835) (1,520) (1,256) 9,021 (2,733) — (24,643) 26,269 (6,901) 18,695 940,742 (1,769,335) (25,350) 142,286 7,648 5,267 (200) (1,639,684) (761,582) — 1,774,000 (1,632,000) (125,866) 497,500 (350,000) 250,000 — (21,905) — — 9,114 1,125,364 (2,752) (1,930) - (18,685) (33,387) 707,871 — 8,929 12,142 $ 21,071 498,788 42,426 13,946 (3,927) (466) 884 8,274 (3,250) — (40,898) 14,751 (92) 26,096 875,850 (1,413,270) (15,247) 166,976 14,411 123 (7,500) (1,254,507) (689,294) (6,168) 1,465,000 (2,475,000) — 2,033,041 (725,000) — (41,643) (139,725) (408,750) 704,938 69,931 621,697 — (2,043) - (17,510) (14,356) 375,118 — (3,539) 15,681 $ 12,142 The accompanying notes to consolidated financial statements are an integral part of these statements and may be found in the company’s 2019 Form 10-K. 2 6 REALTY INCOME 2019 ANNUAL REPORT Realty Income Performance vs. Major Stock Indices Realty Income Equity REIT Index(1) Dow Jones Industrial Average S&P 500 NASDAQ Composite DIVIDEND YIELD TOTAL RETURN (2) DIVIDE ND YIELD TOTAL RETURN ( 3) D I VI D EN D YI E LD TOTA L RE TU RN ( 3) D I VI D EN D YI E LD TOTA L RE TU RN ( 3) D I VI D EN D YI E LD TOTAL RET URN (4) 10.5% 8.3% 10.8% 42.0% 7.7% 7.4% 0.0% 15.3% 2.9% 2.4% (1.6%) 36.9% 2.9% 2.3% (1.2%) 37.6% 0.5% 0.6% (1.7%) 39.9% 7.9% 15.4% 6.1% 35.3% 2.2% 28.9% 2.0% 23.0% 0.2% 22.7% 7.5% 14.5% 5.5% 20.3% 1.8% 24.9% 1.6% 33.4% 0.5% 21.6% 8.2% 5.5% 7.5% (17.5%) 1.7% 18.1% 1.3% 28.6% 0.3% 39.6% 10.5% (8.7%) 8.7% (4.6%) 1.3% 27.2% 1.1% 21.0% 0.2% 85.6% 8.9% 31.2% 7.5% 26.4% 1.5% (4.7%) 1.2% (9.1%) 0.3% (39.3%) 7.8% 27.2% 7.1% 13.9% 1.9% (5.5%) 1.4% (11.9%) 0.3% (21.1%) 6.7% 26.9% 7.1% 3.8% 2.6% (15.0%) 1.9% (22.1%) 0.5% (31.5%) 6.0% 21.0% 5.5% 37.1% 2.3% 28.3% 1.8% 28.7% 0.6% 50.0% 5.2% 32.7% 4.7% 31.6% 2.2% 5.6% 1.8% 10.9% 0.6% 8.6% 6.5% (9.2%) 4.6% 12.2% 2.6% 1.7% 1.9% 4.9% 0.9% 1.4% 5.5% 34.8% 3.7% 35.1% 2.5% 19.0% 1.9% 15.8% 0.8% 9.5% 6.1% 3.2% 4.9% (15.7%) 2.7% 8.8% 2.1% 5.5% 0.8% 9.8% 7.3% (8.2%) 7.6% (37.7%) 3.6% (31.8%) 3.2% (37.0%) 1.3% (40.5%) 6.6% 19.3% 3.7% 28.0% 2.6% 22.6% 2.0% 26.5% 1.0% 43.9% 5.1% 38.6% 3.5% 27.9% 2.6% 14.0% 1.9% 15.1% 1.2% 16.9% 5.0% 7.3% 3.8% 8.3% 2.8% 8.3% 2.3% 2.1% 1.3% (1.8%) 4.5% 20.1% 3.5% 19.7% 3.0% 10.2% 2.5% 16.0% 2.6% 15.9% 5.8% (1.8%) 3.9% 2.9% 2.3% 29.6% 2.0% 32.4% 1.4% 38.3% 4.6% 33.7% 3.6% 28.0% 2.3% 10.0% 2.0% 13.7% 1.3% 13.4% 4.4% 13.0% 3.9% 2.8% 2.6% 0.2% 2.2% 1.4% 1.4% 5.7% 4.2% 16.0% 4.0% 8.6% 2.5% 16.5% 2.1% 12.0% 1.4% 7.5% 4.5% 3.6% 3.9% 8.7% 2.2% 28.1% 1.9% 21.8% 1.1% 28.2% 4.2% 15.2% 4.4% (4.0%) 2.5% (3.5%) 2.2% (4.4%) 1.4% (3.9%) 3.7% 21.1% 3.7% 28.7% 2.4% 25.3% 1.9% 31.5% 1.1% 35.2% 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 2016 2017 2018 2019 COMPOUND AVERAGE ANNUAL TOTAL RETURN(5) 16.5% 10.8% 10.7% 10.1% 10.3% Note: The dividend yields are calculated as annualized dividends based on the last dividend paid in 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 as NASDAQ did not report total return metrics for the entirety of the measurement period. Source: Factset. (5) The Compound Average Annual Total Return rates are calculated in the same manner for each period from Realty Income’s NYSE listing on October 18, 1994 through December 31, 2019, and (except for NASDAQ) assume 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. REALTY INCOME 2019 ANNUAL REPORT 2 7 Total Return Performance E U L A V X E D N I 200 180 160 140 120 100 80 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 REALTY INCOME CORPORATION RUSSELL 2000 S&P 500 REALTY INCOME PEER GROUP INDEX* P E R I O D E N D I N G I N D E X 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 Realty Income Corporation Russell 2000 S&P 500 Realty Income Peer Group Index* 100.00 100.00 100.00 100.00 113.38 95.59 101.38 102.19 131.27 115.96 113.51 108.94 136.10 132.95 138.28 113.93 157.78 118.31 132.23 109.43 191.31 148.50 173.86 137.72 ** Realty Income Peer Group index consists of 18 companies with an implied market capitalization between $3.8 billion and $49.8 billion as of December 31, 2019. 2 8 REALTY INCOME 2019 ANNUAL REPORT Company Information DIRECTORS BACK: Ronald L. Merriman, Michael D. McKee, Sumit Roy, Christie Kelly FRONT: A. Larry Chapman, Priya Cherian Huskins, Reginald H. Gilyard, Kathleen R. Allen, Gregory T. McLaughlin, Gerardo I. Lopez EXECUTIVE & SENIOR OFFICERS Kathleen R. Allen, Ph.D. Founding Director, Center for Technology Commercialization, University of Southern California A. Larry Chapman Retired, Executive Vice President, Head of Commercial Real Estate, Wells Fargo Bank Reginald H. Gilyard Senior Advisor, Boston Consulting Group, Inc. Priya Cherian Huskins Senior Vice President and Partner, Woodruff-Sawyer & Co. Christie Kelly Former Global Chief Financial Officer, Jones Lang LaSalle Incorporated Neil Abraham Executive Vice President, Chief Strategy Officer TJ Chun Senior Vice President, Investments & Head of Asset Management Janeen S. Drakulich Senior Vice President, Development Ross Edwards Senior Vice President, Leasing & Real Estate Operations Benjamin N. Fox Executive Vice President, Asset Management & Real Estate Operations Mark Hagan Executive Vice President, Chief Investment Officer Shannon Jensen Senior Vice President, Associate General Counsel and Assistant Secretary Shannon Kehle Senior Vice President, Human Resources Scott Kohnen Senior Vice President, Research Sean P. Nugent Senior Vice President, Controller Michael R. Pfeiffer Executive Vice President, Chief Administrative Officer, General Counsel and Secretary Jonathan Pong Senior Vice President, Head of Capital Markets and Finance Gerardo I. Lopez Operating Partner and Head of the Operating Group, SoftBank Investment Advisers Michael D. McKee Non-Executive Chairman Principal, The Contrarian Group Gregory T. McLaughlin Chief Executive Officer, PGA TOUR First Tee Foundation Ronald L. Merriman Retired Vice Chair and Partner, KPMG LLP Sumit Roy President & Chief Executive Officer Sumit Roy President & Chief Executive Officer Lori Satterfield Senior Vice President, Associate General Counsel, Asset Management & Real Estate Operations Cary Wenthur Senior Vice President, Managing Director - Acquisitions ADDITIONAL OFFICERS Steve Burchett Vice President, Senior Legal Counsel Kyle Campbell Vice President, Senior Legal Counsel, Risk Management Elizabeth Cate Vice President, Asset Management Jill Cossaboom Vice President, Assistant Controller, Systems John R. Couvillion Vice President, Real Estate Development Kristin Ferrell Vice President, Head of Lease Administration Jonathan Kresser Vice President, Head of Internal Audit Michael Lee Vice President, Tax Director April Little Vice President, Acquisitions Garret Pavelko Vice President, Asset Management, Office & Industrial Matt Renner Vice President, Assistant Controller, Corporate Accounting Joe Stewart Vice President, Information Technology Ann Zhang Vice President, Assistant Controller, Property Accounting TRANSFER AGENT For shareholder administration and account information, please visit Computershare’s website at www.computershare.com or call toll-free at 1-877-218-2434. 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 Realty Income at: 877-924-6266 ir@realtyincome.com Copies of Realty Income’s Annual Report are available upon written request to: REALTY INCOME CORPORATION Attention: Investor Relations 11995 El Camino Real San Diego, CA 92130 REALTY INCOME 2019 ANNUAL REPORT 2 9 11995 EL CAMINO REAL SAN DIEGO, CA 92130 WWW.REALTYINCOME.COM 

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