# REALTY INCOME CORP (O) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from REALTY INCOME CORP's 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/726728/000072672823000044/o-20221231.htm Accession: 0000726728-23-000044 Filing date: 2023-02-22 Report date: 2022-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/O/ All MD&A years: /company/O/mda/ Previous year: /company/O/mda/fy2021/ (FY 2021) Next year: /company/O/mda/fy2023/ (FY 2023) Item 7:                              Management’s Discussion and Analysis of Financial Condition and Results of Operations GENERAL Realty Income, The Monthly Dividend Company®, is an S&P 500 company and member of the S&P 500 Dividend Aristocrats® index for having increased its dividend every year for over 25 consecutive years. We invest in people and places to deliver dependable monthly dividends that increase over time. We are structured as a REIT requiring us annually to distribute at least 90% of our taxable income (excluding net capital gains) in the form of dividends to our stockholders. The monthly dividends are supported by the cash flow generated from real estate owned under long-term net lease agreements with our commercial clients. Realty Income was founded in 1969, and listed on the NYSE under the ticker symbol "O" in 1994. Over the past 54 years, Realty Income has been acquiring and managing freestanding commercial properties that generate rental revenue under long-term net lease agreements with our commercial clients. At December 31, 2022, our diversified portfolio consisted of: •Owned or held interests in 12,237 properties; •An occupancy rate of 99.0%, or 12,111 properties leased and 126 properties available for lease or sale; •Clients doing business in 84 separate industries; •Locations in all 50 U.S. states, Puerto Rico, the U.K., Spain, and Italy; •Approximately 236.8 million square feet of leasable space; •A weighted average remaining lease term (excluding rights to extend a lease at the option of our client) of approximately 9.5 years; and •An average leasable space per property of approximately 19,350 square feet, approximately 13,000 square feet per retail property and approximately 234,100 square feet per industrial property. Of the 12,237 properties in the portfolio at December 31, 2022, 12,018, or 98.2%, are single-client properties, of which 11,894 were leased, and the remaining are multi-client properties. Unless otherwise specified, references to rental revenue in the Management's Discussion and Analysis of Financial Condition and Results of Operations are exclusive of reimbursements from clients for recoverable real estate taxes and operating expenses totaling $184.7 million, $104.9 million and $79.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. In addition, references to reserves recorded as a reduction of rental revenue include amounts reserved for in the current period, as well as unrecognized contractual revenue and unrecognized straight-line rental revenue for leases accounted for on a cash basis. LIQUIDITY AND CAPITAL RESOURCES Capital Philosophy Our goal is to deliver dependable monthly dividends to our shareholders that increase over time. Historically, we have met our principal short-term and long-term capital needs, including the funding of high-quality real estate 37 Table of Contents acquisitions, property development, and capital expenditures, by issuing common stock, preferred stock, long-term unsecured notes and term loan borrowings. Over the long term, we believe that common stock should be the majority of our capital structure. We may issue common stock when we believe our share price is at a level that allows for the proceeds of an offering to be accretively invested into additional properties or to permanently finance properties that were initially financed by our revolving credit facility, commercial paper programs, or shorter-term debt securities. However, we cannot assure you that we will have access to the capital markets at all times and at terms that are acceptable to us. Our primary cash obligations, for the current year and subsequent years, are included in the “Table of Obligations,” which is presented later in this section. We expect to fund our operating expenses and other short-term liquidity requirements, including property acquisitions and development costs, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs, and cash distributions to common stockholders, primarily through cash provided by operating activities, borrowings under our revolving credit facility, short-term term loans, and under our commercial paper programs, and through public securities offerings. As of December 31, 2022, there are approximately $2.0 billion of obligations becoming due during 2023, which we expect to fund through a combination of the following: •Cash and cash equivalents; •Future cash flows from operations; •Issuances of common stock or debt; and •Additional borrowings under our revolving credit facility (after deducting outstanding borrowings under our commercial paper programs). We may choose to mitigate our financial exposure to exchange rate risk for properties acquired outside the U.S. through the issuance of debt securities denominated in the same local currency and through currency derivatives. We may leave a portion of our foreign cash flow unhedged to reinvest in additional properties in the same local currency. 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, 2022, our total outstanding borrowings of senior unsecured notes and bonds, $250.0 million term loan, mortgages payable, revolving credit facility and commercial paper were $17.9 billion, or approximately 29.9% of our total market capitalization of $59.9 billion. We define our total market capitalization at December 31, 2022, as the sum of: •Shares of our common stock outstanding of 660,300,195, plus total common units outstanding of 1,795,167, multiplied by the last reported sales price of our common stock on the NYSE of $63.43 per share on December 31, 2022, or $42.0 billion; •Outstanding borrowings of $2.0 billion on our revolving credit facility, comprised of €1.8 billion Euro and £70.0 million Sterling borrowings; •Outstanding borrowings of $701.8 million on our commercial paper programs, including €361.0 million of Euro-denominated borrowings; •Outstanding mortgages payable of $842.3 million, excluding net mortgage premiums of $12.4 million and deferred financing costs of $0.8 million; •Outstanding borrowings on our $250.0 million term loan, excluding deferred financing costs of $0.2 million; and •Outstanding senior unsecured notes and bonds of $14.1 billion, including Sterling-denominated notes of £2.57 billion, and excluding unamortized net premiums of $224.6 million and deferred financing costs of $60.7 million. Universal Shelf Registration In June 2021, we filed a shelf registration statement with the SEC, which is effective for a term of three years and will expire in June 2024. 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 38 Table of Contents 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. Equity Capital Raising Under our ATM program, up to 120,000,000 shares of common stock may be offered and sold (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers’ transactions on the NYSE at prevailing market prices, at prices related to prevailing market prices or at negotiated prices or by any other methods permitted by applicable law. We currently expect to fully physically cash settle any forward sale agreement with the respective forward purchaser on one or more dates specified by us on or prior to the maturity date of such forward sale agreement, in which case we expect to receive aggregate net cash proceeds at settlement equal to the number of shares specified in such forward sale agreement multiplied by the relevant forward price per share. During the year ended December 31, 2022, we issued 68,608,176 shares and raised approximately $4.6 billion of net proceeds under the ATM programs. With respect to forward sales pursuant to our ATM program, we do not initially receive any proceeds from any sale of shares of our common stock borrowed by a forward purchaser and sold through a forward seller. As of December 31, 2022, there were 6,744,884 shares of common stock subject to forward sale agreements through our ATM program, with a weighted average initial price of $63.31 per share, representing approximately $0.4 billion in estimated net proceeds (assuming full physical settlement of all outstanding shares of common stock subject to such forward sale agreements and certain assumptions made with respect to settlement dates), which have been executed but not settled. The weighted average forward price at December 31, 2022 was $62.59 per share, after price deduction and adjustments. After deducting the 6,744,884 shares sold pursuant to forward sale confirmations that remained outstanding as of December 31, 2022, we had 70,620,121 shares remaining for future issuance under our ATM program. We anticipate maintaining the availability of our ATM program in the future, including the replenishment of authorized shares issuable thereunder. Our Dividend Reinvestment and Stock Purchase Plan, (our "DRSPP"), provides our common stockholders, as well as new investors, with a convenient and economical method of purchasing our common stock and reinvesting their distributions. Our DRSPP also allows our current stockholders to buy additional shares of common stock by reinvesting all or a portion of their distributions. Our DRSPP authorizes up to 26,000,000 common shares to be issued. Our DRSPP includes a waiver approval process, allowing larger investors or institutions, per a formal approval process, to purchase shares at a small discount, if approved by us. We did not issue shares under the waiver approval process during the year ended December 31, 2022. During the year ended December 31, 2022, we issued 175,554 shares and raised approximately $11.7 million under our DRSPP. At December 31, 2022, we had 11,159,825 shares remaining for future issuance under our DRSPP program. There were no issuances of common stock in underwritten public offerings during the year ended December 31, 2022. Revolving Credit Facility We have a $4.25 billion unsecured revolving multicurrency credit facility that matures in June 2026, includes two six-month extensions that can be exercised at our option and allows us to borrow in up to 14 currencies, including U.S. dollars. Our revolving credit facility also has a $1.0 billion expansion feature, which is subject to obtaining lender commitments. Under our revolving credit facility, our current investment grade credit ratings provide for financing on USD borrowings at the Secured Overnight Financing Rate ("SOFR"), plus 0.725% with a SOFR adjustment charge of 0.10% and a revolving credit facility fee of 0.125%, for all-in pricing of 0.95% over SOFR, British Pound Sterling at the Sterling Overnight Indexed Average (“SONIA”), plus 0.725% with a SONIA adjustment charge of 0.0326% and a revolving credit facility fee of 0.125%, for all-in pricing of 0.8826% over SONIA, and Euro Borrowings at one-month Euro Interbank Offered Rate (“EURIBOR”), plus 0.725%, and a revolving credit facility fee of 0.125%, for all-in pricing of 0.85% over one-month EURIBOR. The borrowing rate is subject to an interest rate floor and may change if our investment grade credit ratings change. We also have other interest rate options available to us in different currencies. Our credit facility is unsecured and accordingly, we have not pledged any assets as collateral for this obligation. At December 31, 2022, we had a borrowing capacity of $2.2 billion available on our revolving credit facility (subject to customary conditions to borrowings) and an outstanding balance of $2.0 billion, comprised of €1.8 billion Euro and £70.0 million Sterling borrowings. The weighted average interest rate on borrowings under our revolving credit facility during the year ended December 31, 2022, was 1.8% per annum. Our revolving credit facility is subject to various leverage and interest coverage ration limitations, as at December 31, 2022, we were in compliance with 39 Table of Contents these covenants. We expect to use our credit facility to acquire additional properties and for other general corporate purposes. Any additional borrowings will increase our exposure to interest rate risk. Commercial Paper Programs During July 2022, our USD-denominated unsecured commercial paper program was amended to increase the maximum aggregate amount of outstanding notes from $1.0 billion to $1.5 billion. We also established a Euro-denominated unsecured commercial paper program, which permits us to issue additional unsecured commercial notes up to a maximum aggregate amount of $1.5 billion (or foreign currency equivalent), which may be issued in U.S. Dollars or various other foreign currencies, including but not limited to, Euros, Sterling, Swiss Francs, Yen, Canadian Dollars, and Australian Dollars, in each case, pursuant to customary terms in the European commercial paper note market. At December 31, 2022, we had an outstanding balance of $701.8 million, including €361.0 million of Euro-denominated borrowings. The weighted average interest rate on borrowings under our commercial paper programs was 1.6% for the year ended December 31, 2022. The commercial paper borrowings outstanding at December 31, 2022 have matured and will mature between January 2023 and February 2023. We use our $4.25 billion revolving credit facility as a liquidity backstop for the repayment of the notes issued under the commercial paper programs. We generally use our credit facility and commercial paper borrowings 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 more permanent financing, including the issuance of equity or debt securities. We cannot assure you, however, that we will be able to obtain any such refinancing, or that market conditions prevailing at the time of the refinancing will enable us to issue equity or debt securities at acceptable terms. We regularly review our credit facility and commercial paper programs and may seek to extend, renew or replace our credit facility and commercial paper programs, to the extent we deem appropriate. Term Loans On January 6, 2023 we entered into the Term Loan Agreement governing our term loan, pursuant to which we borrowed an aggregate of approximately $1.0 billion in multicurrency borrowings, including $90.0 million, £705.0 million and €85.0 million in outstanding borrowings. The Term Loan Agreement also permits us to incur additional term loans, up to an aggregate of $1.5 billion in total borrowings. The Term Loans initially mature in January 2024 and include two 12-month maturity extensions that can be exercised at the company's option. Our A3/A- credit ratings provide for a borrowing rate of 80 basis points over the applicable benchmark rate, which includes adjusted SOFR for USD-denominated loans, adjusted SONIA for Sterling-denominated loans, and EURIBOR for Euro-denominated loans. In October 2018, in conjunction with entering into our current revolving credit facility, we entered into a $250.0 million senior unsecured term loan, which matures in March 2024. Prior to April 2022, borrowing under this term loan bore interest at the current one-month London Inter-Bank Offered Rate (“LIBOR”), plus 0.85%. In connection with entering into our new unsecured credit facility in April 2022, the previous LIBOR benchmark rate was replaced with daily SOFR, based on a five-day lookback period, and, due to our current credit ratings, is not subject to a credit spread adjustment. In conjunction with this term loan, we also entered into an interest rate swap, which was based off the daily SOFR through June 30, 2022. As of December 31, 2022, the effective interest rate on this term loan, after giving effect to the interest rate swap, was 3.83%. Mortgage Debt As of December 31, 2022, we had $842.3 million of mortgages payable, of which £30.7 million related to a Sterling-denominated mortgage. The majority of our mortgages payable were assumed in connection with our merger with VEREIT or with our property acquisitions, including the assumption of eight mortgages on 17 properties totaling $45.1 million during the year ended December 31, 2022. At December 31, 2022, we had net premiums totaling $12.4 million on these mortgages and deferred financing costs of $0.8 million. We expect to pay off the mortgages payable as soon as prepayment penalties have declined to a level that would make it economically feasible to do so. During the year ended December 31, 2022, we made $312.2 million in principal payments, including the repayment of 12 mortgages in full for $308.0 million. Our mortgages contain customary covenants, such as limiting our ability to further mortgage each applicable property or to discontinue insurance coverage without the prior consent of the lender. At December 31, 2022, we were in compliance with these covenants. 40 Table of Contents Notes Outstanding As of December 31, 2022, our senior unsecured note and bond obligations had a total principal amount of $14.1 billion, including Sterling- denominated notes of £2.57 billion, and excluding net unamortized premiums of $224.6 million and deferred financing costs of $60.7 million. See note 9. Notes Payable to our consolidated financial statements for the full list of senior unsecured notes and bonds, by maturity date. The following table summarizes the maturity of our notes and bonds payable as of December 31, 2022, excluding net unamortized premiums of $224.6 million and deferred financing costs of $60.7 million (dollars in millions): [[GREPCENT_TABLE]] [["Year of Maturity","","Principal"],["2024","","$","850"],["2025","","1,050"],["2026","","1,575"],["2027","","1,983"],["Thereafter","","8,656"],["Totals","","$","14,114"]] [[/GREPCENT_TABLE]] During the year ended December 31, 2022, we issued the following notes and bonds (in millions): [[GREPCENT_TABLE]] [["2022 Issuances","Date of Issuance","","Maturity Date","","Principal amount used","","Price of par value","","Effective yield to maturity"],["1.875% Notes","January 2022","","January 2027","","\u00a3","250","","","99.487","%","","1.974","%"],["2.500% Notes","January 2022","","January 2042","","\u00a3","250","","","98.445","%","","2.584","%"],["3.160% Notes","June 2022","","June 2030","","\u00a3","140","","","100.000","%","","3.160","%"],["3.180% Notes","June 2022","","June 2032","","\u00a3","345","","","100.000","%","","3.180","%"],["3.390% Notes","June 2022","","June 2037","","\u00a3","115","","","100.000","%","","3.390","%"],["5.625% Notes","October 2022","","October 2032","","$","750","","","99.879","%","","5.641","%"]] [[/GREPCENT_TABLE]] In January 2023, we issued $500 million of 5.05% senior unsecured notes due January 2026 and $600 million of 4.85% senior unsecured notes due March 2030. See Note 19, Subsequent Events to our consolidated financial statements. All of our outstanding notes and bonds have fixed interest rates and contain various covenants, with which we remained in compliance as of December 31, 2022. Interest on our £400 million of 1.625% senior unsecured notes issued in October 2020, our £400 million of 1.125% senior unsecured notes issued in July 2021, our £350 million of 1.750% senior unsecured notes also issued in July 2021, our £250 million of 1.875% senior unsecured notes issued in January 2022, and £250 million of 2.500% senior unsecured notes also issued in January 2022 is paid annually. Interest on our remaining senior unsecured 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, 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, 2022, are: [[GREPCENT_TABLE]] [["Note Covenants","Required","Actual"],["Limitation on incurrence of total debt"," 60% of adjusted assets","40.3","%"],["Limitation on incurrence of secured debt"," 40% of adjusted assets","2.0","%"],["Debt service coverage (trailing 12 months) (1)"," 1.5x","5.2x"],["Maintenance of total unencumbered assets"," 150% of unsecured debt","255.4","%"]] [[/GREPCENT_TABLE]] (1)  Our debt service coverage ratio is calculated on a pro forma basis for the preceding four-quarter period on the assumptions that: (i) the incurrence of any debt (as defined in the covenants) incurred by us since the first day of such four-quarter period and the application of the proceeds therefrom (including to refinance other debt since the first day of such four-quarter period), (ii) the repayment or retirement of any of our debt since the first day of such four-quarter period, and (iii) any acquisition or disposition by us of any asset or group since the first day of such four quarters had in each case occurred on January 1, 2022 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, 2022, nor does it purport to reflect our debt service coverage ratio for any 41 Table of Contents future period. The following is our calculation of debt service and fixed charge coverage at December 31, 2022 (in thousands, for trailing twelve months): [[GREPCENT_TABLE]] [["Net income available to common stockholders","$","869,408"],["Plus: interest expense, excluding the amortization of deferred financing costs","451,629"],["Less: gain on extinguishment of debt","(367)"],["Plus: provision for taxes","45,183"],["Plus: depreciation and amortization","1,670,389"],["Plus: provisions for impairment","25,860"],["Plus: pro forma adjustments","318,394"],["Less: gain on sales of real estate","(102,957)"],["Income available for debt service, as defined","$","3,277,539"],["Total pro forma debt service charge","$","624,301"],["Debt service and fixed charge coverage ratio","5.2"]] [[/GREPCENT_TABLE]] 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, 2022, we had cash and cash equivalents totaling $171.1 million, inclusive of £74.3 million denominated in Sterling and €17.8 million denominated in Euro. We believe that our cash and cash equivalents on hand, cash provided from operating activities, and borrowing capacity is sufficient to meet our liquidity needs for the next twelve months. We intend, however, to use permanent or long-term capital to fund property acquisitions and to repay future borrowings under our credit facility and commercial paper programs. Credit Agency Ratings The borrowing interest rates under our revolving credit facility are based upon our ratings assigned by credit rating agencies. As of December 31, 2022, we were assigned the following investment grade corporate credit ratings on our senior unsecured notes and bonds: Moody’s Investors Service has assigned a rating of A3 with a “stable” outlook and Standard & Poor’s Ratings Group has assigned a rating of A- with a “stable” outlook. In addition, we were assigned the following ratings on our commercial paper at December 31, 2022: Moody's Investors Service has assigned a rating of P-2 and Standard & Poor's Ratings Group has assigned a rating of A-2. Based on our credit agency ratings as of December 31, 2022, interest rates under our new credit facility for U.S. borrowings would have been at the SOFR, plus 0.725% with a SOFR adjustment charge of 0.10% and a revolving credit facility fee of 0.125%, for all-in pricing of 0.95% over SOFR, for British Pound Sterling borrowings, at the SONIA, plus 0.725% with a SONIA adjustment charge of 0.0326% and a revolving credit facility fee of 0.125%, for all-in pricing of 0.8826% over SONIA, and for Euro Borrowings at one-month Euro Interbank Offered Rate (“EURIBOR”), plus 0.725%, and a revolving credit facility fee of 0.125%, for all-in pricing of 0.85% over one-month EURIBOR. In addition, our new credit facility provides that the interest rates can range between: (i) SOFR/SONIA/EURIBOR, plus 1.40% if our credit rating is lower than BBB-/Baa3 or our senior unsecured debt is unrated and (ii) SOFR/SONIA/EURIBOR, plus 0.70% if our credit rating is A/A2 or higher. In addition, our credit facility provides for a facility commitment fee based on our credit ratings, which range from: (i) 0.30% for a rating lower than BBB-/Baa3 or unrated, and (ii) 0.10% for a credit rating of A/A2 or higher. We also issue senior debt securities from time to time and our credit ratings can impact the interest rates charged in those transactions. If our credit ratings or ratings outlook change, our cost to obtain debt financing could increase or decrease. The credit ratings assigned to us could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that our ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover, a rating is not a recommendation to buy, sell or hold our debt securities, preferred stock or common stock. 42 Table of Contents Table of Obligations The following table summarizes the maturity of each of our obligations as of December 31, 2022 (dollars in millions): [[GREPCENT_TABLE]] [["Year due","Credit Facility and Commercial Paper Programs (1)","Senior Unsecured Notes andBonds (2)","$250.0 million TermLoan (3)","MortgagesPayable (4)","Interest (5)","GroundLeases Paid byRealty Income (6)","GroundLeases Paid byOur Clients (7)","Other (8)","Totals"],["2023","$","701.8","","$","\u2014","","$","\u2014","","$","22.0","","$","591.5","","$","10.6","","$","31.2","","$","607.4","","$","1,964.5"],["2024","\u2014","","850.0","","250.0","","740.5","","571.1","","13.3","","30.7","","19.8","","2,475.4"],["2025","\u2014","","1,050.0","","\u2014","","42.0","","505.9","","11.5","","30.0","","\u2014","","1,639.4"],["2026","2,027.2","","1,575.0","","\u2014","","12.0","","416.6","","17.2","","29.2","","0.8","","4,078.0"],["2027","\u2014","","1,983.1","","\u2014","","22.3","","327.7","","8.9","","26.3","","\u2014","","2,368.3"],["Thereafter","\u2014","","8,656.1","","\u2014","","3.5","","1,520.3","","287.6","","264.5","","\u2014","","10,732.0"],["Totals","$","2,729.0","","$","14,114.2","","$","250.0","","$","842.3","","$","3,933.1","","$","349.1","","$","411.9","","$","628.0","","$","23,257.6"]] [[/GREPCENT_TABLE]] (1)The initial term of the credit facility expires in June 2026 and includes, at our option, two six-month extensions. At December 31, 2022, there were $2.0 billion borrowings under our revolving credit facility. Commercial paper programs outstanding at December 31, 2022 were $701.8 million, which have matured and will mature between January 2023 and February 2023. (2)Excludes non-cash net premiums recorded on notes payable of $224.6 million and deferred financing costs of $60.7 million. The table of obligations also excludes the January 2023 issuances of $500.0 million of senior unsecured notes due January 2026, which are callable at par on January 13, 2024, and $600.0 million of senior unsecured notes due March 2030, which are callable at par on January 15, 2030. (3)Excludes deferred financing costs of $0.2 million as well as the approximately $1.0 billion multicurrency unsecured term loan entered into in January 2023. (4)Excludes both non-cash net premiums recorded on the mortgages payable of $12.4 million and deferred financing costs of $0.8 million. (5)Interest on the term loan, notes, bonds, mortgages payable, credit facility and commercial paper programs has been calculated based on outstanding balances at period end through their respective maturity dates. Excludes interest on the multicurrency term loan entered into January 2023 for approximately$1.0 billion, which matures January 2024, as well as on our January 2023 issuances of $500 million of senior unsecured notes, which are callable at par on January 13, 2024, and $600 million of senior unsecured notes due March 2030. (6)We currently pay the ground lessors directly for the rent under the ground leases. (7)Our clients, who are generally sub-clients under ground leases, are responsible for paying the rent under these ground leases. In the event our client fails to pay the ground lease rent, we are primarily responsible. (8)“Other” consists of $606.3 million of commitments under construction contracts, and $21.7 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements. Our credit facility, commercial paper programs, term loans, and notes payable obligations are unsecured. Accordingly, we have not pledged any assets as collateral for these obligations. Unconsolidated Investments As a result of our VEREIT merger, we assumed an equity method investment in three unconsolidated entities. In 2022, all seven assets owned by our industrial partnerships acquired in connection with the VEREIT merger were sold. The gross purchase price for the properties was $905.0 million and we collected $114.0 million of net proceeds (after mortgage defeasance and closing costs) to date, representing our proportionate share of partnership distributions. Up until the point of sale of these properties, we were responsible for funding our proportionate share of any operating cash deficits pursuant to the governance documents of the applicable entities. There are no further material commitments related to those investments. RESULTS OF OPERATIONS Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with U.S. 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, Summary of Significant Accounting Policies and Procedures and New Accounting Standards, to our consolidated financial statements in this Annual Report on Form 10-K for the year ended December 31, 2022. 43 Table of Contents In order to prepare our consolidated financial statements according to the rules and guidelines set forth by U.S. GAAP, many subjective judgments must be made with regard to critical accounting policies. Management must make significant assumptions in determining the fair value of assets acquired and liabilities assumed. When acquiring a property for investment purposes, we typically allocate the cost of real estate acquired, inclusive of transaction costs, to: (1) land, (2) building and improvements, and (3) identified intangible assets and liabilities, based in each case on their relative estimated fair values. Intangible assets and liabilities consist of above-market or below-market lease value and the value of in-place leases, as applicable. Additionally, above-market rents on certain leases under which we are a lessor are accounted for as financing receivables amortizing over the lease term, while below-market rents on certain leases under which we are a lessor are accounted for as prepaid rent. In an acquisition of multiple properties, we must also allocate the purchase price among the properties. The allocation of the purchase price is based on our assessment of estimated fair value of the land, building and improvements, and identified intangible assets and liabilities and is often based upon the various characteristics of the market where the property is located. In addition, any assumed mortgages are recorded at their estimated fair values. The estimated fair values of our mortgages payable have been calculated by discounting the future cash flows using applicable interest rates that have been adjusted for factors, such as industry type, client investment grade, maturity date, and comparable borrowings for similar assets. The use of different assumptions in the allocation of the purchase price of the acquired properties and liabilities assumed could affect the timing of recognition of the related revenue and expenses. Another significant judgment must be made as to if, and when, impairment losses should be taken on our properties when events or a change in circumstances indicate that the carrying amount of the asset may not be recoverable. 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, a fair value analysis is performed and, to the extent the estimated fair value is less than the current book value, a provision for impairment is recorded to reduce the book value to estimated fair value. Key inputs that we utilize in this analysis include projected rental rates, estimated holding periods, capital expenditures, and property sales capitalization rates. If a property is held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell. The carrying value of our real estate is the largest component of our consolidated balance sheets. Our strategy of primarily holding properties, long-term, directly decreases the likelihood of their carrying values not being recoverable, thus requiring the recognition of an impairment. However, if our strategy, or one or more of the above assumptions were to change in the future, an impairment may need to be recognized. If events should occur that require us to reduce the carrying value of our real estate by recording provisions for impairment, they could have a material impact on our results of operations. The following is a comparison of our results of operations for the years ended December 31, 2022, 2021 and 2020. Total Revenue The following summarizes our total revenue (dollars in thousands): [[GREPCENT_TABLE]] [["","","","Years ended December 31,","","Increase"],["","","","","","2022","","2021","","2020","","2022versus 2021","","2021versus2020"],["REVENUE"],["Rental (excluding reimbursable)","","","","","$","3,114,975","","","$","1,960,107","","","$","1,560,171","","","$","1,154,868","","","$","399,936"],["Rental (reimbursable)","","","","","184,682","","","104,851","","","79,362","","","$","79,831","","","$","25,489"],["Other","","","","","44,024","","","15,505","","","7,554","","","$","28,519","","","$","7,951"],["Total revenue","","","","","$","3,343,681","","","$","2,080,463","","","$","1,647,087","","","$","1,263,218","","","$","433,376"]] [[/GREPCENT_TABLE]] The increase in total revenue primarily relates to the merger with VEREIT and acquisitions for the years ended December 31, 2022 and 2021. 44 Table of Contents Rental Revenue (excluding reimbursable) The table below summarizes our rental revenue (excluding reimbursable, dollars in thousands): [[GREPCENT_TABLE]] [["","","","","","Years ended December 31,","","Increase/(Decrease)"],["","Number of Properties","","Square Footage (1)","","2022","","2021","","$ Change"],["Properties acquired during 2022 & 2021","2,314","","","53,632,497","","","$","550,676","","","$","134,652","","","$","416,024"],["Same store rental revenue(2)","9,615","","","167,391,055","","","2,453,030","","","2,410,302","","","42,728"],["Orion Divestiture(3)","92","","","10,093,123","","","430","","","154,444","","","(154,014)"],["Constant currency adjustment(4)","N/A","","N/A","","4,483","","","18,020","","","(13,537)"],["Properties sold during and prior to 2022","426","","","9,771,221","","","18,465","","","57,659","","","(39,194)"],["Straight-line rent and other non-cash adjustments","N/A","","N/A","","20,778","","","20,711","","","67"],["Vacant rents, development and other (5)","308","","","7,257,983","","","55,903","","","52,341","","","3,562"],["Other excluded revenue (6)","N/A","","N/A","","11,210","","","10,551","","","659"],["Less: VEREIT rental revenue (7)","N/A","","N/A","","\u2014","","","(898,573)","","","898,573"],["Totals","","","","","$","3,114,975","","","$","1,960,107","","","$","1,154,868"]] [[/GREPCENT_TABLE]] (1)Excludes 5,909,738 square feet from properties ground leased to clients and 2,654,136 square feet from properties with no land or building ownership. (2)The same store rental revenue percentage increase for the year ended December 31, 2022 as compared with the same period in the prior year is 1.8%. (3)Following of the closing of our merger with VEREIT, we contributed 92 office real estate assets, a consolidated real estate venture holding one office asset, and an unconsolidated real estate venture holding five office assets to a wholly owned subsidiary named Orion Office REIT Inc. ("Orion"). On November 12, 2021, we distributed the outstanding shares of Orion common stock to our shareholders (including legacy VEREIT stockholders who received shares of our common stock in our merger with VEREIT) on a pro rata basis at a rate of one share of Orion common stock for every ten shares of Realty Income common stock held on November 12, 2021, the applicable record date, which we refer to as the Orion Divestiture. (4)For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as of December 31, 2022, of 1.20 British Pound Sterling ("GBP")/USD. None of the properties in Spain or Italy met our same store pool definition for the periods presented. (5)Relates to the aggregate of (i) rental revenue from properties (292 properties comprising 6,552,442 square feet) that were available for lease during part of 2022 or 2021, and (ii) rental revenue for properties (16 properties comprising 705,541 square feet) under development or completed developments that do not meet our same store pool definition for the periods presented. (6)Primarily consists of reimbursements for tenant improvements and rental revenue that is not contractual base rent such as lease termination settlements. (7)Amounts for the year ended December 31, 2021 represent rental revenue from VEREIT properties, which were not included in our financial statements prior to the close of the merger on November 1, 2021. The table below summarizes the increase in rental revenue (excluding reimbursable) in 2021 compared to 2020 (dollars in thousands): [[GREPCENT_TABLE]] [["","","","","Years Ended December 31,","Increase/(Decrease)"],["","","Number of Properties","Square Footage (1)","2021","2020","$ Change"],["Properties acquired during 2021 & 2020","","4,953","","105,839,422","","$","413,546","","$","51,951","","$","361,595"],["Same store rental revenue (2)","","6,046","","93,607,451","","1,457,648","","1,418,502","","39,146"],["Orion Divestiture","","92","","10,074,923","","45,047","","50,401","","(5,354)"],["Constant currency adjustment (3)","","N/A","N/A","2,025","","(2,861)","","4,886"],["Properties sold during and prior to 2021","","283","","5,930,654","","6,668","","21,919","","(15,251)"],["Straight-line rent and other non-cash adjustments","","N/A","N/A","11,646","","(3,587)","","15,233"],["Vacant rents, development and other (4)","","137","","2,650,240","","11,296","","14,422","","(3,126)"],["Other excluded revenue (5)","","N/A","N/A","12,231","","9,424","","2,807"],["Totals","","","","$","1,960,107","","$","1,560,171","","$","399,936"]] [[/GREPCENT_TABLE]] 45 Table of Contents (1) Excludes 5,869,364 square feet from properties ground leased to clients and 2,100,990 square feet from properties with no land or building ownership. (2) The same store rental revenue percentage increase for the year ended December 31, 2021 as compared with the same period in the prior year is 2.8%. (3) For purposes of comparability, same store rental revenue is presented on a constant currency basis using the exchange rate as of December 31, 2021 of 1.35 GBP/USD. None of the properties in Spain met our same store pool definition for the periods presented. In addition, the same store pool excludes properties assumed on November 1, 2021 as a result of our merger with VEREIT. (4) Relates to the aggregate of (i) rental revenue from properties (128 properties comprising 2,292,635 square feet) that were available for lease during part of 2021 or 2020, (ii) rental revenue for properties (nine properties comprising 357,605 square feet) under development or completed developments that do not meet our same store pool definition for the periods presented. (5) Primarily consists of reimbursements for tenant improvements and rental revenue that is not contractual base rent such as lease termination settlements. For purposes of determining the same store rent property pool, we include all properties that were owned for the entire year-to-date period, for both the current and prior year, except for properties during the current or prior year that; (i) were vacant at any time, (ii) were under development or redevelopment, or (iii) were involved in eminent domain and rent was reduced. Beginning with the first quarter of 2022, properties acquired through the merger with VEREIT were considered under each element of our same store pool criterion, except for the requirement that the property be owned for the full comparative period. If the property was owned by VEREIT for the full comparative period and each of the other criteria were met, the property was included in our same store property pool. 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. Our calculation of same store rental revenue includes rent deferred for future payment as a result of lease concessions we granted in response to the COVID-19 pandemic and recognized under the practical expedient provided by the Financial Accounting Standards Board (the "FASB"). Our calculation of same store rental revenue also includes uncollected rent for which we have not granted a lease concession. If these applicable amounts of rent deferrals and uncollected rent were excluded from our calculation of same store rental revenue, the increases for 2022 relative to 2021 and 2021 relative to 2020 would have been 2.3% and 7.7%, respectively. Of the 12,237 properties in the portfolio at December 31, 2022, 12,018, or 98.2%, are single-client properties and the remaining are multi-client properties. Of the 12,018 single-client properties, 11,894, or 99.0%, were net leased at December 31, 2022. Of the 12,797 in-place leases in the portfolio, which excludes 181 vacant units, 10,835, or 84.7%, were under leases that provide for increases in rents through: •Base rent increases tied to inflation (typically subject to ceilings); •Percentage rent based on a percentage of the clients’ gross sales; •Fixed increases; or •A combination of two or more of the above rent provisions. Rent based on a percentage of our client's gross sales, or percentage rent, was $14.9 million, $6.5 million and $5.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. Percentage rent represents less than 1% of rental revenue. At December 31, 2022, our portfolio of 12,237 properties was 99.0% leased with 126 properties available for lease, as compared to 98.5% leased with 164 properties available for lease at December 31, 2021. It has been our experience that approximately 1% to 4% of our property portfolio will be available for lease at any given time; however, it is possible that the number of properties available for lease or sale could increase in the future, given the nature of economic cycles and other unforeseen global events, such as the COVID-19 pandemic. Rental Revenue (reimbursable) A number of our leases provide for contractually obligated reimbursements from clients for recoverable real estate taxes and operating expenses. The increase in contractually obligated reimbursements by our clients in the periods presented is primarily due to the growth of our portfolio due to acquisitions. Other Revenue Other revenue primarily relates to interest income recognized on financing receivables for certain leases with above-market terms. The increases in the periods presented are due to additional leases with above-market terms, which is proportional to overall portfolio growth. 46 Table of Contents Total Expenses The following summarizes our total expenses (dollars in thousands): [[GREPCENT_TABLE]] [["","","","Years ended December 31,","","Increase/(Decrease)"],["","","","","","2022","","2021","","2020","","2022 versus 2021","","2021 versus 2020"],["EXPENSES"],["Depreciation and amortization","","","","","$","1,670,389","","","$","897,835","","","$","677,038","","","$","772,554","","","$","220,797"],["Interest","","","","","465,223","","","323,644","","","309,336","","","141,579","","","14,308"],["Property (excluding reimbursable)","","","","","41,648","","","28,754","","","25,241","","","12,894","","","3,513"],["Property (reimbursable)","","","","","184,682","","","104,851","","","79,362","","","79,831","","","25,489"],["General and administrative (2)","","","","","138,459","","","96,980","","","73,215","","","41,479","","","23,765"],["Provisions for impairment","","","","","25,860","","","38,967","","","147,232","","","(13,107)","","","(108,265)"],["Merger and integration-related costs","","","","","13,897","","","167,413","","","\u2014","","","(153,516)","","","167,413"],["Total expenses","","","","","$","2,540,158","","","$","1,658,444","","","$","1,311,424","","","$","881,714","","","$","347,020"],["Total revenue (1)","","","","","$","3,158,999","","","$","1,975,612","","","1,567,725"],["General and administrative expenses as a percentage of total revenue (1)","","","","","4.4","%","","4.9","%","","4.4","%"],["Property expenses (excluding reimbursable) as a percentage of total revenue (1)","","","","","1.3","%","","1.5","%","","1.6","%"]] [[/GREPCENT_TABLE]] (1) Excludes rental revenue (reimbursable). (2) General and administrative expenses for 2020 included an executive severance charge related to the departure of our former Chief Financial Officer ("CFO") in March 2020. The total value of cash, stock compensation and professional fees incurred as a result of this severance was $3.5 million and was recorded to general and administrative expense. In order to present a normalized calculation of our general and administrative expenses as a percentage of total revenue for 2020, we have excluded this executive severance charge to arrive at a normalized general and administrative amount of $69.8 million which was used for our calculation. Depreciation and Amortization The increase in depreciation and amortization is primarily due to the acquisition of properties in 2022 and 2021, which was partially offset by property sales in those same periods. The 2021 acquisition volume was primarily driven by the merger with VEREIT. As discussed in the sections entitled “Funds from Operations Available to Common Stockholders (FFO) and Normalized Funds from Operations Available to Common Stockholders (Normalized FFO)" and “Adjusted Funds from Operations Available to Common Stockholders (AFFO),” depreciation and amortization is a non-cash item that is added back to net income available to common stockholders for our calculation of FFO, Normalized FFO, and AFFO. 47 Table of Contents Interest Expense The following is a summary of the components of our interest expense (dollars in thousands): [[GREPCENT_TABLE]] [["","","","Years ended December 31,"],["","","","","","2022","","2021","","2020"],["Interest on our credit facility, commercial paper, $250.0 million term loan, notes, mortgages and interest rate swaps","","","","","$","523,384","","","$","320,370","","","$","293,879"],["Credit facility commitment fees","","","","","4,908","","","3,801","","","3,812"],["Amortization of debt origination and deferred financing costs","","","","","14,149","","","11,695","","","10,694"],["Loss on interest rate swaps","","","","","718","","","2,905","","","4,132"],["Amortization of net mortgage premiums","","","","","(13,622)","","","(3,498)","","","(1,258)"],["Amortization of net note premiums","","","","","(62,989)","","","(10,349)","","","(1,754)"],["Interest capitalized","","","","","(2,789)","","","(1,926)","","","(480)"],["Capital lease obligation","","","","","1,464","","","646","","","311"],["Interest expense","","","","","$","465,223","","","$","323,644","","","$","309,336"],["Credit facility, commercial paper, $250.0 million term loan, mortgages and notes"],["Average outstanding balances (dollars in thousands)","","","","","$","16,460,928","","","$","10,024,343","","","$","8,240,829"],["Average interest rates","","","","","3.15","%","","3.11","%","","3.48","%"]] [[/GREPCENT_TABLE]] The increase in interest expense for the year ended December 31, 2022 is primarily due to the following: (i) the October 2022 issuance of $750.0 million in principal of notes, (ii) the June 2022 issuance of £600 million in principal of Sterling-denominated notes, (iii) the January 2022 issuance of £500 million in principal of Sterling-denominated notes, (iv) the issuance of $4.65 billion in principal of notes associated with the exchange offer and assumption of $839.1 million in principal of mortgage debt, both associated with our merger with VEREIT in November 2021, and (v) the July 2021 issuance of £750 million in principal of Sterling-denominated notes, as well as higher average balances and interest rates on the credit facility and commercial paper borrowings, partially offset by the December 2021 early redemption on all $750.0 million in principal of the 4.650% notes due August 2023, and the January 2021 early redemption on all $950.0 million in principal of the 3.250% notes due October 2022. The increase in interest expense for the year ended December 31, 2021 is primarily due to the issuance of $4.65 billion in principal of notes associated with our merger with VEREIT as discussed above, the issuance of senior unsecured notes during 2020 and 2021 outside of our merger with VEREIT, which included aggregate totals of $1.68 billion in principal of USD-denominated notes and £1.15 billion in principal of Sterling-denominated notes, partially offset by the early redemptions during 2021 and 2020 of $1.2 billion of notes, increases in amortization of net note and mortgage premiums, and lower average balances on our credit facility and commercial paper borrowings. During the year ended December 31, 2022, the weighted average interest rate on our: •Revolving credit facility outstanding borrowings of $2.0 billion was 1.8%; •Commercial paper outstanding borrowings of $701.8 million was 1.6%; •Term loan outstanding of $250.0 million (excluding deferred financing costs of $0.2 million) was swapped to fixed at 3.8%; •Mortgages payable of $842.3 million (excluding net premiums totaling $12.4 million and deferred financing costs of $0.8 million on these mortgages) was 4.8%; •Notes and bonds payable of $14.1 billion (excluding net unamortized original issue premiums of $224.6 million and deferred financing costs of $60.7 million) was 3.3%; and •Notes, bonds, mortgages, $250.0 million term loan, and credit facility and commercial paper borrowings of $17.9 billion (excluding all net premiums and deferred financing costs) was 3.15%. 48 Table of Contents Property Expenses (excluding reimbursable) Property expenses (excluding reimbursable) consist of costs associated with properties available for lease, non-net-leased properties and general portfolio expenses. Expenses related to properties available for lease and non-net-leased properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections and legal fees. General portfolio costs include, but are not limited to, insurance, legal, property inspections, and title search fees. At December 31, 2022, 126 properties were available for lease or sale, as compared to 164 at December 31, 2021, and 140 at December 31, 2020. The increase in property expenses (excluding reimbursable) for the years ended December 31, 2022 and 2021 is primarily due to the increase in portfolio size, resulting in higher utilities, repairs and maintenance, property-related legal expenses, property taxes, insurance expenses and reserves for contractually obligated reimbursements by our clients. Property Expenses (reimbursable) The increase in property expenses (reimbursable) for the years ended December 31, 2022 and 2021, is primarily attributable to our increased portfolio size, which contributed to higher operating expenses as a result of our acquisitions during the years ended December 31, 2022 and 2021, and an increase in ground lease rent, insurance, and property taxes paid on behalf of our clients. General and Administrative Expenses General and administrative expenses are expenditures related to the operations of our company, including employee-related costs, professional fees, and other general overhead costs associated with running our business. The increase in general and administrative expenses for the year ended December 31, 2022 is primarily due to higher payroll-related costs, corporate-level professional fees, corporate occupancy costs, and information technology costs associated with the growth of the company, including the merger with VEREIT. The increase in general and administrative expenses for 2021 is primarily due to higher payroll-related costs and corporate-level professional fees. Provisions for Impairment The following table summarizes provisions for impairment during the periods indicated below (dollars in millions): [[GREPCENT_TABLE]] [["","","","Years ended December 31,"],["","","","","","2022","","2021","","2020"],["Carrying value prior to impairment","","","","","$","140.9","","","$","169.2","","","$","260.8"],["Less: total provisions for impairment","","","","","(25.9)","","","(39.0)","","","(147.2)"],["Carrying value after impairment","","","","","$","115.0","","","$","130.2","","","$","113.6"]] [[/GREPCENT_TABLE]] The impairments for the years ended December 31, 2022 and 2021 primarily relate to properties sold, in the process of being sold, or vacant. We identify the impact of the COVID-19 pandemic as an impairment triggering event for properties occupied by certain of our clients experiencing difficulties meeting their lease obligations to us. After considering the impacts of the COVID-19 pandemic on the key assumptions, we determined that the carrying values of 38 properties classified as held for investment for the year ended December 31, 2020 were not recoverable. As a result, we recorded provisions for impairment of $105.0 million for the year ended December 31, 2020 on the applicable properties impacted by the COVID-19 pandemic. Merger and Integration-Related Costs In conjunction with our merger with VEREIT, we incurred approximately $13.9 million and $167.4 million of merger and integration-related transaction costs during the years ended December 31, 2022 and 2021, respectively. There were no such costs incurred during the year ended December 31, 2020. Merger and integration-related costs consist of advisory fees, attorney fees, accountant fees, SEC filing fees and additional incremental and non-recurring costs necessary to convert data and systems, retain employees and otherwise enable us to operate the acquired business or assets efficiently. Gain on Sales of Real Estate The following summarizes our property dispositions, excluding our proportionate share of net proceeds from the disposition of properties by our consolidated industrial partnerships in 2022 (dollars in millions): 49 Table of Contents [[GREPCENT_TABLE]] [["","","","Years ended December 31,"],["","","","","","2022","","2021","","2020"],["Number of properties sold","","","","","168","","","154","","","126"],["Net sales proceeds","","","","","$","434.9","","","$","250.3","","","$","262.5"],["Gain on sales of real estate","","","","","$","102.7","","","$","55.8","","","$","76.2"]] [[/GREPCENT_TABLE]] Foreign Currency and Derivative Gains (Losses), Net We borrow in the functional currencies of the countries in which we invest. Net foreign currency gain and loss are primarily related to the remeasurement of intercompany debt from foreign subsidiaries. Gain and loss on foreign currency are largely offset by derivative gain and loss. Derivative gain and loss relates to mark-to-market adjustments on derivatives that do not qualify for hedge accounting. Net derivative gain and loss are primarily related to realized and unrealized short term currency exchange swaps. Gain and loss on derivatives are largely offset by foreign currency gain and loss. In June 2022, following the early prepayment of our Sterling-denominated intercompany loan receivable from our consolidated foreign subsidiaries, we terminated the four cross-currency swaps used to hedge the foreign currency exposure of the intercompany loan. As the hedge relationship was terminated and the future principal and interest associated with the prepaid intercompany loan will not occur, $20.0 million gain was reclassified from accumulated other comprehensive income ("AOCI"), to 'Foreign currency and derivative (loss) gain, net' during the year ended December 31, 2022. The reclassification from AOCI was offset by $7.9 million in losses from the intercompany loan remeasurement on the final exchange. Gain (loss) on extinguishment of debt We redeemed the following principal amounts (in millions) of certain outstanding notes and mortgages, prior to their maturity. As a result of these early redemptions, we recognized the following losses on extinguishment of debt (in millions) in the consolidated statements of income and comprehensive income. There were no comparable repayments for the year ended December 31, 2022. [[GREPCENT_TABLE]] [["","","","","Gain (Loss) on Extinguishment of Debt"],["2021 Repayments","","Principal Amount (1)","","Amount of Loss","","Period Recognized"],["4.650% notes due August 2023 redeemed in December 2021","","$","750.0","","","$","46.4","","","December 31, 2021"],["Mortgage due June 2022 redeemed in October 2021","","$","9.6","","","$","0.3","","","December 31, 2021"],["Mortgage due June 2032 redeemed in September 2021","","$","12.5","","","$","4.0","","","September 30, 2021"],["3.250% notes due October 2022 redeemed in January 2021","","$","950.0","","","$","46.5","","","March 31, 2021"],["Total 2021 repayments","","","","$","97.2"],["2020 Repayments"],["5.750% notes due January 2021 redeemed in January 2020","","$","250.0","","","$","9.8","","","March 31, 2020"]] [[/GREPCENT_TABLE]] (1) The redeemed principal amounts presented exclude the amounts we paid in accrued and unpaid interest. Equity in Income and Impairment of Investment in Unconsolidated Entities Equity in income and impairment of investment in unconsolidated entities for the years ended December 31, 2022 and 2021 relate to three equity method investments that were acquired in our merger with VEREIT. The loss for the year ended December 31, 2022 is primarily driven by an other than temporary impairment. There were no comparative investments for the year ended December 31, 2020. During 2022 all seven of the properties owned by our industrial partnerships acquired in connection with the VEREIT merger were sold. Other Income, Net Certain miscellaneous non-recurring revenue is included in other income, net. The increase for the year ended December 31, 2022 as compared to 2021, is primarily related to an increase in gain on insurance proceeds from recoveries on property losses exceeding our carrying value, an increase in gain from the involuntary conversions of real estate, gains on land sales and higher interest income due to higher average cash balances. 50 Table of Contents The increase for the year ended December 31, 2021 as compared to the year ended December 31, 2020, is primarily related to an increase in gain on insurance proceeds from recoveries on property losses exceeding our carrying value and an increase in gain from the involuntary conversions of real estate, which was partially offset by a decrease in interest income from lower average cash balances. Income Taxes Income taxes are for city and state income and franchise taxes, and for international income taxes accrued or paid by us and our subsidiaries. The increase in income taxes for the years ended December 31, 2022 and 2021 is primarily attributable to our increased volume of U.K. investments, which contributed to higher U.K. income taxes for both years. Net Income Available to Common Stockholders The following summarizes our net income available to common stockholders (dollars in millions, except per share data): [[GREPCENT_TABLE]] [["","","","Years ended December 31,","","% Increase/(Decrease)"],["","","","","","2022","","2021","","2020","","2022 versus 2021","","2021 versus 2020"],["Net income available to common stockholders","","","","","$","869.4","","$","359.5","","$","395.5","","141.8","%","","(9.1)","%"],["Net income per share (1)","","","","","$","1.42","","$","0.87","","$","1.14","","63.2","%","","(23.7)","%"]] [[/GREPCENT_TABLE]] (1) All per share amounts are presented on a diluted per common share basis. The calculation to determine net income available to common stockholders includes provisions for impairment, gain from the sale of properties, and foreign currency gain and loss, which can vary from period to period based on timing and significantly impact net income available to common stockholders. The increase in net income available to common stockholders for the year ended December 31, 2022, compared to the year ended December 31, 2021 primarily related to the increase in the size of our portfolio due to the merger with VEREIT, which closed on November 1, 2021, gain on insurance proceeds from recoveries on property losses exceeding our carrying value, and $13.9 million of merger and integration-related costs related to our merger with VEREIT. The increases were partially offset by reserves to rental revenue of $4.0 million (of which $1.7 million was related to straight-line rent receivables) for the year ended December 31, 2022. Net income available to common stockholders for the year ended December 31, 2021, was impacted by the following transactions: (i) a $97.2 million loss on extinguishment of debt, which primarily includes $46.5 million related to the January 2021 early redemption of the 3.250% notes due October 2022 recorded in the three months ended March 31, 2021 and $46.4 million related to the December 2021 early redemption of the 4.650% notes due August 2023 recorded in the three months ended December 31, 2021, (ii) $167.4 million of merger and integration-related costs related to our merger with VEREIT, and (iii) $14.7 million of reserves to rental revenue (of which $4.5 million was related to straight-line rent receivables). Net income available to common stockholders for the year ended December 31, 2020 was primarily impacted by the following transactions: (i) $147.2 million of provisions for impairment, (ii) $52.5 million in net reserves recorded as a reduction of rental revenue, (iii) a $9.8 million loss on extinguishment of debt due to the January 2020 early redemption of the 5.750% notes due January 2021, and (iv) a $3.5 million executive severance charge for our former CFO. 51 Table of Contents Adjusted Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate ("Adjusted EBITDAre") Nareit established an EBITDA metric for real estate companies (i.e., EBITDA for real estate, or EBITDAre) it believed would provide investors with a consistent measure to help make investment decisions among REITs. Our definition of “Adjusted EBITDAre” is generally consistent with the Nareit definition, other than our adjustments to remove foreign currency and derivative gain and loss, excluding gain and loss from the settlement of foreign currency forwards not designated as hedges (which is consistent with our previous calculations of "Adjusted EBITDA"). We define Adjusted EBITDAre, a non–GAAP financial measure, for the most recent quarter as earnings (net income) before (i) interest expense, including non-cash loss (gain) on swaps, (ii) income and franchise taxes, (iii) gain (loss) on extinguishment of debt, (iv) real estate depreciation and amortization, (v) provisions for impairment, (vi) merger and integration-related costs, (vii) gain on sales of real estate, (viii) foreign currency and derivative gain, net (as described in the Adjusted Funds from Operations section), (ix) gain on settlement of foreign currency forwards, and (x) equity in income of investment in unconsolidated entities. Our Adjusted EBITDAre may not be comparable to Adjusted EBITDAre reported by other companies or as defined by Nareit, and other companies may interpret or define Adjusted EBITDAre differently than we do. Management believes Adjusted EBITDAre to be a meaningful measure of a REIT’s performance because it provides a view of our operating performance, analyzes our ability to meet interest payment obligations before the effects of income tax, depreciation and amortization expense, provisions for impairment, gain on sales of real estate and other items, as defined above, that affect comparability, including the removal of non-recurring and non-cash items that industry observers believe are less relevant to evaluating the operating performance of a company. In addition, EBITDAre is widely followed by industry analysts, lenders, investors, rating agencies, and others as a means of evaluating the operational cash generating capacity of a company prior to servicing debt obligations. Management also believes the use of an annualized quarterly Adjusted EBITDAre metric, which we refer to as Annualized Adjusted EBITDAre, is meaningful because it represents our current earnings run rate for the period presented. Annualized Adjusted EBITDAre and Annualized Pro Forma Adjusted EBITDAre, as defined below, are also used to determine the vesting of performance share awards granted to executive officers. Annualized Adjusted EBITDAre should be considered along with, but not as an alternative to net income as a measure of our operating performance. We define Annualized Pro Forma Adjusted EBITDAre as Annualized Adjusted EBITDAre, subject to certain adjustments to incorporate Adjusted EBITDAre from properties we acquired or stabilized during the applicable quarter and to remove Adjusted EBITDAre from properties we disposed of during the applicable quarter, and includes transaction accounting adjustments in accordance with U.S. GAAP, giving pro forma effect to all transactions as if they occurred at the beginning of the applicable period. Our calculation includes all adjustments consistent with the requirements to present Adjusted EBITDAre on a pro forma basis in accordance with Article 11 of Regulation S-X. The Annualized Pro Forma Adjustments are consistent with the debt service coverage ratio calculated under financial covenants for our senior unsecured notes. We believe Annualized Pro Forma Adjusted EBITDAre is a useful non-GAAP supplemental measure, as it excludes properties that were no longer owned at the balance sheet date and includes the annualized rent from properties acquired during the quarter. Management also uses our ratios of net debt-to-Annualized Adjusted EBITDAre and net debt-to Annualized Pro Forma Adjusted EBITDAre as measures of leverage in assessing our financial performance, which is calculated as net debt (which we define as total debt per the consolidated balance sheets, excluding deferred financing costs and net premiums and discounts, but including our proportionate share on debt from unconsolidated entities, less cash and cash equivalents), divided by annualized quarterly Adjusted EBITDAre and annualized Pro Forma Adjusted EBITDAre, respectively. 52 Table of Contents The following is a reconciliation of net income (which we believe is the most comparable U.S. GAAP measure) to Adjusted EBITDAre and Annualized Pro Forma EBITDAre calculations for the periods indicated below (dollars in thousands): [[GREPCENT_TABLE]] [["","Three months ended December 31,"],["","2022","","2021","","2020"],["Net income","$","228,336","","","$","4,467","","","$","118,150"],["Interest","131,290","","","100,739","","","78,764"],["Loss on extinguishment of debt","\u2014","","","46,722","","","\u2014"],["Income taxes","9,381","","","10,128","","","4,500"],["Depreciation and amortization","438,174","","","333,229","","","175,041"],["Provisions for impairment","9,481","","","7,990","","","23,790"],["Merger and integration-related costs","903","","","137,332","","","\u2014"],["Gain on sales of real estate","(9,346)","","","(20,402)","","","(22,667)"],["Foreign currency and derivative gains, net","(2,692)","","","(1,880)","","","(3,311)"],["Gain on settlement of foreign currency forwards","2,139","","","\u2014","","","\u2014"],["Proportionate share of adjustments for unconsolidated entities","113","","","1,581","","","\u2014"],["Quarterly Adjusted EBITDAre","$","807,779","","","$","619,906","","","$","374,267"],["Annualized Adjusted EBITDAre (1)","$","3,231,116","","","$","2,479,624","","","$","1,497,068"],["Annualized Pro Forma Adjustments","$","119,876","","","$","358,560","","","$","25,910"],["Annualized Pro Forma Adjusted EBITDAre","$","3,350,992","","","$","2,838,184","","","$","1,522,978"],["Total debt per the consolidated balance sheets, excluding deferred financing costs and net premiums and discounts","$","17,935,539","","","$","15,172,849","","","$","8,852,036"],["Proportionate share for unconsolidated entities debt, excluding deferred financing costs","\u2014","","","86,006","","","\u2014"],["Less: Cash and cash equivalents","(171,102)","","","(258,579)","","","(824,476)"],["Net Debt (2)","$","17,764,437","","","$","15,000,276","","","$","8,027,560"],["Net Debt/Annualized Adjusted EBITDAre","5.5","x","","6.0","x","","5.4","x"],["Net Debt/Annualized Pro Forma Adjusted EBITDAre","5.3","x","","5.3","x","","5.3","x"]] [[/GREPCENT_TABLE]] (1) We calculate Annualized Adjusted EBITDAre by multiplying the Quarterly Adjusted EBITDAre by four. (2) Net Debt is total debt per our consolidated balance sheets, excluding deferred financing costs and net premiums and discounts, but including our proportionate share on debt from unconsolidated entities, less cash and cash equivalents. As described above, the Annualized Pro Forma Adjustments, which includes transaction accounting adjustments in accordance with GAAP, consists of adjustments to incorporate the Adjusted EBITDAre from properties we acquired or stabilized during the applicable quarter and removes Adjusted EBITDAre from properties we disposed of during the applicable quarter, giving pro forma effect to all transactions as if they occurred at the beginning of the period, consistent with the requirements of Article 11 of Regulation S-X. The following table summarizes our Annualized Pro Forma Adjusted EBITDAre calculation for the periods indicated below: [[GREPCENT_TABLE]] [["","","Three months ended December 31,"],["Dollars in thousands","","2022","","2021","","2020"],["Annualized pro forma adjustments from properties acquired or stabilized","","$","120,408","","","$","400,575","","","$","27,431"],["Annualized pro forma adjustments from properties disposed","","(532)","","","(42,015)","","","(1,521)"],["Annualized Pro forma Adjustments","","$","119,876","","","$","358,560","","","$","25,910"]] [[/GREPCENT_TABLE]] 53 Table of Contents FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS AND NORMALIZED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS 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 provisions for impairments of depreciable real estate assets, and reduced by gain on property sales. We define Normalized FFO, a non-GAAP financial measure, as FFO excluding merger and integration-related costs related to our merger with VEREIT. We define diluted FFO and diluted normalized FFO as FFO and normalized FFO adjusted for dilutive noncontrolling interests. The following summarizes our FFO and Normalized FFO (dollars in millions, except per share data): [[GREPCENT_TABLE]] [["","","","Years ended December 31,","","% Increase/(Decrease)"],["","","","","","2022","","2021","","2020","","2022 versus 2021","","2021 versus 2020"],["FFO available to common stockholders","","","","","$","2,471.9","","$","1,240.6","","$","1,142.1","","99.3","%","","8.6","%"],["FFO per share (1)","","","","","$","4.04","","$","2.99","","$","3.31","","35.1","%","","(9.7)","%"],["Normalized FFO available to common stockholders","","","","","$","2,485.8","","$","1,408.0","","$","1,142.1","","76.5","%","","23.3","%"],["Normalized FFO per share (1)","","","","","$","4.06","","$","3.39","","$","3.31","","19.8","%","","2.4","%"]] [[/GREPCENT_TABLE]] (1) All per share amounts are presented on a diluted per common share basis. FFO and Normalized FFO for the years ended December 31, 2022, 2021 and 2020 were impacted by the same transactions listed under "Net Income Available to Common Stockholders" on page 51, with the exception of provisions for impairment, which do not impact FFO and Normalized FFO. The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable U.S. GAAP measure) to FFO and Normalized 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): 54 Table of Contents [[GREPCENT_TABLE]] [["","","","Years ended December 31,"],["","","","","","2022","","2021","","2020"],["Net income available to common stockholders","","","","","$","869,408","","","$","359,456","","","$","395,486"],["Depreciation and amortization","","","","","1,670,389","","","897,835","","","677,038"],["Depreciation of furniture, fixtures and equipment","","","","","(2,014)","","","(1,026)","","","(588)"],["Provisions for impairment","","","","","25,860","","","38,967","","","147,232"],["Gain on sales of real estate","","","","","(102,957)","","","(55,798)","","","(76,232)"],["Proportionate share of adjustments for unconsolidated entities (1)","","","","","12,812","","","1,931","","","\u2014"],["FFO adjustments allocable to noncontrolling interests","","","","","(1,605)","","","(785)","","","(817)"],["FFO available to common stockholders","","","","","$","2,471,893","","","$","1,240,580","","","$","1,142,119"],["FFO allocable to dilutive noncontrolling interests","","","","","3,979","","","\u2014","","","1,418"],["Diluted FFO","","","","","$","2,475,872","","","$","1,240,580","","","$","1,143,537"],["FFO available to common stockholders","","","","","$","2,471,893","","","$","1,240,580","","","$","1,142,119"],["Merger and integration-related costs","","","","","13,897","","","167,413","","","\u2014"],["Normalized FFO available to common stockholders","","","","","$","2,485,790","","","$","1,407,993","","","$","1,142,119"],["Normalized FFO allocable to dilutive noncontrolling interests","","","","","3,979","","","1,642","","","1,418"],["Diluted Normalized FFO","","","","","$","2,489,769","","","$","1,409,635","","","$","1,143,537"],["FFO per common share, basic and diluted","","","","","$","4.04","","","$","2.99","","","$","3.31"],["Normalized FFO per common share:"],["Basic","","","","","$","4.06","","","$","3.40","","","$","3.31"],["Diluted","","","","","$","4.06","","","$","3.39","","","$","3.31"],["Distributions paid to common stockholders","","","","","$","1,813,432","","","$","1,169,026","","","$","964,167"],["FFO available to common stockholders in excess of distributions paid to common stockholders","","","","","$","658,461","","","$","71,554","","","$","177,952"],["Normalized FFO available to common stockholders in excess of distributions paid to common stockholders","","","","","$","672,358","","","$","238,967","","","$","177,952"],["Weighted average number of common shares used for FFO:"],["Basic","","","","","611,765,815","","","414,535,283","","","345,280,126"],["Diluted","","","","","613,472,663","","","414,769,846","","","345,878,377"],["Weighted average number of common shares used for Normalized FFO:"],["Basic","","","","","611,765,815","","","414,535,283","","","345,280,126"],["Diluted","","","","","613,472,663","","","415,270,063","","","345,878,377"]] [[/GREPCENT_TABLE]] (1)Includes an other than temporary impairment of $8.5 million recognized during the year ended December 31, 2022 on our investment in unconsolidated entities, all of which were sold as of December 31, 2022. We consider FFO and Normalized FFO to be appropriate supplemental measures of a REIT’s operating performance as they are based on a net income analysis of property portfolio performance that adds back items such as depreciation and impairments for FFO, and adds back merger and integration-related costs, for Normalized FFO. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. 55 Table of Contents ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS We define AFFO, a non-GAAP measure, as FFO adjusted for unique revenue and expense items, which we believe are not as pertinent to the measurement of our ongoing operating performance. We define diluted AFFO as AFFO adjusted for dilutive noncontrolling interests. The following summarizes our AFFO (dollars in millions, except per share data): [[GREPCENT_TABLE]] [["","","","Years ended December 31,","","% Increase"],["","","","","","2022","","2021","","2020","","2022 versus 2021","","2021 versus 2020"],["AFFO available to common stockholders","","","","","$","2,401.4","","$","1,488.8","","$","1,172.6","","61.3","%","","27.0","%"],["AFFO per share (1)","","","","","$","3.92","","$","3.59","","$","3.39","","9.2","%","","5.9","%"]] [[/GREPCENT_TABLE]] (1) All per share amounts are presented on a diluted per common share basis. The increases in AFFO for the years ended December 31, 2022 and 2021 were primarily attributable to the increase in the size of our portfolio, especially as it relates to the impact from our merger with VEREIT, which closed on November 1, 2021. These increases were partially offset by reserves recorded as a reduction of rental revenue of $4.0 million, $14.7 million and $52.5 million for the years ended December 31, 2022, 2021 and 2020, respectively. We consider AFFO to be an appropriate supplemental measure of our performance. Most companies in our industry use a similar measurement, but they may use the term “CAD” (for Cash Available for Distribution), “FAD” (for Funds Available for Distribution) or other terms. Our AFFO calculations may not be comparable to AFFO, CAD or FAD reported by other companies, and other companies may interpret or define such terms differently than we do. The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable U.S. GAAP measure) to Normalized FFO and AFFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts): 56 Table of Contents [[GREPCENT_TABLE]] [["","","","Years ended December 31,"],["","","","","","2022","","2021","","2020"],["Net income available to common stockholders","","","","","$","869,408","","","$","359,456","","","$","395,486"],["Cumulative adjustments to calculate Normalized FFO (1)","","","","","1,616,382","","","1,048,537","","","746,633"],["Normalized FFO available to common stockholders","","","","","2,485,790","","","1,407,993","","","1,142,119"],["Executive severance charge (2)","","","","","\u2014","","","\u2014","","","3,463"],["(Gain) loss on extinguishment of debt","","","","","(367)","","","97,178","","","9,819"],["Amortization of share-based compensation","","","","","21,617","","","16,234","","","14,727"],["Amortization of net debt premiums and deferred financing costs (3)","","","","","(67,150)","","","(6,182)","","","3,710"],["Non-cash loss on interest rate swaps","","","","","718","","","2,905","","","4,353"],["Straight-line impact of cash settlement on interest rate swaps (4)","","","","","1,558","","","\u2014","","","\u2014"],["Leasing costs and commissions","","","","","(5,236)","","","(6,201)","","","(1,859)"],["Recurring capital expenditures","","","","","(587)","","","(1,202)","","","(198)"],["Straight-line rent and expenses, net","","","","","(120,252)","","","(61,350)","","","(26,502)"],["Amortization of above and below-market leases, net","","","","","63,243","","","37,970","","","22,940"],["Proportionate share of adjustments for unconsolidated entities","","","","","(4,239)","","","(1,948)","","","\u2014"],["Other adjustments (5)","","","","","26,264","","","3,356","","","54"],["AFFO available to common stockholders","","","","","$","2,401,359","","","$","1,488,753","","","$","1,172,626"],["AFFO allocable to dilutive noncontrolling interests","","","","","4,033","","","1,619","","","1,438"],["Diluted AFFO","","","","","$","2,405,392","","","$","1,490,372","","","$","1,174,064"],["AFFO per common share:"],["Basic","","","","","$","3.93","","","$","3.59","","","$","3.40"],["Diluted","","","","","$","3.92","","","$","3.59","","","$","3.39"],["Distributions paid to common stockholders","","","","","$","1,813,432","","","$","1,169,026","","","$","964,167"],["AFFO available to common stockholders in excess of distributions paid to common stockholders","","","","","$","587,927","","","$","319,727","","","$","208,459"],["Weighted average number of common shares used for computation per share:"],["Basic","","","","","611,765,815","","","414,535,283","","","345,280,126"],["Diluted","","","","","613,472,663","","","415,270,063","","","345,878,377"]] [[/GREPCENT_TABLE]] (1)See reconciling items for Normalized FFO presented under “Funds from Operations Available to Common Stockholders (FFO) and Normalized Funds from Operations Available to Common Stockholders (Normalized FFO)." (2)The executive severance charge represents the incremental costs incurred upon our former CFO's departure in March 2020, consisting of $1.6 million of cash, $1.8 million of share-based compensation expense and $58,000 of professional fees. (3)Includes the amortization of premiums and discounts on notes payable and assumption of our mortgages payable, which are being amortized over the life of the applicable debt, and costs incurred and capitalized upon issuance and exchange of our notes payable, assumption of our mortgages payable and issuance of our term loans, which are also being amortized over the lives of the applicable debt. No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included. (4)Represents the straight-line amortization of $72.0 million gain realized upon the termination of $500.0 million in notional interest rate swaps, over the term of the $750.0 million of 5.625% senior unsecured notes due October 13, 2032. (5)Includes adjustments allocable to noncontrolling interests, obligations related to financing lease liabilities, mark-to-market adjustments on investments and derivatives that do not qualify for hedge accounting, foreign currency gain and loss as a result of intercompany debt and remeasurement transactions and straight-line payments from cross-currency swaps. 57 Table of Contents 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 U.S. GAAP performance metric to which AFFO should be reconciled is net income available to common stockholders. Presentation of the information regarding FFO, Normalized 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, Normalized FFO, and AFFO in the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO, Normalized 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, Normalized FFO, and AFFO should not be considered as alternatives to reviewing our cash flows from operating, investing, and financing activities. In addition, FFO, Normalized FFO, and AFFO should not be considered as measures of liquidity, our ability to make cash distributions, or our ability to pay interest payments. IMPACT OF INFLATION Leases generally provide for limited increases in rent as a result of fixed increases, increases in the consumer price index, or retail price index in the case of certain leases in the U.K. (typically subject to ceilings), or increases in the clients’ sales volumes. 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 and other costs (including increases in employment and other fees and expenses). Moreover, our use of net lease agreements tends to reduce our exposure to rising property expenses due to inflation because the client is responsible for property expenses. Even though net leases reduce our exposure to rising property expenses due to inflation, substantial inflationary pressures and increased costs may have an adverse impact on our clients if increases in their operating expenses exceed increases in revenue, which may adversely affect our clients' ability to pay rent. Additionally, inflationary periods may cause us to experience increased costs of financing, make it difficult to refinance debt at attractive rates or at all, and may adversely affect the properties we can acquire if the cost of financing an acquisition is in excess of our anticipated earnings from such property, thereby limiting the properties that can be acquired. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS For information on the impact of new accounting standards on our business, see note 2, Summary of Significant Accounting Policies and Procedures and New Accounting Standards, to our Consolidated Financial Statements.