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 dedicated to providing stockholders with dependable monthly dividends that increase over time. The company is structured as a real estate investment trust, or REIT, requiring it annually to distribute at least 90% of its taxable income (excluding net capital gains) in the form of dividends to its stockholders. The monthly dividends are supported by the cash flow generated from real estate owned under long-term, net lease agreements with commercial tenants.

Realty Income was founded in 1969, and listed on the New York Stock Exchange (NYSE: O) in 1994. Over the past 51 years, Realty Income has been acquiring and managing freestanding commercial properties that generate rental revenue under long-term net lease agreements. As of February 2020, the company is a member of the S&P 500 Dividend Aristocrats® index for having increased its dividend every year for the last 25 consecutive years.

At December 31, 2019, we owned a diversified portfolio:

•	Of 6,483 properties;

•	With an occupancy rate of 98.6%, or 6,389 properties leased and 94 properties available for lease;

•	Leased to 301 different commercial tenants doing business in 50 separate industries;

•	Located in 49 U.S. states, Puerto Rico and the United Kingdom (U.K.);

•	With approximately 106.3 million square feet of leasable space;

•	With a weighted average remaining lease term (excluding rights to extend a lease at the option of the tenant) of approximately 9.2 years; and

•	With an average leasable space per property of approximately 16,393 square feet; approximately 11,800 square feet per retail property and 237,668 square feet per industrial property.

Of the 6,483 properties in the portfolio at December 31, 2019, 6,452, or 99.5%, are single-tenant properties, of which 6,362 were leased, and the remaining are multi-tenant properties.

Unless otherwise specified, references to rental revenue in the Management's Discuss and Analysis of Financial Condition and Results of Operations are exclusive of reimbursements from tenants for recoverable real estate taxes and operating expenses totaling $69.1 million, $47.0 million and $46.1 million for 2019, 2018 and 2017, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Capital Philosophy

Historically, we have met our long-term capital needs by issuing common stock, preferred stock and long-term unsecured notes and bonds. Over the long term, we believe that common stock should be the majority of our capital structure; however, we may issue additional preferred stock or debt securities. We may issue common stock when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties. In addition, we may issue common stock to permanently finance properties that were initially financed by our credit facility or debt securities. However, we cannot assure you that we will have access to the capital markets at all times and at terms that are acceptable to us.

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

Conservative Capital Structure

We believe that our stockholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. At December 31, 2019, our total outstanding borrowings of senior unsecured notes and bonds, term loans, mortgages payable and credit facility borrowings were $7.9 billion, or approximately 24.4% of our total market capitalization of $32.5 billion.

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We define our total market capitalization at December 31, 2019 as the sum of:

•	Shares of our common stock outstanding of 333,619,106, plus total common units outstanding of 463,119, multiplied by the last reported sales price of our common stock on the NYSE of $73.63 per share on December 31, 2019, or $24.6 billion;

•	Outstanding borrowings of $704.3 million on our credit facility, including £169.2 million Sterling;

•	Outstanding mortgages payable of $408.4 million, excluding net mortgage premiums of $3.0 million and deferred financing costs of $1.3 million;

•	Outstanding borrowings of $500.0 million on our term loans, excluding deferred financing costs of $956,000; and

•	Outstanding senior unsecured notes and bonds of $6.3 billion, excluding unamortized net original issuance premiums of $6.3 million and deferred financing costs of $35.9 million.

Universal Shelf Registration

In November 2018, we filed a shelf registration statement with the SEC, which is effective for a term of three years and will expire in November 2021. In accordance with SEC rules, the amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit. The securities covered by this registration statement include (1) common stock, (2) preferred stock, (3) debt securities, (4) depositary shares representing fractional interests in shares of preferred stock, (5) warrants to purchase debt securities, common stock, preferred stock, or depositary shares, and (6) any combination of these securities. We may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

At-the-Market (ATM) Programs

Under our ATM equity distribution plan, or our ATM program, pursuant to which up to 33,402,405 additional shares of common stock may be offered and sold (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers' transactions on the NYSE at prevailing market prices or at negotiated prices. At December 31, 2019, we had 33,402,405 shares remaining for future issuance under our current ATM program. We anticipate maintaining the availability of our ATM program in the future, including through replenishing the authorized shares issuable thereunder.

The following table outlines the common stock issuance pursuant to our ATM program (dollars in millions):

	Year Ended December 31,
	2019				2018
Shares of common stock issued under the ATM program	17,051,456				19,138,610
Gross proceeds	$	1,274.5			$	1,125.4

Dividend Reinvestment and Stock Purchase Plan

Our Dividend Reinvestment and Stock Purchase Plan, or our DRSPP, provides our common stockholders, as well as new investors, with a convenient and economical method of purchasing our common stock and reinvesting their distributions. Our DRSPP also allows our current stockholders to buy additional shares of common stock by reinvesting all or a portion of their distributions. Our DRSPP authorizes up to 26,000,000 common shares to be issued. Our DRSPP includes a waiver approval process, allowing larger investors or institutions, per a formal approval process, to purchase shares at a small discount, if approved by us. We did not issue shares under the waiver approval process during 2019 or 2018. At December 31, 2019, we had 11,652,668 shares remaining for future issuance under our DRSPP program.

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The following table outlines common stock issuances pursuant to our DRSPP program (dollars in millions):

	Year Ended December 31,
	2019				2018
Shares of common stock issued under the DRSPP program	117,522				166,268
Gross proceeds	$	8.4			$	9.1

Revolving Credit Facility

In August 2019, we amended and restated our unsecured credit facility, or our credit facility, in order to allow borrowings in multiple currencies. The amended and restated credit facility is otherwise substantively consistent with the prior credit agreement entered into in October 2018. Our credit facility consists of a $3.0 billion unsecured revolving credit facility with an initial term that expires in March 2023 and includes, at our option, two six-month extensions and a $250.0 million unsecured term loan due March 2024. The unsecured revolving credit facility allows us to borrow in up to 14 currencies, including U.S. dollars, and has a $1.0 billion expansion option. Under our credit facility, our investment grade credit ratings as of December 31, 2019 provide for financing at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 0.775% with a facility commitment fee of 0.125%, for all-in drawn pricing of 0.90% over LIBOR.

The borrowing rate is subject to an interest rate floor and may change if our investment grade credit ratings change. We also have other interest rate options available to us under our credit facility. Our credit facility is unsecured and, accordingly, we have not pledged any assets as collateral for this obligation.

At December 31, 2019, we had a borrowing capacity of $2.3 billion available on our revolving credit facility and an outstanding balance of $704.3 million, including £169.2 million Sterling. The weighted average interest rate on borrowings outstanding under our revolving credit facility during 2019 was 3.1% per annum. We must comply with various financial and other covenants in our credit facility. At December 31, 2019, we were in compliance with these covenants. We expect to use our credit facility to acquire additional properties and for other general corporate purposes. Any additional borrowings will increase our exposure to interest rate risk.

We generally use our credit facility for the short-term financing of new property acquisitions. Thereafter, we generally seek to refinance those borrowings with the net proceeds of long-term or permanent financing, which may include the issuance of common stock, preferred stock or debt securities. We cannot assure you, however, that we will be able to obtain any such refinancing, or that market conditions prevailing at the time of the refinancing will enable us to issue equity or debt securities at acceptable terms. We regularly review our credit facility and may seek to extend, renew or replace our credit facility, to the extent we deem appropriate.

Term Loans

In October 2018, in conjunction with our credit facility, we entered into a $250.0 million senior unsecured term loan, which matures in March 2024. Borrowing under this term loan bears interest at the current one-month LIBOR plus 0.85%. In conjunction with this term loan, we also entered into an interest rate swap which effectively fixes our per annum interest on this term loan at 3.89%. The terms of this term loan were not impacted by the amendment and restatement of our credit agreement in August 2019.

In June 2015, in conjunction with entering into our previous credit facility, we entered into a $250.0 million senior unsecured term loan maturing June 2020. Borrowing under this term loan bears interest at the current one-month LIBOR, plus 0.90%. In conjunction with this term loan, we also entered into an interest rate swap which effectively fixes our per annum interest rate on this term loan at 2.62%. The terms of this term loan were not impacted by the amendment and restatement of our credit agreement in August 2019.

In January 2013, in conjunction with our acquisition of American Realty Capital Trust, Inc., or ARCT, we entered into a $70.0 million senior unsecured term loan with an initial maturity date of January 2018. Borrowing under this term loan bore interest at the current one-month LIBOR, plus 1.10%. In conjunction with this term loan, we also entered into an interest rate swap, which, until its termination in January 2018, effectively fixed our per annum interest rate on this term loan at 2.05%. In 2018, we entered into two separate six–month extensions of this loan, during which periods the interest was borne at the current one–month LIBOR, plus 0.90%. In January 2019, we paid off the outstanding principal and interest on this term loan.

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Mortgage Debt

As of December 31, 2019, we had $408.4 million of mortgages payable, all of which were assumed in connection with our property acquisitions. Additionally, at December 31, 2019, we had net premiums totaling $3.0 million on these mortgages and deferred financing costs of $1.3 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 2019, we made $20.7 million of principal payments, including the repayment of one mortgage in full for $15.8 million.

Notes Outstanding

Our senior unsecured note and bond obligations consist of the following as of December 31, 2019, sorted by maturity date (dollars in millions):

5.750% notes, issued in June 2010 and due in January 2021	$	250
3.250% notes, $450 issued in October 2012 and $500 issued in December 2017, both due in October 2022	950
4.650% notes, issued in July 2013 and due in August 2023	750
3.875% notes, issued in June 2014 and due in July 2024	350
3.875% notes, issued in April 2018 and due in April 2025	500
4.125% notes, $250 issued in September 2014 and $400 issued in March 2017, both due in October 2026	650
3.000% notes, issued in October 2016 and due in January 2027	600
3.650% notes, issued in December 2017 and due in January 2028	550
3.250% notes, issued in June 2019 and due in June 2029	500
2.730% notes, issued in May 2019 and due in May 2034 (1)	418
5.875% bonds, $100 issued in March 2005 and $150 issued in June 2011, both due in March 2035	250
4.650% notes, $300 issued in March 2017 and $250 issued in December 2017, both due in March 2047	550
Total principal amount	6,318
Unamortized net original issuance premiums and deferred financing costs	(30		)
	$	6,288

(1) Represents the principal balance (in U.S. dollars) of the Sterling-denominated private placement of £315.0 million Sterling converted at the applicable exchange rate on December 31, 2019.

In May 2019, we issued £315.0 million Sterling of 2.730% senior unsecured notes due 2034 through a private placement.

In June 2019, we issued $500.0 million of 3.250% senior unsecured notes due 2029, or the 2029 Notes. The public offering price for the 2029 Notes was 99.36% of the principal amount, for an effective yield to maturity of 3.326% and net proceeds of approximately $492.2 million.

The net proceeds from these offerings were used to repay borrowings outstanding under our credit facility, to fund investment opportunities, and for other general corporate purposes.

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, 2019. Additionally, interest on all of our senior note and bond obligations is paid semiannually.

The following is a summary of the key financial covenants for our senior unsecured notes, as defined and calculated per the terms of our senior notes and bonds. These calculations, which are not based on U.S. GAAP measurements, are presented to investors to show our ability to incur additional debt under the terms of our senior notes and bonds as well as to disclose our current compliance with such covenants, and are not measures of our liquidity or performance. The actual amounts as of December 31, 2019 are:

Note Covenants	Required	Actual
Limitation on incurrence of total debt	< 60% of adjusted assets	39.6	%
Limitation on incurrence of secured debt	< 40% of adjusted assets	2.1	%
Debt service coverage (trailing 12 months)(1)	> 1.5 x	5.0x
Maintenance of total unencumbered assets	> 150% of unsecured debt	256.9	%

(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

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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, 2019, and subject to certain additional adjustments. Such pro forma ratio has been prepared on the basis required by that debt service covenant, reflects various estimates and assumptions and is subject to other uncertainties, and therefore does not purport to reflect what our actual debt service coverage ratio would have been had transactions referred to in clauses (i), (ii) and (iii) of the preceding sentence occurred as of January 1, 2019, nor does it purport to reflect our debt service coverage ratio for any future period. The following is our calculation of debt service and fixed charge coverage at December 31, 2019 (in thousands, for trailing twelve months):

Net income attributable to the Company	$	436,482
Plus: interest expense, excluding the amortization of deferred financing costs	281,801
Plus: provision for taxes	6,158
Plus: depreciation and amortization	593,961
Plus: provisions for impairment	40,186
Plus: pro forma adjustments	147,154
Less: gain on sales of real estate	(29,996		)
Income available for debt service, as defined	$	1,475,746
Total pro forma debt service charge	$	295,499
Debt service and fixed charge coverage ratio	5.0

Authorized Shares

In May 2019, our stockholders approved an increase in the number of authorized shares of our common stock under our articles of incorporation to 740,200,000 from 370,100,000.

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, 2019, we had cash and cash equivalents totaling $54.0 million, inclusive of £30.7 million Sterling.

We believe that our cash and cash equivalents on hand, cash provided from operating activities, and borrowing capacity is sufficient to meet our liquidity needs for the next twelve months. We intend, however, to use permanent or long-term capital to fund property acquisitions and to repay future borrowings under our credit facility.

Credit Agency Ratings

The borrowing interest rates under our revolving credit facility are based upon our ratings assigned by credit rating agencies. As of December 31, 2019, we were assigned the following investment grade corporate credit ratings on our senior unsecured notes and bonds: Moody’s Investors Service has assigned a rating of A3 with a “stable” outlook, Standard & Poor’s Ratings Group has assigned a rating of A- with a “stable” outlook, and Fitch Ratings has assigned a rating of BBB+ with a “stable” outlook.

Based on our ratings as of December 31, 2019, the facility interest rate was LIBOR, plus 0.775% with a facility commitment fee of 0.125%, for all-in drawn pricing of 0.90% over LIBOR. Our credit facility provides that the interest rate can range between: (i) LIBOR, plus 1.45% if our credit rating is lower than BBB-/Baa3 or unrated and (ii) LIBOR, plus 0.75% if our credit rating is A/A2 or higher. In addition, our credit facility provides for a facility commitment fee based on our credit ratings, which range from: (i) 0.30% for a rating lower than BBB-/Baa3 or unrated, and (ii) 0.10% for a credit rating of A/A2 or higher.

We also issue senior debt securities from time to time and our credit ratings can impact the interest rates charged in those transactions. If our credit ratings or ratings outlook change, our cost to obtain debt financing could increase or decrease. The credit ratings assigned to us could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies and we cannot assure you that our ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover, a rating is not a recommendation to buy, sell or hold our debt securities, preferred stock or common stock.

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Table of Obligations

The following table summarizes the maturity of each of our obligations as of December 31, 2019 (dollars in millions):

Year of Maturity	Credit Facility (1)				Notes and Bonds(2)				Term Loans(3)				Mortgages Payable (4)				Interest (5)				Ground Leases Paid by Realty Income(6)				Ground Leases Paid by Our Tenants(7)				Other(8)				Totals
2020	$	—			$	—			$	250.0			$	84.2			$	286.7			$	1.6			$	13.5			$	22.5			$	658.5
2021	—				250.0				—				68.8				269.7				1.4				13.3				—				603.2
2022	—				950.0				—				111.8				266.4				1.4				13.2				—				1,342.8
2023	704.3				750.0				—				20.6				220.4				1.3				13.2				—				1,709.8
2024	—				350.0				250.0				112.2				173.5				1.3				13.3				—				900.3
Thereafter	—				4,017.6				—				10.8				1,093.1				18.9				68.9				—				5,209.3
Totals	$	704.3			$	6,317.6			$	500.0			$	408.4			$	2,309.8			$	25.9			$	135.4			$	22.5			$	10,423.9

(1) The initial term of the credit facility expires in March 2023 and includes, at our option, two six–month extensions.

(2) Excludes both non–cash original issuance discounts and premiums recorded on notes payable of $6.3 million and deferred financing costs of $35.9 million at December 31, 2019.

(3) Excludes deferred financing costs of $956,000.

(4) Excludes both non–cash net premiums recorded on the mortgages payable of $3.0 million and deferred financing costs of $1.3 million at December 31, 2019.

(5) Interest on the term loans, notes, bonds, mortgages payable, and credit facility has been calculated based on outstanding balances as of December 31, 2019 through their respective maturity dates.

(6) Realty Income currently pays the ground lessors directly for the rent under the ground leases.

(7) Our tenants, who are generally sub-tenants under ground leases, are responsible for paying the rent under these ground leases. In the event a tenant fails to pay the ground lease rent, we are primarily responsible.

(8) “Other” consists of $16.0 million of commitments under construction contracts and $6.5 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements.

Our credit facility, term loans, and notes payable obligations are unsecured. Accordingly, we have not pledged any assets as collateral for these obligations.

No Unconsolidated Investments

We have no unconsolidated investments, nor do we engage in trading activities involving energy or commodity contracts.

Impact of Real Estate and Credit Markets

In the commercial real estate market, property prices generally continue to fluctuate. Likewise, during certain periods, the global credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real estate and global credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly.

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Acquisitions During 2019

Below is a listing of our acquisitions in the U.S. and U.K. for the year ended December 31, 2019:

	Number of Properties			Square Feet (in millions)			Investment ($ in millions)				Weighted Average Lease Term (Years)			Initial Average Cash Lease Yield
Year ended December 31, 2019 (1)
Acquisitions - U.S. (in 45 states)	753			11.6			$	2,860.8			13.0			6.8	%
Acquisitions - U.K. (2)	18			1.6			797.8				15.6			5.2	%
Total Acquisitions	771			13.2			3,658.6				13.4			6.4	%
Properties under Development - U.S.	18			0.5			56.6				15.1			7.3	%
Total (3)	789			13.7			$	3,715.2			13.5			6.4	%

(1)	None of our investments during 2019 caused any one tenant to be 10% or more of our total assets at December 31, 2019. All of our 2019 investments in acquired properties are 100% leased at the acquisition date.

(2)	Represents investments of £625.8 million Sterling during the year ended December 31, 2019 converted at the applicable exchange rate on the date of acquisition.

(3)	The tenants occupying the new properties operate in 31 industries, and are 94.6% retail and 5.4% industrial, based on rental revenue. Approximately 36% of the rental revenue generated from acquisitions during 2019 is from investment grade rated tenants, their subsidiaries or affiliated companies.

The initial average cash lease yield for a property is generally computed as estimated contractual first year cash net operating income, which, in the case of a net leased property, is equal to the aggregate cash base rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a tenant could default on the payment of contractual rent, we cannot provide assurance that the actual return on the funds invested will remain at the percentages listed above.

In the case of a property under development or expansion, the contractual lease rate is generally fixed such that rent varies based on the actual total investment in order to provide a fixed rate of return. When the lease does not provide for a fixed rate of return on a property under development or expansion, the initial average cash lease yield is computed as follows: estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs. We may continue to pursue development or expansion opportunities under similar arrangements in the future.

Portfolio Discussion

Leasing Results

At December 31, 2019, we had 94 properties available for lease out of 6,483 properties in our portfolio, which represents a 98.6% occupancy rate based on the number of properties in our portfolio.

The following table summarized our leasing results for the year ended December 31, 2019:

Properties available for lease at December 31, 2018	80
Lease expirations	304
Re-leases to same tenant (1)	(199	)
Re-leases to new tenant (1)(2)	(15	)
Dispositions	(76	)
Properties available for lease at December 31, 2019	94

(1)	The annual new rent on these re-leases was $54.978 million, as compared to the previous annual rent of $53.605 million on the same properties, representing a rent recapture rate of 102.6% on the properties re-leased during the year ended December 31, 2019.

(2)	Re-leased to eight new tenants after a period of vacancy, and seven new tenants without vacancy.

As part of our re-leasing costs, we pay leasing commissions to unrelated, third party real estate brokers consistent with the commercial real estate industry standard, and sometimes provide tenant rent concessions. We do not consider the collective impact of the leasing commissions or tenant rent concessions to be material to our financial position or results of operations.

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At December 31, 2019, our average annualized rental revenue was approximately $14.88 per square foot on the 6,389 leased properties in our portfolio. At December 31, 2019, we classified 23 properties with a carrying amount of $96.8 million as held for sale on our balance sheet. The expected sale of these properties does not represent a strategic shift that will have a major effect on our operations and financial results and is consistent with our existing disposition strategy to further enhance our real estate portfolio and maximize portfolio returns.

Investments in Existing Properties

In 2019, we capitalized costs of $17.9 million on existing properties in our portfolio, consisting of $2.1 million for re-leasing costs, $801,000 for recurring capital expenditures, and $15.0 million for non-recurring building improvements. In 2018, we capitalized costs of $17.9 million on existing properties in our portfolio, consisting of $3.9 million for re-leasing costs, $1.1 million for recurring capital expenditures, and $12.9 million for non-recurring building improvements.

The majority of our building improvements relate to roof repairs, HVAC improvements, and parking lot resurfacing and replacements. The amounts of our capital expenditures can vary significantly, depending on the rental market, tenant credit worthiness, the lease term and the willingness of tenants to pay higher rents over the terms of the leases.

We define recurring capital expenditures as mandatory and repetitive landlord capital expenditure obligations that have a limited useful life. We define non-recurring capital expenditures as property improvements where we invest additional capital that extend the useful life of the properties.

Increases in Monthly Dividends to Common Stockholders

We have continued our 51-year policy of paying monthly dividends. In addition, we increased the dividend five times during 2019 and twice in 2020. As of February 2020, we have paid 89 consecutive quarterly dividend increases and increased the dividend 105 times since our listing on the NYSE in 1994.

		Month		Month		Dividend				Increase
2019 Dividend increases		Declared		Paid		per share				per share
1st increase		Dec 2018		Jan 2019		$	0.2210			$	0.0005
2nd increase		Jan 2019		Feb 2019		$	0.2255			$	0.0045
3rd increase		Mar 2019		Apr 2019		$	0.2260			$	0.0005
4th increase		Jun 2019		Jul 2019		$	0.2265			$	0.0005
5th increase		Sep 2019		Oct 2019		$	0.2270			$	0.0005
2020 Dividend increases
1st increase		Dec 2019		Jan 2020		$	0.2275			$	0.0005
2nd increase		Jan 2020		Feb 2020		$	0.2325			$	0.0050

The dividends paid per share during 2019 totaled approximately $2.7105, as compared to approximately $2.6305 during 2018, an increase of $0.08, or 3.0%.

The monthly dividend of $0.2325 per share represents a current annualized dividend of $2.79 per share, and an annualized dividend yield of approximately 3.8% based on the last reported sale price of our common stock on the NYSE of $73.63 on December 31, 2019. Although we expect to continue our policy of paying monthly dividends, we cannot guarantee that we will maintain our current level of dividends, that we will continue our pattern of increasing dividends per share, or what our actual dividend yield will be in any future period.

RESULTS OF OPERATIONS

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with GAAP, and are the basis for our discussion and analysis of financial condition and results of operations. Preparing our consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. We believe that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other

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factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. This summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in note 2 to our consolidated financial statements.

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

Another significant judgment must be made as to if, and when, impairment losses should be taken on our properties when events or a change in circumstances indicate that the carrying amount of the asset may not be recoverable. A provision is made for impairment if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property. 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, 2019, 2018 and 2017.

Total Revenue

The following summarizes our total revenue (dollars in thousands):

														$ Increase
		2019				2018				2017				2019 versus 2018				2018 versus 2017
REVENUE
Rental (excluding reimbursable)		$	1,415,733			$	1,274,596			$	1,166,224			$	141,137			$	108,372
Rental (reimbursable)		69,085				46,950				46,082				22,135				868
Other		6,773				6,292				3,462				481				2,830
Total revenue		$	1,491,591			$	1,327,838			$	1,215,768			$	163,753			$	112,070

Rental Revenue

The increase in rental revenue in 2019 compared to 2018 is primarily attributable to:

•	The 779 properties (13.4 million square feet) we acquired in 2019, which generated $85.0 million of rent in 2019;

•	The 753 properties (4.8 million square feet) we acquired in 2018, which generated $112.7 million of rent in 2019, compared to $54.0 million in 2018, an increase of $58.7 million; and

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•	Same store rents generated on 4,811 properties (83.4 million square feet) during 2019 and 2018, increased by $18.0 million, or 1.6%, to $1.176 billion from $1.158 billion; partially offset by

•	A net decrease of $15.7 million relating to properties sold in 2019 and during 2018;

•	A net decrease in straight-line rent and other non-cash adjustments to rent of $3.2 million in 2019 as compared to 2018; and

•

A net decrease of $1.8 million relating to the aggregate of (i) rental revenue from properties (130 properties comprising 3.2 million square feet) that were available for lease during part of 2019 or 2018, (ii) rental revenue for 10 properties under development, and (iii) lease termination settlements. In aggregate, the revenues for these items totaled $24.9 million in 2019, compared to $26.7 million in 2018.

The increase in rental revenue in 2018 compared to 2017 is primarily attributable to:

•	The 753 properties (4.8 million square feet) we acquired in 2018, which generated $54.0 million of rent in 2018;

•	The 287 properties (7.2 million square feet) we acquired in 2017, which generated $95.7 million of rent in 2018, compared to $35.8 million in 2017, an increase of $59.9 million;

•	Same store rents generated on 4,629 properties (78.1 million square feet) during 2018 and 2017, increased by $9.5 million, or 0.9%, to $1.08 billion from $1.07 billion; and

•	A net increase in straight-line rent and other non-cash adjustments to rent of $5.7 million in 2018 as compared to 2017; partially offset by

•	A net decrease of $13.2 million relating to properties sold in 2018 and during 2017; and

•

A net decrease of $7.5 million relating to the aggregate of (i) rental revenue from properties (123 properties comprising 2.7 million square feet) that were available for lease during part of 2018 or 2017, (ii) rental revenue for five properties under development, and (iii) lease termination settlements. In aggregate, the revenues for these items totaled $15.9 million in 2018, compared to $23.4 million in 2017.

For purposes of determining the same store rent property pool, we include all properties that were owned for the entire year-to-date period, for both the current and prior year, except for properties during the current or prior year that; (i) were vacant at any time, (ii) were under development or redevelopment, or (iii) were involved in eminent domain and rent was reduced. Each of the exclusions from the same store pool are separately addressed within the applicable sentences above, explaining the changes in rental revenue for the period.

Of the 6,483 properties in the portfolio at December 31, 2019, 6,452, or 99.5%, are single-tenant properties and the remaining are multi-tenant properties. Of the 6,452 single-tenant properties, 6,362, or 98.6%, were net leased at December 31, 2019. Of our 6,362 leased single-tenant properties, 5,456 or 85.8% were under leases that provide for increases in rents through:

•	Base rent increases tied to a consumer price index (typically subject to ceilings);

•	Percentage rent based on a percentage of the tenants’ gross sales;

•	Fixed increases; or

•	A combination of two or more of the above rent provisions.

Percentage rent, which is included in rental revenue, was $8.0 million in 2019, $5.9 million in 2018, and $6.1 million in 2017. Percentage rent in 2019 was less than 1% of rental revenue and we anticipate percentage rent to be less than 1% of rental revenue in 2020.

Our portfolio of real estate, leased primarily to commercial tenants under net leases, continues to perform well and provides dependable lease revenue supporting the payment of monthly dividends to our stockholders. At December 31, 2019, our portfolio of 6,483 properties was 98.6% leased with 94 properties available for lease, as compared to 98.6% leased, with 80 properties available for lease at December 31, 2018. It has been our experience that approximately 1% to 4% of our property portfolio will be unleased at any given time; however, it is possible that the number of properties available for lease could exceed these levels in the future.

Rental Revenue (reimbursable)

A number of our leases provide for contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses. The increase in tenant reimbursements in the years presented is primarily due to the growth of our portfolio from acquisitions.

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Other Revenue

The increase in other revenue for 2019 was primarily related to interest income recognized on financing receivables for certain leases with above-market terms as compared to 2018, partially offset by lower proceeds from property insurance claims, condemnations and interest income from our investments in United States government money market funds.

The increase in other revenue for 2018 was primarily related to higher proceeds from property insurance claims, condemnations and interest income from our investments in United States government money market funds as compared to 2017.

Total Expenses

The following summarizes our total expenses (dollars in thousands):

														$ Increase (Decrease)
		2019				2018				2017				2019 versus 2018				2018 versus 2017
EXPENSES
Depreciation and amortization		$	593,961			$	539,780			$	498,788			$	54,181			$	40,992
Interest		290,991				266,020				247,413				24,971				$	18,607
General and administrative (1)		66,483				84,148				58,446				(17,665		)		$	25,702
Property (excluding reimbursable)		19,500				19,376				23,398				124				$	(4,022	)
Property (reimbursable)		69,085				46,950				46,082				22,135				$	868
Income taxes		6,158				5,340				6,044				818				$	(704	)
Provisions for impairment		40,186				26,269				14,751				13,917				$	11,518
Total expenses		$	1,086,364			$	987,883			$	894,922			$	98,481			$	92,961
Total revenue (2)		$	1,422,506			$	1,280,888			$	1,169,686
General and administrative expenses as a percentage of total revenue (2)		4.7		%		5.1		%		5.0		%
Property expenses (excluding reimbursable) as a percentage of total revenue (2)		1.4		%		1.5		%		2.0		%

(1) General and administrative expenses for 2018 included a one–time severance payment made to our former CEO in October 2018. The total value of cash, stock compensation and professional fees incurred as a result of this severance was $28.3 million; however, the net amount, after incorporating accruals for CEO compensation previous to this severance, was $18,651 and was recorded to general and administrative expense (see our discussion of Adjusted Funds from Operations Available to Common Stockholders, or AFFO, which is not a financial measure under generally accepted accounting principles, which includes a reconciliation of this amount). In order to present a normalized calculation of our general and administrative expenses as a percentage of total revenue for 2018, we have excluded this one–time executive severance charge to arrive at a normalized general and administrative amount of $65,497, which was used for our calculation.

(2) Excludes rental revenue (reimbursable).

Depreciation and Amortization

The increase in depreciation and amortization in 2019 and 2018 was primarily due to the acquisition of properties in 2019 and 2018, which was partially offset by property sales in those same periods. As discussed in the sections entitled “Funds from Operations Available to Common Stockholders (FFO)” and “Adjusted Funds from Operations Available to Common Stockholders (AFFO),” depreciation and amortization is a non-cash item that is added back to net income available to common stockholders for our calculation of FFO and AFFO.

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Interest Expense

The following is a summary of the components of our interest expense (dollars in thousands):

		2019				2018				2017
Interest on our credit facility, term loans, notes, mortgages and interest rate swaps		$	277,802			$	260,103			$	237,165
Credit facility commitment fees		3,803				2,774				2,999
Amortization of debt origination and deferred financing costs		9,485				8,711				7,975
Loss (gain) on interest rate swaps		2,752				(2,733		)		(3,250		)
Dividend on preferred shares subject to redemption		—				—				2,257
Amortization of net mortgage premiums		(1,415		)		(1,520		)		(466		)
Amortization of net note (premiums) and discounts		(995		)		(1,256		)		884
Obligations related to financing lease liabilities		310				310				310
Interest capitalized		(751		)		(369		)		(461		)
Interest expense		$	290,991			$	266,020			$	247,413
Credit facility, term loans, mortgages and notes
Average outstanding balances (dollars in thousands)		$	7,100,032			$	6,662,952			$	5,877,862
Average interest rates		3.89		%		3.90		%		3.99		%

The increase in interest expense from 2018 to 2019 is primarily due to the October 2018 issuance of our $250.0 million senior unsecured term loan, the May 2019 issuance of our 2.730% notes due 2034, the June 2019 issuance of our 3.250% notes due 2029, and a loss on our interest rate swaps in 2019. The increase in interest expense from 2017 to 2018 is primarily due to the April 2018 issuance of our 3.875% notes due 2025. This increase was partially offset by the December 2017 early redemption of our 6.75% notes due 2019 and lower outstanding debt balances on mortgages payable as a result of mortgage payoffs in 2018.

At December 31, 2019, the weighted average interest rate on our:

•	Credit facility outstanding borrowings of $704.3 million was 2.2%;

•	Term loans outstanding of $500.0 million (excluding deferred financing costs of $956,000) was 3.3%;

•	Mortgages payable of $408.4 million (excluding net premiums totaling $3.0 million and deferred financing costs of $1.3 million on these mortgages) was 4.9%;

•	Notes and bonds payable of $6.3 billion (excluding unamortized net original issuance premiums of $6.3 million and deferred financing costs of $35.9 million) was 3.9%; and

•	Combined outstanding notes, bonds, mortgages, term loan and credit facility borrowings of $7.9 billion (excluding all net premiums and deferred financing costs) was 3.8%.

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. In January 2020, we had 194 employees, as compared to 165 employees in January 2019, and 152 employees in January 2018.

The fluctuation of general and administrative costs in 2019 and 2018 is primarily due to the severance charge of $18.7 million incurred in 2018 and related to our former CEO who departed the company in October 2018. Additionally, compensation costs in both years increased due to higher headcount.

Property Expenses (excluding reimbursable)

Property expenses (excluding reimbursable) consist of costs associated with unleased properties, non-net-leased properties and general portfolio expenses. Expenses related to unleased properties and non-net-leased properties include, but are not limited to, property taxes, maintenance, insurance, utilities, property inspections and legal fees. General portfolio costs include, but are not limited to, insurance, legal, property inspections, and title search fees. At December 31, 2019, 94 properties were available for lease, as compared to 80 at December 31, 2018 and 83 at December 31, 2017.

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The increase in property expenses (excluding reimbursable) in 2019 is primarily attributable to higher property taxes and maintenance associated with our expanding portfolio size. The 2018 decrease was primarily attributable to lower bad debt expense.

Property Expenses (reimbursable)

The increase in property expenses (reimbursable) in both 2019 and 2018 was primarily attributable to the increased portfolio size, which contributed to higher contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses primarily due to our acquisitions in each year.

Income Taxes

Income taxes are for city and state income and franchise taxes, and for U.K. income taxes paid by us and our subsidiaries.

Provisions for Impairment

The following table summarizes provisions for impairment during the periods indicated below (dollars in millions):

	Year Ended December 31,
	2019				2018				2017
Total provisions for impairment	$	40.2			$	26.3			$	14.8
Number of properties:
Classified as held for sale	9				1				—
Classified as held for investment	5				3				2
Sold	37				40				24

Other Items

Gain on Sales of Real Estate

The following table summarizes our properties sold during the periods indicated below (dollars in millions):

	Year Ended December 31,
	2019				2018				2017
Number of properties sold	93				128				59
Net sales proceeds	$	108.9			$	142.3			$	167.0
Gain on sales of real estate	$	30.0			$	24.6			$	40.9

At December 31, 2019, we classified 23 properties with a carrying amount of $96.8 million as held for sale on our balance sheet.

Foreign Currency and Derivative Gains, Net

We borrow in the local currencies of the countries in which we invest. Foreign currency gains and losses are primarily a result of intercompany debt and certain remeasurement transactions.

Loss on Extinguishment of Debt

In December 2017, we completed the early redemption on all $550.0 million of outstanding 6.75% notes due August 2019, plus accrued and unpaid interest. As a result of the early redemption, we recognized a $42.4 million loss on extinguishment of debt.

Preferred Stock Dividends

We did not pay any preferred stock dividends in 2019 or 2018. Preferred stock dividends totaled $3.9 million in 2017. Additionally, in April 2017, we paid a final dividend on our Class F preferred stock of $1.7 million, which was recorded to interest expense.

Excess of Redemption Value over Carrying Value of Preferred Shares Redeemed

When we issued the irrevocable notice of redemption on our Class F preferred stock in March 2017, we incurred a non-cash charge of $13.4 million for the excess of redemption value over the carrying value. The non-cash charge represents the Class F preferred stock original issuance cost that was paid in 2012.

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Net Income Available to Common Stockholders

The following summarizes our net income available to common stockholders (dollars in millions, except per share data):

	Year Ended December 31,												% Increase
	2019				2018				2017				2019 versus 2018			2018 versus 2017
Net income available to common stockholders	$	436.5			$	363.6			$	301.5			20.0	%		20.6	%
Net income per share (1)	$	1.38			$	1.26			$	1.10			9.5	%		14.5	%

(1) All per share amounts are presented on a diluted per common share basis.

Net income available to common stockholders in 2018 was impacted by a severance payment made to our former CEO in October 2018. The total value of cash, stock compensation and professional fees incurred as a result of this severance was $28.3 million; however, the net amount, after incorporating accruals for CEO compensation previous to this severance, was $18.7 million, equivalent to $0.06 per share.

Net income available to common stockholders in 2017 was impacted by a loss of $42.4 million, or $0.15 per share, loss on extinguishment of debt upon the early redemption on all $550.0 million in principal amount of our outstanding 6.75% notes due August 2019, which were redeemed during December 2017. Net income was also impacted by a non-cash charge of $13.4 million, or $0.05 per share, for the redemption of the 6.625% Monthly Income Class F Preferred Stock that was redeemed in April 2017. This charge is based on the excess of redemption value over the carrying value of the 6.625% Monthly Income Class F Preferred Stock that represents the original issuance cost that we paid in 2012.

The calculation to determine net income available to common stockholders includes impairments, gains from the sale of properties, and foreign currency gains and losses, which can vary from period to period based on the timing and significantly impact net income available to the Company and available to common stockholders.

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate (Adjusted EBITDAre)

The National Association of Real Estate Investment Trust (Nareit) came to the conclusion that a Nareit-defined EBITDA metric for real estate companies (i.e., EBITDA for real estate, or EBITDAre) would provide investors with a consistent measure to help make investment decisions among REITs. Our definition of “Adjusted EBITDAre” is generally consistent with the Nareit definition, other than our adjustment to remove foreign currency and derivative gains and losses and the one-time executive severance charge, as described below (which is consistent with our previous calculations of "Adjusted EBITDAre"). 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) real estate depreciation and amortization, (iv) impairment losses, (v) gain on sales of real estate, (vi) foreign currency and derivative gains, net, and (vii) executive severance charge (as described in the Adjusted Funds from Operations section). Our Adjusted EBITDAre may not be comparable to Adjusted EBITDAre reported by other companies or as defined by Nareit, and other companies may interpret or define Adjusted EBITDAre differently than we do. Management believes Adjusted EBITDAre to be a meaningful measure of a REIT’s performance because it is widely followed by industry analysts, lenders and investors. Management also believes the use of an annualized quarterly Adjusted EBITDAre metric is meaningful because it represents the company’s current earnings run rate for the period presented. The ratio of our total debt to our annualized quarterly Adjusted EBITDAre is also used to determine vesting of performance share awards granted to our executive officers. Adjusted EBITDAre should be considered along with, but not as an alternative to net income as a measure of our operating performance. Our ratio of net debt-to-Adjusted EBITDAre, which is used by management as a measure of leverage, is calculated as net debt (which we define as total debt per the consolidated balance sheet, less cash and cash equivalents) divided by annualized quarterly Adjusted EBITDAre.

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The following table summarizes our Adjusted EBITDAre calculation for the periods indicated below:

Dollars in thousands		2019				2018				2017
Net income		$	129,553			$	85,303			$	60,952
Interest (1)		75,073				70,635				103,903
Income taxes		1,736				1,607				3,424
Depreciation and amortization		156,594				137,711				127,033
Executive severance charge (2)		—				18,651				—
Impairment loss		8,950				1,235				6,679
Gain on sales of real estate		(14,168		)		(5,825		)		(23,208		)
Foreign currency and derivative gains, net		(1,792		)		—				—
Quarterly Adjusted EBITDAre		$	355,946			$	309,317			$	278,783
Net Debt		$	7,847,536			$	6,489,589			$	6,104,573
Annualized Adjusted EBITDAre (3)		$	1,423,784			$	1,237,268			$	1,115,132
Net Debt/Adjusted EBITDAre (4)		5.5				5.2				5.5

(1) Interest expense includes a loss on extinguishment of debt of $42.4 million for the year ended December 31, 2017.

(2) Reflects an $18.7 million severance charge for our former CEO upon his departure in October 2018.

(3) We calculate Annualized Adjusted EBITDAre by multiplying the Quarterly Adjusted EBITDAre by four.

(4) During 2019, the definition of Net Debt/ Adjusted EBITDAre was changed to include debt net of cash and cash equivalents. Under the prior definition, debt to Adjusted EBITDAre was 5.3 and 5.5 for the quarters ended December 31, 2018 and 2017, respectively.

FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (FFO)

The following summarizes our funds from operations available to common stockholders (FFO) (dollars in millions, except per share data):

													% Increase
	2019				2018				2017				2019 versus 2018			2018 versus 2017
FFO available to common stockholders	$	1,039.6			$	903.3			$	772.7			15.1	%		16.9	%
FFO per share (1)	$	3.29			$	3.12			2.82				5.4	%		10.6	%

(1) All per share amounts are presented on a diluted per common share basis.

Our FFO in 2018 was impacted by a severance payment made to our former CEO in October 2018. The total value of cash, stock compensation and professional fees incurred as a result of this severance was $28.3 million; however, the net amount, after incorporating accruals for CEO compensation previous to this severance, was $18.7 million, equivalent to $0.06 per share.

Our FFO in 2017 was impacted by a loss of $42.4 million, or $0.15 per share, on extinguishment of debt upon the early redemption on all $550.0 million of our outstanding 6.75% notes due August 2019 during December 2017. FFO in 2017 was also impacted by a non-cash redemption charge of $13.4 million, or $0.05 per share, upon the redemption of the 6.625% Monthly Income Class F Preferred Stock that was redeemed in April 2017. This charge is based on the excess of redemption value over the carrying value of the 6.625% Monthly Income Class F Preferred Stock that represents the original issuance cost that we paid in 2012.

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The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable GAAP measure) to FFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts):

		2019				2018				2017
Net income available to common stockholders		$	436,482			$	363,614			$	301,514
Depreciation and amortization		593,961				539,780				498,788
Depreciation of furniture, fixtures and equipment		(565		)		(650		)		(557		)
Provisions for impairment		40,186				26,269				14,751
Gain on sales of real estate		(29,996		)		(24,643		)		(40,898		)
FFO adjustments allocable to noncontrolling interests		(477		)		(1,113		)		(933		)
FFO available to common stockholders		$	1,039,591			$	903,257			$	772,665
FFO allocable to dilutive noncontrolling interests		1,403				867				877
Diluted FFO		$	1,040,994			$	904,124			$	773,542
FFO per common share:
Basic		$	3.29			$	3.12			$	2.83
Diluted		$	3.29			$	3.12			$	2.82
Distributions paid to common stockholders		$	852,134			$	761,582			$	689,294
FFO available to common stockholders in excess of distributions paid to common stockholders		$	187,457			$	141,675			$	83,371
Weighted average number of common shares used for computation per share:
Basic		315,837,012				289,427,430				273,465,680
Diluted		316,601,350				289,923,984				273,936,752

We define FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trust’s definition, as net income available to common stockholders, plus depreciation and amortization of real estate assets, plus impairments of depreciable real estate assets, and reduced by gains on property sales.

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

ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS (AFFO)

The following summarizes our adjusted funds from operations available to common stockholders (AFFO) (dollars in millions, except per share data):

													% Increase
	2019				2018				2017				2019 versus 2018			2018 versus 2017
AFFO available to common stockholders	$	1,050.0			$	924.6			$	838.6			13.6	%		10.3	%
AFFO per share (1)	$	3.32			$	3.19			3.06				4.1	%		4.2	%

(1) All per share amounts are presented on a diluted per common share basis.

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The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable GAAP measure) to FFO and AFFO. Also presented is information regarding distributions paid to common stockholders and the weighted average number of common shares used for the basic and diluted computation per share (dollars in thousands, except per share amounts):

		2019				2018				2017
Net income available to common stockholders		$	436,482			$	363,614			$	301,514
Cumulative adjustments to calculate FFO (1)		603,109				539,643				471,151
FFO available to common stockholders		1,039,591				903,257				772,665
Executive severance charge (2)		—				18,651				—
Loss on extinguishment of debt		—				—				42,426
Excess of redemption value over carrying value of Class F preferred share redemption		—				—				13,373
Amortization of share-based compensation		13,662				15,470				13,946
Amortization of deferred financing costs (3)		4,754				3,991				5,326
Amortization of net mortgage premiums		(1,415		)		(1,520		)		(466		)
Loss (gain) on interest rate swaps		2,752				(2,733		)		(3,250		)
Straight-line payments from cross-currency swaps (4)		4,316				—				—
Leasing costs and commissions		(2,102		)		(3,907		)		(1,575		)
Recurring capital expenditures		(801		)		(1,084		)		(912		)
Straight-line rent		(28,674		)		(24,687		)		(17,191		)
Amortization of above and below-market leases		19,336				16,852				14,013
Other adjustments (5)		(1,404		)		268				283
Total AFFO available to common stockholders		$	1,050,015			$	924,558			$	838,638
AFFO allocable to dilutive noncontrolling interests		1,442				901				1,178
Diluted AFFO		$	1,051,457			$	925,459			$	839,816
AFFO per common share
Basic		$	3.32			$	3.19			$	3.07
Diluted		$	3.32			$	3.19			$	3.06
Distributions paid to common stockholders		$	852,134			$	761,582			$	689,294
AFFO available to common stockholders in excess of distributions paid to common stockholders		$	197,881			$	162,976			$	149,344
Weighted average number of common shares used for computation per share:
Basic		315,837,012				289,427,430				273,465,680
Diluted		316,601,350				289,923,984				274,024,934

(1) See reconciling items for FFO presented under “Funds from Operations Available to Common Stockholders (FFO).”

(2) The executive severance charge represents the incremental costs incurred upon our former CEO's departure in October 2018 per the reconciliation below:

Cash	$	9,817
Stock compensation	17,902
Professional fees	574
Total value of severance	28,293
Amount accrued for CEO compensation prior to separation	(9,642		)
Incremental severance	$	18,651

(3) Includes the amortization of costs incurred and capitalized upon issuance of our notes payable, assumption of our mortgages payable and upon issuance of our term loans. The deferred financing costs are being amortized over the lives of the respective mortgages and term loans. No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included.

(4) Straight-line payments from cross-currency swaps represent quarterly payments in U.S. dollars received by us from counterparties in exchange for associated foreign currency payments. These USD payments are fixed and determinable for the duration of the associated hedging transaction.

(5) Includes adjustments allocable to noncontrolling interests, obligations related to financing lease liabilities, and foreign currency gains and losses as a result of intercompany debt and remeasurement transactions.

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We believe the non-GAAP financial measure AFFO provides useful information to investors because it is a widely accepted industry measure of the operating performance of real estate companies that is used by industry analysts and investors who look at and compare those companies. In particular, AFFO provides an additional measure to compare the operating performance of different REITs without having to account for differing depreciation assumptions and other unique revenue and expense items which are not pertinent to measuring a particular company’s on-going operating performance. Therefore, we believe that AFFO is an appropriate supplemental performance metric, and that the most appropriate GAAP performance metric to which AFFO should be reconciled is net income available to common stockholders.

Presentation of the information regarding FFO and AFFO is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and AFFO in the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and AFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as alternatives to net income as an indication of our performance. FFO and AFFO should not be considered as alternatives to reviewing our cash flows from operating, investing, and financing activities. In addition, FFO and AFFO should not be considered as measures of liquidity, our ability to make cash distributions, or our ability to pay interest payments.

IMPACT OF INFLATION

Tenant leases generally provide for limited increases in rent as a result of increases in the tenants’ sales volumes, increases in the consumer price index (typically subject to ceilings), or fixed increases. We expect that inflation will cause these lease provisions to result in rent increases over time. During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation.

Moreover, our use of net lease agreements tends to reduce our exposure to rising property expenses due to inflation because the tenant is responsible for property expenses. Inflation and increased costs may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue.

IMPACT OF NEWLY ADOPTED ACCOUNTING STANDARDS

For information on the impact of newly adopted accounting standards on our business, see note 2 of the Notes to the Consolidated Financial Statements.