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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
FORM 10-Q
ý Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019, or
o Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 1-13374
REALTY INCOME CORPORATION
(Exact name of registrant as specified in its charter)
 
Maryland
 
33-0580106
 
 
(State or Other Jurisdiction of
Incorporation or Organization)

 
(IRS Employer Identification
Number)

 
11995 El Camino Real, San Diego, California 92130
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (858) 284-5000
Securities registered pursuant to Section 12 (b) of the Act:
 
 
Name of Each Exchange
Title of Each Class
Trading Symbol(s)
On Which Registered
Common Stock, $0.01 Par Value
O
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý     No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ý   No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," “accelerated filer,” "reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x

 
Accelerated filer o

 
Non-accelerated filer o

 
Smaller reporting company o

 
 
 
 
 
 
 
Emerging growth company o

 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  ý
There were 303,814,640 shares of common stock outstanding as of April 25, 2019.


Table of Contents

REALTY INCOME CORPORATION
Index to Form 10-Q
March 31, 2019
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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PART 1. FINANCIAL INFORMATION
Item 1.    Financial Statements
REALTY INCOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
 
March 31, 2019

 
December 31, 2018

ASSETS
(unaudited)

 
 
Real estate, at cost:
 
 
 
Land
$
4,751,091

 
$
4,682,660

Buildings and improvements
12,178,429

 
11,858,806

Total real estate, at cost
16,929,520

 
16,541,466

Less accumulated depreciation and amortization
(2,809,690
)
 
(2,714,534
)
Net real estate held for investment
14,119,830

 
13,826,932

Real estate held for sale, net
22,064

 
16,585

Net real estate
14,141,894

 
13,843,517

Cash and cash equivalents
2,997

 
10,387

Accounts receivable
151,341

 
144,991

Lease intangible assets, net
1,205,147

 
1,199,597

Goodwill
14,597

 
14,630

Other assets, net
246,932

 
47,361

Total assets
$
15,762,908

 
$
15,260,483

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Distributions payable
$
69,258

 
$
67,789

Accounts payable and accrued expenses
114,225

 
133,765

Lease intangible liabilities, net
311,331

 
310,866

Other liabilities
243,591

 
127,109

Line of credit payable
838,000

 
252,000

Term loans, net
498,722

 
568,610

Mortgages payable, net
300,993

 
302,569

Notes payable, net
5,377,712

 
5,376,797

Total liabilities
7,753,832

 
7,139,505

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Common stock and paid in capital, par value $0.01 per share, 370,100,000 shares authorized, 303,807,421 shares issued and outstanding as of
March 31, 2019 and 303,742,090 shares issued and outstanding as of December 31, 2018
10,748,467

 
10,754,495

Distributions in excess of net income
(2,752,775
)
 
(2,657,655
)
Accumulated other comprehensive loss
(11,797
)
 
(8,098
)
Total stockholders’ equity
7,983,895

 
8,088,742

Noncontrolling interests
25,181

 
32,236

Total equity
8,009,076

 
8,120,978

Total liabilities and equity
$
15,762,908

 
$
15,260,483

The accompanying notes to consolidated financial statements are an integral part of these statements.

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REALTY INCOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in thousands, except per share data) (unaudited)
 
           Three Months Ended
           March 31,
 
2019

 
2018

REVENUE
 
 
 
Rental (including reimbursable)
$
354,037

 
$
317,848

Other
328

 
447

Total revenue
354,365

 
318,295

 
 
 
 
EXPENSES
 
 
 
Depreciation and amortization
137,517

 
131,103

Interest
70,020

 
59,415

General and administrative
15,108

 
15,684

Property (including reimbursable)
21,636

 
16,552

Income taxes
1,445

 
1,223

Provisions for impairment
4,672

 
14,221

Total expenses
250,398

 
238,198

Gain on sales of real estate
7,263

 
3,218

Net income
111,230

 
83,315

Net income attributable to noncontrolling interests
(288
)
 
(152
)
Net income available to common stockholders
$
110,942

 
$
83,163

 
 
 
 
Amounts available to common stockholders per common share:
 
 
 
Net income, basic and diluted
$
0.37

 
$
0.29

 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic
303,528,336

 
283,917,418

Diluted
303,819,878

 
284,345,328

 
 
 
 
Other comprehensive income:
 
 
 
Net income available to common stockholders
$
110,942

 
$
83,163

Change in fair value of interest rate swaps
(4,377
)
 
—

Amortization of interest rate swaps
678

 
—

Comprehensive income available to common stockholders
$
107,243

 
$
83,163

The accompanying notes to consolidated financial statements are an integral part of these statements.

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REALTY INCOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY 
Three Months Ended March 31, 2019 and 2018
(dollars in thousands) (unaudited)
 
 
Shares of
common
stock

 
Common
stock and
paid in
capital

 
Distributions
in excess of
net income

 
Accumulated other comprehensive loss

 
Total
stockholders’
equity

 
Noncontrolling
interests

 
Total
equity

Balance, December 31, 2017
 
284,213,685

 
$
9,624,264

 
$
(2,252,763
)
 
$
—

 
$
7,371,501

 
$
19,207

 
$
7,390,708

Net income
 
—

 
—

 
83,163

 
—

 
83,163

 
152

 
83,315

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Distributions paid and payable
 
—

 
—

 
(187,620
)
 
—

 
(187,620
)
 
(356
)
 
(187,976
)
Share issuances, net of costs
 
45,933

 
2,218

 
—

 
—

 
2,218

 
—

 
2,218

Issuance of common partnership units
 
—

 
—

 
—

 
—

 
—

 
12,144

 
12,144

Redemption of common units
 
60,000

 
1,468

 
—

 
—

 
1,468

 
(1,468
)
 
—

Share-based compensation, net
 
60,557

 
(2,750
)
 
—

 
—

 
(2,750
)
 
—

 
(2,750
)
Balance, March 31, 2018
 
284,380,175

 
$
9,625,200

 
$
(2,357,220
)
 
$
—

 
$
7,267,980

 
$
29,679

 
$
7,297,659

 
 
Shares of
common
stock

 
Common
stock and
paid in
capital

 
Distributions
in excess of
net income

 
Accumulated other comprehensive loss

 
Total
stockholders’
equity

 
Noncontrolling
interests

 
Total
equity

Balance, December 31, 2018
 
303,742,090

 
$
10,754,495

 
$
(2,657,655
)
 
$
(8,098
)
 
$
8,088,742

 
$
32,236

 
$
8,120,978

Net income
 
—

 
—

 
110,942

 
—

 
110,942

 
288

 
111,230

Other comprehensive loss
 
—

 
—

 
—

 
(3,699
)
 
(3,699
)
 
—

 
(3,699
)
Distributions paid and payable
 
—

 
—

 
(206,062
)
 
—

 
(206,062
)
 
(273
)
 
(206,335
)
Share issuances, net of costs
 
31,898

 
2,151

 
—

 
—

 
2,151

 
—

 
2,151

Issuance of common partnership units
 
—

 
—

 
—

 
—

 
—

 
6,286

 
6,286

Redemption of common units
 
—

 
(6,869
)
 
—

 
—

 
(6,869
)
 
(13,356
)
 
(20,225
)
Share-based compensation, net
 
33,433

 
(1,310
)
 
—

 
—

 
(1,310
)
 
—

 
(1,310
)
Balance, March 31, 2019
 
303,807,421

 
$
10,748,467

 
$
(2,752,775
)
 
$
(11,797
)
 
$
7,983,895

 
$
25,181

 
$
8,009,076



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REALTY INCOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands) (unaudited)
 
              Three Months Ended
              March 31,
 
2019

 
2018

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
111,230

 
$
83,315

Adjustments to net income:
 
 
 
Depreciation and amortization
137,517

 
131,103

Amortization of share-based compensation
2,764

 
3,662

Non-cash revenue adjustments
(2,116
)
 
(1,544
)
Amortization of net premiums on mortgages payable
(354
)
 
(459
)
Amortization of deferred financing costs
1,957

 
1,652

Loss (gain) on interest rate swaps
678

 
(2,007
)
Gain on sales of real estate
(7,263
)
 
(3,218
)
Provisions for impairment on real estate
4,672

 
14,221

Change in assets and liabilities
 
 
 
Accounts receivable and other assets
(6,185
)
 
(2,473
)
Accounts payable, accrued expenses and other liabilities
(30,873
)
 
(10,723
)
Net cash provided by operating activities
212,027

 
213,529

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Investment in real estate
(517,975
)
 
(498,448
)
Improvements to real estate, including leasing costs
(2,995
)
 
(8,940
)
Proceeds from sales of real estate
22,456

 
13,779

Insurance proceeds received
—

 
1,184

Collection of loans receivable
—

 
32

Non-refundable escrow deposits for pending acquisitions
—

 
(442
)
Net cash used in investing activities
(498,514
)
 
(492,835
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Cash distributions to common stockholders
(204,546
)
 
(185,556
)
Borrowings on line of credit
732,000

 
1,058,000

Payments on line of credit
(146,000
)
 
(86,000
)
Principal payment on term loan
(70,000
)
 
(125,866
)
Principal payment on notes payable
—

 
(350,000
)
Principal payments on mortgages payable
(1,235
)
 
(12,323
)
Proceeds from dividend reinvestment and stock purchase plan
2,164

 
2,346

Redemption of common units
(20,225
)
 
—

Distributions to noncontrolling interests
(321
)
 
(313
)
Other items, including shares withheld upon vesting
(4,087
)
 
(6,542
)
Net cash provided by financing activities
287,750

 
293,746

Net increase in cash, cash equivalents and restricted cash
1,263

 
14,440

Cash, cash equivalents and restricted cash, beginning of period
21,071

 
12,142

Cash, cash equivalents and restricted cash, end of period
$
22,334

 
$
26,582

For supplemental disclosures, see note 17.
The accompanying notes to consolidated financial statements are an integral part of these statements.


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Table of Contents

REALTY INCOME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(unaudited)
1.
Management Statement
The consolidated financial statements of Realty Income Corporation (“Realty Income”, the “Company”, “we”, “our” or “us”) were prepared from our books and records without audit and include all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented. Readers of this quarterly report should refer to our audited consolidated financial statements for the year ended December 31, 2018, which are included in our 2018 Annual Report on Form 10-K, as certain disclosures that would substantially duplicate those contained in the audited financial statements have not been included in this report.
At March 31, 2019 we owned 5,876 properties, located in 49 states and Puerto Rico, containing over 95.2 million leasable square feet.
2.Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements
A.  The accompanying consolidated financial statements include the accounts of Realty Income and other subsidiaries for which we make operating and financial decisions (i.e., control), after elimination of all material intercompany balances and transactions.  We consolidate entities that we control and record a noncontrolling interest for the portion that we do not own. Noncontrolling interest that was created or assumed as part of a business combination was recognized at fair value as of the date of the transaction (see note 10).  We have no unconsolidated investments.
B.  We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended. We believe we have qualified and continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income.  Assuming our dividends equal or exceed our taxable net income, we generally will not be required to pay federal corporate income taxes on such income. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of our taxable REIT subsidiaries. The income taxes recorded on our consolidated statements of income and comprehensive income represent amounts paid by Realty Income and its subsidiaries for city and state income and franchise taxes.
C.  We assign a portion of goodwill to our applicable property sales, which results in a reduction of the carrying amount of our goodwill. In order to allocate goodwill to the carrying amount of properties that we sell, we utilize a relative fair value approach based on the original methodology for assigning goodwill.  As we sell properties, our goodwill will likely continue to gradually decrease over time.
D.  In February 2016, the FASB issued ASU 2016-02 (Topic 842, Leases), which amended Topic 840, Leases. Under this amended topic, the accounting applied by a lessor is largely unchanged from that applied under Topic 840, Leases. The large majority of our leases remain classified as operating leases, and we continue to recognize lease income on a generally straight-line basis over the lease term. Although primarily a lessor, we are also a lessee under several ground lease arrangements. We adopted this standard effective as of January 1, 2019 using the effective date method, and elected the practical expedients available for implementation under the standard. As a result, we recognize lease obligations for ground leases designated as operating and financing leases with corresponding right of use assets and liabilities (see note 3). Additionally, above-market rents on certain of our leases under which we are a lessor are accounted for as financing receivables amortizing over the lease term (see note 3). Also, as a result of the adoption of this standard, tenant reimbursable revenue and property expenses are now presented on a gross basis as both tenant reimbursement revenue included in rental revenue, and as a reimbursable expense included in property expenses, respectively, on our consolidated statements of income and comprehensive income. Property taxes and insurance paid directly by the lessee to a third party will continue to be presented on a net basis. These presentation changes had no impact on our results of operations. As a result, there was no restatement of prior issued financial statements and, similarly, no cumulative effect adjustment to opening equity; however, we have elected to aggregate prior period tenant reimbursement revenue within rental revenue to be consistent with the current period presentation within the statements of income and comprehensive income.

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Table of Contents

3.Supplemental Detail for Certain Components of Consolidated Balance Sheets (dollars in thousands)
A.
Lease intangible assets, net, consist of the following at:
March 31, 2019

 
December 31, 2018

 
In-place leases
$
1,353,301

 
$
1,321,979

 
Accumulated amortization of in-place leases
(569,405
)
 
(546,573
)
 
Above-market leases
589,908

 
583,109

 
Accumulated amortization of above-market leases
(168,657
)
 
(158,918
)
 
 
$
1,205,147

 
$
1,199,597

B.
Other assets, net, consist of the following at:
March 31, 2019

 
December 31, 2018

 
Right of use asset - operating leases, net
$
128,073

 
$
—

 
Right of use asset - financing leases
36,901

 
—

 
Financing receivables
22,592

 
—

 
Prepaid expenses
16,905

 
14,695

 
Credit Facility origination costs, net
13,406

 
14,248

 
Impounds related to mortgages payable
10,256

 
9,555

 
Restricted escrow deposits
9,081

 
1,129

 
Corporate assets, net
5,538

 
5,681

 
Non-refundable escrow deposits for pending acquisitions
—

 
200

 
Other items

4,180

 
1,853

 
 
$
246,932

 
$
47,361

C.
Distributions payable consist of the following declared distributions at:
March 31, 2019

 
December 31, 2018

 
Common stock distributions
$
69,153

 
$
67,636

 
Noncontrolling interests distributions
105

 
153

 
 
$
69,258

 
$
67,789

D.
Accounts payable and accrued expenses consist of the following at:
March 31, 2019

 
December 31, 2018

 
Notes payable - interest payable
$
57,072

 
$
73,094

 
Property taxes payable
15,136

 
14,511

 
Mortgages, term loans, credit line - interest payable and interest rate swaps
12,807

 
8,597

 
Accrued costs on properties under development
7,691

 
8,137

 
Other items
21,519

 
29,426

 
 
$
114,225

 
$
133,765

E.
Lease intangible liabilities, net, consist of the following at:
March 31, 2019

 
December 31, 2018

 
Below-market leases
$
411,118

 
$
404,938

 
Accumulated amortization of below-market leases
(99,787
)
 
(94,072
)
 
 
$
311,331

 
$
310,866

F.
Other liabilities consist of the following at:
March 31, 2019

 
December 31, 2018

 
Lease liability - operating leases, net
$
129,145

 
$
—

 
Lease liability - financing leases
5,713

 
—

 
Rent received in advance and other deferred revenue
102,644

 
115,380

 
Security deposits
6,089

 
6,093

 
Capital lease obligations
—

 
5,636

 
 
$
243,591

 
$
127,109


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4.
Investments in Real Estate
We acquire land, buildings and improvements necessary for the successful operations of commercial tenants.
A.Acquisitions During the First Three Months of 2019 and 2018
During the first three months of 2019, we invested $519.5 million in 105 new properties and properties under development or expansion with an initial weighted average contractual lease rate of 6.7%. The 105 new properties and properties under development or expansion are located in 25 states, will contain approximately 2.3 million leasable square feet, and are 100% leased with a weighted average lease term of 17.0 years. The tenants occupying the new properties operate in 14 industries and the property types consist of 98.7% retail and 1.3% industrial, based on rental revenue.  None of our investments during 2019 caused any one tenant to be 10% or more of our total assets at March 31, 2019.
The $519.5 million invested during the first three months of 2019 was allocated as follows: $119.2 million to land, $345.3 million to buildings and improvements, $37.4 million to intangible assets related to leases, $22.6 million to financing receivables related to certain leases with off-market terms, and $5.0 million to intangible liabilities related to below-market leases. There was no contingent consideration associated with these acquisitions.
The properties acquired during the first three months of 2019 generated total revenues of $3.5 million and net income of $1.8 million during the three months ended March 31, 2019.
In comparison, during the first three months of 2018, we invested $509.8 million in 174 new properties and properties under development or expansion with an initial weighted average contractual lease rate of 6.2%. The 174 new properties and properties under development or expansion were located in 27 states, contained approximately 954,000 leasable square feet, and were 100% leased with a weighted average lease term of 14.0 years. The tenants occupying the new properties operated in 12 industries and were 100.0% retail properties, based on rental revenue.
The $509.8 million invested during the first three months of 2018 was allocated as follows: $209.6 million to land, $255.4 million to buildings and improvements, $57.6 million to intangible assets related to leases, and $12.8 million to intangible liabilities related to below-market leases. There was no contingent consideration associated with these acquisitions.
The properties acquired during the first three months of 2018 generated total revenues of $296,000 and a net loss of $215,000 during the three months ended March 31, 2018.
The initial weighted average contractual lease rate 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 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 weighted average contractual lease rate 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. Of the $519.5 million we invested during the first three months of 2019, $10.9 million was invested in eight properties under development or expansion with an initial weighted average contractual lease rate of 7.2%. Of the $509.8 million we invested during the first three months of 2018, $3.8 million was invested in six properties under development or expansion with an initial weighted average contractual lease rate of 6.7%.


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B.Investments in Existing Properties
During the first three months of 2019, we capitalized costs of $3.0 million on existing properties in our portfolio, consisting of $323,000 for re-leasing costs, $56,000 for recurring capital expenditures and $2.6 million for non-recurring building improvements. In comparison, during the first three months of 2018, we capitalized costs of $3.2 million on existing properties in our portfolio, consisting of $917,000 for re-leasing costs, $11,000 for recurring capital expenditures and $2.3 million for non-recurring building improvements.

C.Properties with Existing Leases
Of the $519.5 million we invested during the first three months of 2019, approximately $258.0 million was used to acquire 53 properties with existing leases. In comparison, of the $509.8 million we invested during the first three months of 2018, approximately $110.4 million was used to acquire 53 properties with existing leases. The value of the in-place and above-market leases is recorded to lease intangible assets, net on our consolidated balance sheets, and the value of the below-market leases is recorded to lease intangible liabilities, net on our consolidated balance sheets.
The values of the in-place leases are amortized as depreciation and amortization expense.  The amounts amortized to expense for all of our in-place leases, for the first three months of 2019 and 2018 were $26.0 million and $26.4 million, respectively.
The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of income and comprehensive income. The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for the first three months of 2019 and 2018 were $3.4 million and $3.9 million, respectively. If a lease was to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense, as appropriate.
The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at March 31, 2019 (in thousands):
 
Net
decrease to
rental revenue

Increase to
amortization
expense

2019
$
(13,265
)
$
75,439

2020
(17,029
)
95,907

2021
(15,832
)
87,742

2022
(14,129
)
76,138

2023
(12,715
)
65,812

Thereafter
(36,950
)
382,858

Totals
$
(109,920
)
$
783,896

5.
Credit Facility
We have a $3.25 billion unsecured revolving credit facility, or our credit facility, with an initial term that expires in March 2023 and includes, at our option, two six-month extensions. Our credit facility has a $1.0 billion expansion option. Under our credit facility, our investment grade credit ratings as of March 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 March 31, 2019, credit facility origination costs of $13.4 million are included in other assets, net on our consolidated balance sheet. These costs were being amortized over the remaining term of our credit facility.
At March 31, 2019, we had a borrowing capacity of approximately $2.2 billion available on our credit facility (subject to customary conditions to borrowing) and an outstanding balance of $838.0 million, as compared to an outstanding balance of $252.0 million at December 31, 2018.

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The weighted average interest rate on outstanding borrowings under our credit facility was 3.3% during the first three months of 2019 and 2.5% during the first three months of 2018. At March 31, 2019 and December 31, 2018, the weighted average interest rate on outstanding borrowings under our credit facility was 3.3% and 3.2%, respectively. Our credit facility is subject to various leverage and interest coverage ratio limitations, and at March 31, 2019, we were in compliance with the covenants on our credit facility.
6.
Term Loans

In October 2018, in conjunction with entering into our revolving 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%.
In June 2015, in conjunction with entering into our previous credit facility, we entered into a $250.0 million senior unsecured term loan maturing in 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%.
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 the interest rate swap's 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 born at the current one-month LIBOR, plus 0.90%. In January 2019, we paid off the outstanding principal and interest on this term loan.

Deferred financing costs of $1.2 million incurred in conjunction with the $250.0 million term loan maturing June 2020 and $1.1 million incurred in conjunction with the $250.0 million term loan maturing March 2024 are being amortized over the remaining terms of each respective term loan. The net balance of these deferred financing costs, which was $1.3 million at March 31, 2019, and $1.4 million at December 31, 2018, is included within term loans, net on our consolidated balance sheets.
7.
Mortgages Payable
During the first three months of 2019, we made $1.2 million in principal payments. During the first three months of 2018, we made $12.3 million in principal payments, including the repayment of one mortgage in full for $11.0 million. No mortgages were assumed during the first three months of 2019 or 2018. Assumed mortgages are secured by the properties on which the debt was placed and are considered non-recourse debt with limited customary exceptions for items such as solvency, bankruptcy, misrepresentation, fraud, misapplication of payments, environmental liabilities, failure to pay taxes, insurance premiums, liens on the property, violations of the single purpose entity requirements, and uninsured losses.
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 March 31, 2019, we were in compliance with these covenants.
The balance of our deferred financing costs, which are classified as part of mortgages payable, net, on our consolidated balance sheets, was $169,000 at March 31, 2019 and $183,000 at December 31, 2018. These costs are being amortized over the remaining term of each mortgage.

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The following is a summary of all our mortgages payable as of March 31, 2019 and December 31, 2018, respectively (dollars in thousands):

As Of
 
Number of
Properties (1)
 
Weighted
Average
Stated
Interest
Rate (2)

 
Weighted
Average
Effective
Interest
Rate (3)

 
Weighted
Average
Remaining
Years Until
Maturity
 
Remaining
Principal
Balance

 
Unamortized
Premium
and Deferred
Financing Costs
Balance, net

 
Mortgage
Payable
Balance

3/31/2019
 
60
 
5.1
%
 
4.6
%
 
2.9
 
$
297,142

 
$
3,851

 
$
300,993

12/31/2018
 
60
 
5.1
%
 
4.6
%
 
3.2
 
$
298,377

 
$
4,192

 
$
302,569

(1) At March 31, 2019 and December 31, 2018, there were 26 mortgages on 60 properties. The mortgages require monthly payments with principal payments due at maturity. The mortgages are at fixed interest rates, except for two mortgages on two properties totaling $23.1 million and $23.3 million at March 31, 2019 and December 31, 2018, respectively. After factoring in arrangements which limit our exposure to interest rate risk and effectively fix our per annum interest rates, our mortgage debt subject to variable rates totals $15.9 million at March 31, 2019 and $16.0 million at December 31, 2018.
(2) Stated interest rates ranged from 3.8% to 6.9% at March 31, 2019 and December 31, 2018.
(3) Effective interest rates ranged from 0.4% to 7.7% at March 31, 2019, while effective interest rates ranged from 1.1% to 7.7% at December 31, 2018.
The following table summarizes the maturity of mortgages payable, excluding net premiums of $4.0 million and deferred financing costs of $169,000, as of March 31, 2019 (dollars in millions):
Year of Maturity
 
Principal

2019
 
$
19.4

2020
 
82.4

2021
 
67.0

2022
 
109.7

2023
 
6.7

Thereafter
 
11.9

Totals
 
$
297.1

8.
Notes Payable
A.General
The total principal amount of our senior unsecured notes and bonds consists of the following, sorted by maturity date (dollars in millions), at March 31, 2019 and December 31, 2018, and excludes net unamortized original issuance premiums and deferred financing costs of $22.2 million at March 31, 2019 and $23.2 million at December 31, 2018:
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

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
 
$
5,400


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The following table summarizes the maturity of our notes and bonds payable as of March 31, 2019, excluding net unamortized original issuance premiums and deferred financing costs (dollars in millions):
Year of Maturity
 
Principal

2021
 
$
250

2022
 
950

2023
 
750

Thereafter
 
3,450

Totals
 
$
5,400

As of March 31, 2019, the weighted average interest rate on our notes and bonds payable was 4.0% and the weighted average remaining years until maturity was 8.5 years.
B.Note Repayment
In January 2018, we repaid our $350.0 million of outstanding 2.000% notes, plus accrued and unpaid interest upon maturity.
9.
Issuances of Common Stock
A.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.  During the first three months of 2019, we issued 31,898 shares and raised approximately $2.2 million under our DRSPP.  During the first three months of 2018, we issued 45,933 shares and raised approximately $2.3 million under our DRSPP.  From the inception of our DRSPP through March 31, 2019, we have issued 14,261,708 shares and raised approximately $673.1 million.
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 first three months of 2019 or 2018.
B.    At-the-Market (ATM) Programs
Under our "at-the-market" equity distribution plan, or our ATM program, 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. Our ATM program authorizes up to 28,961,855 common shares to be issued. We did not issue any shares under the ATM program during the first three months of 2019 or 2018. From the inception of our current and prior ATM programs through March 31, 2019, we have issued 33,546,139 shares and raised $2.0 billion. At March 31, 2019, we had 20,453,861 shares remaining for future issuance under our ATM program.
10.    Noncontrolling Interests
In January 2013, we completed our acquisition of ARCT.  Equity issued as consideration for this transaction included common and preferred partnership units issued by Tau Operating Partnership, L.P., or Tau Operating Partnership, the consolidated subsidiary which owns properties acquired through the ARCT acquisition. In January 2019, we redeemed all 317,022 remaining common units of Tau Operating Partnership for cash, and paid off the outstanding balance and interest on the $70.0 million senior unsecured term loan entered in January 2013 in conjunction with our acquisition of ARCT. Following the redemption, we hold 100% of the ownership interests of Tau Operating Partnership and continue to consolidate the entity. As part of this transaction, our taxable REIT subsidiary, Crest Net Lease, obtained a 0.11% interest in Tau Operating Partnership.
In June 2013, we completed the acquisition of a portfolio of properties by issuing common partnership units in Realty Income, L.P. as consideration for the acquisition. Additionally, in March 2019 and in March and April 2018, we completed the acquisitions of additional properties, by paying both cash and by issuing additional common partnership units in Realty Income, L.P as consideration for the acquisitions. At March 31, 2019, the remaining units from these issuances represent a 1.9% ownership in Realty Income, L.P.  We hold the remaining 98.1% interests in this entity and consolidate the entity.

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Neither of the common partnership units have voting rights. Both common partnership units are entitled to monthly distributions equal to the amount paid to common stockholders of Realty Income, and are redeemable in cash or Realty Income common stock, at our option, and at a conversion ratio of one to one, subject to certain exceptions.  Noncontrolling interests with redemption provisions that permit the issuer to settle in either cash or common stock, at the option of the issuer, were evaluated to determine whether temporary or permanent equity classification on the balance sheet was appropriate.  We determined that the units meet the requirements to qualify for presentation as permanent equity.
In 2016, we completed the acquisition of two properties by acquiring a controlling interest in two separate entities. In December 2018, we acquired all of the outstanding minority ownership interests associated with one of these entities. We are the managing member of the remaining entity, and possess the ability to control the business and manage the affairs of the entity. At March 31, 2019, we and our subsidiaries held a 95.0% interest in the remaining entity, which is fully consolidated into our consolidated financial statements.
The following table represents the change in the carrying value of all noncontrolling interests through March 31, 2019 (dollars in thousands):
 
Tau Operating
Partnership units(1)

 
Realty Income, L.P.
units(2)

 
Other
Noncontrolling
Interests

 
Total

Carrying value at December 31, 2018
$
13,356

 
$
17,912

 
$
968

 
$
32,236

Redemptions
(13,356
)
 
—

 
—

 
(13,356
)
Shares issued in conjunction with acquisition
—

 
6,286

 
—

 
6,286

Distributions
—

 
(273
)
 
—

 
(273
)
Allocation of net income
—

 
284

 
4

 
288

Carrying value at March 31, 2019
$
—

 
$
24,209

 
$
972

 
$
25,181

(1) 317,022 Tau Operating Partnership units were issued on January 22, 2013. No shares remained outstanding as of March 31, 2019, and 317,022 shares remained outstanding as of December 31, 2018.
(2) 534,546 Realty Income, L.P. units were issued on June 27, 2013, 242,007 units were issued on March 30, 2018, 131,790 units were issued on April 30, 2018, and 89,322 units were issued on March 28, 2019. 463,119 and 373,797 remained outstanding as of March 31, 2019 and December 31, 2018, respectively.
At December 31, 2018, Tau Operating Partnership, Realty Income, L.P., and an entity acquired during 2016 were considered variable interest entities, or VIEs, in which we were deemed the primary beneficiary based on our controlling financial interests. In January 2019, we redeemed all 317,022 remaining Tau Operating Partnership units held by nonaffiliates for $20.2 million and recorded the excess over carrying value of $6.9 million as a reduction to common stock and paid in capital. Following the redemption, we hold 100% of the ownership interests of Tau Operating Partnership, L.P., and continue to consolidate the entity. At March 31, 2019, Realty Income, L.P. and the entity acquired during 2016 were considered VIEs. Below is a summary of selected financial data of consolidated VIEs at March 31, 2019  and December 31, 2018 (in thousands):
 
March 31, 2019

 
December 31, 2018

Net real estate
$
653,232

 
$
2,903,093

Total assets
752,993

 
3,259,495

Total debt
15,897

 
191,565

Total liabilities
102,498

 
320,800

11.    Fair Value of Financial Instruments
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure for assets and liabilities measured at fair value requires allocation to a three-level valuation hierarchy. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
We believe that the carrying values reflected in our consolidated balance sheets reasonably approximate the fair values for cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, line of credit

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payable, term loans and all other liabilities, due to their short-term nature or interest rates and terms that are consistent with market, except for our mortgages payable assumed in connection with acquisitions and our senior notes and bonds payable, which are disclosed as follows (dollars in millions):
March 31, 2019
Carrying value

 
Estimated fair value

Mortgages payable assumed in connection with acquisitions (1)
$
297.1

 
$
306.8

Notes and bonds payable (2)
5,400.0

 
5,632.7

December 31, 2018
Carrying value

 
Estimated fair value

Mortgages payable assumed in connection with acquisitions (1)
$
298.4

 
$
305.7

Notes and bonds payable (2)
5,400.0

 
5,430.0

(1) 
Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums was $4.0 million at March 31, 2019, and $4.4 million at December 31, 2018. Also excludes deferred financing costs of $169,000 at March 31, 2019 and $183,000 at December 31, 2018.
(2) 
Excludes non-cash original issuance premiums and discounts recorded on notes payable. The unamortized balance of the net original issuance premiums was $10.3 million at March 31, 2019, and $10.5 million at December 31, 2018. Also excludes deferred financing costs of $32.5 million at March 31, 2019 and $33.7 million at December 31, 2018.
The estimated fair values of our mortgages payable assumed in connection with acquisitions have been calculated by discounting the future cash flows using an interest rate based upon the relevant forward interest rate curve, plus an applicable credit-adjusted spread.  Because this methodology includes unobservable inputs that reflect our own internal assumptions and calculations, the measurement of estimated fair values related to our mortgages payable is categorized as level three on the three-level valuation hierarchy.
The estimated fair values of our senior notes and bonds payable are based upon indicative market prices and recent trading activity of our senior notes and bonds payable. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values, related to our notes and bonds payable, is categorized as level two on the three-level valuation hierarchy.
We record interest rate swaps on the consolidated balance sheet at fair value. Prior to our adoption of hedge accounting during October 2018, the change in fair value of interest rate swaps was recognized through interest expense. Following adoption, changes to fair value are recorded to accumulated other comprehensive income, or AOCI. At March 31, 2019 and December 31, 2018, interest rate swaps in a liability position valued at $10.4 million and $7.0 million, respectively, were included in accounts payable and accrued expenses and interest rate swaps in an asset position valued at $1.9 million and $3.0 million, respectively, were included in other assets, net on the consolidated balance sheet. The fair value of our interest rate swaps are based on valuation techniques including discounted cash flow analysis on the expected cash flows of each swap, using both observable and unobservable market-based inputs, including interest rate curves. Because this methodology uses observable and unobservable inputs, and the unobservable inputs are not significant to the fair value measurement, the measurement of interest rate swaps is categorized as level two on the three-level valuation hierarchy.
Unrealized gains and losses in AOCI are reclassified to interest expense when the related hedged items are recognized. During the first three months of 2019, we reclassified $678,000 from AOCI into interest expense. We did not reclassify any unrealized gains or losses from AOCI to interest expense during the first three months of 2018. We expect to reclassify $2.8 million from AOCI into interest expense within the next twelve months.
12.     Operating Leases
 
A.      At March 31, 2019, we owned 5,876 properties in 49 states and Puerto Rico. Of the 5,876 properties, 5,847, or 99.5%, are single-tenant properties, and the remaining are multi-tenant properties. At March 31, 2019, 102 properties were available for lease or sale.
 
Substantially all of our leases are net leases where the tenant pays or reimburses us for property taxes and assessments, maintains the interior and exterior of the building and leased premises, and carries insurance coverage for public liability, property damage, fire and extended coverage.
 
Rent based on a percentage of a tenants’ gross sales (or percentage rents) for the first three months of 2019 and 2018 was $3.6 million and $3.3 million, respectively.

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At March 31, 2019, minimum future annual rents to be received on the operating leases for the next five years and thereafter are as follows (dollars in thousands):
2019
$
1,003,897

2020
1,310,769

2021
1,261,972

2022
1,193,221

2023
1,109,269

Thereafter
7,195,770

Total
$
13,074,898

 
B.      Major Tenants - No individual tenant’s rental revenue, including percentage rents, represented more than 10% of our total revenue for each of the three months ended March 31, 2019 or 2018.
13.    Gain on Sales of Real Estate
During the first three months of 2019, we sold 19 properties for $22.5 million, which resulted in a gain of $7.3 million. During the first three months of 2018, we sold 14 properties for $13.8 million, which resulted in a gain of $3.2 million.
14.    Impairments
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A provision is made for impairment if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property. Key factors that we utilize in this analysis include projected rental rates, estimated holding periods, historical sales and re-leases, capital expenditures and property sales capitalization rates. If a property is classified as held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell, and depreciation of the property ceases.
For the first three months of 2019, we recorded total provisions for impairment of $4.7 million on three properties classified as held for sale and four sold properties. For the first three months of 2018, we recorded total provisions for impairment of $14.2 million on nine sold properties and one property held for investment.
15.    Distributions Paid and Payable
We pay monthly distributions to our common stockholders. The following is a summary of monthly distributions paid per common share for the first three months of 2019 and 2018:
Month
2019

 
2018

January
$
0.2210

 
$
0.2125

February
0.2255

 
0.2190

March
0.2255

 
0.2190

Total
$
0.6720

 
$
0.6505

At March 31, 2019, a distribution of $0.226 per common share was payable and was paid in April 2019.
16.    Net Income per Common Share
Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted net income per common share is computed by dividing net income available to common stockholders, plus income attributable to dilutive shares and convertible common units, for the period by the weighted average number of common shares that would have been outstanding assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period.
The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation.

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             Three months ended
             March 31,
 
2019

 
2018

Weighted average shares used for the basic net income per share computation
303,528,336

 
283,917,418

Incremental shares from share-based compensation
291,542

 
110,888

Weighted average partnership common units convertible to common shares that were dilutive
—

 
317,022

Weighted average shares used for diluted net income per share computation
303,819,878

 
284,345,328

Unvested shares from share-based compensation that were anti-dilutive
30,060

 
24,329

Weighted average partnership common units convertible to common shares that were anti-dilutive
377,767

 
54,227

17.    Supplemental Disclosures of Cash Flow Information
Cash paid for interest was $82.2 million in the first three months of 2019 and $71.9 million in the first three months of 2018.
Interest capitalized to properties under development was $175,000 in the first three months of 2019 and $57,000 in the first three months of 2018.
Cash paid for income taxes was $1.7 million in the first three months of 2019 and $403,000 in the first three months of 2018.
The following non-cash activities are included in the accompanying consolidated financial statements:
A. As a result of the adoption of ASU 2016-02, we recorded $132.0 million of lease liabilities and related right of use assets as lessee under operating leases during the first three months of 2019.
B. During the first three months of 2019, we issued 89,322 common partnership units of Realty Income, L.P. totaling $6.3 million, as partial consideration for an acquisition of properties.
C. During the first three months of 2018, we issued 242,007 common partnership units of Realty Income, L.P. totaling $12.1 million, as partial consideration for an acquisition of properties.
Per the requirements of ASU 2016-18 (Topic 230, Statement of Cash Flows), the following table provides a reconciliation of cash and cash equivalents reported within the consolidated balance sheets to the total of the cash, cash equivalents and restricted cash reported within the consolidated statements of cash flows:
 
March 31, 2019

 
March 31, 2018

Cash and cash equivalents shown in the consolidated balance sheets
$
2,997

 
$
20,627

Restricted escrow deposits (1)
9,081

 
32

Impounds related to mortgages payable (1)
10,256

 
5,923

Total cash, cash equivalents, and restricted cash shown in the consolidated
statements of cash flows
$
22,334

 
$
26,582

(1)  Included within other assets, net on the consolidated balance sheets (see note 3). These amounts consist of cash that we are legally entitled to but, that is not immediately available to us. As a result, these amounts were considered restricted as of the dates presented.

18.    Segment Information
We evaluate performance and make resource allocation decisions on an industry by industry basis. For financial reporting purposes, we have grouped our tenants into 48 activity segments. All of the properties are incorporated into one of the applicable segments. Because almost all of our leases require the tenant to pay operating expenses, rental revenue is the only component of segment profit and loss we measure.

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The following tables set forth certain information regarding the properties owned by us, classified according to the business of the respective tenants (dollars in thousands):
Assets, as of:
March 31, 2019

 
December 31, 2018

Segment net real estate:
 
 
 
Automotive service
$
253,730

 
$
210,668

Automotive tire services
236,547

 
238,939

Beverages
282,536

 
284,910

Child care
179,267

 
151,640

Convenience stores
1,742,539

 
1,756,732

Dollar stores
1,133,683

 
1,117,250

Drug stores
1,476,192

 
1,490,261

Financial services
410,060

 
414,613

General merchandise
315,593

 
317,424

Grocery stores
834,051

 
774,526

Health and fitness
1,001,191

 
882,515

Home improvement
464,595

 
424,494

Motor vehicle dealerships
212,941

 
198,204

Restaurants-casual dining
550,063

 
559,616

Restaurants-quick service
965,007

 
964,980

Theaters
583,252

 
555,990

Transportation services
752,983

 
758,133

Wholesale club
408,961

 
412,203

Other non-reportable segments
2,338,703

 
2,330,419

Total segment net real estate
14,141,894

 
13,843,517

Intangible assets:
 
 
 
Automotive service
60,964

 
61,951

Automotive tire services
8,289

 
8,696

Beverages
1,701

 
1,765

Child care
16,189

 
12,277

Convenience stores
108,993

 
108,714

Dollar stores
50,416

 
48,842

Drug stores
162,099

 
165,558

Financial services
19,561

 
20,426

General merchandise
43,731

 
43,122

Grocery stores
152,867

 
144,551

Health and fitness
68,530

 
71,609

Home improvement
65,078

 
57,928

Motor vehicle dealerships
28,834

 
28,154

Restaurants-casual dining
17,729

 
18,153

Restaurants-quick service
55,364

 
54,448

Theaters
31,014

 
25,811

Transportation services
70,609

 
73,577

Wholesale club
25,706

 
26,484

Other non-reportable segments
217,473

 
227,531

Goodwill:
 
 
 
Automotive service
437

 
437

Automotive tire services
862

 
862

Child care
4,852

 
4,863

Convenience stores
1,983

 
1,983

Restaurants-casual dining
1,825

 
1,841

Restaurants-quick service
1,046

 
1,052

Other non-reportable segments
3,592

 
3,592

Other corporate assets
401,270

 
202,739

Total assets
$
15,762,908

 
$
15,260,483


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        Three months ended
        March 31,
Revenue
2019

 
2018

Segment rental revenue:
 
 
 
Automotive service
$
7,213

 
$
7,009

Automotive tire services
7,777

 
7,439

Beverages
7,915

 
7,836

Child care
7,827

 
5,672

Convenience stores
41,214

 
28,000

Dollar stores
24,986

 
23,250

Drug stores
33,170

 
32,242

Financial services
7,718

 
7,020

General merchandise
6,911

 
6,870

Grocery stores
16,124

 
15,665

Health and fitness
26,225

 
23,444

Home improvement
9,815

 
9,244

Motor vehicle dealerships
7,348

 
7,311

Restaurants-casual dining
11,290

 
10,948

Restaurants-quick service
21,730

 
16,249

Theaters
17,656

 
17,770

Transportation services
16,026

 
15,786

Wholesale club
9,593

 
9,532

Other non-reportable segments and tenant reimbursements
73,499

 
66,561

Rental (including reimbursable)
354,037

 
317,848

Other
328

 
447

Total revenue
$
354,365

 
$
318,295

19.    Common Stock Incentive Plan
In 2012, our Board of Directors adopted and stockholders approved the Realty Income Corporation 2012 Incentive Award Plan, or the 2012 Plan, to enable us to motivate, attract and retain the services of directors and employees considered essential to our long-term success. The 2012 Plan offers our directors and employees an opportunity to own our stock or rights that will reflect our growth, development and financial success. Under the terms of the 2012 plan, the aggregate number of shares of our common stock subject to options, restricted stock, stock appreciation rights, restricted stock units and other awards, will be no more than 3,985,734 shares. The 2012 Plan has a term of ten years from the date it was adopted by our Board of Directors.
The amount of share-based compensation costs recognized in general and administrative expense on our consolidated statements of income was $2.8 million during the first three months of 2019 and $3.7 million during the first three months of 2018.
A.Restricted Stock
During the first three months of 2019, we granted 46,527 shares of common stock under the 2012 Plan. These shares vest over a four-year service period.
As of March 31, 2019, the remaining unamortized share-based compensation expense related to restricted stock totaled $13.8 million, which is being amortized on a straight-line basis over the service period of each applicable award. The amount of share-based compensation is based on the fair value of the stock at the grant date. We define the grant date as the date the recipient and Realty Income have a mutual understanding of the key terms and conditions of the award, and the recipient of the grant begins to benefit from, or be adversely affected by, subsequent changes in the price of the shares.

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B.Performance Shares and Restricted Stock Units
During the first three months of 2019, we granted 115,137 performance shares, as well as dividend equivalent rights, to our executive officers. The performance shares are earned based on our Total Shareholder Return (TSR) performance relative to select industry indices and peer groups as well as achievement of certain operating metrics, and vest 50% on the first and second January 1 after the end of the three-year performance period, subject to continued service.
During the first three months of 2019, we also granted 5,482 restricted stock units, all of which vest over a four-year service period. These restricted stock units have the same economic rights as shares of restricted stock.
As of March 31, 2019, the remaining share-based compensation expense related to the performance shares and restricted stock units totaled $13.8 million.  The fair value of the performance shares were estimated on the date of grant using a Monte Carlo Simulation model. The performance shares are being recognized on a tranche-by-tranche basis over the service period. The amount of share-based compensation for the restricted stock units is based on the fair value of our common stock at the grant date. The restricted stock units are being recognized on a straight-line basis over the service period.
20.    Commitments and Contingencies
In the ordinary course of business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated financial position or results of operations.
At March 31, 2019, we had commitments of $9.6 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements. In addition, as of March 31, 2019, we had committed $23.6 million under construction contracts, which is expected to be paid in the next twelve months.

We have certain properties that are subject to ground leases which are accounted for as operating leases. At March 31, 2019, minimum future rental payments for the next five years and thereafter are as follows (dollars in millions):
 
 
     Ground Leases
Paid by
Realty Income (1)
 
     Ground Leases
Paid by
Our Tenants (2)
 
Total

2019
 
$
1.2

 
$
10.1

 
$
11.3

2020
 
1.5

 
13.5

 
15.0

2021
 
1.3

 
13.2

 
14.5

2022
 
1.2

 
13.1

 
14.3

2023
 
1.3

 
13.1

 
14.4

Thereafter
 
19.8

 
82.1

 
101.9

Total
 
$
26.3

 
$
145.1

 
$
171.4

Present value adjustment for remaining lease payments (3)
 
 
 
 
 
(42.3
)
Lease liability - operating leases, net
 
 
 
 
 
$
129.1

(1) 
Realty Income currently pays the ground lessors directly for the rent under the ground leases.
(2) 
Our tenants, who are generally sub-tenants under the ground leases, are responsible for paying the rent under these ground leases.  In the event a tenant fails to pay the ground lease rent, we are primarily responsible for the rent payment.
(3) The range of discount rates used to calculate the present value the lease payments is 3.09% to 5.37%. At March 31, 2019, the weighted average discount rate is 4.28% and the weighted average remaining lease term is 12.8 years. The discount rates are derived using a hypothetical corporate credit curve for the ground leases based on our outstanding senior notes and relevant market data. The discount rates on January 1, 2019 are specific for individual leases primarily based on the lease term.
21.    Subsequent Events
In April 2019, we declared a dividend of $0.226 per share to our common stockholders, which will be paid in May 2019.


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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the documents incorporated by reference, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. When used in this quarterly report, the words “estimated”, “anticipated”, “expect”, “believe”, “intend” and similar expressions are intended to identify forward-looking statements. Forward-looking statements include discussions of strategy, plans, or intentions of management. Forward-looking statements are subject to risks, uncertainties, and assumptions about Realty Income Corporation, including, among other things:
•
Our anticipated growth strategies;
•
Our intention to acquire additional properties and the timing of these acquisitions;
•
Our intention to sell properties and the timing of these property sales;
•
Our intention to re-lease vacant properties;
•
Anticipated trends in our business, including trends in the market for long-term, net leases of freestanding, single-tenant properties; and
•
Future expenditures for development projects.
Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. In particular, some of the factors that could cause actual results to differ materially are:
•
Our continued qualification as a real estate investment trust;
•
General local and foreign business and economic conditions;
•
Competition;
•
Fluctuating interest rates;
•
Access to debt and equity capital markets;
•
Continued volatility and uncertainty in the credit markets and broader financial markets;
•
Other risks inherent in the real estate business including tenant defaults, potential liability relating to environmental matters, illiquidity of real estate investments, and potential damages from natural disasters;
•
Impairments in the value of our real estate assets;
•
Changes in the tax laws of the United States of America;
•
The outcome of any legal proceedings to which we are a party or which may occur in the future; and
•
Acts of terrorism and war.
Additional factors that may cause risks and uncertainties include those discussed in the sections entitled “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2018.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that this quarterly report was filed with the Securities and Exchange Commission, or SEC.  While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, the forward-looking events discussed in this quarterly report might not occur.
THE COMPANY
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 regional and national commercial tenants.
Realty Income was founded in 1969, and listed on the New York Stock Exchange (NYSE: O) in 1994.  Over the past 50 years, Realty Income has been acquiring and managing freestanding commercial properties that generate rental revenue under long-term net lease agreements. The company is a member of the S&P High Yield Dividend Aristocrats® index for having increased its dividend every year for more than 21 consecutive years.

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At March 31, 2019, we owned a diversified portfolio:
•
Of 5,876 properties;
•
With an occupancy rate of 98.3%, or 5,774 properties leased and 102 properties available for lease;
•
Leased to 261 different commercial tenants doing business in 48 separate industries;
•
Located in 49 states and Puerto Rico;
•
With over 95.2 million square feet of leasable space; and
•
With an average leasable space per property of approximately 16,205 square feet; approximately 11,422 square feet per retail property and 229,100 square feet per industrial property.
Of the 5,876 properties in the portfolio, 5,847, or 99.5%, are single-tenant properties, and the remaining are multi-tenant properties. At March 31, 2019, of the 5,847 single-tenant properties, 5,748 were leased with a weighted average remaining lease term (excluding rights to extend a lease at the option of the tenant) of approximately 9.2 years.
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 tenants for recoverable real estate taxes and operating expenses totaling $17.3 million for the first three months of 2019 and $11.3 million for the first three months of 2018.
Investment Philosophy
We believe that owning an actively managed, diversified portfolio of primarily single-tenant commercial properties under long-term, net lease agreements produces consistent and predictable income. A net lease typically requires the tenant to be responsible for monthly rent and certain property operating expenses including property taxes, insurance, and maintenance. In addition, tenants of our properties typically pay rent increases based on: (1) increases in the consumer price index (typically subject to ceilings), (2) fixed increases, or (3) additional rent calculated as a percentage of the tenants’ gross sales above a specified level. We believe that a portfolio of properties under long-term, net lease agreements generally produces a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income.
Diversification is also a key component of our investment philosophy.  We believe that diversification of the portfolio by tenant, industry, geography, and, to a certain extent, property type leads to more consistent and predictable income for our stockholders by reducing vulnerability that can come with any single concentration.  Our investment activities have led to a diversified property portfolio that, as of March 31, 2019, consisted of 5,876 properties located in 49 states and Puerto Rico, leased to 261 different commercial tenants doing business in 48 industries. Each of the 48 industries represented in our property portfolio accounted for no more than 12.2% of our rental revenue for the quarter ended March 31, 2019.
Investment Strategy
When identifying new properties for investment, we generally focus on acquiring high-quality real estate that tenants consider important to the successful operation of their business. We generally seek to acquire real estate that has the following characteristics:
•
Properties that are freestanding, commercially-zoned with a single tenant;
•
Properties that are in significant markets or strategic locations critical to generating revenue for our tenants (i.e. they need the property in which they operate in order to conduct their business);
•
Properties that we deem to be profitable for the tenants and/or can generally be characterized as important to the successful operations of the company’s business;
•
Properties that are located within attractive demographic areas relative to the business of our tenants, generally fungible, and have good visibility and easy access to major thoroughfares;
•
Properties with real estate valuations that approximate replacement costs;
•
Properties with rental or lease payments that approximate market rents; and
•
Properties that can be purchased with the simultaneous execution or assumption of long-term, net lease agreements, offering both current income and the potential for future rent increases.
We seek to invest in industries in which several well-organized tenants are capturing market share through the selection of prime real estate locations supported by superior service, quality control, economies of scale, consumer branding, and advertising. In addition, we frequently acquire large portfolios of single-tenant properties net leased to

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different tenants operating in a variety of industries.  We have an internal team dedicated to sourcing such opportunities, often using our relationships with various tenants, owners/developers, brokers, and advisers to uncover and secure transactions.  We also undertake thorough research and analysis to identify what we consider to be appropriate property locations, tenants, and industries for investment. This research expertise is instrumental to uncovering net lease opportunities in markets where we believe we can add value.
In selecting potential investments, we look for tenants with the following attributes:
•
Tenants with reliable and sustainable cash flow;
•
Tenants with revenue and cash flow from multiple sources;
•
Tenants that are willing to sign a long-term lease (10 or more years); and
•
Tenants that are large owners and users of real estate.
From a retail perspective, our investment strategy is to target tenants that have a service, non-discretionary, and/or low-price-point component to their business.  We believe these characteristics better position tenants to operate in a variety of economic conditions and to compete more effectively with internet retailers.  As a result of the execution of this strategy, approximately 95% of our annualized retail rental revenue at March 31, 2019 is derived from tenants with a service, non-discretionary, and/or low price point component to their business.  From a non-retail perspective, we target industrial properties leased to industry leaders that are primarily investment grade rated companies.  We believe these characteristics enhance the stability of the rental revenue generated from these properties.
After applying this investment strategy, we pursue those transactions where we can achieve an attractive investment spread over our cost of capital and favorable risk-adjusted returns. We will continue to evaluate all investments for consistency with our objective of owning net lease assets.
Underwriting Strategy
In order to be considered for acquisition, properties must meet stringent underwriting requirements. We have established a four-part analysis that examines each potential investment based on:
•
The aforementioned overall real estate characteristics, including demographics, replacement cost and comparative rental rates;
•
Industry, tenant (including credit profile), and market conditions;
•
Store profitability for retail locations if profitability data is available; and
•
The importance of the real estate location to the operations of the tenants’ business.
We believe the principal financial obligations for most of our tenants typically include their bank and other debt, payment obligations to suppliers, and real estate lease obligations. Because we typically own the land and building in which a tenant conducts its business or which are critical to the tenant’s ability to generate revenue, we believe the risk of default on a tenant’s lease obligation is less than the tenant’s unsecured general obligations. It has been our experience that tenants must retain their profitable and critical locations in order to survive. Therefore, in the event of reorganization, they are less likely to reject a lease of a profitable or critical location because this would terminate their right to use the property.
Thus, as the property owner, we believe that we will fare better than unsecured creditors of the same tenant in the event of reorganization. If a property is rejected by the tenant during reorganization, we own the property and can either lease it to a new tenant or sell the property. In addition, we believe that the risk of default on real estate leases can be further mitigated by monitoring the performance of the tenants’ individual locations and considering whether to proactively sell locations that meet our criteria for disposition.
Prior to entering into any transaction, our research department conducts a review of a tenant’s credit quality.  The information reviewed may include reports and filings, including any public credit ratings, financial statements, debt and equity analyst reports, and reviews of corporate credit spreads, stock prices, market capitalization, and other financial metrics.  We conduct additional due diligence, including additional financial reviews of the tenant and a more comprehensive review of the business segment and industry in which the tenant operates.  We continue to monitor our tenants’ credit quality on an ongoing basis by reviewing the available information previously discussed, and providing summaries of these findings to management. Approximately 51% of our annualized rental revenue comes from properties leased to investment grade rated companies or their subsidiaries. At March 31, 2019, our top 20 tenants represented approximately 54% of our annualized revenue and 12 of these tenants have investment grade credit ratings or are subsidiaries of investment grade companies.

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Asset Management Strategy
In addition to pursuing new properties for investment, we seek to increase earnings and distributions to stockholders through active asset management.
Generally, our asset management efforts seek to achieve: 
•
Rent increases at the expiration of existing leases, when market conditions permit;
•
Optimum exposure to certain tenants, industries, and markets through re-leasing vacant properties and selectively selling properties;
•
Maximum asset-level returns on properties that are re-leased or sold;
•
Additional value creation from the existing portfolio by enhancing individual properties, pursuing alternative uses, and deriving ancillary revenue; and
•
Investment opportunities in new asset classes for the portfolio.
We continually monitor our portfolio for any changes that could affect the performance of our tenants, our tenants’ industries, and the real estate locations in which we have invested.  We also regularly analyze our portfolio with a view towards optimizing its returns and enhancing its overall credit quality.  Our active asset management strategy pursues asset sales when we believe the reinvestment of the sale proceeds will:
•
Generate higher returns;
•
Enhance the credit quality of our real estate portfolio;
•
Extend our average remaining lease term; and/or
•
Strategically decrease tenant, industry, or geographic concentration.
At March 31, 2019, we classified 17 properties with a carrying amount of $22.1 million as held for sale on our balance sheet. For the remainder of 2019, we intend to continue our active disposition efforts to further enhance our real estate portfolio and anticipate reaching approximately $75 to $100 million in annual property sales.  We plan to invest these proceeds into new property acquisitions, if there are attractive opportunities available. However, we cannot guarantee that we will sell properties during the remainder of 2019 at our estimated values or be able to invest the property sale proceeds in new properties.
The active management of the portfolio is an essential component of our long-term strategy of maintaining high occupancy. Since 1970, our occupancy rate at the end of each year has never been below 96%.  However, we cannot assure you that our future occupancy levels will continue to equal or exceed 96%.
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.
RECENT DEVELOPMENTS
Increases in Monthly Dividends to Common Stockholders
We have continued our 50-year policy of paying monthly dividends. In addition, we increased the dividend three times during 2019. As of April 2019, we have paid 86 consecutive quarterly dividend increases and increased the dividend 101 times since our listing on the NYSE in 1994.
2019 Dividend increases
Month
Declared
Month
Paid
Dividend
per share

Increase
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

The dividends paid per share during the first three months of 2019 totaled approximately $0.672, as compared to approximately $0.651 during the first three months of 2018, an increase of $0.021, or 3.2%.
The monthly dividend of $0.226 per share represents a current annualized dividend of $2.712 per share, and an annualized dividend yield of approximately 3.7% based on the last reported sale price of our common stock on the NYSE of $73.56 on March 31, 2019. Although we expect to continue our policy of paying monthly dividends, we

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cannot guarantee that we will maintain our current level of dividends, that we will continue our pattern of increasing dividends per share, or what our actual dividend yield will be in any future period.
Acquisitions During the First Three Months of 2019
During the first three months of 2019, we invested $519.5 million in 105 new properties and properties under development or expansion with an initial weighted average contractual lease rate of 6.7%. The 105 new properties and properties under development or expansion are located in 25 states, will contain approximately 2.3 million leasable square feet, and are 100% leased with a weighted average lease term of 17.0 years. The tenants occupying the new properties operate in 14 industries and the property types are 98.7% retail and 1.3% industrial, based on rental revenue. None of our investments during the first three months of 2019 caused any one tenant to be 10% or more of our total assets at March 31, 2019.

The initial weighted average contractual lease rate 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 weighted average contractual lease rate 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. Of the $519.5 million we invested during the first three months of 2019, $10.9 million was invested in eight properties under development or expansion with an initial weighted average contractual lease rate of 7.2%.  We may continue to pursue development or expansion opportunities under similar arrangements in the future.
Portfolio Discussion
 
Leasing Results
At March 31, 2019, we had 102 properties available for lease out of 5,876 properties in our portfolio, which represents a 98.3% occupancy rate based on the number of properties in our portfolio. Since December 31, 2018, when we reported 80 properties available for lease out of 5,797 and a 98.6% occupancy rate, we:
•
Had 108 lease expirations;
•
Re-leased 71 properties; and
•
Sold 15 vacant properties.
Of the 71 properties re-leased during the first three months of 2019, 66 properties were re-leased to existing tenants, four were re-leased to new tenants without vacancy, and one was re-leased to a new tenant after a period of vacancy.  The annual rent on these 71 leases was $17.8 million, as compared to the previous rent on these same properties of $17.0 million, which represents a rent recapture rate of 104.7% on the properties re-leased during the first three months of 2019.
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.
At March 31, 2019, our average annualized rental revenue was approximately $14.38 per square foot on the 5,774 leased properties in our portfolio.  At March 31, 2019, we classified 17 properties with a carrying amount of $22.1 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 the first three months of 2019, we capitalized costs of $3.0 million on existing properties in our portfolio, consisting of $323,000 for re-leasing costs, $56,000 for recurring capital expenditures, and $2.6 million for non-recurring building improvements. In the first three months of 2018, we capitalized costs of $3.2 million on existing

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properties in our portfolio, consisting of $917,000 for re-leasing costs, $11,000 for recurring capital expenditures, and $2.3 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 recurring landlord capital expenditure obligations that have a limited useful life. We define non-recurring capital expenditures as property improvements in which we invest additional capital that extend the useful life of the properties.
Tau Operating Partnership Buyout and Term Loan Payoff
In January 2019, we redeemed all of the 317,022 remaining common units of Tau Operating Partnership, L.P. held by nonaffiliates for cash. Following the redemption, we hold 100% of the ownership interests of Tau Operating Partnership, L.P., and continue to consolidate the entity. Additionally, in January 2019, we paid off the outstanding balance and interest on the $70.0 million senior unsecured term loan entered in January 2013 in conjunction with our acquisition of ARCT. Following the redemption, we hold 100% of the ownership interests of Tau Operating Partnership, L.P., and continue to consolidate the entity. As part of this transaction, our taxable REIT subsidiary, Crest Net Lease, obtained a 0.11% interest in Tau Operating Partnership.
Investment in United Kingdom
On April 22, 2019, we announced that we signed a definitive agreement to acquire, from a joint venture of affiliates of J Sainsbury PLC ("Sainsbury's") and British Land PLC, 12 properties located in the United Kingdom for £429.0 million under long-term net lease agreements with Sainsbury's, which represents our first international real estate investment. The transaction is expected to close on or around May 22, 2019, subject to customary closing conditions. In connection with the expected closing of the transaction, we intend to borrow approximately £300.0 million in 15-year, senior unsecured debt via private placement, and to use the proceeds from those borrowings and other available funds to pay the purchase price thereof.
Capital Raising
During the first three months of 2019, we raised $2.2 million from the sale of common stock through our Dividend Reinvestment and Stock Purchase Plan, at a weighted average price of $67.85 per share.
Net Income Available to Common Stockholders
Net income available to common stockholders was $110.9 million in the first three months of 2019, as compared to $83.2 million in the first three months of 2018, an increase of $27.7 million. On a diluted per common share basis, net income available to common stockholders was $0.37 in the first three months of 2019, as compared to $0.29 in the first three months of 2018, an increase of $0.08, or 27.6%.
The calculation to determine net income available to common stockholders includes impairments and gains from the sale of properties, which can vary from period to period based on timing and can significantly impact net income available to common stockholders.
Gains from the sale of properties during the first three months of 2019 were $7.3 million, as compared to gains from the sale of properties of $3.2 million during the first three months of 2018. Total provisions for impairment recorded during the first three months of 2019 were $4.7 million, as compared to provisions for impairment of $14.2 million during the first three months of 2018.
Funds from Operations Available to Common Stockholders (FFO)
In the first three months of 2019, FFO increased by $20.8 million, or 9.2%, to $245.7 million, compared to $224.9 million in the first three months of 2018. On a diluted per common share basis, FFO was $0.81 in the first three months of 2019, compared to $0.79 in the first three months of 2018, an increase of $0.02, or 2.5%.
Adjusted Funds from Operations Available to Common Stockholders (AFFO)
In the first three months of 2019, AFFO increased by $24.1 million, or 10.7%, to $248.7 million, compared to $224.6 million in the first three months of 2018. On a diluted per common share basis, AFFO was $0.82 in the first three months of 2019, compared to $0.79 in the first three months of 2018, an increase of $0.03, or 3.8%.

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See our discussion of FFO and AFFO (which are not financial measures under generally accepted accounting principles, or GAAP), later in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this quarterly report, which includes a reconciliation of net income available to common stockholders to FFO and AFFO.
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 and 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 March 31, 2019, our total outstanding borrowings of senior unsecured notes and bonds, term loans, mortgages payable and credit facility borrowings were $7.04 billion, or approximately 23.9% of our total market capitalization of $29.42 billion.
We define our total market capitalization at March 31, 2019 as the sum of:
•
Shares of our common stock outstanding of 303,807,421, plus total common units outstanding of 463,119, multiplied by the last reported sales price of our common stock on the NYSE of $73.56 per share on March 31, 2019, or $22.4 billion;
•
Outstanding borrowings of $838.0 million on our credit facility;
•
Outstanding mortgages payable of $297.1 million, excluding net mortgage premiums of $4.0 million and deferred financing costs of $169,000;
•
Outstanding borrowings of $500.0 million on our term loans, excluding deferred financing costs of $1.3 million; and
•
Outstanding senior unsecured notes and bonds of $5.4 billion, excluding net unamortized original issuance premiums of $10.3 million and deferred financing costs of $32.5 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, 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. Our ATM program authorizes

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up to 28,961,855 common shares to be issued. We did not issue any shares under the ATM program during the first three months of 2019. From the inception of our current and prior ATM programs through March 31, 2019, we have issued 33,546,139 shares and raised $2.0 billion. At March 31, 2019, we had 20,453,861 shares remaining for future issuance under our current ATM program.
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. During the first three months of 2019, we issued 31,898 shares and raised approximately $2.2 million under our DRSPP. We did not issue shares under the waiver approval process during the first three months of 2019. From the inception of our DRSPP through March 31, 2019, we have issued 14,261,708 shares and raised approximately $673.1 million.
Revolving Credit Facility
We have a $3.25 billion unsecured revolving credit facility, or our credit facility, with an initial term that expires in March 2023 and includes, at our option, two six-month extensions. Our credit facility has a $1.0 billion expansion option. Under our credit facility, our investment grade credit ratings as of March 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 March 31, 2019, we had a borrowing capacity of approximately $2.2 billion available on our credit facility, and an outstanding balance of $838.0 million. The weighted average interest rate on borrowings under our credit facility during the first three months of 2019 was 3.3% per annum. We must comply with various financial and other covenants in our credit facility. At March 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.
Term Loans
In October 2018, in conjunction with entering into our revolving 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%.
In June 2015, in conjunction with entering into our previous credit facility, we entered into a $250.0 million senior unsecured term loan maturing in 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%.
Mortgage Debt
As of March 31, 2019, we had $297.1 million of mortgages payable, all of which were assumed in connection with our property acquisitions.  Additionally, at March 31, 2019, we had net premiums totaling $4.0 million on these mortgages and deferred financing costs of $169,000.  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 first three months of 2019, we made $1.2 million in principal payments.

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Notes Outstanding
Our senior unsecured note and bond obligations consist of the following as of March 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

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
$
5,400

Unamortized net original issuance premiums and deferred financing costs
(22
)
 
$
5,378

All of our outstanding notes and bonds have fixed interest rates and contain various covenants, with which we remained in compliance as of March 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 March 31, 2019 are:
Note Covenants
Required
Actual

Limitation on incurrence of total debt
< 60% of adjusted assets
40.8
%
Limitation on incurrence of secured debt
< 40% of adjusted assets
1.8
%
Debt service coverage (trailing 12 months)(1)
> 1.5x
4.5x

Maintenance of total unencumbered assets
> 150% of unsecured debt
247.2
%
(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 April 1, 2018 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 April 1, 2018, nor does it purport to reflect our debt service coverage ratio for any future period. Our fixed charge coverage ratio is calculated in the same manner as our debt service coverage ratio, except that preferred stock dividends are also added to the denominator; since we redeemed our Class F preferred dividends in April 2017, our fixed charge coverage ratio is equivalent to our debt service coverage ratio. The following is our calculation of debt service and fixed charge coverage at March 31, 2019 (in thousands, for trailing twelve months):

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Net income available to common stockholders
$
391,393

Plus: interest expense, excluding the amortization of deferred financing costs
268,071

Plus: provision for taxes
5,562

Plus: depreciation and amortization
546,194

Plus: provisions for impairment
16,720

Plus: pro forma adjustments
54,870

Less: gain on sales of real estate
(28,688
)
 
 
Income available for debt service, as defined
$
1,254,122

 
 
Total pro forma debt service charge
$
277,929

 
 
Debt service and fixed charge coverage ratio
4.5

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 March 31, 2019, we had cash and cash equivalents totaling $3.0 million.
We believe that our cash and cash equivalents on hand, cash provided from operating activities, and borrowing capacity is sufficient to meet our liquidity needs for the next twelve months.  We intend, however, to use permanent or long-term capital to fund property acquisitions and to repay future borrowings under our 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 March 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 March 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 March 31, 2019 (dollars in millions):
Year of
Maturity
Credit
Facility (1)
Notes
and
Bonds (2)
Term
Loan (3)
Mortgages
Payable (4)
Interest (5)
Ground
Leases Paid by
Realty Income (6)
Ground
Leases Paid
by Our
Tenants (7)
Other (8)
Totals
2019
$
—

$
—

$
—

$
19.4

$
192.6

$
1.2

$
10.1

$
33.2

$
256.5

2020
—

—

250.0

82.4

270.4

1.5

13.5

—

617.8

2021
—

250.0

—

67.0

252.9

1.3

13.2

—

584.4

2022
—

950.0

—

109.7

242.5

1.2

13.1

—

1,316.5

2023
838.0

750.0

—

6.7

189.4

1.3

13.1

—

1,798.5

Thereafter
—

3,450.0

250.0

11.9

1,052.7

19.8

82.1

—

4,866.5

Totals
$
838.0

$
5,400.0

$
500.0

$
297.1

$
2,200.5

$
26.3

$
145.1

$
33.2

$
9,440.2

(1) 
The initial term of the credit facility expires in March 2023 and includes, at our option, two six–month extensions.
(2) 
Excludes non-cash original issuance discounts and premiums recorded on notes payable of $10.3 million and deferred financing costs of $32.5 million at March 31, 2019.
(3) 
Excludes deferred financing costs of $1.3 million.
(4) 
Excludes both non–cash net premiums recorded on the mortgages payable of $4.0 million and deferred financing costs of $169,000 at March 31, 2019.
(5) 
Interest on the term loans, notes, bonds, mortgages payable, and credit facility has been calculated based on outstanding balances as of March 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 $23.6 million of commitments under construction contracts and $9.6 million for re-leasing costs, recurring capital expenditures, and non-recurring building improvements.
Our revolving 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.
Dividend Policy
Distributions are paid monthly to holders of shares of our common stock.
Distributions are paid monthly to the limited partners holding common units of Realty Income, L.P., each on a per unit basis that is generally equal to the amount paid per share to our common stockholders.
In order to maintain our status as a REIT for federal income tax purposes, we generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our taxable income (excluding net capital gains), and we are subject to income tax to the extent we distribute less than 100% of our taxable income (including net capital gains). In 2018, our cash distributions to common stockholders totaled $761.6 million, or 133.5% of our estimated taxable income of $570.4 million. Our estimated taxable income reflects non-cash deductions for depreciation and amortization. Our estimated taxable income is presented to show our compliance with REIT dividend requirements and is not a measure of our liquidity or operating performance.  We intend to continue to make distributions to our stockholders that are sufficient to meet this dividend requirement and that will reduce or eliminate our exposure to income taxes. Furthermore, we believe our funds from operations are sufficient to support our current level of cash distributions to our stockholders. Our cash distributions to common stockholders in the first three months of 2019 totaled $204.5 million, representing 82.2% of our adjusted funds from operations available to common stockholders of $248.7 million. In comparison, our 2018 cash distributions to common stockholders totaled $761.6 million, representing 82.4% of our adjusted funds from operations available to common stockholders of $924.6 million.
Future distributions will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, FFO, AFFO, cash flow from operations, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, or the Code, our debt service requirements, and any other factors the Board of Directors may deem relevant. In addition,

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our credit facility contains financial covenants that could limit the amount of distributions payable by us in the event of a default, and which prohibit the payment of distributions on the common or preferred stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facility.
Distributions of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to stockholders as ordinary income, except to the extent that we recognize capital gains and declare a capital gains dividend, or that such amounts constitute “qualified dividend income” subject to a reduced rate of tax. The maximum tax rate of non-corporate taxpayers for “qualified dividend income” is generally 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that certain holding requirements have been met with respect to the REIT’s stock and the REIT’s dividends are attributable to dividends received from certain taxable corporations (such as our taxable REIT subsidiaries) or to income that was subject to tax at the corporate or REIT level (for example, if we distribute taxable income that we retained and paid tax on in the prior taxable year). However, non-corporate stockholders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026.
Distributions in excess of earnings and profits generally will first be treated as a non-taxable reduction in the stockholders’ basis in their stock, but not below zero. Distributions in excess of that basis generally will be taxable as a capital gain to stockholders who hold their shares as a capital asset. Approximately 22.9% of the distributions to our common stockholders, made or deemed to have been made in 2018, were classified as a return of capital for federal income tax purposes. We estimate that in 2019, between 15% and 25% of the distributions may be classified as a return of capital.
RESULTS OF OPERATIONS
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with GAAP, and are the basis for our discussion and analysis of financial condition and results of operations. Preparing our consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. We believe that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. This summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018.
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 of in-place leases 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. In an acquisition of multiple properties, we must also allocate the purchase price among the properties.  The allocation of the purchase price is based on our assessment of estimated fair value and is often based upon the expected future cash flows of the property and various characteristics of the market where the property is located.  In addition, any assumed mortgages receivable or payable 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

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charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property. Key inputs that we utilize in this analysis include projected rental rates, estimated holding periods, historical sales and re-leases, 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 three months ended March 31, 2019, to the three months ended March 31, 2018.
Total Revenue
The following summarizes our total revenue (dollars in thousands):
 
                Three Months Ended
                March 31,
Increase (Decrease)
 
2019

2018

REVENUE
 
 
 
Rental (excluding reimbursable)
$
336,690

$
306,548

$
30,142

Rental (reimbursable)
17,347

11,300

6,047

Other
328

447

(119
)
Total revenue
$
354,365

$
318,295

$
36,070

Rental Revenue (excluding reimbursable)
The increase in rental revenue (excluding reimbursable) in the first three months of 2019 compared to the first three months of 2018 is primarily attributable to:
•
The 98 properties (1.9 million square feet) we acquired in the first three months of 2019, which generated $3.0 million of rent in the first three months of 2019;
•
The 753 properties (4.8 million square feet) we acquired in 2018, which generated $27.98 million of rent in the first three months of 2019, compared to $428,000 in the first three months of 2018, an increase of $27.6 million;
•
Same store rents generated on 4,891 properties (84.7 million square feet) during the first three months of 2019 and 2018, increased by $4.5 million or 1.5%, to $298.6 million from $294.06 million; partially offset by
•
A net decrease in straight-line rent and other non-cash adjustments to rent of $1.6 million in the first three months of 2019 as compared to the first three months of 2018;
•
A net decrease of $3.3 million relating to properties sold in the first three months of 2019 and during 2018 that were reported in continuing operations; and
•
A net decrease of $105,000 relating to the aggregate of (i) rental revenue from properties (124 properties comprising 2.3 million square feet) that were available for lease during part of 2019 or 2018, (ii) rental revenue for ten properties under development, and (iii) lease termination settlements. In aggregate, the revenues for these items totaled $4.4 million in the first three months of 2019 compared to $4.5 million in the first three months of 2018.
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 5,876 properties in the portfolio at March 31, 2019, 5,847, or 99.5%, are single-tenant properties and the remaining are multi-tenant properties. Of the 5,847 single-tenant properties, 5,748, or 98.3%, were net leased with a weighted average remaining lease term (excluding rights to extend a lease at the option of the tenant) of approximately 9.2 years at March 31, 2019. Of our 5,748 leased single-tenant properties, 4,957 or 86.2% were under leases that provide for increases in rents through:

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•
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 $3.6 million in the first three months of 2019, and $3.3 million in the first three months of 2018. We anticipate percentage rent to be less than 1% of rental revenue for 2019.
Our portfolio of real estate, leased primarily to regional and national tenants under net leases, continues to perform well and provides dependable lease revenue supporting the payment of monthly dividends to our stockholders.  At March 31, 2019, our portfolio of 5,876 properties was 98.3% leased with 102 properties available for lease, as compared to 98.6% leased, with 80 properties available for lease at December 31, 2018, and 98.6% leased with 75 properties available for lease at March 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 for the periods presented is primarily due to our increase in acquisitions.
Total Expenses
The following summarizes our total expenses (dollars in thousands):
 
                Three Months Ended
                March 31,
Increase
(Decrease)
 
2019

2018

EXPENSES
 
 
 
Depreciation and amortization
$
137,517

$
131,103

$
6,414

Interest
70,020

59,415

10,605

General and administrative
15,108

15,684

(576
)
Property (excluding reimbursable)
4,289

5,252

(963
)
Property (reimbursable)
17,347

11,300

6,047

Income taxes
1,445

1,223

222

Provisions for impairment
4,672

14,221

(9,549
)
Total expenses
$
250,398

$
238,198

$
12,200

Total revenue(1)
337,018

306,995

 
General and administrative
expenses as a percentage of total revenue(1)
4.5
%
5.1
%
 
Property expenses (excluding reimbursable)
as a percentage of total revenue(1)
1.3
%
1.7
%
 
(1) 
Excludes rental revenue (reimbursable).
Depreciation and Amortization
The increase in depreciation and amortization in the first three months of 2019 was primarily due to the acquisition of properties in 2018 and the first three months of 2019, 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):
 
               Three Months Ended
               March 31,
 
2019

2018

Interest on our credit facility, term loans, notes, mortgages and interest rate swaps
$
66,976

$
59,650

Credit facility commitment fees
938

625

Amortization of origination and deferred financing costs
2,172

1,965

Loss (gain) on interest rate swaps
678

(2,007
)
Amortization of net mortgage premiums
(354
)
(459
)
Amortization of net note premiums
(292
)
(379
)
Obligations related to financing lease liabilities
77

77

Interest capitalized
(175
)
(57
)
Interest expense
$
70,020
<