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Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2017 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 (IRS Employer Incorporation or Organization) 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 On Which Registered Common Stock, $0.01 Par Value Class F Preferred Stock, $0.01 Par Value New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12 (g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES x NO o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO x 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 x NO o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files). YES x NO o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 x At June 30, 2017, the aggregate market value of the Registrant’s shares of common stock, $0.01 par value, held by non-affiliates of the Registrant was $15.1 billion based upon the last reported sale price of $55.18 per share on the New York Stock Exchange on June 30, 2017, the last business day of the Registrant’s most recently completed second fiscal quarter. The determination of affiliate status for purposes of this calculation is not necessarily a conclusive determination for other purposes. At February 14, 2018, the number of shares of common stock outstanding was 284,245,504. DOCUMENTS INCORPORATED BY REFERENCE

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  • TableofContents

    UNITED STATESSECURITIES AND EXCHANGE COMMISSION

    Washington, DC  20549

    FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

    OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended 

    December 31, 2017

    Commission File Number 1-13374

    REALTY INCOME CORPORATION(Exactnameofregistrantasspecifiedinitscharter)

    Maryland

    33-0580106(StateorOtherJurisdictionof

    (IRSEmployerIncorporationorOrganization)

    IdentificationNumber)

    11995ElCaminoReal,SanDiego,California,92130(AddressofPrincipalExecutiveOffices)

    Registrant’stelephonenumber,includingareacode:(858)284-5000

    SecuritiesregisteredpursuanttoSection12(b)oftheAct:

    NameofEachExchangeTitleofEachClass

    OnWhichRegisteredCommonStock,$0.01ParValueClassFPreferredStock,$0.01ParValue

    NewYorkStockExchangeNewYorkStockExchange

    SecuritiesregisteredpursuanttoSection12(g)oftheAct:None

    Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YES

    x

    NOo

    IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.

    YESo

    NOx

    Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.

    YESx

    NOo

    IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).

    YESx

    NOo

    IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K(§229.405ofthischapter)isnotcontainedherein,andwillnotbecontained,tothebestofregistrant’sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.

    x

    Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfilerorasmallerreportingcompany.

    Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler”and“smallerreportingcompany”inRule12b-2oftheExchangeAct.

    Largeacceleratedfilerx

    Acceleratedfilero

    Non-acceleratedfilero

    Smallerreportingcompanyo

    Emerginggrowthcompany

    o

    Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.

    o

    Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).

    YESo

    NOx

    AtJune30,2017,theaggregatemarketvalueoftheRegistrant’ssharesofcommonstock,$0.01parvalue,heldbynon-affiliatesoftheRegistrantwas$15.1billionbaseduponthelastreportedsalepriceof$55.18pershareontheNewYorkStockExchangeonJune30,2017,thelastbusinessdayoftheRegistrant’smostrecentlycompletedsecondfiscalquarter.Thedeterminationofaffiliatestatusforpurposesofthiscalculationisnotnecessarilyaconclusivedeterminationforotherpurposes.

    AtFebruary14,2018,thenumberofsharesofcommonstockoutstandingwas284,245,504.

    DOCUMENTS INCORPORATED BY REFERENCE

  • PartIII,Items10,11,12,13,and14incorporatebyreferencecertainspecificportionsofthedefinitiveProxyStatementforRealtyIncomeCorporation’sAnnualMeetingtobeheldonMay18,2018,tobefiledpursuanttoRegulation14A.Onlythoseportionsoftheproxystatementwhicharespecificallyincorporatedbyreferencehereinshallconstituteapartofthisannualreport.

  • TableofContents

    REALTY INCOME CORPORATION

    Index to Form 10-K

    PART I

    PageItem 1: Business

       

    TheCompany 2

    RecentDevelopments 3

    DividendPolicy 5

    BusinessPhilosophyandStrategy 6

    PropertyPortfolioInformation 13

    Forward-LookingStatements 20Item 1A: RiskFactors 20Item 1B: UnresolvedStaffComments 32Item 2: Properties 32Item 3: LegalProceedings 32Item 4: MineSafetyDisclosures 32

       

    PART II

    Item 5: MarketforRegistrant’sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities 33Item 6: SelectedFinancialData 34

    Item 7: Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations

    General 35

    LiquidityandCapitalResources 35

    ResultsofOperations 42

    FundsfromOperationsAvailabletoCommonStockholders(FFO) 49

    AdjustedFundsfromOperationsAvailabletoCommonStockholders(AFFO) 49

    ImpactofInflation 51

    ImpactofRecentAccountingPronouncements 51Item 7A: QuantitativeandQualitativeDisclosuresAboutMarketRisk 51Item 8: FinancialStatementsandSupplementaryData 52Item 9: ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure 81Item 9A: ControlsandProcedures 81Item 9B: OtherInformation 82

       

    PART III

    Item 10: Directors,ExecutiveOfficersandCorporateGovernance 82Item 11: ExecutiveCompensation 83Item 12: SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 83Item 13: CertainRelationships,RelatedTransactionsandDirectorIndependence 83Item 14: PrincipalAccountingFeesandServices 83

       

    PART IV

     

    Item 15: ExhibitsandFinancialStatementSchedules 84   

    SIGNATURES

    90

  • TableofContents

    PART I

    Item 1: 

    Business

    THE COMPANY

    RealtyIncome,TheMonthlyDividendCompany ,isanS&P500companydedicatedtoprovidingstockholderswithdependablemonthlydividendsthatincreaseovertime.

    Thecompanyisstructuredasarealestateinvestmenttrust,orREIT,requiringitannuallytodistributeatleast90%ofitstaxableincome(excludingnetcapitalgains)intheformofdividendstoitsstockholders.

    Themonthlydividendsaresupportedbythecashflowgeneratedfromrealestateownedunderlong-term,netleaseagreementswithregionalandnationalcommercialtenants.

    Thecompanyhasin-houseacquisition,portfoliomanagement,assetmanagement,realestateresearch,creditresearch,legal,financeandaccounting,informationtechnology,andcapitalmarketscapabilities.

    RealtyIncomewasfoundedin1969,andlistedontheNewYorkStockExchange(NYSE:O)in1994.

    Overthepast49years,RealtyIncomehasbeenacquiringandmanagingfreestandingcommercialpropertiesthatgeneraterentalrevenueunderlong-termnetleaseagreements.

    ThecompanyisamemberoftheS&PHighYieldDividendAristocrats indexforhavingincreaseditsdividendeveryyearformorethan20consecutiveyears.

    AtDecember31,2017,weownedadiversifiedportfolio:

    ·

    Of5,172properties;·

    Withanoccupancyrateof98.4%,or5,089propertiesleasedand83propertiesavailableforlease;·

    Leasedto249differentcommercialtenantsdoingbusinessin47separateindustries;·

    Locatedin49statesandPuertoRico;·

    Withover89.6millionsquarefeetofleasablespace;and·

    Withanaverageleasablespaceperpropertyofapproximately17,320squarefeet;approximately12,060squarefeetperretailpropertyand

    224,340squarefeetperindustrialproperty.

    Ofthe5,172propertiesintheportfolio,5,144,or99.5%,aresingle-tenantproperties,andtheremainingaremulti-tenantproperties.AtDecember31,2017,ofthe5,144single-tenantproperties,5,062wereleasedwithaweightedaverageremainingleaseterm(excludingrightstoextendaleaseattheoptionofthetenant)ofapproximately9.5years.

    Our7seniorofficersowned0.1%ofouroutstandingcommonstockwithamarketvalueof$16.9millionatJanuary31,2018.Ourdirectorsand7seniorofficers,asagroup,owned0.2%ofouroutstandingcommonstockwithamarketvalueof$33.4millionatJanuary31,2018.

    OurcommonstockislistedontheNYSEunderthetickersymbol“O”withaCUSIPnumberof756109-104.Ourcentralindexkeynumberis726728.

    InJanuary2018,wehad152employees,ascomparedto146employeesinJanuary2017.

    Wemaintainacorporatewebsiteatwww.realtyincome.com.Onourwebsitewemakeavailable,freeofcharge,copiesofourannualreportonForm10-K,quarterlyreportsonForm10-Q,Form3s,Form4s,Form5s,currentreportsonForm8-K,andamendmentstothosereports,assoonasreasonablypracticableafterweelectronicallyfilethesereportswiththeSecuritiesandExchangeCommission,orSEC.

    Noneoftheinformationonourwebsiteisdeemedtobepartofthisreport.

    -2-

    ®

    ®

  • TableofContents

    RECENT DEVELOPMENTS

    Increases in Monthly Dividends to Common StockholdersWehavecontinuedour49-yearpolicyofpayingmonthlydividends.Inaddition,weincreasedthedividendfivetimesduring2017andtwiceduring2018.

    AsofFebruary2018,wehavepaid81consecutivequarterlydividendincreasesandincreasedthedividend95timessinceourlistingontheNYSEin1994.

     

    Month 

    Month 

     Dividend 

     Increase 

    2017 Dividend increases 

    Declared 

    Paid 

     per share 

     per share 

    1stincrease

    Dec2016

    Jan2017

    0.2025

    $

    0.0005

    2ndincrease

    Jan2017

    Feb2017

    0.2105

    $

    0.0080

    3rdincrease

    Mar2017

    Apr2017

    0.2110

    $

    0.0005

    4thincrease

    Jun2017

    Jul2017

    0.2115

    $

    0.0005

    5thincrease

    Sep2017

    Oct2017

    0.2120

    $

    0.0005

         

    2018 Dividend increases

    1stincrease

    Dec2017

    Jan2018

    0.2125

    $

    0.0005

    2ndincrease

    Jan2018

    Feb2018

    0.2190

    $

    0.0065

    Thedividendspaidpershareduring2017totaledapproximately$2.527,ascomparedtoapproximately$2.392during2016,anincreaseof$0.135,or5.6%.

    Themonthlydividendof$0.219persharerepresentsacurrentannualizeddividendof$2.628pershare,andanannualizeddividendyieldofapproximately4.6%basedonthelastreportedsalepriceofourcommonstockontheNYSEof$57.02onDecember31,2017.Althoughweexpecttocontinueourpolicyofpayingmonthlydividends,wecannotguaranteethatwewillmaintainourcurrentlevelofdividends,thatwewillcontinueourpatternofincreasingdividendspershare,orwhatouractualdividendyieldwillbeinanyfutureperiod.

    Acquisitions During 2017During2017,weinvested$1.52billionin303newpropertiesandpropertiesunderdevelopmentorexpansion,withaninitialweightedaveragecontractualleaserateof6.4%.The303newpropertiesandpropertiesunderdevelopmentorexpansionarelocatedin40states,willcontainapproximately7.8millionleasablesquarefeet,andare100%leasedwithaweightedaverageleasetermof14.4years.Thetenantsoccupyingthenewpropertiesoperatein23industriesandthepropertytypesare94.5%retailand5.5%industrial,basedonrentalrevenue.

    During2017,noneofourrealestateinvestmentscausedanyonetenanttobe10%ormoreofourtotalassetsatDecember31,2017.

    Theestimatedinitialweightedaveragecontractualleaserateforapropertyisgenerallycomputedasestimatedcontractualnetoperatingincome,which,inthecaseofanetleasedproperty,isequaltotheaggregatebaserentforthefirstfullyearofeachlease,dividedbythetotalcostoftheproperty.

    Sinceitispossiblethatatenantcoulddefaultonthepaymentofcontractualrent,wecannotprovideassurancethattheactualreturnonthefundsinvestedwillremainatthepercentageslistedabove.

    Inthecaseofapropertyunderdevelopmentorexpansion,thecontractualleaserateisgenerallyfixedsuchthatrentvariesbasedontheactualtotalinvestmentinordertoprovideafixedrateofreturn.

    Whentheleasedoesnotprovideforafixedrateofreturnonapropertyunderdevelopmentorexpansion,theestimatedinitialweightedaveragecontractualleaserateiscomputedasfollows:estimatednetoperatingincome(determinedbythelease)forthefirstfullyearofeachlease,dividedbyourprojectedtotalinvestmentintheproperty,includingland,constructionandcapitalizedinterestcosts.Ofthe$1.52billionweinvestedduring2017,$21.2millionwasinvestedin17propertiesunderdevelopmentorexpansionwithanestimatedinitialweightedaveragecontractualleaserateof6.9%.

    Wemaycontinuetopursuedevelopmentorexpansionopportunitiesundersimilararrangementsinthefuture.

    -3-

  • TableofContents

    Portfolio DiscussionLeasingResultsAtDecember31,2017,wehad83propertiesavailableforleaseoutof5,172propertiesinourportfolio,whichrepresentsa98.4%occupancyratebasedonthenumberofpropertiesinourportfolio.SinceDecember31,2016,whenwereported84propertiesavailableforleaseoutof4,944anda98.3%occupancyrate,we:

    ·

    Had297leaseexpirations;·

    Re-leased259properties;and·

    Sold39vacantproperties.

    Ofthe259propertiesre-leasedduring2017,235propertieswerere-leasedtoexistingtenants,ninewerere-leasedtonewtenantswithoutvacancy,and15werere-leasedtonewtenantsafteraperiodofvacancy.

    Theannualrentonthese259leaseswas$43.18million,ascomparedtothepreviousrentonthesesamepropertiesof$40.92million,whichrepresentsarentrecapturerateof105.5%onthepropertiesre-leasedduring2017.

    Aspartofourre-leasingcosts,wepayleasingcommissionstounrelated,thirdpartyrealestatebrokersconsistentwiththecommercialrealestateindustrystandard,andsometimesprovidetenantrentconcessions.Wedonotconsiderthecollectiveimpactoftheleasingcommissionsortenantrentconcessionstobematerialtoourfinancialpositionorresultsofoperations.

    AtDecember31,2017,ouraverageannualizedrentalrevenuewasapproximately$13.77persquarefootonthe5,089leasedpropertiesinourportfolio.

    AtDecember31,2017,weclassifiedninepropertieswithacarryingamountof$6.7millionasheldforsaleonourbalancesheet.

    Theexpectedsaleofthesepropertiesdoesnotrepresentastrategicshiftthatwillhaveamajoreffectonouroperationsandfinancialresultsandisconsistentwithourexistingdispositionstrategytofurtherenhanceourrealestateportfolioandmaximizeportfolioreturns.

    InvestmentsinExistingPropertiesIn2017,wecapitalizedcostsof$12.7milliononexistingpropertiesinourportfolio,consistingof$1.6millionforre-leasingcosts,$912,000forrecurringcapitalexpenditures,and$10.2millionfornon-recurringbuildingimprovements.In2016,wecapitalizedcostsof$16.3milliononexistingpropertiesinourportfolio,consistingof$797,000forre-leasingcosts,$679,000forrecurringcapitalexpenditures,and$14.9millionfornon-recurringbuildingimprovements.

    Themajorityofourbuildingimprovementsrelatetoroofrepairs,HVACimprovements,andparkinglotresurfacingandreplacements.Theamountsofourcapitalexpenditurescanvarysignificantly,dependingontherentalmarket,tenantcreditworthiness,theleasetermandthewillingnessoftenantstopayhigherrentsoverthetermsoftheleases.

    Wedefinerecurringcapitalexpendituresasmandatoryandrepetitivelandlordcapitalexpenditureobligationsthathavealimitedusefullife.Wedefinenon-recurringcapitalexpendituresaspropertyimprovementswhereweinvestadditionalcapitalthatextendtheusefullifeoftheproperty.

    Note IssuanceDuringtheyearendedDecember31,2017weissuedthefollowingnotes(dollarsinmillions):

    IssuancesDate of Issuance Maturity date

    Principal amount issued

    Public offering price

    Effective yield to maturity

    4.125%notes March2017 October2026 $

    400

    102.98%

    3.75%4.650%notes March2017 March2047

    300

    99.97%

    4.65%3.250%notes December2017 October2022

    500

    101.77%

    2.84%3.650%notes December2017 January2028

    550

    99.78%

    3.68%4.650%notes December2017 March2047

    250

    105.43%

    4.32%

    Thisissuanceconstitutesafurtherissuanceof,andformedasingleserieswiththeseniornotesdue2026issuedinSeptember2014.

    Thisissuanceconstitutedafurtherissuanceof,andformedasingleserieswiththeseniornotesdue2022issuedinOctober2012.

    Thisissuanceconstitutedafurtherissuanceof,andformedasingleserieswiththeseniornotesdue2047issuedinMarch2017.

    -4-

    (1)

    (2)

    (3)

    (1)

    (2)

    (3)

  • TableofContents

    Thenetproceedsof$1.3billionfromtheDecember2017noteofferingswereusedtoredeemall$550.0millionaggregateprincipalamountofouroutstanding2019notes,includingaccruedandunpaidinterest,andtorepayborrowingsoutstandingunderour$2.0billionrevolvingcreditfacilityand,totheextentnotusedforthosepurposes,tofundthedevelopmentandacquisitionsofadditionalpropertiesandforothergeneralcorporatepurposes.Thenetproceedsof$705.2millionfromtheMarch2017noteofferingswereusedtorepayborrowingsoutstandingunderourcreditfacilitytofundinvestmentopportunitiesandforothergeneralcorporatepurposes.

    Capital RaisingDuring2017,RealtyIncomeissued23,957,741commonsharesataweightedaveragepriceof$59.54,receivinggrossproceedsof$1.4billion.

    Net Income Available to Common StockholdersNetincomeavailabletocommonstockholderswas$301.5millionin2017,ascomparedto$288.5millionin2016,anincreaseof$13.0million.Onadilutedpercommonsharebasis,netincomewas$1.10in2017,ascomparedto$1.13in2016,adecreaseof$0.03,or2.7%.

    Thecalculationtodeterminenetincomeavailabletocommonstockholdersincludesimpairments,gainsfromthesaleofpropertiesand/orfairvalueadjustmentsonourinterestrateswaps.Theseitemsvaryfromperiodtoperiodbasedonthetimingofpropertysalesandtheinterestrateenvironment,andcansignificantlyimpactnetincomeavailabletocommonstockholders.

    Funds from Operations Available to Common Stockholders (FFO)In2017,ourFFOincreasedby$37.3million,or5.1%,to$772.7million,ascomparedto$735.4millionin2016.

    Onadilutedpercommonsharebasis,FFOwas$2.82in2017,ascomparedto$2.88in2016,adecreaseof$0.06,or2.1%.

    Netincomeandfundsfromoperationsavailabletocommonstockholderspersharein2017wereimpactedbyalossof$42.4million,or$0.15pershare,onextinguishmentofdebtupontheearlyredemptiononall$550.0millionofouroutstanding6.75%notesdueAugust2019duringDecember2017.Netincomeandfundsfromoperationsavailabletocommonstockholderswerealsoimpactedbyanon-cashredemptionchargeof$13.4million,or$0.05pershare,upontheredemptionofthe6.625%MonthlyIncomeClassFPreferredStockthatwasredeemedinApril2017.Thischargeisbasedontheexcessofredemptionvalueoverthecarryingvalueofthe6.625%MonthlyIncomeClassFPreferredStockthatrepresentstheoriginalissuancecostthatwepaidin2012.

    Adjusted Funds from Operations Available to Common Stockholders (AFFO)In2017,ourAFFOincreasedby$102.2million,or13.9%,to$838.6million,ascomparedto$736.4millionin2016.Onadilutedpercommonsharebasis,AFFOwas$3.06in2017,ascomparedto$2.88in2016,anincreaseof$0.18,or6.3%.

    SeeourdiscussionofFFOandAFFO(whicharenotfinancialmeasuresundergenerallyacceptedaccountingprinciples,orGAAP),laterinthesectionentitled“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations,”inthisannualreport,whichincludesareconciliationofnetincomeavailabletocommonstockholderstoFFOandAFFO.

    DIVIDEND POLICY

    Distributionsarepaidmonthlytoholdersofsharesofourcommonstock.

    DistributionsarepaidmonthlytothelimitedpartnersholdingcommonunitsofTauOperatingPartnership,L.P.andRealtyIncome,L.P.,eachonaperunitbasisthatisgenerallyequaltotheamountpaidpersharetoourcommonstockholders.

    -5-

  • TableofContents

    InordertomaintainourstatusasaREITforfederalincometaxpurposes,wegenerallyarerequiredtodistributedividendstoourstockholdersaggregatingannuallyatleast90%ofourtaxableincome(excludingnetcapitalgains),andwearesubjecttoincometaxtotheextentwedistributelessthan100%ofourtaxableincome(includingnetcapitalgains).In2017,ourcashdistributionstopreferredandcommonstockholderstotaled$695.5million,orapproximately132.9%ofourestimatedtaxableincomeof$523.5million.Ourestimatedtaxableincomereflectsnon-cashdeductionsfordepreciationandamortization.OurestimatedtaxableincomeispresentedtoshowourcompliancewithREITdividendrequirementsandisnotameasureofourliquidityoroperatingperformance.

    Weintendtocontinuetomakedistributionstoourstockholdersthataresufficienttomeetthisdividendrequirementandthatwillreduceoreliminateourexposuretoincometaxes.Furthermore,webelieveourfundsfromoperationsaresufficienttosupportourcurrentlevelofcashdistributionstoourstockholders.Ourcashdistributionstocommonstockholdersin2017totaled$689.3million,representing82.2%ofouradjustedfundsfromoperationsavailabletocommonstockholdersof$838.6million.Incomparison,our2016cashdistributionstocommonstockholderstotaled$610.5million,representing82.9%ofouradjustedfundsfromoperationsavailabletocommonstockholdersof$736.4million.

    FuturedistributionswillbeatthediscretionofourBoardofDirectorsandwilldependon,amongotherthings,ourresultsofoperations,FFO,AFFO,cashflowfromoperations,financialcondition,capitalrequirements,theannualdistributionrequirementsundertheREITprovisionsoftheInternalRevenueCodeof1986,asamended,ortheCode,ourdebtservicerequirements,andanyotherfactorstheBoardofDirectorsmaydeemrelevant.Inaddition,ourcreditfacilitycontainsfinancialcovenantsthatcouldlimittheamountofdistributionspayablebyusintheeventofadefault,andwhichprohibitthepaymentofdistributionsonthecommonorpreferredstockintheeventthatwefailtopaywhendue(subjecttoanyapplicablegraceperiod)anyprincipalorinterestonborrowingsunderourcreditfacility.

    Distributionsofourcurrentandaccumulatedearningsandprofitsforfederalincometaxpurposesgenerallywillbetaxabletostockholdersasordinaryincome,excepttotheextentthatwerecognizecapitalgainsanddeclareacapitalgainsdividend,orthatsuchamountsconstitute“qualifieddividendincome”subjecttoareducedrateoftax.Themaximumtaxrateofnon-corporatetaxpayersfor“qualifieddividendincome”isgenerally20%.Ingeneral,dividendspayablebyREITsarenoteligibleforthereducedtaxrateonqualifieddividendincome,excepttotheextentthatcertainholdingrequirementshavebeenmetwithrespecttotheREIT’sstockandtheREIT’sdividendsareattributabletodividendsreceivedfromcertaintaxablecorporations(suchasourtaxableREITsubsidiaries)ortoincomethatwassubjecttotaxatthecorporateorREITlevel(forexample,ifwedistributetaxableincomethatweretainedandpaidtaxoninthepriortaxableyear).However,non-corporatestockholders,includingindividuals,generallymaydeduct20%ofdividendsfromaREIT,otherthancapitalgaindividendsanddividendstreatedasqualifieddividendincome,fortaxableyearsbeginningafterDecember31,2017andbeforeJanuary1,2026.

    Distributionsinexcessofearningsandprofitsgenerallywillfirstbetreatedasanon-taxablereductioninthestockholders’basisintheirstock,butnotbelowzero.Distributionsinexcessofthatbasisgenerallywillbetaxableasacapitalgaintostockholderswhoholdtheirsharesasacapitalasset.Approximately21.7%ofthedistributionstoourcommonstockholders,madeordeemedtohavebeenmadein2017,wereclassifiedasareturnofcapitalforfederalincometaxpurposes.Weestimatethatin2018,between15%and25%ofthedistributionsmaybeclassifiedasareturnofcapital.

    BUSINESS PHILOSOPHY AND STRATEGY

    Webelievethatowninganactivelymanaged,diversifiedportfolioofprimarilysingle-tenantcommercialpropertiesunderlong-term,netleaseagreementsproducesconsistentandpredictableincome.Anetleasetypicallyrequiresthetenanttoberesponsibleformonthlyrentandcertainpropertyoperatingexpensesincludingpropertytaxes,insurance,andmaintenance.Inaddition,tenantsofourpropertiestypicallypayrentincreasesbasedon:(1)increasesintheconsumerpriceindex(typicallysubjecttoceilings),(2)fixedincreases,or(3)additionalrentcalculatedasapercentageofthetenants’grosssalesaboveaspecifiedlevel.Webelievethataportfolioofpropertiesunderlong-term,netleaseagreementsgenerallyproducesamorepredictableincomestreamthanmanyothertypesofrealestateportfolios,whilecontinuingtoofferthepotentialforgrowthinrentalincome.

    Diversificationisalsoakeycomponentofourinvestmentphilosophy.

    Webelievethatdiversificationoftheportfoliobytenant,industry,geography,and,toacertainextent,propertytypeleadstomoreconsistentandpredictableincomeforourstockholdersbyreducingvulnerabilitythatcancomewithanysingleconcentration.

    Ourinvestmentactivitieshaveledtoadiversifiedpropertyportfoliothat,asofDecember31,2017,consistedof

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    5,172propertieslocatedin49statesandPuertoRico,leasedto249differentcommercialtenantsdoingbusinessin47industries.Nosingleindustryrepresentedinourpropertyportfolioaccountedformorethan10.6%ofourrentalrevenueforthequarterendedDecember31,2017.

    Investment StrategyOurinvestmentstrategyistoacquirerealestateleasedtoregionalandnationaltenants.Whenidentifyingnewpropertiesforinvestment,wegenerallyfocusonacquiringhigh-qualityrealestatethattenantsconsiderimportanttothesuccessfuloperationoftheirbusiness.Wegenerallyseektoacquirerealestatethathasthefollowingcharacteristics:

    ·

    Propertiesthatarefreestanding,commercially-zonedwithasingletenant;·

    Propertiesthatareinsignificantmarketsorstrategiclocationscriticaltogeneratingrevenueforregionalandnationaltenants(i.e.theyneedthe

    propertyinwhichtheyoperateinordertoconducttheirbusiness);·

    Propertiesthatwedeemtobeprofitableforthetenantsand/orcangenerallybecharacterizedasimportanttothesuccessfuloperationsofthe

    company’sbusiness;·

    Propertiesthatarelocatedwithinattractivedemographicareasrelativetothebusinessofourtenants,generallyfungible,andhavegood

    visibilityandeasyaccesstomajorthoroughfares;·

    Propertieswithrealestatevaluationsthatapproximatereplacementcosts;·

    Propertieswithrentalorleasepaymentsthatapproximatemarketrents;and·

    Propertiesthatcanbepurchasedwiththesimultaneousexecutionorassumptionoflong-term,netleaseagreements,offeringbothcurrent

    incomeandthepotentialforfuturerentincreases.

    Weseektoinvestinindustriesinwhichseveral,well-organized,regionalandnationaltenantsarecapturingmarketsharethroughtheselectionofprimerealestatelocationssupportedbysuperiorservice,qualitycontrol,economiesofscale,consumerbranding,andadvertising.Inaddition,wefrequentlyacquirelargeportfoliosofsingle-tenantpropertiesnetleasedtodifferenttenantsoperatinginavarietyofindustries.

    Wehaveaninternalteamdedicatedtosourcingsuchopportunities,oftenusingourrelationshipswithvarioustenants,owners/developers,brokersandadviserstouncoverandsecuretransactions.

    Wealsoundertakethoroughresearchandanalysistoidentifywhatweconsidertobeappropriatepropertylocations,tenants,andindustriesforinvestment.Thisresearchexpertiseisinstrumentaltouncoveringnetleaseopportunitiesinmarketswherewebelievewecanaddvalue.

    Inselectingpotentialinvestments,welookfortenantswiththefollowingattributes:

    ·

    Tenantswithreliableandsustainablecashflow;·

    Tenantswithrevenueandcashflowfrommultiplesources;·

    Tenantsthatarewillingtosignalong-termlease(10ormoreyears);and·

    Tenantsthatarelargeownersandusersofrealestate.

    Fromaretailperspective,ourinvestmentstrategyistotargettenantsthathaveaservice,non-discretionary,and/orlow-price-pointcomponenttotheirbusiness.

    Webelievethesecharacteristicsbetterpositiontenantstooperateinavarietyofeconomicconditionsandtocompetemoreeffectivelywithinternetretailers.

    Asaresultoftheexecutionofthisstrategy,over90%ofourannualizedretailrentalrevenuein2017isderivedfromtenantswithaservice,non-discretionary,and/orlowpricepointcomponenttotheirbusiness.

    Fromanon-retailperspective,wetargetindustrialpropertiesleasedtoFortune1000,primarilyinvestmentgraderatedcompanies.

    Webelievethesecharacteristicsenhancethestabilityoftherentalrevenuegeneratedfromtheseproperties.

    Afterapplyingthisinvestmentstrategy,wepursuethosetransactionswherewecanachieveanattractiveinvestmentspreadoverourcostofcapitalandfavorablerisk-adjustedreturns.

    Underwriting StrategyInordertobeconsideredforacquisition,propertiesmustmeetstringentunderwritingrequirements.Wehaveestablishedafour-partanalysistoexamineeachpotentialinvestmentbasedon:

    ·

    Theaforementionedoverallrealestatecharacteristics,includingdemographics,replacementcostandcomparativerentalrates;·

    Industry,tenant(includingcreditprofile),andmarketconditions;·

    Storeprofitabilityforretaillocationsifprofitabilitydataisavailable;and·

    Theimportanceoftherealestatelocationtotheoperationsofthetenants’business.

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    Webelievetheprincipalfinancialobligationsformostofourtenantstypicallyincludetheirbankandotherdebt,paymentobligationstosuppliers,andrealestateleaseobligations.Becausewetypicallyownthelandandbuildinginwhichatenantconductsitsbusinessorwhicharecriticaltothetenant’sabilitytogeneraterevenue,webelievetheriskofdefaultonatenant’sleaseobligationislessthanthetenant’sunsecuredgeneralobligations.Ithasbeenourexperiencethattenantsmustretaintheirprofitableandcriticallocationsinordertosurvive.Therefore,intheeventofreorganization,theyarelesslikelytorejectaleaseofaprofitableorcriticallocationbecausethiswouldterminatetheirrighttousetheproperty.

    Thus,asthepropertyowner,webelievethatwewillfarebetterthanunsecuredcreditorsofthesametenantintheeventofreorganization.Ifapropertyisrejectedbythetenantduringreorganization,weownthepropertyandcaneitherleaseittoanewtenantorselltheproperty.Inaddition,webelievethattheriskofdefaultonrealestateleasescanbefurthermitigatedbymonitoringtheperformanceofthetenants’individuallocationsandconsideringwhethertoproactivelyselllocationsthatmeetourcriteriafordisposition.

    Priortoenteringintoanytransaction,ourresearchdepartmentconductsareviewofatenant’screditquality.

    Theinformationreviewedmayincludereportsandfilings,includinganypubliccreditratings,financialstatements,debtandequityanalystreports,andreviewsofcorporatecreditspreads,stockprices,marketcapitalization,andotherfinancialmetrics.

    Weconductadditionalduediligence,includingadditionalfinancialreviewsofthetenantandamorecomprehensivereviewofthebusinesssegmentandindustryinwhichthetenantoperates.

    Wecontinuetomonitorourtenants’creditqualityonanongoingbasisbyreviewingtheavailableinformationpreviouslydiscussed,andprovidingsummariesofthesefindingstomanagement.

    Approximately46%ofourannualizedrentalrevenuecomesfrompropertiesleasedtoinvestmentgraderatedcompaniesortheirsubsidiaries.

    AtDecember31,2017,ourtop20tenantsrepresentedapproximately54%ofourannualizedrevenueandtenofthesetenantshaveinvestmentgradecreditratingsoraresubsidiariesofinvestmentgradecompanies.

    Portfolio and Asset Management StrategyInadditiontopursuingnewpropertiesforinvestment,weseektoincreaseearningsanddistributionstostockholdersthroughactiveportfolioandassetmanagement.

    Generally,ourportfolioandassetmanagementeffortsseektoachieve:

    ·

    Rentincreasesattheexpirationofexistingleases,whenmarketconditionspermit;·

    Optimumexposuretocertaintenants,industries,andmarketsthroughre-leasingvacantpropertiesandselectivelysellingproperties;·

    Maximumasset-levelreturnsonpropertiesthatarere-leasedorsold;·

    Additionalvaluecreationfromtheexistingportfoliobyenhancingindividualproperties,pursuingalternativeuses,andderivingancillary

    revenue;and·

    Investmentopportunitiesinnewassetclassesfortheportfolio.

    Wecontinuallymonitorourportfolioforanychangesthatcouldaffecttheperformanceofourtenants,ourtenants’industries,andtherealestatelocationsinwhichwehaveinvested.

    Wealsoregularlyanalyzeourportfoliowithaviewtowardsoptimizingitsreturnsandenhancingitsoverallcreditquality.

    Ouractiveportfolioandassetmanagementstrategypursuesassetsaleswhenwebelievethereinvestmentofthesaleproceedswill:

    ·

    Generatehigherreturns;·

    Enhancethecreditqualityofourrealestateportfolio;·

    Extendouraverageremainingleaseterm;and/or·

    Strategicallydecreasetenant,industry,orgeographicconcentration.

    AtDecember31,2017,weclassifiedninepropertieswithacarryingamountof$6.7millionasheldforsaleonourbalancesheet.For2018,weintendtocontinueouractivedispositioneffortstofurtherenhanceourrealestateportfolioandanticipate$75to$100millioninpropertysales.

    Weplantoinvesttheseproceedsintonewpropertyacquisitions,ifthereareattractiveopportunitiesavailable.However,wecannotguaranteethatwewillsellpropertiesduring2018atourestimatedvaluesorbeabletoinvestthepropertysaleproceedsinnewproperties.

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    Theactivemanagementoftheportfolioisanessentialcomponentofourlong-termstrategyofmaintaininghighoccupancy.Since1970,ouroccupancyrateattheendofeachyearhasneverbeenbelow96%.

    However,wecannotassureyouthatourfutureoccupancylevelswillcontinuetoequalorexceed96%.

    Capital PhilosophyHistorically,wehavemetourlong-termcapitalneedsbyissuingcommonstock,preferredstockandlong-termunsecurednotesandbonds.Overthelongterm,webelievethatcommonstockshouldbethemajorityofourcapitalstructure;however,wemayissueadditionalpreferredstockordebtsecurities.Wemayissuecommonstockwhenwebelievethatoursharepriceisatalevelthatallowsfortheproceedsofanyofferingtobeaccretivelyinvestedintoadditionalproperties.Inaddition,wemayissuecommonstocktopermanentlyfinancepropertiesthatwereinitiallyfinancedbyourcreditfacilityordebtsecurities.However,wecannotassureyouthatwewillhaveaccesstothecapitalmarketsatalltimesandattermsthatareacceptabletous.

    Ourprimarycashobligations,forthecurrentyearandsubsequentyears,areincludedinthe“TableofObligations,”whichispresentedlaterinthissection.Weexpecttofundouroperatingexpensesandothershort-termliquidityrequirements,includingpropertyacquisitionsanddevelopmentcosts,paymentofprincipalandinterestonouroutstandingindebtedness,propertyimprovements,re-leasingcostsandcashdistributionstocommonandpreferredstockholders,primarilythroughcashprovidedbyoperatingactivities,borrowingonourcreditfacilityandperiodicallythroughpublicsecuritiesofferings.

    Conservative Capital StructureWebelievethatourstockholdersarebestservedbyaconservativecapitalstructure.Therefore,weseektomaintainaconservativedebtlevelonourbalancesheetandsolidinterestandfixedchargecoverageratios.AtDecember31,2017,ourtotaloutstandingborrowingsofseniorunsecurednotesandbonds,termloans,mortgagespayableandcreditfacilityborrowingswere$6.13billion,orapproximately27.4%ofourtotalmarketcapitalizationof$22.36billion.

    WedefineourtotalmarketcapitalizationatDecember31,2017asthesumof:

    ·

    Sharesofourcommonstockoutstandingof284,213,685,plustotalcommonunitsoutstandingof405,204,multipliedbythelastreportedsalespriceofourcommonstockontheNYSEof$57.02pershareonDecember31,2017,or$16.23billion;

    ·

    Outstandingborrowingsof$110.0milliononourcreditfacility;·

    Outstandingmortgagespayableof$320.3million,excludingnetmortgagepremiumsof$5.9millionanddeferredfinancingcostsof$236,000;·

    Outstandingborrowingsof$445.9milliononourtermloans,excludingdeferredfinancingcostsof$580,000;and·

    Outstandingseniorunsecurednotesandbondsof$5.25billion,excludingunamortizednetoriginalissuancepremiumsof$14.3millionand

    deferredfinancingcostsof$34.1million.

    Impact of Real Estate and Credit MarketsInthecommercialrealestatemarket,propertypricesgenerallycontinuetofluctuate.Likewise,duringcertainperiods,theU.S.creditmarketshaveexperiencedsignificantpricevolatility,dislocations,andliquiditydisruptions,whichmayimpactouraccesstoandcostofcapital.WecontinuallymonitorthecommercialrealestateandU.S.creditmarketscarefullyand,ifrequired,willmakedecisionstoadjustourbusinessstrategyaccordingly.

    Universal Shelf RegistrationInDecember2015,wefiledashelfregistrationstatementwiththeSEC,whichiseffectiveforatermofthreeyearsandwillexpireinDecember2018.InaccordancewithSECrules,theamountofsecuritiestobeissuedpursuanttothisshelfregistrationstatementwasnotspecifiedwhenitwasfiledandthereisnospecificdollarlimit.Thesecuritiescoveredbythisregistrationstatementinclude(1)commonstock,(2)preferredstock,(3)debtsecurities,(4)depositarysharesrepresentingfractionalinterestsinsharesofpreferredstock,(5)warrantstopurchasedebtsecurities,commonstock,preferredstock,ordepositaryshares,and(6)anycombinationofthesesecurities.Wemayperiodicallyofferoneormoreofthesesecuritiesinamounts,pricesandontermstobeannouncedwhenandifthesesecuritiesareoffered.Thespecificsofanyfutureofferings,alongwiththeuseofproceedsofanysecuritiesoffered,willbedescribedindetailinaprospectussupplement,orotherofferingmaterials,atthetimeofanyoffering.

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    $2.0 Billion Revolving Credit FacilityWehavea$2.0billionunsecuredrevolvingcreditfacility,orourcreditfacility,withaninitialtermthatexpiresinJune2019andincludes,atouroption,twosix-monthextensions.Ourcreditfacilityhasa$1.0billionaccordionexpansionoption.

    Underourcreditfacility,ourinvestmentgradecreditratingsasofDecember31,2017provideforfinancingattheLondonInterbankOfferedRate,commonlyreferredtoasLIBOR,plus0.85%,withafacilitycommitmentfeeof0.125%,forall-indrawnpricingof0.975%overLIBOR.Theborrowingrateissubjecttoaninterestratefloorandmaychangeifourinvestmentgradecreditratingsweretochange.Wealsohaveotherinterestrateoptionsavailabletousunderourcreditfacility.Ourcreditfacilityisunsecuredand,accordingly,wehavenotpledgedanyassetsascollateralforthisobligation.

    AtDecember31,2017,wehadaborrowingcapacityof$1.89billionavailableonourcreditfacilityandanoutstandingbalanceof$110.0million.

    Theweightedaverageinterestrateonborrowingsoutstandingunderourcreditfacility,atDecember31,2017,was4.5%perannum.

    Wemustcomplywithvariousfinancialandothercovenantsinourcreditfacility.

    AtDecember31,2017,weremainincompliancewiththesecovenants.Weexpecttouseourcreditfacilitytoacquireadditionalpropertiesandforothergeneralcorporatepurposes.Anyadditionalborrowingswillincreaseourexposuretointerestraterisk.

    Wegenerallyuseourcreditfacilityfortheshort-termfinancingofnewpropertyacquisitions.Thereafter,wegenerallyseektorefinancethoseborrowingswiththenetproceedsoflong-termorpermanentfinancing,whichmayincludetheissuanceofcommonstock,preferredstockordebtsecurities.Wecannotassureyou,however,thatwewillbeabletoobtainanysuchrefinancing,orthatmarketconditionsprevailingatthetimeoftherefinancingwillenableustoissueequityordebtsecuritiesatacceptableterms.Weregularlyreviewourcreditfacilityandmayseektoextend,reneworreplaceourcreditfacility,totheextentwedeemappropriate.

    Cash ReservesWeareorganizedtooperateasanequityREITthatacquiresandleasespropertiesanddistributestostockholders,intheformofmonthlycashdistributions,asubstantialportionofournetcashflowgeneratedfromleasesonourproperties.

    Weintendtoretainanappropriateamountofcashasworkingcapital.

    AtDecember31,2017,wehadcashandcashequivalentstotaling$6.9million.

    Webelievethatourcashandcashequivalentsonhand,cashprovidedfromoperatingactivities,andborrowingcapacityissufficienttomeetourliquidityneedsforthenexttwelvemonths.

    Weintend,however,tousepermanentorlong-termcapitaltofundpropertyacquisitionsandtorepayfutureborrowingsunderourcreditfacility.

    Credit Agency RatingsTheborrowinginterestratesunderourcreditfacilityarebaseduponourratingsassignedbycreditratingagencies.AsofDecember31,2017,wewereassignedthefollowinginvestmentgradecorporatecreditratingsonourseniorunsecurednotesandbonds:

    Moody’sInvestorsServicehasassignedaratingofA3witha“stable”outlook,Standard&Poor’sRatingsGrouphasassignedaratingofBBB+witha“positive”outlook,andFitchRatingshasassignedaratingofBBB+witha“stable”outlook.

    BasedonourratingsasofDecember31,2017,thefacilityinterestrateasofDecember31,2017wasLIBOR,plus0.85%withafacilitycommitmentfeeof0.125%,forall-indrawnpricingof0.975%overLIBOR.

    Ourcreditfacilityprovidesthattheinterestratecanrangebetween:(i)LIBOR,plus1.55%ifourcreditratingislowerthanBBB-/Baa3orunratedand(ii)LIBOR,plus0.85%ifourcreditratingisA-/A3orhigher.

    Inaddition,ourcreditfacilityprovidesforafacilitycommitmentfeebasedonourcreditratings,whichrangefrom:(i)0.30%foraratinglowerthanBBB-/Baa3orunrated,and(ii)0.125%foracreditratingofA-/A3orhigher.

    Wealsoissueseniordebtsecuritiesfromtimetotimeandourcreditratingscanimpacttheinterestrateschargedinthosetransactions.

    Ifourcreditratingsorratingsoutlookchange,ourcosttoobtaindebtfinancingcouldincreaseordecrease.Thecreditratingsassignedtouscouldchangebasedupon,amongotherthings,ourresultsofoperationsandfinancialcondition.Theseratingsaresubjecttoongoingevaluationbycreditratingagenciesandwecannotassureyouthatourratingswillnotbechangedorwithdrawnbyaratingagencyinthefutureif,initsjudgment,circumstanceswarrant.Moreover,aratingisnotarecommendationtobuy,sellorholdourdebtsecurities,preferredstockorcommonstock.

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    Term LoansInDecember2017,inconjunctionwiththeacquisitionofaportfolioofproperties,weenteredintoa$125.9millionpromissorynote,maturinginJanuary2018.Borrowingsunderthisnoteboreinterestat1.52%.Thisnotewaspaidinfullatmaturity.

    InJune2015,inconjunctionwithenteringintoourcreditfacility,weenteredintoa$250millionseniorunsecuredtermloanmaturingonJune30,2020.

    Borrowingunderthistermloanbearsinterestatthecurrentone-monthLIBOR,plus0.90%.

    Inconjunctionwiththistermloan,wealsoenteredintoaninterestrateswapwhicheffectivelyfixesourperannuminterestrateonthistermloanat2.62%.

    InJanuary2013,inconjunctionwithouracquisitionofAmericanRealtyCapitalTrust,Inc.,orARCT,weenteredintoa$70millionseniorunsecuredtermloanwithaninitialmaturitydateofJanuary2018.

    Borrowingunderthistermloanbearsinterestatthecurrentone-monthLIBOR,plus1.10%.

    Inconjunctionwiththistermloan,wealsoenteredintoaninterestrateswapwhicheffectivelyfixesourperannuminterestrateonthistermloanat2.05%.InJanuary2018,weenteredintoasix-monthextensionofthisloan,whichnowmaturesinJuly2018andincludes,atouroption,twoadditionalsix-monthextensions.Borrowingduringtheextensionperiodsbearinterestatthecurrentone-monthLIBOR,plus0.90%.TheinterestrateswapterminatedupontheinitialmaturityinJanuary2018.

    Mortgage DebtAsofDecember31,2017,wehad$320.3millionofmortgagespayable,allofwhichwereassumedinconnectionwithourpropertyacquisitions.

    Additionally,atDecember31,2017,wehadnetpremiumstotaling$5.9milliononthesemortgagesanddeferredfinancingcostsof$236,000.

    Weexpecttopayoffthemortgagespayableassoonasprepaymentpenaltieshavedeclinedtoalevelthatwouldmakeiteconomicallyfeasibletodoso.

    During2017,wemade$139.7millionofprincipalpayments,includingtherepaymentofeightmortgagesinfullfor$133.5million.

    Notes OutstandingAsofDecember31,2017,wehad$5.25billionofseniorunsecurednoteandbondobligations,excludingunamortizednetoriginalissuancepremiumsof$14.3millionanddeferredfinancingcostsof$34.1million.

    Allofouroutstandingnotesandbondshavefixedinterestrates.Interestonallofourseniornoteandbondobligationsispaidsemiannually.

    No Unconsolidated InvestmentsWehavenounconsolidatedinvestments,nordoweengageintradingactivitiesinvolvingenergyorcommoditycontracts.

    Corporate ResponsibilityWearecommittedtoprovidinganengaging,diverse,andsafeworkenvironmentforouremployees,upholdingourcorporateresponsibilitiesasapubliccompanyoperatingforthebenefitofourstockholders,andoperatingourcompanyinanenvironmentallyconsciousmanner.AsTheMonthlyDividendCompany ,ourmissionistoprovideourstockholderswithmonthlydividendsthatincreaseovertime.Howwemanageandusethephysical,financialandtalentresourcesthatenableustoachievethismission,demonstratesourcommitmenttocorporateresponsibility.

    SocialResponsibilityandEthics.Anextensionofourmissionisourcommitmenttobeingsociallyresponsibleandconductingourbusinessaccordingtothehighestethicalstandards.Ouremployeesareawardedcompensationthatisinlinewiththoseofourpeersandcompetitors,includinggeneroushealthcarebenefitsforemployeesandtheirfamilies,participationina401(k)planwithamatchingcontributionbyRealtyIncome,competitivepaidtime-offbenefits,andaninfant-at-workprogramfornewparents.Wealsohavealong-standingcommitmenttoequalemploymentopportunityandadheretoallEqualEmployerOpportunityPolicyguidelines.OuremployeeshaveaccesstomembersofourBoardofDirectorstoreportanonymously,ifdesired,anysuspicionofmisconductbyanymemberofourseniormanagementorexecutiveteam.Weapplytheprinciplesoffullandfairdisclosureinallofourbusinessdealings,andweencourageallofourdirectors,officers,andotheremployeestoconductourbusinessinaccordancewiththehigheststandardsofmoralandethicalbehavior,ineachcase,asoutlinedinourCorporateCodeofBusinessEthics.Wearealsocommittedtodealingfairlywithallofourcustomers,suppliers,andcompetitors.

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    RealtyIncomeanditsemployeeshavetakenanactiveroleinsupportingcommunitiesthroughcivicinvolvementwithcharitableorganizationsandcorporatedonations.Focusingourimpactonoursocialresponsibility,ournon-profitpartnershipshaveresultedinapproximately725employeevolunteerhoursduring2017,principallythroughourpartnershipwithSanDiegoHabitatforHumanity.Ouremployeeshavealsoprovidededucationalservicestoat-riskyouth,fundingtolocalfoodbanks,andtoysforunder-servedchildren.Ourdedicationtobeingaresponsiblecorporatecitizenhasadirectandpositiveimpactinthecommunitiesinwhichweoperateandcontributestothestrengthofourreputationandourfinancialperformance.

    CorporateGovernance.Webelievethatacompany’sreputationforintegrityandservingitsstockholdersresponsiblyisofutmostimportance.Wearecommittedtomanagingthecompanyforthebenefitofourstockholdersandarefocusedonmaintaininggoodcorporategovernance.

    Practicesthatillustratethiscommitmentinclude:

    ·

    OurBoardofDirectorsiscomprisedofeightdirectors,sevenofwhichareindependent,non-employeedirectors;·

    OurBoardofDirectorsiselectedonanannualbasis;·

    Weemployamajorityvotestandardforuncontestedelections;·

    OurCompensationCommitteeoftheBoardofDirectorsworkswithindependentconsultantsinconductingannualcompensationreviewsfor

    ourkeyexecutives,andcompensateseachindividualprimarilybasedonreachingcertainperformancemetricsthatdeterminethesuccessofourcompany;and

    ·

    Weadheretoallothercorporategovernanceprinciplesoutlinedinour“CorporateGovernanceGuidelines”documentonourwebsite.

    Environmental Practices. Our focus on environmental conservationism is demonstrated by how we manage our day-to-day activities at ourcorporateheadquarters.Atourheadquarters,wepromoteenergyefficiencyandencouragepracticessuchaspoweringdownofficeequipmentattheend of the day, implementing file-sharing technology and automatic “duplex mode” to limit paper use, adopting an electronic approval system,carpoolingtoourheadquarters,andrecyclingpaperwaste.In2017,wesentmorethan32,700poundsofpapertoouroff-sitepartnerforrecycling.

    With respect to other recycling and reuse practices, we encourage the use of recycled products and the recycling of materials used in ouroperations.Cellphones,wirelessdevicesandofficeequipmentarerecycledordonatedwheneverpossible.

    Inaddition,ourheadquartersbuildingwasretrofittedaccordingtotheStateofCaliforniaenergyefficiencystandards(specificallyfollowingCaliforniaGreenBuildingStandardsCodeandTitle24oftheCaliforniaCodeofRegulations),withfeaturessuchasanautomaticlightingcontrolsystemwithlight-harvestingtechnology,aBuildingManagementSystemthatmonitorsandcontrolsenergyuse,anenergy-efficient PVCroofandheatingandcoolingsystem,LEDlighting,anddrought-tolerantlandscapingwithrecycledmaterials.

    In2017,weformedaninternal“GreenTeam”whosemissionistoencourageenvironmentally-friendlychoicestofurtherreduceourenvironmentalimpactasacompany.Toachievethismission,theGreenTeamcreatesandexecutesstrategiestopromotesustainabilityinternallyandtrackstheprogressoftheirefforts.

    Thepropertiesinourportfolioareprimarilynetleasedtoourtenants,andeachtenantisultimatelyresponsibleformaintainingthebuildingsincludingcontrollingtheirenergyusageandtheimplementationofanyenvironmentallysustainablepracticesateachlocation.Weactivelycommunicateandworkwithourtenantstopromoteenvironmentalresponsibilityatthepropertiesweownandtoreiteratetheimportanceofenergyefficientfacilities.

    OurAssetManagementteamhasengagedwithrenewableenergydevelopmentcompaniestoidentifyassetsthatwouldmaximizeenergyefficiencyinitiatives throughout our property portfolio. These initiatives include solar energy arrays, battery storage, and charging stations. In addition, wecontinuetoexploreregionalopportunitieswithourtenantsinordertoqualifyforcityandcountyrenewableenergyorenergyefficiencyprograms.

    Moreinformationonoursocialresponsibilityandenvironmentalpracticescanbefoundonourcompany’swebsiteathttp://www.realtyincome.com/about-realty-income/corporate-responsibility.Noneoftheinformationonourwebsiteisdeemedtobeapartofthisreport.

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    PROPERTY PORTFOLIO INFORMATION

    AtDecember31,2017,weownedadiversifiedportfolio:

    ·

    Of5,172properties;·

    Withanoccupancyrateof98.4%,or5,089propertiesleasedand83propertiesavailableforlease;·

    Leasedto249differentcommercialtenantsdoingbusinessin47separateindustries;·

    Locatedin49statesandPuertoRico;·

    Withover89.6millionsquarefeetofleasablespace;and·

    Withanaverageleasablespaceperpropertyofapproximately17,320squarefeet;approximately12,060squarefeetperretailpropertyand

    224,340squarefeetperindustrialproperty.

    AtDecember31,2017,ofour5,172properties,5,089wereleasedundernetleaseagreements.Anetleasetypicallyrequiresthetenanttoberesponsibleformonthlyrentandcertainpropertyoperatingexpensesincludingpropertytaxes,insurance,andmaintenance.Inaddition,ourtenantsaretypicallysubjecttofuturerentincreasesbasedonincreasesintheconsumerpriceindex(typicallysubjecttoceilings),additionalrentcalculatedasapercentageofthetenants’grosssalesaboveaspecifiedlevel,orfixedincreases.

    AtDecember31,2017,our249commercialtenants,whichwedefineasretailerswithover50locationsandnon-retailerswithover$500millioninannualrevenues,representedapproximately95%ofourannualizedrevenue.

    Wehad269additionaltenants,representingapproximately5%ofourannualizedrevenueatDecember31,2017,whichbringsourtotaltenantcountto518tenants.

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    Industry DiversificationThefollowingtablesetsforthcertaininformationregardingourpropertyportfolioclassifiedaccordingtothebusinessoftherespectivetenants,expressedasapercentageofourtotalrentalrevenue:

     

     

    Percentage of  Rental Revenue  

     

     

    For the                       

     

     

    Quarter Ended   

    For the Years Ended 

     

     

    December 31,   

    Dec 31, 

    Dec 31, 

    Dec 31, 

    Dec 31, 

    Dec 31, 

     

     

    2017   

    2017    

    2016    

    2015    

    2014    

    2013    

    Retailindustries                     

    Apparelstores 

    1.5%   

    1.6% 

    1.9% 

    2.0% 

    2.0% 

    1.9% 

    Automotivecollisionservices 

    1.0   

    1.0 

    1.0 

    1.0 

    0.8 

    0.8 

    Automotiveparts 

    1.4   

    1.3 

    1.3 

    1.4 

    1.3 

    1.2 

    Automotiveservice 

    2.4   

    2.2 

    1.9 

    1.9 

    1.8 

    2.1 

    Automotivetireservices 

    2.5   

    2.6 

    2.7 

    2.9 

    3.2 

    3.6 

    Bookstores 

    *   

    * 

    * 

    * 

    * 

    * 

    Childcare 

    1.8   

    1.8 

    1.9 

    2.0 

    2.2 

    2.8 

    Consumerelectronics 

    0.4   

    0.3 

    0.3 

    0.3 

    0.3 

    0.3 

    Conveniencestores 

    9.4   

    9.6 

    8.7 

    9.2 

    10.1 

    11.2 

    Craftsandnovelties 

    0.5   

    0.5 

    0.5 

    0.5 

    0.5 

    0.5 

    Dollarstores 

    7.7   

    7.9 

    8.6 

    8.9 

    9.6 

    6.2 

    Drugstores 

    10.6   

    10.9 

    11.2 

    10.6 

    9.5 

    8.1 

    Education 

    0.3   

    0.3 

    0.3 

    0.3 

    0.4 

    0.4 

    Entertainment 

    0.5   

    0.4 

    0.5 

    0.5 

    0.5 

    0.6 

    Equipmentservices 

    *   

    * 

    0.1 

    0.1 

    0.1 

    0.1 

    Financialservices 

    2.1   

    2.1 

    1.4 

    1.3 

    1.4 

    1.5 

    Generalmerchandise 

    1.9   

    1.8 

    1.5 

    1.4 

    1.2 

    1.1 

    Grocerystores 

    4.5   

    4.4 

    3.1 

    3.0 

    3.0 

    2.9 

    Healthandfitness 

    7.5   

    7.5 

    8.1 

    7.7 

    7.0 

    6.3 

    Healthcare 

    0.8   

    0.8 

    0.9 

    1.0 

    1.1 

    1.1 

    Homefurnishings 

    0.8   

    0.8 

    0.7 

    0.7 

    0.7 

    0.9 

    Homeimprovement 

    2.8   

    2.6 

    2.5 

    2.4 

    1.7 

    1.6 

    Jewelry 

    0.1   

    0.1 

    0.1 

    0.1 

    0.1 

    0.1 

    Motorvehicledealerships 

    1.9   

    2.1 

    1.9 

    1.6 

    1.6 

    1.6 

    Officesupplies 

    0.2   

    0.2 

    0.3 

    0.3 

    0.4 

    0.5 

    Petsuppliesandservices 

    0.6   

    0.6 

    0.6 

    0.7 

    0.7 

    0.8 

    Restaurants-casualdining 

    3.7   

    3.8 

    3.9 

    3.8 

    4.3 

    5.1 

    Restaurants-quickservice 

    5.5   

    5.1 

    4.9 

    4.2 

    3.7 

    4.4 

    Shoestores 

    0.4   

    0.4 

    0.5 

    0.5 

    0.1 

    0.1 

    Sportinggoods 

    1.1   

    1.4 

    1.6 

    1.8 

    1.6 

    1.7 

    Telecommunications 

    *   

    * 

    * 

    - 

    - 

    - 

    Theaters 

    5.7   

    5.0 

    4.9 

    5.1 

    5.3 

    6.2 

    Transportationservices 

    0.1   

    0.1 

    0.1 

    0.1 

    0.1 

    0.1 

    Wholesaleclubs 

    3.2   

    3.3 

    3.6 

    3.8 

    4.1 

    3.9 

    Other 

    *   

    * 

    * 

    * 

    * 

    0.1 

    Retailindustries 

    82.9%   

    82.5% 

    81.5% 

    81.1% 

    80.4% 

    79.8% 

    * Lessthan0.1%

    Includesrentalrevenueforallpropertiesownedattheendofeachperiodpresented,includingrevenuefrompropertiesreclassifiedasdiscontinuedoperations.

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  • TableofContents

    Industry Diversification (continued)

     

     

    Percentage of  Rental Revenue  

     

     

    For the                       

     

     

    Quarter Ended   

    For the Years Ended 

     

     

    December 31,   

    Dec 31, 

    Dec 31, 

    Dec 31, 

    Dec 31, 

    Dec 31, 

     

     

    2017   

    2017    

    2016    

    2015    

    2014    

    2013    

    Non-retailindustries                     

    Aerospace 

    0.9%   

    0.9% 

    1.0% 

    1.1% 

    1.2% 

    1.2% 

    Beverages 

    2.6   

    2.7 

    2.6 

    2.7 

    2.8 

    3.3 

    Consumerappliances 

    0.5   

    0.5 

    0.5 

    0.6 

    0.5 

    0.6 

    Consumergoods 

    0.7   

    0.8 

    0.9 

    0.9 

    0.9 

    1.0 

    Craftsandnovelties 

    0.1   

    0.1 

    0.1 

    0.1 

    0.1 

    0.1 

    Diversifiedindustrial 

    0.8   

    0.9 

    0.9 

    0.8 

    0.5 

    0.2 

    Electricutilities 

    0.1   

    0.1 

    0.1 

    0.1 

    0.1 

    * 

    Equipmentservices 

    0.4   

    0.4 

    0.5 

    0.4 

    0.5 

    0.4 

    Financialservices 

    0.3   

    0.3 

    0.4 

    0.4 

    0.4 

    0.5 

    Foodprocessing 

    0.6   

    0.6 

    1.1 

    1.2 

    1.4 

    1.5 

    Generalmerchandise 

    0.2   

    0.2 

    0.3 

    0.3 

    0.3 

    - 

    Governmentservices 

    0.9   

    1.0 

    1.1 

    1.2 

    1.3 

    1.4 

    Healthcare 

    0.5   

    0.6 

    0.6 

    0.7 

    0.7 

    0.8 

    Homefurnishings 

    0.1   

    0.1 

    0.1 

    0.2 

    0.2 

    0.2 

    Homeimprovement 

    0.1   

    * 

    - 

    - 

    - 

    - 

    Insurance 

    0.1   

    0.1 

    0.1 

    0.1 

    0.1 

    0.1 

    Machinery 

    0.1   

    0.1 

    0.1 

    0.1 

    0.2 

    0.2 

    Othermanufacturing 

    0.8   

    0.8 

    0.8 

    0.7 

    0.7 

    0.6 

    Packaging 

    1.1   

    1.0 

    0.8 

    0.8 

    0.8 

    0.9 

    Paper 

    0.1   

    0.1 

    0.1 

    0.1 

    0.1 

    0.2 

    Shoestores 

    0.2   

    0.2 

    0.2 

    0.2 

    0.8 

    0.9 

    Telecommunications 

    0.6   

    0.6 

    0.6 

    0.7 

    0.7 

    0.7 

    Transportationservices 

    5.2   

    5.3 

    5.4 

    5.3 

    5.1 

    5.3 

    Other 

    0.1   

    0.1 

    0.2 

    0.2 

    0.2 

    0.1 

    Non-retailindustries 

    17.1%   

    17.5% 

    18.5% 

    18.9% 

    19.6% 

    20.2% 

    Totals 

    100.0%   

    100.0% 

    100.0% 

    100.0% 

    100.0% 

    100.0% 

    * Lessthan0.1%

    Includesrentalrevenueforallpropertiesownedattheendofeachperiodpresented,includingrevenuefrompropertiesreclassifiedasdiscontinuedoperations.

    -15-

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  • TableofContents

    Property Type CompositionThefollowingtablesetsforthcertainpropertytypeinformationregardingourpropertyportfolioasofDecember31,2017(dollarsinthousands):

     

    Approximate 

    Rental Revenue for 

    Percentage of 

     

    Number of 

    Leasable 

    the Quarter Ended 

    Rental 

    Property Type 

    Properties 

    Square Feet 

    December 31, 2017 Revenue 

    Retail

    4,999

    60,289,500

    $

    240,006

    80.7%

    Industrial

    116

    26,023,400

    37,331

    12.5

    Office

    42

    3,104,700

    13,579

    4.6

    Agriculture

    15

    184,500

    6,571

    2.2

    Totals

    5,172

    89,602,100

    $

    297,487

    100.0%

    (1) IncludesrentalrevenueforallpropertiesownedatDecember31,2017.

    Excludesrevenueof$1,412fromsoldproperties.

    Tenant DiversificationThefollowingtablesetsforththelargesttenantsinourpropertyportfolio,expressedasapercentageoftotalrentalrevenueatDecember31,2017:

    Tenant 

    Number of Properties

     

    % of Rental Revenue

    Walgreens

    203

    6.5%

    FedEx

    43

    5.1%

    LAFitness

    53

    4.0%

    DollarGeneral

    532

    3.9%

    DollarTree/FamilyDollar

    468

    3.6%

    AMCTheatres

    32

    3.6%

    Walmart/Sam’sClub

    51

    3.0%

    CircleK(Couche-Tard)

    298

    2.5%

    BJ’sWholesaleClub

    15

    2.2%

    TreasuryWineEstates

    17

    2.1%

    LifeTimeFitness

    11

    2.0%

    RegalCinemas

    25

    1.9%

    CVSPharmacy

    76

    1.9%

    SuperAmerica/WesternRefining(Tesoro)

    134

    1.8%

    GPMInvestments/FasMart

    216

    1.8%

    RiteAid

    69

    1.7%

    7-Eleven

    111

    1.7%

    TBCCorporation(Sumitomo)

    159

    1.5%

    Kroger

    14

    1.5%

    FreedomRoads/CampingWorld

    19

    1.2%

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  • TableofContents

    Service Category Diversification for our Retail PropertiesThefollowingtablesetsforthcertaininformationregardingthe4,999retailpropertiesincludedinour5,172totalpropertiesownedatDecember31,2017,classifiedaccordingtothebusinesstypesandthelevelofservicestheyprovideatthepropertylevel(dollarsinthousands):

     

    Number of 

    Retail Rental Revenue 

    Percentage of 

     

    Retail 

    for the Quarter Ended 

    Retail Rental 

     

    Properties 

    December 31, 2017 Revenue 

    Tenants Providing Services

    Automotivecollisionservices

    58

    $ 2,938

    1.2%

    Automotiveservice

    271

    7,031

    2.9

    Childcare

    204

    5,380

    2.2

    Education

    14

    839

    0.3

    Entertainment

    11

    1,363

    0.6

    Equipmentservices

    2

    111

    *

    Financialservices

    218

    6,232

    2.6

    Healthandfitness

    93

    22,337

    9.3

    Healthcare

    27

    1,139

    0.5

    Telecommunications

    1

    47

    *

    Theaters

    60

    17,038

    7.1

    Transportationservices

    2

    229

    0.1

    Other

    8

    133

    0.1

    969

    64,817

    26.9

    Tenants Selling Goods and Services

       

    Automotiveparts(withinstallation)

    69

    1,631

    0.7

    Automotivetireservices

    194

    7,401

    3.1

    Conveniencestores

    867

    27,758

    11.6

    Motorvehicledealerships

    28

    5,749

    2.4

    Petsuppliesandservices

    12

    738

    0.3

    Restaurants-casualdining

    313

    10,339

    4.3

    Restaurants-quickservice

    641

    16,287

    6.8

    2,124

    69,903

    29.2

    Tenants Selling Goods

       

    Apparelstores

    28

    4,328

    1.8

    Automotiveparts

    116

    2,451

    1.0

    Bookstores

    1

    104

    *

    Consumerelectronics

    10

    1,097

    0.5

    Craftsandnovelties

    15

    1,618

    0.7

    Dollarstores

    1,000

    22,830

    9.5

    Drugstores

    342

    30,214

    12.6

    Generalmerchandise

    82

    5,438

    2.3

    Grocerystores

    112

    13,555

    5.6

    Homefurnishings

    57

    2,283

    1.0

    Homeimprovement

    66

    7,673

    3.2

    Jewelry

    4

    175

    0.1

    Officesupplies

    8

    564

    0.2

    Shoestores

    2

    182

    0.1

    Sportinggoods

    31

    3,369

    1.4

    Wholesaleclubs

    32

    9,405

    3.9

    1,906

    105,286

    43.9

    TotalRetailProperties

    4,999

    $ 240,006

    100.0%

    * Lessthan0.1%

    IncludesrentalrevenueforallretailpropertiesownedatDecember31,2017.

    Excludesrevenueof$57,481fromnon-retailpropertiesand$1,412fromsoldproperties.

    -17-

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  • TableofContents

    Lease ExpirationsThefollowingtablesetsforthcertaininformationregardingourpropertyportfolioregardingthetimingoftheleasetermexpirationsinourportfolio(excludingrightstoextendaleaseattheoptionofthetenant)onour5,062netleased,single-tenantpropertiesandtheircontributiontorentalrevenueforthequarterendedDecember31,2017(dollarsinthousands):

    Total Portfolio Expiring Approx.

     

    % ofLeases Leasable Rental Rental

    Year Retail Non-Retail Sq. Feet Revenue  Revenue

    2018 195 4 2,258,600 $ 8,053 2.8%2019 262 10 3,853,800 13,279 4.52020 213 10 4,166,100 12,614 4.32021 294 12 5,284,100 14,869 5.12022 358 18 9,758,900 20,152 6.92023 471 22 8,109,600 24,436 8.42024 218 11 3,844,700 11,641 4.02025 333 13 5,179,500 20,172 6.92026 315 5 4,685,500 15,762 5.42027 535 4 6,199,400 22,417 7.72028 298 9 7,087,100 18,169 6.22029 400 7 7,386,300 21,473 7.32030 95 13 2,718,500 14,768 5.02031 283 25 5,563,500 25,209 8.62032 81 4 3,060,700 10,776 3.7

    2033-2043 541 3 7,267,800 38,647 13.2

    Totals 4,892 170 86,424,100 $ 292,437 100.0%

    * Lessthan0.1%

    Excludes28multi-tenantpropertiesand83vacantproperties,oneofwhichisavacant,multi-tenantproperty.Theleaseexpirationsforpropertiesunderconstructionarebasedontheestimateddateofcompletionofthoseproperties.

    Excludesrevenueof$5,050from28multi-tenantpropertiesand83vacantproperties,and$1,412fromsoldpropertiesatDecember31,2017.

    -18-

    (1)

    (2)

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    (2)

  • TableofContents

    Geographic DiversificationThefollowingtablesetsforthcertainstate-by-stateinformationregardingourpropertyportfolioasofDecember31,2017(dollarsinthousands):

           

    Approximate 

    Rental Revenue for 

    Percentage of 

     

    Number of 

    Percent 

    Leasable 

    the Quarter Ended 

    Rental 

    State 

    Properties 

    Leased 

    Square Feet 

    December 31, 2017 Revenue 

    Alabama

    164

    98%

    1,567,500

    $ 5,603

    1.9%

    Alaska

    3

    67

    275,900

    566

    0.2

    Arizona

    115

    99

    1,808,300

    6,653

    2.2

    Arkansas

    74

    100

    887,700

    2,035

    0.7

    California

    186

    99

    5,316,000

    27,804

    9.3

    Colorado

    83

    99

    1,458,400

    4,738

    1.6

    Connecticut

    22

    91

    521,000

    2,042

    0.7

    Delaware

    18

    100

    93,000

    718

    0.2

    Florida

    373

    99

    4,092,300

    17,322

    5.8

    Georgia

    258

    99

    4,315,900

    12,718

    4.3

    Idaho

    12

    100

    87,000

    419

    0.1

    Illinois

    253

    98

    5,791,200

    18,482

    6.2

    Indiana

    173

    97

    2,154,600

    8,578

    2.9

    Iowa

    42

    88

    2,978,500

    3,836

    1.3

    Kansas

    94

    96

    1,857,100

    4,869

    1.6

    Kentucky

    68

    99

    1,667,700

    4,198

    1.4

    Louisiana

    106

    97

    1,547,900

    4,169

    1.4

    Maine

    15

    100

    174,700

    1,121

    0.4

    Maryland

    36

    97

    1,012,300

    4,582

    1.5

    Massachusetts

    79

    96

    729,400

    3,641

    1.2

    Michigan

    163

    99

    1,781,000

    6,475

    2.2

    Minnesota

    159

    100

    2,028,400

    9,907

    3.3

    Mississippi

    140

    95

    1,623,200

    4,659

    1.6

    Missouri

    152

    97

    2,688,000

    8,414

    2.8

    Montana

    11

    100

    87,000

    501

    0.2

    Nebraska

    38

    100

    749,700

    1,865

    0.6

    Nevada

    23

    96

    1,092,700

    1,459

    0.5

    NewHampshire

    19

    100

    315,800

    1,547

    0.5

    NewJersey

    75

    99

    1,000,900

    5,546

    1.9

    NewMexico

    32

    100

    355,700

    1,024

    0.3

    NewYork

    99

    99

    2,753,400

    14,728

    5.0

    NorthCarolina

    182

    99

    2,792,500

    8,212

    2.8

    NorthDakota

    6

    100

    117,700

    211

    0.1

    Ohio

    256

    99

    6,774,600

    15,418

    5.2

    Oklahoma

    134

    100

    1,653,500

    4,660

    1.6

    Oregon

    28

    100

    593,300

    2,399

    0.8

    Pennsylvania

    168

    98

    1,956,800

    8,683

    2.9

    RhodeIsland

    4

    100

    161,600

    841

    0.3

    SouthCarolina

    159

    99

    1,626,700

    6,571

    2.2

    SouthDakota

    15

    100

    195,200

    468

    0.2

    Tennessee

    234

    98

    3,565,000

    9,203

    3.1

    Texas

    519

    99

    9,583,400

    27,830

    9.4

    Utah

    22

    100

    970,600

    2,272

    0.8

    Vermont

    5

    100

    98,000

    489

    0.2

    Virginia

    169

    96

    3,114,700

    8,332

    2.8

    Washington

    43

    98

    733,400

    3,097

    1.0

    WestVirginia

    18

    100

    395,600

    1,228

    0.4

    Wisconsin

    115

    100

    2,374,300

    6,929

    2.3

    Wyoming

    6

    100

    54,700

    276

    0.1

    PuertoRico

    4

    100

    28,300

    149

    *

    Totals\Average

    5,172

    98%

    89,602,100

    $ 297,487

    100.0%

    * Lessthan0.1%IncludesrentalrevenueforallpropertiesownedatDecember31,2017.

    Excludesrevenueof$1,412fromsoldproperties.

    -19-

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  • TableofContents

    FORWARD-LOOKING STATEMENTS

    ThisAnnualReportonForm10-K,includingthedocumentsincorporatedbyreference,containsforward-lookingstatementswithinthemeaningofthePrivateSecuritiesLitigationReformActof1995,Section27AoftheSecuritiesActof1933,asamended,andSection21EoftheExchangeActof1934,asamended.Whenusedinthisannualreport,thewords“estimated”,“anticipated”,“expect”,“believe”,“intend”andsimilarexpressionsareintendedtoidentifyforward-lookingstatements.Forward-lookingstatementsincludediscussionsofstrategy,plans,orintentionsofmanagement.Forward-lookingstatementsaresubjecttorisks,uncertainties,andassumptionsaboutRealtyIncomeCorporation,including,amongotherthings:

    ·

    Ouranticipatedgrowthstrategies;·

    Ourintentiontoacquireadditionalpropertiesandthetimingoftheseacquisitions;·

    Ourintentiontosellpropertiesandthetimingofthesepropertysales;·

    Ourintentiontore-leasevacantproperties;·

    Anticipatedtrendsinourbusiness,includingtrendsinthemarketforlong-term,netleasesoffreestanding,single-tenantproperties;and·

    Futureexpendituresfordevelopmentprojects.

    Futureeventsandactualresults,financialandotherwise,maydiffermateriallyfromtheresultsdiscussedintheforward-lookingstatements.Inparticular,someofthefactorsthatcouldcauseactualresultstodiffermateriallyare:

    ·

    Ourcontinuedqualificationasarealestateinvestmenttrust;·

    Generalbusinessandeconomicconditions;·

    Competition;·

    Fluctuatinginterestrates;·

    Accesstodebtandequitycapitalmarkets;·

    Continuedvolatilityanduncertaintyinthecreditmarketsandbroaderfinancialmarkets;·

    Otherrisksinherentintherealestatebusinessincludingtenantdefaults,potentialliabilityrelatingtoenvironmentalmatters,illiquidityofreal

    estateinvestments,andpotentialdamagesfromnaturaldisasters;·

    Impairmentsinthevalueofourrealestateassets;·

    ChangesinthetaxlawsoftheUnitedStatesofAmerica;·

    Theoutcomeofanylegalproceedingstowhichweareapartyorwhichmayoccurinthefuture;and·

    Actsofterrorismandwar.

    Additionalfactorsthatmaycauserisksanduncertaintiesincludethosediscussedinthesectionsentitled“Business”,“RiskFactors”and“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”inthisAnnualReport.

    Readersarecautionednottoplaceunduerelianceonforward-lookingstatements,whichspeakonlyasofthedatethatthisannualreportwasfiledwiththeSecuritiesandExchangeCommission,orSEC.

    Whileforward-lookingstatementsreflectourgoodfaithbeliefs,theyarenotguaranteesoffutureperformance.Weundertakenoobligationtopubliclyreleasetheresultsofanyrevisionstotheseforward-lookingstatementsthatmaybemadetoreflecteventsorcircumstancesafterthedateofthisannualreportortoreflecttheoccurrenceofunanticipatedevents.Inlightoftheserisksanduncertainties,theforward-lookingeventsdiscussedinthisannualreportmightnotoccur.

    Item 1A: 

    Risk Factors

    This“RiskFactors”sectioncontainsreferencestoour“capitalstock”andtoour“stockholders.”

    Unlessexpresslystatedotherwise,thereferencestoour“capitalstock”representourcommonstockandanyclassorseriesofourpreferredstock,whilethereferencestoour“stockholders”representholdersofourcommonstockandanyclassorseriesofourpreferredstock.

    -20-

  • TableofContents

    In order to grow w e need to continue to acquire investment properties. The acquisition of investment properties may be subject tocompetitive pressures.

    Wefacecompetitionintheacquisitionandoperationofourproperties.Weexpectcompetitionfrom:

    ·

    Businesses;·

    Individuals;·

    Fiduciaryaccountsandplans;and·

    Otherentitiesengagedinrealestateinvestmentandfinancing.

    Someofthesecompetitorsarelargerthanweareandhavegreaterfinancialresources.Thiscompetitionmayresultinahighercostforpropertieswewishtopurchase.

    Negative market conditions or adverse events affecting our existing or potential tenants, or the industries in which they operate, couldhave an adverse impact on our ability to attract new tenants, re-lease space, collect rent or renew leases, which could adversely affect ourcash flow from operations and inhibit growth.

    Cashflowfromoperationsdependsinpartonourabilitytoleasespacetotenantsoneconomicallyfavorableterms.Wecouldbeadverselyaffectedbyvariousfactsandeventsoverwhichwehavelimitedornocontrol,suchas:

    ·

    Lackofdemandinareaswhereourpropertiesarelocated;·

    Inabilitytoretainexistingtenantsandattractnewtenants;·

    Oversupplyofspaceandchangesinmarketrentalrates;·

    Declinesinourtenants’creditworthinessandabilitytopayrent,whichmaybeaffectedbytheiroperations,economicdownturnsand

    competitionwithintheirindustriesfromotheroperators;·

    Defaultsbyandbankruptciesoftenants,failureoftenantstopayrentonatimelybasis,orfailureoftenantstocomplywiththeircontractual

    obligations;·

    Economicorphysicaldeclineoftheareaswherethepropertiesarelocated;and·

    Deteriorationofphysicalconditionofourproperties.

    Atanytime,anytenantmayexperienceadownturninitsbusinessthatmayweakenitsoperatingresultsoroverallfinancialcondition.Asaresult,atenantmaydelayleasecommencement,failtomakerentalpaymentswhendue,declinetoextendaleaseuponitsexpiration,becomeinsolvent,ordeclarebankruptcy.Anytenantbankruptcyorinsolvency,leasingdelayorfailuretomakerentalpaymentswhenduecouldresultintheterminationofthetenant’sleaseandmateriallossestous.

    Iftenantsdonotrenewtheirleasesastheyexpire,wemaynotbeabletorentorselltheproperties.

    Furthermore,leasesthatarerenewed,andsomenewleasesforpropertiesthatarere-leased,mayhavetermsthatarelesseconomicallyfavorablethanexpiringleaseterms,ormayrequireustoincursignificantcosts,suchasrenovations,tenantimprovements,orleasetransactioncosts.Negativemarketconditionsmaycauseustosellvacantpropertiesforlessthantheircarryingvalue,whichcouldresultinimpairments.Anyoftheseeventscouldadverselyaffectcashflowfromoperationsandourabilitytomakedistributionstostockholdersandserviceindebtedness.Asignificantportionofthecostsofowningproperty,suchasrealestatetaxes,insurance,andmaintenance,arenotnecessarilyreducedwhencircumstancescauseadecreaseinrentalrevenuefromtheproperties.Inaweakenedfinancialcondition,tenantsmaynotbeabletopaythesecostsofownershipandwemaybeunabletorecovertheseoperatingexpensesfromthem.

    Further,theoccurrenceofatenantbankruptcyorinsolvencycoulddiminishtheincomewereceivefromthetenant’sleaseorleases.Inaddition,abankruptcycourtmightauthorizethetenanttoterminateitsleaseswithus.Ifthathappens,ourclaimagainstthebankrupttenantforunpaidfuturerentwouldbesubjecttostatutorylimitationsthatmostlikelywouldresultinrentpaymentsthatwouldbesubstantiallylessthantheremainingrentweareowedundertheleasesorwemayelectnottopursueclaimsagainstatenantforterminatedleases.Inaddition,anyclaimwehaveforunpaidpastrent,ifany,maynotbepaidinfull,oratall.Moreover,inthecaseofatenant’sleasesthatarenotterminatedastheresultofitsbankruptcy,wemayberequiredorelecttoreducetherentpayableunderthoseleasesorprovideotherconcessions,reducingamountswereceiveunderthoseleases.Asaresult,tenantbankruptciesmayhaveamaterialadverseeffectonourresultsofoperations.

    Anyoftheseeventscouldadverselyaffectourcashflowfromoperationsandourabilitytomakedistributionstostockholdersandserviceourindebtedness.

    -21-

  • TableofContents

    Eighty-threeofourpropertieswereavailableforleaseorsaleatDecember31,2017,82ofwhichweresingle-tenantproperties.AtDecember31,2017,55ofourpropertiesunderleasewereunoccupiedandavailableforsubleasebythetenants,allofwhichwerecurrentwiththeirrentandotherobligations.During2017,eachofourtenantsaccountedforlessthan10%ofourrentalrevenue.

    For2017,ourtenantsinthe“drugstore”industryaccountedforapproximately10.6%ofourrentalrevenue.Adownturninthisindustry,whethernationwideorlimitedtospecificsectorsoftheUnitedStates,orachangeinlegislationrelatingtoprescriptiondrugs,couldadverselyaffecttenantsinthisindustry,whichinturncouldhaveamaterialadverseeffectonourfinancialposition,resultsofoperations,ourabilitytopaytheprincipalofandinterestonourdebtsecuritiesandotherindebtednessandtomakedistributionsonourcommonstock,includingthecommonstockofferedhereby,andpreferredstock.

    Individually,eachoftheotherindustriesinourpropertyportfolioaccountedforlessthan10%ofourrentalrevenuefor2017.Nevertheless,downturnsintheseindustriescouldalsoadverselyaffectourtenants,whichinturncouldalsohaveamaterialadverseeffectonourfinancialposition,resultsofoperationsandourabilitytopaytheprincipalofandinterestonourdebtsecuritiesandotherindebtednessandtomakedistributionsonourcommonstock,andpreferredstock.Inaddition,wemayinthefuturemakeadditionalinvestmentsinthe“drugstore”industry,whichwouldincreasethisindustry’spercentageofourrentalrevenues,therebyincreasingtheeffectthatsuchadownturninthisindustrywouldhaveonus.

    Inaddition,someofourpropertiesareleasedtotenantsthatmayhavelimitedfinancialandotherresources,andtherefore,theyaremorelikelytobeadverselyaffectedbyadownturnintheirrespectivebusinessesorintheregional,national,orinternationaleconomy.

    Furthermore,wehavemadeandmaycontinuetomakeselectedacquisitionsofpropertiesthatfalloutsideourhistoricalfocusonfreestanding,single-tenant,netleaselocationsintheUnitedStates.Wemaybeexposedtoavarietyofnewrisksbyexpandingintonewpropertytypesand/ornewjurisdictionsoutsidetheUnitedStatesandpropertiesleasedtotenantsengagedinnon-retailbusinesses.Theserisksmayincludelimitedexperienceinmanagingcertaintypesofnewproperties,newtypesofrealestatelocationsandleasestructures,andthelawsandcultureofanynon-U.S.jurisdiction.

    As a property owner, we may be subject to unknown environmental liabilities.Investmentsinrealpropertycancreateapotentialforenvironmentalliability.Anownerofpropertycanfaceliabilityforenvironmentalcontaminationcreatedbythepresenceordischargeofhazardoussubstancesontheproperty.Wecanfacesuchliabilityregardlessof:

    ·

    Ourknowledgeofthecontamination;·

    Thetimingofthecontamination;·

    Thecauseofthecontamination;or·

    Thepartyresponsibleforthecontaminationoftheproperty.

    Theremaybeenvironmentalconditionsassociatedwithourpropertiesofwhichweareunaware.Inthatregard,anumberofourpropertiesareleasedtooperatorsofconveniencestoresthatsellpetroleum-basedfuels,aswellastooperatorsofoilchangeandtune-upfacilitiesandoperatorsthatusechemicalsandotherwasteproducts.Thesefacilities,andsomeotherofourproperties,use,ormayhaveusedinthepast,undergroundliftsorundergroundtanksforthestorageofpetroleum-basedorwasteproducts,whichcouldcreateapotentialforthereleaseofhazardoussubstances.

    Thepresenceofhazardoussubstancesonapropertymayadverselyaffectourabilitytoleaseorsellthatpropertyandwemayincursubstantialremediationcostsorthirdpartyliabilityclaims.Althoughourleasesgenerallyrequireourtenantstooperateincompliancewithallapplicablefederal,state,andlocalenvironmentallaws,ordinancesandregulations,andtoindemnifyusagainstanyenvironmentalliabilitiesarisingfromthetenants’activitiesontheproperty,wecouldneverthelessbesubjecttoliability,includingstrictliability,byvirtueofourownershipinterest.Therealsocanbenoassurancethatourtenantscouldorwouldsatisfytheirindemnificationobligationsundertheirleases.Thediscoveryofenvironmentalliabilitiesattachedtoourpropertiescouldhaveanadverseeffectonourresultsofoperations,ourfinancialcondition,orourabilitytomakedistributionstostockholdersandtopaytheprincipalofandinterestonourdebtsecuritiesandotherindebtedness.

    -22-

  • TableofContents

    Inaddition,severalofourpropertieswerebuiltduringtheperiodwhenasbestoswascommonlyusedinbuildingconstructionandwemayacquireotherbuildingswithasbestosinthefuture.Environmentallawsgovernthepresence,maintenance,andremovalofasbestos-containingmaterials,orACMs,andrequirethatownersoroperatorsofbuildingscontainingasbestosproperlymanageandmaintaintheasbestos,thattheyadequatelyinformortrainthosewhomaycomeintocontactwithasbestosandthattheyundertakespecialprecautions,includingremovalorotherabatementintheeventthatasbestosisdisturbedduringrenovationordemolitionofabuilding.Theselawsmayimposefinesandpenaltiesonbuildingownersoroperatorsforfailuretocomplywiththeserequirementsandmayallowthirdpartiestoseekrecoveryfromownersoroperatorsforpersonalinjuryassociatedwithexposuretoasbestosfibers.

    Itispossiblethatourinsurancecouldbeinsufficienttoaddressanyparticularenvironmentalsituationand/orthat,inthefuture,wecouldbeunabletoobtaininsuranceforenvironmentalmattersatareasonablecost,oratall.Ourtenantsaregenerallyresponsiblefor,andindemnifyusagainst,liabilitiesforenvironmentalmattersthatariseduringtheleasetermsasaresultoftenants’activitiesontheproperties.Forpropertiesthathaveundergroundstoragetanks,inadditiontoprovidinganindemnityinourfavor,thetenantsgenerallyarerequiredtomeetapplicablestatefinancialassuranceobligations,includingmaintainingcertainminimumnetworthrequirements,obtainingenvironmentalinsurance,orrelyinguponthestatetrustfundswhereavailableinthestateswherethesepropertiesarelocatedtoreimburseresponsiblepartiesforcostsofenvironmentalremediation.

    However,itispossiblethatoneormoreofourtenantscouldfailtohavesufficientfundstocoveranysuchindemnificationortomeetapplicablestatefinancialassuranceobligations,andthuswemaystillbeobligatedtopayforanysuchenvironmentalliabilities.

    Compliance.

    Wehavenotbeennotifiedbyanygovernmentalauthority,andarenototherwiseaware,ofanymaterialnoncompliance,liability,orclaimrelatingtohazardoussubstances,toxicsubstances,orpetroleumproductsinconnectionwithanyofourproperties.Inaddition,webelieveweareincomplianceinallmaterialrespectswithallpresentfederal,state,andlocallawsrelatingtoACMs.Nevertheless,ifenvironmentalcontaminationshouldexist,wecouldbesubjecttoliability,includingstrictliability,byvirtueofourownershipinterest.

    Insurance and Indemnity.

    InJuly2012,weenteredintoaten-yearenvironmentalinsurancepolicythatexpiresinJuly2022andreplacedourpreviousseven-yearenvironmentalinsurancepolicy.Thelimitsonourcurrentpolicyare$10millionperoccurrenceand$60millionintheaggregate.

    Thelimitsontheexcesspolicyare$5millionperoccurrenceand$10millionintheaggregate.

    Therefore,theprimaryandexcessten-yearpoliciestogetherprovideatotallimitof$15millionperoccurrenceand$70millionintheaggregate.

    Itispossiblethatourinsurancecouldbeinsufficienttoaddressanyparticularenvironmentalsituationandthat,inthefuture,wecouldbeunabletoobtaininsuranceforenvironmentalmattersatareasonablecost,oratall.Ourtenantsaregenerallyresponsiblefor,andindemnifyusagainst,liabilitiesforenvironmentalmattersthatoccuronourproperties.

    Forpropertiesthathaveundergroundstoragetanks,inadditiontoprovidinganindemnityinourfavor,thetenantsgenerallyobtainenvironmentalinsuranceorrelyuponthestatefundsinthestateswherethesepropertiesarelocatedtoreimbursetenantsforenvironmentalremediation.

    If we fail to qualify as a REIT, the amount of dividends we are able to pay would decrease, which could adversely affect the market price ofour capital stock and could adversely affect the value of our debt securities.CommencingwithourtaxableyearendedDecember31,1994,webelievethatwehavebeenorganizedandhaveoperated,andweintendtocontinuetooperate,soastoqualifyasaREITunderSections856through860oftheCode.However,wecannotassureyouthatwehavebeenorganizedorhaveoperatedinamannerthathassatisfiedtherequirementsforqualificationasaREIT,orthatwewillcontinuetobeorganizedoroperateinamannerthatwillallowustocontinuetoqualifyasaREIT.

    QualificationasaREITinvolvesthesatisfactionofnumerousrequirementsunderhighlytechnicalandcomplexCodeprovisions,forwhichthereareonlylimitedjudicialandadministrativeinterpretations,aswellasthedeterminationofvariousfactualmattersandcircumstancesnotentirelywithinourcontrol.

    Forexample,inordertoqualifyasaREIT,atleast95%ofourgrossincomeineachyearmustbederivedfromqualifyingsources,andwemustpaydistributionstostockholdersaggregatingannuallyatleast90%ofourtaxableincome(excludingnetcapitalgains).

    -23-

  • TableofContents

    IfwefailtosatisfyalloftherequirementsforqualificationasaREIT,wemaybesubjecttocertainpenaltytaxesor,insomecircumstances,wemayfailtoqualifyasaREIT.

    IfweweretofailtoqualifyasaREITinanytaxableyear:

    ·

    WewouldberequiredtopayregularU.S.federalcorporateincometaxonourtaxableincome;·

    Wewouldnotbeallowedadeductionforamountsdistributedtoourstockholdersincomputingourtaxableincome;·

    WecouldbedisqualifiedfromtreatmentasaREITforthefourtaxableyearsfollowingtheyearduringwhichqualificationislost;·

    Wewouldnolongerberequiredtomakedistributionstostockholders;and·

    Thistreatmentwouldsubstantiallyreduceamountsavailableforinvestmentordistributiontostockholdersbecauseoftheadditionaltaxliability

    fortheyearsinvolved,whichcouldhaveamaterialadverseeffectonthemarketpriceofourcapitalstockandthevalueofourdebtsecurities.

    EvenifwequalifyforandmaintainourREITstatus,wemaybesubjecttocertainfederal,state,andlocaltaxesonourincomeandproperty.Forexample,ifwehavenetincomefromaprohibitedtransaction,thatincomewillbesubjecttoa100%tax.Inaddition,ourtaxableREITsubsidiaries,includingCrest,aresubjecttofederalandstatetaxesattheapplicabletaxratesontheirincomeandproperty.

    Anyfailuretocomplywithlegalandregulatorytaxobligationscouldadverselyaffectourabilitytoconductbusinessandcouldadverselyaffectthemarketpriceofourcapitalstockandthevalueofourdebtsecurities.

    Legislative or other actions affecting REITs could have a negative effect on us or our investors. TherulesdealingwithfederalincometaxationareconstantlyunderreviewbypersonsinvolvedinthelegislativeprocessandbytheInternalRevenueServices,ortheIRS,andtheU.S.DepartmentoftheTreasury,ortheTreasury.Changestothetaxlaws,withorwithoutretroactiveapplication,couldadverselyaffectusorourinvestors,includingholdersofourcommonstockordebtsecurities.Wecannotpredicthowchangesinthetaxlawsmightaffectusorourinvestors.Newlegislation,TreasuryRegulations,administrativeinterpretationsorcourtdecisionscouldsignificantlyandnegativelyaffectourabilitytoqualifyasaREIT,thefederalincometaxconsequencesofsuchqualification,orthefederalincometaxconsequencesofaninvestmentinus.Also,thelawrelatingtothetaxtreatmentofotherentities,oraninvestmentinotherentities,couldchange,makinganinvestmentinsuchotherentitiesmoreattractiverelativetoaninvestmentinaREIT.

    RecentlyenactedU.S.taxlegislation,orthe2017TaxLegislation,hassignificantlychangedtheU.S.federalincometaxationofU.S.businessesandtheirowners,includingREITsandtheirstockholders.Wearestillevaluatingthepotentialimpactofthe2017TaxLegislationonus,butthechangesmadebythe2017TaxLegislationthatcouldaffectusandourinvestorsinclude:

    ·

    TemporarilyreducingindividualU.S.federalincometaxratesonordinaryincome,includingthereductionofthehighestindividualU.S.federalincometaxratefrom39.6%to37%fortaxableyearsbeginningafterDecember31,2017andbeforeJanuary1,2026;

    ·

    Permanentlyeliminatingtheprogressivecorporatetaxratestructure,whichpreviouslyimposedamaximumcorporatetaxrateof35%,andreplacingitwithaflatcorporatetaxrateof21%;

    ·

    Permittingadeductionforcertaindomesticqualifiedbusinessincomefrompass-throughincomeentities,includingdividendsreceivedbyourstockholdersfromusthatarenotdesignatedbyusascapitalgaindividendsorqualifieddividendincome,whichwillallowindividuals,trusts,andestatestodeductupto20%ofsuchamountsfortaxableyearsbeginningafterDecember31,2017andbeforeJanuary1,2026;

    ·

    Reducingthehighestrateofwithholdingwithrespecttoourdistributionstonon-U.S.stockholdersthataretreatedasattributabletogainsfromthesaleorexchangeofU.S.realpropertyinterestsfrom35%to21%;

    ·

    LimitingourdeductionfornetoperatinglossesarisingintaxableyearsbeginningafterDecember31,2017to80%ofREITtaxableincome(priortotheapplicationofthedividendspaiddeduction);

    ·

    Generallylimitingthedeductionfornetbusinessinterestexpenseinexcessof30%ofabusiness’s“adjustedtaxableincome,”exceptfortaxpayers(includingmostequityREITs)thatengageincertainrealestatebusinessesandelectoutofthisrule(providedthatsuchelectingtaxpayersmustuseanalternativedepreciationsystemwithlongerdepreciationperiods);and

    ·

    Eliminatingthecorporatealternativeminimumtax.

    -24-

  • TableofContents

    Manyofthesechangesareeffectiveimmediately,withoutanytransitionperiodsorgrandfatheringforexistingtransactions.Thelegislationisunclearinmanyrespectsandcouldbesubjecttopotentialamendmentsandtechnicalcorrections,aswellasinterpretationsandimplementingregulationsbytheTreasuryandIRS,anyofwhichcouldlessenorincreasetheimpactofthelegislation.Inaddition,itisunclearhowtheseU.S.federalincometaxchangeswillaffectstateandlocaltaxation,whichoftenusesfederaltaxableincomeasastartingpointforcomputingstateandlocaltaxliabilities.Whilesomeofthechangesmadebythetaxlegislationmayadverselyaffectusinoneormorereportingperiodsandprospectively,otherchangesmaybebeneficialonagoingforwardbasis.Wecontinuetoworkwithourtaxadvisorsandauditorstodeterminethefullimpactthattherecenttaxlegislationasawholewillhaveonus.

    Distribution requirements imposed by law limit our flexibility.TomaintainourstatusasaREITforfederalincometaxpurposes,wegenerallyarerequiredtodistributetoourstockholdersatleast90%ofourtaxableincome,excludingnetcapital


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