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2017PROXY STATEMENT
April 3, 2017
2, 2018
Dear Stockholder:
You are cordially invited to attend our 20172018 Annual Meeting of Stockholders (the Annual Meeting) to be held at 9:00 a.m., Pacific Time on May 16, 201718, 2018 at the San Diego Marriott Del Mar, 11966 El Camino Real, San Diego, California 92130.
The business that will be conducted at the Annual Meeting is described in the Notice of the 20172018 Annual Meeting of Stockholders and Proxy Statement.
We are pleased with the company’s operating performance in 2016, with solid2017, achieving another year of favorable earnings growth and stockholder returns.for our stockholders. We invested a record $1.86 billionselectively in high-quality real estate properties,that met our investment strategy, funded the acquisitions with attractively priced permanent and long-term capital, and actively managed our portfolio to maximize value. In 2016, we also surpassed $1 billionAdditionally, in rental revenue generated from2017, Moody’s raised our real estate portfolio, a significant milestone representingcorporate credit rating to A3, recognizing the growth and achievementconsistency of our company.company’s operations, continued strength of our balance sheet, and track record of performance. The ratings upgrade places us among a few REITs with at least one “A” rating.
As The Monthly Dividend Company®Company®, we remain committed to our mission of providing our stockholders with monthly dividends that increase over time. During 2016,2017, we paid twelve monthly dividends and increased the dividend per share by 5.3%5.6% over 2015.2016. I would like to thank our team members for their continued hard work and dedication in achieving our mission. We remain focused onare proud of our company’s position of strength as we enter 2018 and are committed to continuing our positive momentum into 2017 and beyond.to grow your company responsibly.
We encourage you to review the information contained in the Proxy Statement. It is meant to provide an overview of the company’s achievements during the year, including further improvements to the company’s compensation program and enhancements to our corporate governance practices. After your review, we hope that you will vote at the meeting (either in person or by proxy) in accordance with the Board of Directors’ recommendations.
Your vote is important to us and we appreciate your continued support of our company.
Sincerely,
John P. Case
Chief Executive Officer
Director, Board of Directors
Notice of the 2017
2018
Annual Meeting of Stockholders
NOTICE IS HEREBY GIVEN that the 20172018 Annual Meeting of Stockholders (the Annual Meeting) of Realty Income Corporation, a Maryland corporation (the company), will be held as follows:
MEETING DATE: | |
MEETING TIME: | 9:00 a.m., Pacific Time |
LOCATION: | San Diego Marriott Del Mar |
11966 El Camino Real, San Diego, California 92130 |
RECORD DATE:You may vote if you were a holder of record of our common stock at the close of business on March 9, 2017.8, 2018.
ITEMS OF BUSINESS:
1. | The election of eight director nominees named in this Proxy Statement to serve until the | |
2. | The ratification of KPMG LLP as our independent registered public accounting firm for the year ending December 31, | |
3. | A non-binding advisory proposal to approve the compensation of our named executive officers as described in this Proxy Statement. | |
4. | ||
The transaction of such other business as may properly come before the Annual Meeting or any postponement or adjournment of the Annual Meeting. |
The Proxy Statement following this Notice describes these matters in detail. We have not received notice of any other proposals to be presented at the Annual Meeting. At the Annual Meeting, management will report on the current activities of the company and comment on its future plans. A discussion period is planned so that stockholders will have an opportunity to ask questions and make appropriate comments. All presentation materials shared at the Annual Meeting will be made available on the company’s website at www.realtyincome.com.
PROXY VOTING:Your vote is important.Whether or not you plan to attend our Annual Meeting, we urge you to submit your proxy as soon as possible to ensure your shares are represented and voted at our Annual Meeting. You may authorize a proxy to vote your shares by telephone, via the Internet, or—if you have received and/or requested paper copies of our proxy materials by mail—by signing, dating and returning the proxy card in the envelope provided. If you attend the Annual Meeting, you may, if you wish, withdraw your proxy and vote in person.
No person is authorized to make any representation with respect to the matters described in this Proxy Statement other than those contained herein and, if given or made, such information or representation must not be relied upon as having been authorized by us or any other person.
You are encouraged to read this Proxy Statement in its entirety before voting.
By Order of the Board of Directors,
Michael R. Pfeiffer
Executive Vice President, General Counsel and Secretary
April 2, 2018
Table of Contents
The Board of Directors of Realty Income Corporation, a Maryland corporation, is soliciting proxies for the 20172018 Annual Meeting of Stockholders (the Annual Meeting) and any postponement or adjournment of the Annual Meeting. This Proxy Summary provides an overview of the proposals to be considered at the Annual Meeting and information contained in the Proxy Statement, but does not contain all of the information that should be considered before voting. We encourage you to read thisthe Proxy Statement in its entirety before voting.
Meeting Date: | ||
Time: | 9:00 a.m., Pacific Time | |
Location: | San Diego Marriott Del Mar 11966 El Camino Real San Diego, California 92130 | |
Record Date: | March |
How to Vote
On or about April 6, 2017,2, 2018, we will mail or e-mail a copy of our Proxy Statement, proxy card, and 20162017 Annual Report (collectively Proxy Materials) to our stockholders according to their previously indicated preference. Some of our stockholders will be mailed a Notice of Availability of Proxy Materials which contains instructions on how to request and receive a paper or e-mailed copy of our Proxy Statement and 20162017 Annual Report, and how to view these materials online. All methods of correspondence will provide stockholders with instructions on how to vote or authorize a proxy to vote using any of the following methods:
By Internet: www.proxyvote.com 24/7 through May 17, 2018 | By Toll-Free Telephone: 1-800-690-6903 24/7 through May 17, 2018 | By Mail: | |
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Request, complete and return | |||
a proxy card by pre-paid mail | In Person: Complete a ballot at the Annual Meeting |
Beneficial Stockholders:If your shares of common stock are held by a bank, broker or other holder of record, please follow the instructions you receive from your bank, broker or other nominee on how to vote your shares of common stock at our Annual Meeting.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on May 16, 2017:18, 2018:This Proxy Statement and our 20162017 Annual Report are available on our website at http://investors.realtyincome.com/annual-reports-meetings. You can also view these materials at www.proxyvote.com by using the control number that is provided to you either on your proxy card, in your e-mailed Proxy Materials, or on your Notice of Availability of Proxy Materials. You are encouraged to access and review all of the information contained in the Proxy Materials before voting.
Proposal Guide
PROPOSAL | PAGE | BOARD VOTE RECOMMENDATION |
PROPOSAL 1 – ELECTION OF DIRECTORS | ||
Our Board of Directors believes that the eight director nominees named herein contribute the breadth of knowledge and experience needed for the advancement of our business strategies and | 4 | For |
PROPOSAL 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||
The Audit Committee of our Board of Directors has appointed KPMG LLP as the independent registered public accounting firm for the year ending December 31, | 4 | For |
PROPOSAL 3 – ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS | ||
Our Board of Directors believes our compensation program is appropriately structured to reward our named executive officers for the continued performance of the company, encourage a disciplined approach to management, and maintain focus on the creation of long-term value for our | 5 | For |
Realty Income| | 1 |
Performance Highlights
We achieved another year of earnings growth in 2017 as measured by Adjusted Funds from Operations (AFFO) per share that allowed us to continue to pay dependable monthly dividends that increase over time.
Proxy Summary
2016 Performance Highlights
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Our focus on providing dependable monthly dividends that increase over time helps drive strong total stockholder return (TSR) performance.
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net lease proxy peers. |
Proxy Summary
Corporate Governance Highlights
We remain committed to managing the company for the benefit of our stockholders and maintaining good corporate governance practices. In 2017, we further enhanced our corporate governance practices by instituting an 18-month minimum vesting provision on stock option and stock appreciation rights. In addition to this enhancement, we continue to uphold the following features of our corporate governance practices to maintain the company’s reputation for integrity and serving its stockholders responsibly:
Executive Compensation Highlights
We believe our performance demonstrates the effectiveness, over time, of the execution of our strategic business plan, and the alignment of our compensation program with our philosophy to reward executives for enhancing long-term stockholder value. In structuring executive compensation, the Compensation Committee, in consultation with its independent compensation consultant, considers how each component of compensation motivates performance and allows us to attract and retain highly qualified named executive officers. Our compensation program focuses on pay for performancepay-for-performance principles that are linked to short-term and long-term financial and operational metrics, including relative total stockholder return.TSR. The following are some key highlightsthe two primary components of the 20162017 plan:
Short-Term Incentive Program (STIP) | Long-Term Incentive Program (LTIP) | |
Consisted of a variable cash | ||
Consisted of equity compensation based primarily on the achievement of | ||
We believe our compensation program effectively links the compensation awarded to our executives to the achievement of the company’s financial and strategic goals, thus creating alignment with the interests of our stockholders.
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Proxy Summary
Under both the STIP and LTIP programs, no compensation is awarded for below-threshold performance and maximum payouts were capped at 200% of target. All of the compensation awarded under the programs is at-risk. Approximately 73% of our CEO’s total target direct compensation for the 2017 performance year consisted of compensation that was at-risk based on the achievement of certain performance metrics. This figure increased from 70% for the 2016 performance year and 69% for the 2015 performance year. Salary and time based equity make up the remaining 27% of the CEO compensation.
Corporate Governance Highlights
We remain committed to managing the company for the benefit of our stockholders and maintaining good corporate governance practices. In 2018, we further enhanced our corporate governance practices by:
ü Including proxy access nominating provisions in our Bylaws.
ü Providing stockholders with the power to directly amend the Bylaws with approval by a majority of the votes entitled to be cast.
In addition to these enhancements, we continue to uphold the following features of our corporate governance practices to maintain the company’s reputation for integrity and serving its stockholders responsibly:
Corporate Governance Highlights | |
ü All directors are subject to an annual election with a majority voting standard. | ü We have a separate independent Chairman and Chief Executive Officer (CEO). |
ü All directors with the exception of our CEO are independent, and all committee members are independent. | ü Our directors conduct annual self-evaluations and participate in orientation and continuing education programs. |
ü An Enterprise Risk Management evaluation is conducted annually to identify and assess company risk. | ü Our directors, officers, and other employees are subject to a Code of Business Ethics. |
ü Our Board of Directors has adopted a “whistleblower” policy. | ü Our directors, officers, and employees are subject to anti-hedging and anti-pledging policies. |
ü Our Board of Directors has voluntarily adopted a formal clawback policy that applies to cash and equity incentive compensation. | ü Our directors and named executive officers have minimum stock ownership requirements. |
ü The restricted stock and restricted stock unit awards for our named executive officers have “double-trigger” acceleration provisions. | ü We have an 18-month minimum vesting provision on stock options and stock appreciation rights. |
ü Our Board of Directors conduct regular executive sessions of independent directors. | ü We annually submit “say-on-pay” advisory votes for stockholder consideration and vote. |
Stockholder Engagement During 2017
We believe engaging with our stockholders on an ongoing basis is important to understand what is important to them and ensure best practices.
ü | Reached out to our 30 largest stockholders, collectively representing approximately 50% of shares outstanding. | ü | Identified and regularly reported consistent themes from the commentary to our Board of Directors. |
ü | Discussed various topics with those we engaged with, including stockholder views on various trends in executive compensation and governance best practices. | ü | Considered the input provided by our stockholders and our advisors as our Board of Directors reviewed and considered enhancements to its processes and disclosures. |
Realty Income | 2018 Proxy Statement | 3 |
Proposal 1 - Election of Directors
Our Board of Directors currently consists of eight directors who contribute the breadth of knowledge and experience necessary for the advancement of our business strategies and objectives. Based on the recommendation of our Nominating/Corporate Governance Committee, our Board of Directors has nominated the following current eight directors for re-election at the Annual Meeting to serve for a one-year term expiring at our annual meeting of stockholders in 2018,2019, and until their respective successors have been duly elected and qualify:
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For more information regarding our nominees, please see the “Board of Directors and Corporate Governance” section of this Proxy Statement beginning on page 7.6.
![]() ![]() | OUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERSVOTE “FOR” EACH OF THE NOMINEES LISTED ABOVE. |
Proposal 2 - Ratification of Appointment of Independent Registered Public Accounting Firm
The Audit Committee of our Board of Directors has appointed KPMG LLP as the independent registered public accounting firm to audit our consolidated financial statements and internal control over financial reporting for the year ending December 31, 2017.2018. Representatives of KPMG LLP are expected to be present at the Annual Meeting and will be provided an opportunity to make a statement if the representatives desire to do so. The representatives are also expected to be available to respond to appropriate questions.
Although ratification by our stockholders is not a prerequisite to the power of the Audit Committee to appoint KPMG LLP as our independent registered public accounting firm, our Board and the Audit Committee believes such ratification to be advisable and in the best interest of the company. Accordingly, stockholders are being requested to ratify, confirm, and approve the appointment of KPMG LLP as our independent registered public accounting firm to conduct the annual audit of our consolidated financial statements and internal control over financial reporting for the year ending December 31, 2017.2018. If the stockholders do not ratify the appointment of KPMG LLP, the appointment of an independent registered public accounting firm will be reconsidered by the Audit Committee; however, the Audit Committee has no obligation to change its appointment based on stockholder ratification. If the appointment of KPMG LLP is ratified, the Audit Committee will continue to conduct an ongoing review of KPMG LLP’s scope of engagement, pricing and work quality, among other factors, and will retain the right to replace KPMG LLP at any time.
![]() ![]() | OUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP. |
4 | Realty Income| |
Proposals
Proposal 3 - Advisory Vote to Approve the Compensation of Our Named Executive Officers
Our Board of Directors has adopted a policy of providing for annual “say-on-pay” advisory votes. In accordance with Section 14A of the Securities Exchange Act of 1934, as amended (Exchange Act), and as a matter of good corporate governance, we are asking our stockholders to vote on a non-binding, advisory basis to approve the compensation paid to our named executive officers, as described in the “Executive Compensation” of this Proxy Statement, including the Compensation Discussion and Analysis and the executive compensation tables narrative that follow.
In an effort to align the interests of management with those of our stockholders, our compensation program focuses on pay for performancepay-for-performance principles that are linked to short-term and long-term financial and operational metrics including relative total stockholder return. Our compensation mix rewards for the continued performance of the company, encourages a disciplined approach to management, and maintains focus on the creation of long-term value for our stockholders. We believe this structure is competitive and allows us to attract, motivate, and retain highly qualified executive officers.
In connection with reviewing our compensation program and the 20162017 compensation paid to our named executive officers, it is important to consider the company’s excellent performance results achieved during 2017 as well as our long-term TSR performance. During the 3-year performance period ending December 31, 2017, our TSR outperformed the MSCI US REIT Index and the NAREIT Freestanding Index. These performance results are discussed in 2016, which include:
These factors contributed to net income per share of $1.13, and AFFO per share growth of 5.1% to $2.88detail in 2016, which allowed us to increase our dividend paid per share in 2016 by 5.3% over 2015, which helped drive a 16.0% TSR (refer tothe “Executive Compensation” section beginning on page 47 of our Annual Report on Form 10-K filed with the SEC on February 23, 2017 for a GAAP reconciliation of net income available to common stockholders to AFFO per share, a non-GAAP measure).23.
Based on the company’s performance in 2016,2017, our named executive officers were awarded compensation in accordance with our STIP and LTIP, in addition to a fixed compensation component. All of the compensation awarded under the 20162017 STIP and LTIP is based on the following performance goals, and is at-risk, and not guaranteed:
SHORT-TERM INCENTIVE PLAN PERFORMANCE GOALS | ||
Metric AFFO per Share | Weight 40% | |
Fixed Charge Coverage Ratio | 20% | |
Portfolio Occupancy | 10% | |
Individual Objectives | 30% |
LONG-TERM INCENTIVE PLAN PERFORMANCE GOALS | ||
Metric TSR Ranking within | Weight 45% | |
TSR Ranking within JP Morgan Net Lease Peers | 26% | |
Dividend per Share Growth Rate | 16% | |
Debt-to- EBITDA Ratio | 13% |
The performance hurdles and weightings for each program are determined by the Compensation Committee in consultation with its independent compensation consultant. This structure effectively links the compensation awarded to our executives to the achievement of the company’s financial and strategic goals. The independent members of our Board of Directors believe that the performance-based structure of our compensation program, as summarized above and detailed in the “Executive Compensation” section beginning on page 23, allows the company to attract and retain talented executives while appropriately aligning their interests with the interests of our stockholders to support long-term value creation. Unless our Board of Directors modifies its determination on the frequency of future “say-on-pay” advisory votes, the next vote will be held at the annual meeting of stockholders in 2018.2019.
![]() ![]() | OUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” APPROVAL ON A NON-BINDING ADVISORY BASIS OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS. |
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Proposals
Proposal 4 - Advisory Vote on the Frequency of Future Advisory Votes by Stockholders on the Compensation of Our Named Executive Officers
In accordance with the Dodd-Frank Act of 2010, we are seeking a non-binding, advisory vote as to the frequency with which stockholders would have an opportunity to provide an advisory vote to approve the executive compensation of our named executive officers. Stockholders have the option of selecting a frequency of one, two, or three years, or abstaining.
While we will continue to monitor developments in this area, our Board of Directors believes that an advisory vote to approve executive compensation every one year is appropriate. This will enable our stockholders to vote, on an advisory basis, to approve the most recent executive compensation information that is presented in our proxy statement, relative to that year’s company performance, leading to a more meaningful and coherent communication between us and our shareholders on the executive compensation of our named executive officers.
Based on the factors discussed, our Board of Directors recommends that future advisory votes to approve executive compensation occur every one year until the next advisory vote on the frequency of advisory votes to approve executive compensation. Shareholders are not being asked to approve or disapprove our Board’s recommendation, but rather to indicate their choice among the following frequency options: one year, two years, or three years, or to abstain from voting.
This vote is advisory, and therefore not binding on us, the Compensation Committee or our Board of Directors. However, we value the opinions of our stockholders and will take into account the outcome of the vote when considering the frequency of submitting to stockholders a resolution to afford stockholders the opportunity to vote on executive compensation.
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Board of Directors and Corporate Governance
The Board of Directors has nominated our current eight directors, identified below, for re-election at the Annual Meeting to serve for a one-year term expiring at our annual meeting of stockholders in 2018,2019, and until their respective successors are duly elected and qualify. The information presented below highlights each director nominee’s specific experience, qualifications, attributes, and skills that led our Board of Directors to the conclusion that he/she should serve as a director. We believe that all of our director nominees have a reputation for integrity, honesty, and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to Realty Income and our Board of Directors. We also value the additional perspective that comes from the experience of serving on other companies’ boards of directors and board committees.
Kathleen R. Allen, Ph.D.
Age: 72
| Experience
Kathleen R. Allen, Ph.D. is Professor Emeritus at the Marshall School of Business and the founding director of the Center for Technology Commercialization at the University of Southern California
Qualifications
As a distinguished businesswoman, entrepreneur, and consultant, Dr. Allen has helped our Board of Directors identify and assess the risks associated with new endeavors. She has also worked with many early-growth and established companies to develop effective leadership and team-building skills. With her years of experience in risk management in the areas of business models, investment opportunities, and technology, Dr. Allen brings to the Board of Directors achievement in strategic business planning, which is a key part of our growth strategy. |
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Board of Directors and Corporate Governance
John P. Case
Chief Executive Officer
Age: 54
| Experience
Mr. Case has been the Chief Executive Officer since September 2013. He joined Realty Income in 2010 as Executive Vice President, Chief Investment Officer and served in this capacity until March 2013, when he was promoted to President, Chief Investment Officer. Prior to joining Realty Income, Mr. Case served for 19 years as a New York-based real estate investment banker. He began his investment banking career at Merrill Lynch, where he worked for 14 years, and was named a Managing Director in 2000. Following his tenure at Merrill Lynch, Mr. Case was co-head of Americas Real Estate Investment Banking at UBS and later the co-head of Real Estate Investment Banking for RBC Capital Markets, where he also served on the firm’s Global Investment Banking Management Committee. During Mr. Case’s investment banking career, he was responsible for more than $100 billion in real estate capital markets and advisory transactions. Mr. Case currently serves
Qualifications
Mr. Case has demonstrated extensive knowledge of the financial and operating issues facing real estate organizations. His vast experience and understanding of real estate, REITs, and financial strategy has helped guide the company and successfully execute its business plan. In addition, Mr. Case’s knowledge of all aspects of the company’s business positions him as a valuable member of, and contributor to, our Board of Directors. |
A. Larry Chapman
Age: 71
| Experience
A. Larry Chapman is a retired 37-year veteran of Wells Fargo, having served most recently as Executive Vice President and the Head of Commercial Real Estate from 2006 until his retirement in June 2011, and as a member of the Wells Fargo Management Committee. Mr. Chapman joined Wells Fargo in 1974 in its Houston Real Estate office. In 1987, he was promoted to President of Wells Fargo Realty Advisors, a wholly-owned subsidiary of Wells Fargo & Co. The subsidiary’s primary responsibility was managing Wells Fargo Mortgage and Equity Trust, which was formed in 1970 and sold in 1989. He remained President of Wells Fargo Realty Advisors until 1990, and was promoted to Group Head of the Wells Fargo Real Estate Group in 1993. Mr. Chapman managed the Wells Fargo Real Estate Group until his 2006 promotion to Executive Vice President and Head of Commercial Real Estate for Wells Fargo on a nationwide basis. Mr. Chapman is a former board member of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, past governor and trustee of the Urban Land Institute, former member of the National Association of Real Estate Investment Trusts (NAREIT), and member and past trustee of the International Council of Shopping Centers (ICSC). He currently serves on the board of directors of CBL & Associates Properties, Inc. (NYSE: CBL) (August 2013-present).
Qualifications
Mr. Chapman’s financial acumen and extensive commercial real estate experience across many industries and tenant types, provide valuable insight and expertise to the Board of Directors and our senior management team as we continue to expand our real estate portfolio. In addition, his background as a leader of a Fortune 500 company, and as a member of its management team, further enhances the quality of leadership and oversight provided by our Board of Directors. |
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Board of Directors and Corporate Governance
Priya Cherian Huskins
Age: 45
Independent:Yes | Experience
Priya Cherian Huskins is Senior Vice President and partner at Woodruff-Sawyer & Co., a commercial insurance brokerage firm (2003-present). Prior to joining Woodruff-Sawyer & Co., Ms. Huskins served as a corporate and securities attorney at the law firm of Wilson Sonsini Goodrich & Rosati (1997-2003). She has served on the advisory board of the Stanford Rock Center for Corporate Governance since 2012, the board of directors of Woodruff-Sawyer & Co. since 2016, the board of directors of the Silicon Valley Directors’ Exchange (SVDX) since 2013, and served on the board of directors of the National Association of Corporate Directors, Silicon Valley Chapter (2006-2013).
Qualifications
With her background in law, insurance, and risk management, Ms. Huskins brings a focus on these areas to our Board of Directors. As a recognized expert in directors and officers liability risk and its mitigation, Ms. Huskins provides valuable insight into our risk management strategy. In addition, she brings experience regarding corporate governance matters, including compensation best practices, and ways that corporate governance can enhance stockholder value. Ms. Huskins’ experience makes her a valuable component of a well-rounded Board of Directors. |
Michael D. McKee
Age: 72 Director Since:1994
| Experience
Michael D. McKee is
Qualifications
Mr. McKee’s business and legal experience includes numerous acquisition and disposition transactions, as well as a variety of public and private offerings of equity and debt securities. Additionally, he has been exposed to various compliance issues as they relate to |
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Board of Directors and Corporate Governance
Gregory T. McLaughlin
Age: 58
| Experience
Gregory T. McLaughlin is the President, PGA TOUR Champions and a Senior Vice President with the PGA TOUR in Ponte Vedra Beach, Florida (2014-present). Prior to joining the PGA TOUR, Mr. McLaughlin was President and Chief Executive Officer of
Qualifications
With his diverse background, Mr. McLaughlin offers a unique perspective to the Board of Directors on a variety of business and legal matters. His business and legal experience includes tax-exempt status and financing as well as business development, capital raising, and program development. Additionally, his leadership skills in managing a variety of different organizations brings financial reporting expertise, especially as it relates to audit and tax matters. His proven effectiveness working with complex issues makes him a valuable member of our Board of Directors. |
Ronald L. Merriman
Age: 73
| Experience
Ronald L. Merriman is a retired Vice Chairman and partner of KPMG LLP, a global accounting and consulting firm (1967-1997). At KPMG LLP, Mr. Merriman served as Vice Chairman of the Executive Management Committee. More recently, Mr. Merriman was the managing director of Merriman Partners, a management advisory firm (2003-2011). Prior to founding Merriman Partners, Mr. Merriman served as a managing director of O’Melveny & Myers law firm (2000-2003), Executive Vice President of Carlson Wagonlit Travel (1999-2000), and President of Ambassador Performance Group, Inc. (1997-1999). Mr. Merriman serves on the board of directors
Qualifications
Mr. Merriman is an experienced financial leader with the skills necessary to lead our Audit Committee. Throughout his career, he has been exposed to various issues involving accounting and auditing standards, business law and corporate ethics. His professional background and experience on other audit committees make him a valuable asset, both on our Board of Directors and as the Chair of our Audit Committee. Mr. Merriman’s positions have provided him with a wealth of knowledge in addressing financial and accounting matters. The depth and breadth of his exposure to complex financial issues makes him a skilled advisor to the Board of Directors. |
Realty Income| | 9 |
Board of Directors and Corporate Governance
Stephen E. Sterrett
Age: 62
| Experience
Stephen E. Sterrett retired as the Senior Executive Vice President and Chief Financial Officer of Indianapolis-based Simon Property Group, Inc., an S&P 100 company, in December 2014. Mr. Sterrett joined the Simon organization in 1988, was named Treasurer in 1993, and was the Chief Financial Officer from 2000 until his retirement. Prior to joining Simon Property Group, Inc., he was a Senior Manager with the international accounting firm of Price Waterhouse. Mr. Sterrett serves on the boards of Berry Plastics Group, Inc. (NYSE: BERY) and Equity Residential (NYSE: EQR).
Qualifications
As the former Chief Financial Officer of Simon Property Group, Inc., Mr. Sterrett has direct experience with matters arising from the business and financial issues pertaining to the company, particularly in the areas of corporate finance and capital markets. His experience as a Chief Financial Officer in the REIT industry brings to our Board of Directors a comprehensive understanding of matters unique to REITs and enables him to make significant contributions to our Board of Directors. |
Our Board of Directors has three standing committees that perform certain delegated functions of the Board: the Audit Committee, the Compensation Committee, and the Nominating/Corporate Governance Committee. The Board also has one special purpose committee, the Technology Risk Committee, which provides governance and oversight of the possible risks associated with the company’s technology and information systems. Each committee is composed entirely of independent directors within the meaning of our director independence standards, which reflect the NYSE director independence standards and the audit committee requirements of the SEC.
Each committee operates under a written charter, all of which were reviewed by their respective committees during 2016.2017. Our Compensation and Nominating/Corporate Governance CommitteesCommittee updated their chartersits charter in 2016,February 2018, and the Audit Committee updated its charter in February 2017 to provide additional enhancements.2017. The Technology Risk Committee established its charter in connection with its formation in May 2015. In February 2017,March 2018, the Board of Directors extended the duration of the Technology Risk Committee such that this committee will be deemed terminated, if not re-appointed, by the Board of Directors on or before June 1,December 31, 2018. Our Board of Directors may, from time to time, establish certain other committees to facilitate oversight over the management of the company. The charters of each of our standing committees are available on our company’s website at www.realtyincome.com.www.realtyincome.com/investors/corporate-governance/board-committees.
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Board of Directors and Corporate Governance
AUDIT
COMMITTEE
AUDIT COMMITTEE | ||||
Responsibilities | ||||
Members:
| ■ | Oversee compliance with legal and regulatory requirements; | ||
■ | Oversee the integrity of our financial statements; and | |||
Ronald L. Merriman (Chair) Kathleen R. Allen, Ph.D. A. Larry Chapman Gregory T. McLaughlin | ■ | Appoint, retain, and oversee our independent registered public accounting firm, approve any special assignments given to the independent registered public accounting firm, and review: | ||
Independent: All Meetings in 2017: 8 | • | The scope and results of the audit engagement with the independent registered public accounting firm, including the independent registered public accounting firm’s letters to the Audit Committee; | ||
The independence and qualifications of the independent registered public accounting firm; | ||||
The compensation of the independent registered public accounting firm; | ||||
The performance of our internal audit function; and | ||||
Any proposed significant accounting changes. |
Our Board of Directors has determined that Messrs. Merriman, Chapman and McLaughlin qualify as audit committee financial experts, as defined in Item 407(d) of Regulation S-K, and that all members of the Audit Committee are financially literate under the current listing standards of the NYSE and meet the Securities and Exchange Commission (the SEC) independence requirements for audit committee membership. Our Board of Directors has considered Mr. Merriman’s concurrent service on the audit committees of three other public companies and has determined that such simultaneous service does not impair his ability to effectively serve as Chair of our Audit Committee.
COMPENSATION
COMMITTEE
COMPENSATION
COMMITTEE
Responsibilities | ||||
Members:
| ■ | Establish remuneration levels for our executive officers; | ||
■ | Review significant employee benefits programs; | |||
■ | Establish and administer executive compensation programs; | |||
■ | Conduct an annual review of our compensation | |||
■ | Conduct an annual review of and approve the goals and objectives relating to the compensation of the CEO, including a performance evaluation to help determine and approve his compensation; | |||
■ | Review and approve all executive officers’ employment agreements and severance | |||
■ | Manage and annually review executive officer short-term and long-term incentive compensation; and | |||
■ | Set performance metrics under all short-term and long-term incentive compensation plans as appropriate. |
Our Board of Directors has determined that all of the members of the Compensation Committee are “independent” within the meaning of our director independence standards, the NYSE director independence standards (including those applicable to Compensation Committee members), are “non-employee directors” within the meaning of Rule 16b-3 of the Exchange Act, and are “outside directors” under the regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended. The Compensation Committee may delegate any or all of its responsibilities to a subcommittee of the Committee to the extent permitted by applicable law.
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Board of Directors and Corporate Governance
NOMINATING/CORPORATE GOVERNANCE COMMITTEE |
NOMINATING/
CORPORATE
GOVERANCE
COMMITTEE
Responsibilities | ||||
Members:
| ■ | Provide counsel to our Board of Directors on the broad range of issues concerning the composition and operation of the Board of Directors; | ||
■ | Develop and review the qualifications and competencies required for membership on our Board of Directors; | |||
■ | Review and interview qualified candidates to serve on our Board of Directors; | |||
■ | Oversee the structure, membership, and rotation of the committees of our Board of Directors; | |||
■ | Review the compensation of our Board of | |||
■ | Assess the effectiveness of the Board of Directors and executive management; | |||
■ | Oversee succession planning for our executive management; | |||
■ | Review and consider developments in corporate governance to ensure that best practices are being | |||
■ | Board refreshment. |
As part of these responsibilities, the Nominating/Corporate Governance Committee annually solicits input from each member of the Board of Directors to review the effectiveness of its operation and all committees thereof. The review consists of an assessment of its governance and operating practices which includes the Corporate Governance Guidelines that govern the operation of the Board of Directors.
TECHNOLOGY RISK
COMMITTEE
Responsibilities | ||||
Members:
| ■ | Review and assess risks, including cyber security, associated with the company’s technology and information systems; | ||
■ | Receive and review reports from management or other third party organizations on key metrics for the company’s technology and information systems; and | |||
■ | Provide guidance on matters specifically related to the company’s technology and information systems. | |||
It is intended for the Technology Risk Committee to be of limited duration and to help engage in assessing any potential technology risks at the company. The Technology Risk Committee will be deemed terminated, if not re-appointed, by the Board of Directors on or before June 1,December 31, 2018.
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Board of Directors and Corporate Governance
We believe a company’s reputation for integrity and serving its stockholders responsibly is of critical importance. We are committed to managing the company for the benefit of our stockholders and are focused on maintaining good corporate governance.
Bylaw Amendments
On March 13, 2018, the Board of Directors amended our Bylaws to permit stockholders to amend our Bylaws by the affirmative vote of the holders of a majority of the outstanding shares of our common stock pursuant to a binding proposal submitted by any stockholder or group of up to five stockholders holding at least one percent of the outstanding shares of our common stock for at least one year (the “Ownership Threshold”). A stockholder proposal submitted under Article XII of the Bylaws (Amendment of Bylaws) may not alter or repeal (i) the section of the Bylaws, which provides for indemnification of directors and officers of the Company or (ii) the section of the Bylaws, which addresses procedures for amendment of the Bylaws, in either case, without the approval of the Board of Directors.
The Company believes the Ownership Threshold enables stockholders who hold a meaningful stake in the Company for more than a brief period of time to propose binding amendments to our Bylaws. In that regard, the Company considered that, based on the most recently available public filings made by stockholders as of March 8, 2018, (i) approximately 41% of the Company’s outstanding shares of common stock are owned by stockholders that each own at least 1% or more of the Company’s outstanding shares of common stock and (ii) approximately 59% of the Company’s outstanding shares of common stock are owned by stockholders that each own at least 0.2% or more of the Company’s outstanding shares of common stock.
Corporate Governance Guidelines
Our company has adopted Corporate Governance Guidelines, which were updated in February 2018, that promote the functioning of the Board of Directors and its committees and sets forth expectations as to how the Board of Directors should operate. The guidelines include information about the composition of the Board of Directors, orientation and continuing education, director compensation, Board of Director meetings, Board of Director committees, management succession, evaluation and compensation of named executive officers, expectations of directors, and information regarding the annual performance evaluation of the Board of Directors. A current copy is available on our company’s website at www.realtyincome.com.
Code of Business Ethics
Whistleblower Policy
Our Board of Directors has adopted a “whistleblower” policy, which outlines a procedure for all interested parties, including employees, to submit confidential complaints, concerns, unethical business practices, violations or suspected violations for any and all matters pertaining to accounting, internal control or auditing.
We have adopted a Code of Business Ethics that applies to our directors, officers, and other employees. The Board of Directors adopted the Code of Business Ethics to codify and formalize certain of our long-standing policies and principles that help ensure our business is conducted in accordance with the highest standards of moral and ethical behavior. We conduct annual training with our employees regarding ethical behavior and require all employees to acknowledge the terms of, and abide by, our Code of Business Ethics. A current copy as updated in May 2015, is available on our company’s website at www.realtyincome.com.www.realtyincome.com/investors/corporate-governance. We intend to disclose any future amendments to or waivers of certain provisions of our Code of Business Ethics applicable to our officers and directors on our website, within five business days following such waiver, or as otherwise required by the SEC or the NYSE.
Whistleblower Policy Our Board of Directors has adopted a “whistleblower” policy, which outlines a procedure for all interested parties, including employees, to submit confidential complaints, concerns, unethical business practices, violations or suspected violations for any and all matters pertaining to accounting, internal control or auditing. |
Anti-Hedging and Anti-Pledging Policy
To ensure proper alignment with our stockholders, we have established policies that prohibit our directors, officers, other employees, and their family members from engaging in any transaction that might allow them to realize gains from declines in our securities. Specifically, we prohibit our directors, officers, employees, and their family members from engaging in transactions using derivative securities, short selling our securities, trading in any puts, calls or covered calls, writing purchase or call options and short sales, or otherwise participating in hedging, “stop loss,” or other speculative transactions involving our securities. In addition, margin purchases of our securities and pledging any of our securities as collateral to secure loans is prohibited.
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Board of Directors and Corporate Governance
This prohibition means that our directors, officers, other employees, and their family members cannot hold our securities in a “margin account” nor can they pledge any of our securities for any loans or indebtedness.
Clawback Policy
In accordance with the Dodd-Frank Act, ourOur Board of Directors has voluntarily adopted a formal clawback policy which applies to outstanding awards and will apply to future awards. Our clawback policy provides that the company may recover certain cash and/or equity-based incentive compensation paid or granted to an executive officer during the three-year period preceding a “triggering event.” A “triggering event” includes:
(i) | a decision by the Audit Committee to effect an accounting restatement of previously published financial statements caused by material non-compliance by the company with any financial reporting requirement under the federal securities laws due to fraud, misconduct, negligence, or lack of sufficient oversight on the part of any named executive officer, and |
(ii) | a decision by the Compensation Committee that one or more performance metrics used for determining previously paid compensation was incorrectly calculated and, if calculated correctly, would have resulted in a lower payment to one or more executive officers. |
The requirement to repay the incentive compensation that is recoverable under this policy shall only exist if the Board of Directors has actively taken steps to evaluate restating the financials or operating results, or recalculating other associated metrics prior to the end of the fifth year following the year in question. The company will not be bound by the three-year recoupment period or this five-year limitation in cases involving fraud or intentional misconduct. As applicable SEC regulations are adopted, we will reassess our clawback policy and implement appropriate changes to ensure that our policy is fully compliant with SEC regulations.
Board of Directors and Corporate Governance
Social Responsibility and Ethical Standards
An extension of our mission is our commitment to being socially responsible and conducting our business according to the highest ethical standards. Our employees are awarded compensation that is in line with those of our peers and competitors, including generous healthcare benefits for employees and their families, participation in a 401(k) plan with a matching contribution by Realty Income, competitive paid time-off benefits, and an infant-at-work program for new parents. We also have a longstandinglong-standing commitment to equal employment opportunity and adhere to all Equal Employer Opportunity Policy guidelines. Our employees have access to members of our Board of Directors to report anonymously, if desired, any suspicion of misconduct by any member of our senior management or executive team. We apply the principles of full and fair disclosure in all of our business dealings, and we encourage all of our directors, officers, and other employees to conduct our business in accordance with the highest standards of moral and ethical behavior, in each case, as outlined in our Corporate Code of Business Ethics. We are also committed to dealing fairly with all of our customers, suppliers, and competitors.
Realty Income and its employees have taken an active role in supporting communities through civic involvement with charitable organizations and corporate donations. Focusing our impact on our social responsibility, our non-profit partnerships have resulted in approximately 700725 employee volunteer hours during 2016,2017, principally through our partnership with San Diego Habitat for Humanity. Our employees have also provided educational services to at-risk youth, senior citizens, funding to local foodbanks, and toys for under-servedunderserved children. Our dedication to being a responsible corporate citizen has a direct and positive impact in the communities in which we operate and contributes to the strength of our reputation and our financial performance.
Environmental Practices
Our focus on environmental conservationism is demonstrated by how we manage our day-to-day activities at our corporate headquarters. At our headquarters, we promote energy efficiency and encourage practices such as powering down office equipment at the end of the day, implementing file-sharing technology and automatic “duplex mode” to limit paper use, adopting an electronic approval system, carpooling to our headquarters, and recycling paper waste. In 2016,2017, we sent more than 29,50032,700 pounds of paper to our off-site partner for recycling.
With respect to other recycling and reuse practices, we encourage the use of recycled products and the recycling of materials used in our operations. Cell phones, wireless devices and office equipment are recycled or donated whenever possible.
In addition, our headquarters building was retrofitted according to the State of California energy efficiency standards (specifically following California Green Building Standards Code and Title 24 of the California Code
14 | Realty Income | 2018 Proxy Statement |
Board of Directors and Corporate Governance
of Regulations), with features such as an automatic lighting control system with light-harvesting technology, a Building Management System that monitors and controls energy use, an energy-efficient PVC roof and heating and cooling system, LED lighting, and drought-tolerant landscaping with recycled materials.
In 2017, we formed an internal “Green Team” whose mission is to encourage environmentally-friendly choices to further reduce our environmental impact as a company. To achieve this mission, the Green Team creates and executes strategies to promote sustainability internally and tracks the progress of their efforts.
The properties in our portfolio are primarily net leased to our tenants, who areand each tenant is ultimately responsible for maintaining the buildings and are in control ofincluding controlling their energy usage and environmental sustainability practices.the implementation of environmentally sustainable practices at each location. We remain active in workingactively communicate and work with our tenants to promote environmental responsibility at the properties we own and to promotereiterate the importance of energy efficient facilities.
Our Asset Management team has engaged with a renewable energy development companycompanies to identify assets that would maximize energy efficiency initiatives throughout our property portfolio. These initiatives include solar energy arrays, battery storage, and charging stations. In addition, we continue to explore regional opportunities with our tenants in order to qualify for city and county renewable energy or energy efficiency programs.
More information on our social responsibility and environmental practices can be found on our company’s website at http://www.realtyincome.com/about-realty-income/corporate-responsibility/default.aspx.corporate-responsibility.
Board of Directors and Corporate Governance
Director Qualifications
Director qualifications are determined by what the Nominating/Corporate Governance Committee believes to be the essential competencies required to effectively serve on the Board of Directors. The Nominating/Corporate Governance Committee seeks to include on our Board of Directors a complementary mix of professionals with the following qualities, skills, and attributes:
Identifying and Evaluating Nominees for Directors
Our Corporate Governance Guidelines set forth the process by which our Nominating/Corporate Governance Committee identifies and evaluates nominees for our Board of Directors. The Nominating/Corporate Governance Committee first evaluates the current members of our Board of Directors to identify nominees for directors. Current members who are willing to continue service and who have qualifications and skills that are consistent with the Nominating/Corporate Governance Committee’s criteria for Board of Directors service are re-nominated.
As to new candidates, the Nominating/Corporate Governance Committee will generally poll members of our Board of Directors and members of executive management for their recommendations. The Nominating/Corporate Governance Committee has, at times in the past, retained a search firm to assist with identifying new candidates for membership on our Board of Directors, and in the future, may hire a search firm if deemed appropriate. An initial slate of candidates will be presented to the Chair of the Nominating/Corporate Governance Committee, who will then make an initial determination as to the qualification and fit of each candidate. Final candidates will be interviewed by one or more members of the Nominating/Corporate Governance Committee and other directors. The Nominating/Corporate Governance Committee will then approve final director candidates and, after review and deliberation of all feedback and data, will make its recommendation to our Board of Directors. Recommendations received from stockholders are subject to the same criteria as are candidates nominated by the Nominating/Corporate Governance Committee and will be considered and processed accordingly.
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Stockholder RecommendationsBoard of Directors and Corporate Governance
Stockholder Recommendations
The Nominating/Corporate Governance Committee’s policy is to consider candidates recommended by our stockholders. The stockholder must submit proof of Realty Income stock ownership along with a detailed resume of the candidate and an explanation of the reasons why the stockholder believes the candidate is qualified for service on our Board of Directors. The stockholder must also demonstrate how the candidate satisfies our Board of Directors’ criteria and provide such other information about the candidate as would be required by the SEC rules to be included in a proxy statement, as well as our bylaws.Bylaws. The consent of the candidate must be included along with a description of any arrangements or undertakings between the stockholder and the candidate regarding the recommendation. All communications are to be directed to the Chair of the Nominating/Corporate Governance Committee and sent to the address noted under “Communications with the Board” in this Proxy Statement on page 18.18.
Recommendations received before November 7, 20173, 2018 or after December 7, 20173, 2018 (more than 150 days or less than 120 days prior to the first anniversary of the date the company’s Proxy Statement is released to stockholders for the previous year’s annual meeting of stockholders) will not be considered timely for consideration at next year’s annual meeting of stockholders. See “Stockholder Proposals for 20182019 Annual Meeting” in this Proxy Statement on page 57.57. Properly submitted stockholder recommendations will be evaluated by the Nominating/Corporate Governance Committee using the same criteria used to evaluate other director candidates.
Proxy Access
The company’s stockholders also possess the right to nominate candidates for election to the Board through “proxy access” provisions of our Bylaws. On March 13, 2018, the Board of Directors and Corporate Governanceamended our Bylaws to adopt a proxy access right for stockholders, pursuant to which an eligible stockholder, or a qualifying group of up to 20 stockholders, owning at least 3% of our outstanding shares of common stock continuously for at least three years, may nominate up to the greater of two directors or the largest whole number that does not exceed 20% of the number of directors then serving on the Board of Directors, for inclusion in our proxy materials, subject to complying with the requirements contained in Article III, Section 15 of our Bylaws.
Our Board of Directors has determined that each of our current directors, except for Mr. Case, has no material relationship with us (either directly or indirectly through an immediate family member or as a partner, stockholder or officer of an organization that has a relationship with us) and is “independent” within the meaning of our director independence standards and NYSE director independence standards. Our Board of Directors established and employed categorical standards in determining whether a relationship is material and thus would disqualify such director from being independent. Our categoricalindependent, which standards of independence mirror NYSE independence requirements, except that our categorical standards additionally consider a director to be not independent if:requirements.
Non-Executive Independent Chairman of the Board
The Nominating/Corporate Governance Committee also evaluates the Board of Directors leadership structure. Since 1997, the positions of Non-Executive Chairman of the Board of Directors and CEO have been separate in recognition of the differences between the two roles. Mr. McKee serves as our Non-Executive Chairman of the Board of Directors and presides as lead independent director, while Mr. Case serves as our CEO. The Board of Directors believes this is the most appropriate structure at this time because it enables the independent directors to participate meaningfully in the leadership of our Board of Directors while utilizing most efficiently the leadership skills of both Messrs. McKee and Case. In addition, separating the roles of Non-Executive Chairman and CEO allows our Non-Executive Chairman to serve as a liaison between the Board of Directors and executive management, while providing our CEO with the flexibility and focus needed to oversee our operations.
Our Board of Directors has overall responsibility for risk oversight with a focus on the more significant risks facing our company. The Board of Directors reviews and oversees our enterprise risk management (ERM) program, which is a company-wide program designed to effectively and efficiently identify and assess management’s visibility into critical company risks and to facilitate the incorporation of risk considerations into decision making. The ERM program does this by clearly defining risks facing the company and bringing together executive management to discuss these risks. This promotes visibility and constructive dialogue around risk at the executive management and Board of Director levels, and facilitates appropriate risk response
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Board of Directors and Corporate Governance
strategies. Throughout the year, as part of the ERM program, management and the Board of Directors jointly discuss major risks that face our business.
In addition to the overall risk oversight that our Board of Directors provides, each of our committees exercises its own oversight related to the risks associated with the responsibilities of that committee:
• | The Audit Committee oversees our risk policies and processes relating to the financial statements and financial reporting procedures, as well as key credit risks, liquidity risks, market risks and compliance, and the guidelines, internal controls, policies and procedures for monitoring and mitigating those risks; |
• | The Compensation Committee monitors the risks associated with management resources and structure, including evaluating the effect the compensation structure may have on risk decisions; |
• | The Nominating/Corporate Governance Committee oversees the risk related to our governance structure and processes and risks arising from related party transactions; and |
• | The Technology Risk Committee monitors the risks associated with the company’s technology, information systems and |
Board of Directors and Corporate Governance
By dividing responsibilities as such, the Board of Directors believes it can more effectively identify and address risk. Throughout the year, the Board of Directors, and the committees to which it has delegated responsibility, dedicates a portion of their meetings to review and discuss specific risk topics in greater detail.
The Compensation Committee reviews our company-wide incentive programs to assess whether the incentive programs for all employees, including our named executive officers, encourage desirable behavior as it relates to our long-term growth, and reflect our risk management philosophies, policies and processes.
Named Executive Officers.The total compensation is established after the Compensation Committee determines the appropriate performance metrics to best align the interests of management with those of our stockholders. The short-term incentive program metrics are based on financial, operational, and individual goals. The long-term incentive program metrics are primarily based on our TSR performance relative to our peers, a value creation goal, and secondarily based on financial and operational goals. In addition, as previously discussed, we have adopted a clawback policy that enables us to recover incentive compensation awards in the event of negligence or misconduct directly related to a material restatement of our financial results, or miscalculated performance metrics that, if calculated correctly, would have resulted in a lower payment.
All Other Employees.Non-named executive officer employee compensation awards are unlikely to encourage the taking of unnecessary or excessive risks that could threaten long-term value creation. Management monitors the cash and equity incentive awards made to our employees and reviews those awards in light of the potential risks relative to the control environment, each respective employee’s responsibilities, and the general policies and procedures of our company. The Compensation Committee has sought to align the interests of our employees with that of our stockholders through grants of restricted stock and restricted stock unit awards, thereby giving employees additional incentives to protect and align with long-term value creation. Based on its evaluation, the Compensation Committee does not believe that the compensation programs give rise to any risks that are reasonably likely to have a material adverse effect on our company.
Our Board of Directors met 1413 times during 2016.2017. All directors attended at least 75% of the aggregate of (i) the total number of meetings of our Board of Directors while they were on our Board of Directors, and (ii) the total number of meetings of the committees of our Board of Directors on which such directors served. Although we have no policy with regard to Board of Director members’ attendance at our annual meeting of stockholders, it is customary for, and we expect, all Board of Director members to attend. All of our Board of Director members with the exception of Mr. Merriman, attended our 20162017 annual meeting of stockholders.
To ensure free and open discussion among the independent directors, only independent directors attend executive sessions of our Board of Directors and Committee meetings. As the Non-Executive Independent Chairman of our Board of Directors, Mr. McKee presided at each of the fivesix executive sessions held during 2016.2017.
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Board of Directors and Corporate Governance
Stockholders and other interested parties may communicate with the Non-Executive Chairman of our Board of Directors or with the non-employee directors, as a group, by either of the following methods:
Email: | |
Non-Executive Chairman of the Board of Directors c/o Corporate Secretary mpfeiffer@realtyincome.com | Mail: Non-Executive Chairman of the Board of Directors |
c/o Corporate Secretary | |
Realty Income Corporation | |
11995 El Camino Real | |
San Diego, CA 92130 |
All appropriate correspondence will be promptly forwarded by the Corporate Secretary to the Non-Executive Chairman of our Board of Directors.
18 | Realty Income| |
On an annual basis, theThe Nominating/Corporate Governance Committee is responsible for reviewing the compensation of the Board of Directors. Compensation for the independent directors of our Board of Directors during 20162017 consisted of an annual cash retainer and an additional cash retainer for acting as the Non-Executive Chairman or Chairperson of one of the committees of our Board of Directors as set forth below. In addition, each independent director receives an annual equity retainer based on a fixed number of shares provided for in the 2012 Incentive Award Plan. Lastly, independent directors receivereceived Board of Director and committee meeting fees of $1,000 per meeting attended in person and $500 for telephonic attendance.
POSITION HELD | ANNUAL EQUITY GRANT (IN SHARES)(1) | ANNUAL CASH RETAINER | ||
Board of Directors – Member (including Non-Executive Chair) | 4,000 | $15,000 | ||
Board of Directors – Non-Executive Chair | — | 35,000 | ||
Audit Committee Chair | — | 18,000 | ||
Compensation Committee Chair | — | 15,000 | ||
Nominating/Corporate Governance Committee Chair | — | 10,000 | ||
Technology Risk Committee Chair | — | 10,000 |
POSITION HELD | ANNUAL EQUITY GRANT (IN SHARES)(1) | ANNUAL CASH RETAINER | |||||||
Board of Directors – Member (including Non-Executive Chair) | 4,000 | $15,000 | |||||||
Board of Directors – Non-Executive Chair | — | 35,000 | |||||||
Audit Committee Chair | — | 18,000 | |||||||
Compensation Committee Chair | — | 15,000 | |||||||
Nominating/Corporate Governance Committee Chair | — | 10,000 | |||||||
Technology Risk Committee Chair | — | 10,000 |
(1) | The value of the annual equity retainer is variable, based on the closing share price on the date of grant. |
Our directors received the following aggregate amounts of compensation for the year ended December 31, 2016: 2017:
NAME | FEES EARNED OR PAID IN CASH | STOCK AWARDS(1) | ALL OTHER COMPENSATION(2) | TOTAL | ||||||||||||
Kathleen R. Allen, Ph.D.(3) | $ | 42,000 | $ | 250,000 | $ | — | $ | 292,000 | ||||||||
John P. Case(4) | — | — | — | — | ||||||||||||
A. Larry Chapman(3) | 32,500 | 250,000 | — | 282,500 | ||||||||||||
Priya Cherian Huskins(3) | 48,500 | 250,000 | — | 298,500 | ||||||||||||
Michael D. McKee(3) | 76,500 | 250,000 | — | 326,500 | ||||||||||||
Gregory T. McLaughlin(3) | 36,000 | 250,000 | 10,000 | 296,000 | ||||||||||||
Ronald L. Merriman(3) | 48,000 | 250,000 | — | 298,000 | ||||||||||||
Stephen E. Sterrett(3) | 32,000 | 250,000 | — | 282,000 |
NAME | FEES EARNED OR PAID IN CASH | STOCK AWARDS(1) | ALL OTHER COMPENSATION(2) | TOTAL | ||||||||||||
Kathleen R. Allen, Ph.D. (3) | $ | 41,500 | $ | 212,840 | $ | — | $ | 254,340 | ||||||||
John P. Case(4) | — | — | — | — | ||||||||||||
A. Larry Chapman(3) | 31,500 | 212,840 | — | 244,340 | ||||||||||||
Priya Cherian Huskins(3) | 48,500 | 212,840 | — | 261,340 | ||||||||||||
Michael D. McKee(3) | 74,500 | 212,840 | — | 287,340 | ||||||||||||
Gregory T. McLaughlin(3) | 35,000 | 212,840 | 10,000 | 257,840 | ||||||||||||
Ronald L. Merriman(3) | 50,000 | 212,840 | — | 262,840 | ||||||||||||
Stephen E. Sterrett(3) | 30,500 | 212,840 | — | 243,340 |
(1) | On May |
(2) | Amount represents the annual retainer of $10,000 for serving as the director of Crest Net Lease, Inc. (Crest), a wholly owned subsidiary of Realty Income. |
(3) | As of December 31, |
(4) | Mr. Case, our Chief Executive Officer and Director, did not receive any compensation for his services on our Board of Directors or as a director of Crest during |
Stock Awards for Directors
The 2012 Incentive Award Plan provides that upon the initial election to our Board of Directors, and at each annual meeting of stockholders thereafter, if the director continues to serve as a director after the meeting, each non-employee director is automatically granted 4,000 shares of restricted stock. This annual equity grant of 4,000 shares is specifically provided for in the 2012 Incentive Award Plan, which has been approved by our stockholders. The vesting schedule for restricted shares granted to non-employee directors is as follows and is subject to the director’s continued service through each applicable vesting date:
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Director Compensation
YEARS OF SERVICE | VESTING |
< 6 years | 33.33% increments on each of the first three anniversaries of the grant date |
6 years | 50% increments on each of the first two anniversaries of the grant date |
7 years | 100% vested on the first anniversary of the grant date |
≥ 8 years | Immediately |
Changes to Director Compensation for 2018
In November 2017, the Nominating/Corporate Governance Committee reviewed a report it received from FPL on director compensation. Based on its review, the Nominating/Corporate Governance Committee recommended a revised compensation plan to better align director compensation with market practices. The Board of Directors subsequently approved the plan. Compensation for the independent directors of our Board of Directors for 2018 will consist of a base annual cash retainer, plus additional cash retainers for service as the Non-Executive Chairman or Chairperson of one of the committees of our Board of Directors in amounts as set forth below. Each independent director will continue to receive an annual equity retainer based on a fixed number of shares provided for in the 2012 Incentive Award Plan. There will no longer be Board of Director and committee meeting fees for attendance.
POSITION HELD | ANNUAL EQUITY GRANT (IN SHARES)(1) | ANNUAL CASH RETAINER | |||||||
Board of Directors – Member (including Non-Executive Chair) | 4,000 | $25,000 | |||||||
Board of Directors – Non-Executive Chair | — | 35,000 | |||||||
Audit Committee Chair | — | 25,000 | |||||||
Compensation Committee Chair | — | 25,000 | |||||||
Nominating/Corporate Governance Committee Chair | — | 10,000 | |||||||
Technology Risk Committee Chair | — | 10,000 |
The value of the annual equity retainer is variable, and will be based on the closing share price on May 18, 2018. |
Director Compensation
Other Payments for Directors
The members of our Board of Directors are also entitled to reimbursement of their travel expenses incurred in connection with attendance at Board of Director and committee meetings and conferences. Additionally, the members of our Board of Directors are reimbursed for expenses incurred in connection with attending continuing education programs to assist them in remaining abreast of developments in corporate governance and other critical issues relating to the operation of public company boards.
Director Stock Ownership Guidelines
Our non-employee directors are subject to stock ownership guidelines. Under these guidelines, each non-employee director will be required, within five years of January 1, 2013, to hold stock valued at no less than five times the amount of the annual cash retainer paid to such director for service as a member of the Board of Directors, without reference to committee service. The current stock ownership goal for each of our non-employee directors is five times their annual cash retainers as of January 1,December 31, 2017 of $15,000, or $75,000, divided by the closing price of our common stock as of December 31, 201629, 2017 of $57.48,$57.02, which equals a minimum share ownership requirement of 1,3051,315 shares.
All vested and unvested restricted stock awards qualify towards satisfaction of the requirement. For any new director, compliance with the guidelines will be required within five years after being elected to the Board of Directors. As of December 31, 2016,2017, each director subject to the guidelines met or exceeded the stock ownership requirements.
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Executive Officers of the Company
The following table sets forth certain information as of the record date of March 9, 20178, 2018 concerning our executive officers:
NAME AND CURRENT TITLE | AGE | BUSINESS EXPERIENCE |
|
| |
John P. Case Chief Executive Officer | Mr. Case’s business experience is set forth in this Proxy Statement under “Director Nominees” on page | |
Sumit Roy President and Chief Operating Officer | Mr. Roy has been our President since November 2015 and our Chief Operating Officer since October 2014. He served as Executive Vice President, Chief Investment Officer from October 2013 to November 2015. Prior to that, he served as Executive Vice President, Acquisitions from March 2013 to October 2013, after being promoted from his prior role as Senior Vice President, Acquisitions from September 2011 to February 2013. Prior to joining us in September 2011, Mr. Roy was an Executive Director, Global Real Estate, Lodging & Leisure for UBS Investment Bank. Mr. Roy has also held positions at Merrill Lynch, and at Cap Gemini Ernst & Young LLP. | |
Paul M. Meurer Executive Vice President, Chief Financial Officer and Treasurer | Mr. Meurer has been our Executive Vice President, Chief Financial Officer and Treasurer since joining us in 2001. Prior to joining us, he was a director in Merrill Lynch & Co.’s Real Estate Investment Banking Group (1992-2001), a real estate consultant with General Atlantic Partners (1991) and worked in the Real Estate Investment Banking Department at Goldman Sachs & Co. (1987-1990). | |
Michael R. Pfeiffer Executive Vice President, General Counsel and Secretary | Mr. Pfeiffer has been our Executive Vice President, General Counsel and Secretary since May 2002. He joined us in 1990 and served as Corporate Counsel until 1995, when he was named General Counsel and Secretary. Mr. Pfeiffer left us in September 2001 and served as Executive Vice President and General Counsel for Westfield Corporation, Inc., a retail shopping mall owner, until May 2002, at which time he returned to us as Executive Vice President, General Counsel and Secretary. Prior to joining us, Mr. Pfeiffer was in private practice with a law firm specializing in real estate transactional law and served as associate counsel with First American Title Insurance Company. He is a licensed attorney and member of the State Bar of California and Florida. Mr. Pfeiffer is a licensed Real Estate Broker in California and holds the real estate officer license for us. | |
Neil M. Abraham Executive Vice President, Chief Investment Officer | Mr. Abraham has been our Executive Vice President, Chief Investment Officer since November 2015. Prior to that, he was our Senior Vice President, Investments, a position he held from April 2015 to November 2015. Prior to joining us, Mr. Abraham was a Portfolio Manager for equity and mortgage REITs at | |
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Executive Officers of the Company
NAME AND CURRENT TITLE | AGE | BUSINESS EXPERIENCE |
Benjamin N. Fox President, Portfolio and Asset Management | Mr. Fox has been our | |
Mr. Nugent has been our Senior Vice President, Controller since January 2017. Prior to that, he was our Vice President, Controller, a position he held from 2014 to December 2016. He joined us in 2006 and served as Accounting Manager before being promoted to Associate Vice President, Assistant Controller, in 2012. Prior to joining us, Mr. Nugent worked in various accounting positions for a number of San Diego companies. Mr. Nugent is a licensed Certified Public Accountant in California. | ||
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Compensation Discussion and Analysis
This Compensation Discussion and Analysis section discusses the compensation policies and programs for the following executive officers of the company (the named executive officers or NEOs):
NAME | CURRENT TITLE |
John P. Case | Chief Executive Officer |
Sumit Roy | President and Chief Operating Officer |
Paul M. Meurer | Executive Vice President, Chief Financial Officer and Treasurer |
Michael R. Pfeiffer | Executive Vice President, General Counsel and Secretary |
Neil M. Abraham | Executive Vice President, Chief Investment Officer |
The primary objectives of our compensation program are to:
ü | Align the interests of management with those of | |
ü | Link executive compensation to the company’s short-term and long-term performance; and | |
ü | Attract, motivate and retain highly qualified executive officers through competitive compensation arrangements. |
We continue to adhere to best in class compensation and corporate governance practices as set forth in the following table:
WHAT WE DO: | |||||
WHAT WE DO NOT DO: | |||||
ü | DO align pay to performance by linking a substantial portion of compensation to the achievement of predefined performance metrics that drive stockholder value creation | X | Do NOT allow for uncapped award opportunities | ||
ü | DO cap payouts for awards under our Short-Term Incentive Program (STIP) and our Long-Term Incentive Program (LTIP) | X | Do NOT provide any perquisites to our named executive officers | ||
ü | DO set meaningful and measurable performance goals at the beginning of the performance period and evaluate such performance over both an annual and multi-year period on a relative basis | X | Do NOT permit executives officers or directors to pledge or hedge our securities | ||
ü | DO maintain stock ownership requirements for our directors, CEO, and other named executive officers | X | Do NOT incentivize excessive risk taking | ||
ü | DO perform an annual compensation risk assessment to ensure our compensation programs and policies do not encourage excessive risk taking behavior | X | Do NOT pay accrued dividends on performance shares unless and until they vest | ||
ü | DO allow for the Board to “clawback” incentive compensation in the event of certain financial restatements or incentive miscalculations | X | Do NOT provide our named executive officers with tax gross-ups on perquisites or other benefits | ||
ü | DO employ the services of an independent compensation consultant that reports to the Board of Directors | X | Do NOT provide for excise tax gross ups | ||
ü | DO grant performance-based equity, which is | X | Do NOT provide supplemental or other retirement plans, other than a 401(k) plan |
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Executive Compensation
20162017 Performance
Prior to reviewing the compensation program and earned amounts for our named executive officers, itIt is important to review and acknowledge the company’s performance results for the year. The company achieved solid growthyear and strong operatingmanagement’s execution of our strategy to support and financial performance in 2016. Here are somegrow monthly dividends for our stockholders. We focus on the following key highlights:areas when executing our strategy:
We sourced |
ü | We remained committed to diversifying our portfolio by tenant industry, geography, and a |
| |
|
Actively managed our portfolio to further enhance stockholder value |
ü | We achieved a high level of year-end occupancy of |
ü | We recaptured 106% of expiring rent on properties |
ü | We |
| |
Maintained a conservative balance sheet |
ü | We ended the year with a Debt-to-EBITDA ratio of 5.5x, reducing our leverage by 20 basis points compared to last year.* |
ü | Our conservative balance sheet was recognized, among other factors, with Moody’s Investor Service upgrade of our |
* For a calculation of Debt-to-EBITDA, see page 48 of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 22, 2018, which also includes a Generally Accepted Accounting Principles (GAAP) reconciliation of this non-GAAP measure.
The company’s positive performance results, and successful execution of our strategy are a significant contributorcontributors in determining the compensation awarded to our executives. Our compensation program is structured to effectively link compensation to the achievement of certain company performance metrics in order to create alignment with the interests of our stockholders. We believe our performance in 20162017 demonstrates the effectiveness over time of the execution of our strategic business plan and the alignment of our compensation program with our philosophy to rewardof rewarding executives for enhancing long-term stockholder value.
Strategic Planning
Our goal is to continue managing the company in a manner that supports sustainable, long-term value creation for stockholders. In 2016, theThe Board of Directors frequently reviews and the company’s named executive officers completed an in-depth strategic review of each facet of our business, focusing on the long-term vision for our company. While discussion ofdiscusses the company’s strategy is frequently aas part of regularly scheduled Board meetings, this dedicated strategic review allowedmeetings. The discussions allow the Board to assess further assess potential opportunities and threats to the business toand properly position the company to continue to perform in the future. AdditionalThe company’s named executive officers and additional members of management, and outside experts were invited toincluding the company’s in-house research department, participate in the discussions on topics such as e-commerce and other disruptive technologies, changing demographics, the macroeconomic and political landscape, and their implications for our company. From time to time, experts on various topics are invited to the discussions to challenge thinking and invite healthy discourse at the meetings. The company also supports the Board’s participation at various conferences and speaking engagements in order to introduce new topics and materials for discussion and further broaden long-term views on the business. We will continue to incorporate similar strategic reviews in our Board meetings and strive to stay in front of emerging trends by making adjustments to our strategy as needed.
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Executive Compensation
Favorable Say-on-Pay Vote and Stockholder Engagement
We provide our stockholders with an annual advisory “say-on-pay” vote on the compensation of named executive officers. At our 2016 Annual Meeting of Stockholders, ourOur stockholders expressedcontinue to express substantial support for the compensation of our named executive officers, with approximately 96%above 94% of the votes cast approving the advisory say-on-pay vote.vote during each of the last five years. This continued support of our compensation program, as demonstrated below, reflects a strong alignment with the company’s performance and long-term value creation for our stockholders.
Stockholder Engagement
During 2016,2017, we continued to engage and interact with our active stockholders through various means of communication, including in-person meetings, conferences, phone calls and conference calls.emails. We believe engaging with our stockholders on an ongoing basis is important to understand what is important to them and ensure best practices.
Our outreach efforts for this proxy season included reaching out to our 30 largest stockholders, collectively representing approximately 50% of shares outstanding as of September 30, 2017. During our conversations with them, we discussed various topics including their views on executive compensation and governance best practices. In general, stockholders were satisfied with our current programs, as evidenced by our approval percentages above. Any consistent themes from this stockholder commentary are reported regularly to our Nominating/Corporate Governance Committee, Compensation Committee, and Board of Directors. This dialogue allows our Directors to hear what is most important to our stockholders and share perspectives on our compensation and governance processes. The Board considers the input provided by our stockholders and our advisors as it reviews and considers enhancements to its processes and disclosures.
In addition to the say-on-pay results and feedback from stockholders, (as provided), the Compensation Committee consideredalso considers other factors in evaluating our executive compensation programs, including but not limited to:
The Compensation Committee’s assessment of the |
Retention and recognition of individual contribution towards our performance; | ||
· | Recommendations provided by its independent consultant; and |
A review of peer data. |
Each factor is evaluated in the context of the Compensation Committee’s responsibility to act in the company’s best interest. The Compensation Committee reviewed the company’s agreements for restricted stock and restricted stock unit awards and found them to be well aligned with current market practices. The Compensation Committee will continue to consider the outcome of say-on-pay proposals and stockholder input when making future compensation decisions for the named executive officers.interests.
Compensation Consultant
In 2016,2017, the Compensation Committee retained FPL Associates, L.P. (FPL), a nationally-known independent executive compensation and benefits consulting firm specializing in real estate companies, to provide general executive compensation consulting services. In addition, the consultant performs special executive compensation projects and consulting services, as directed by the Compensation Committee.
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Executive Compensation
The consulting services provided by FPL include:
ü | Evaluating the current compensation program design and guidelines for |
ü | Providing peer information to assist the Compensation Committee in selecting the appropriate peer group; |
ü | Benchmarking the compensation for the named executive officers against the appropriate peer group; |
ü | Identifying the appropriate mix between compensation components, including base salary, annual incentives, and short-term and long-term incentive compensation to ensure proper incentive alignment; |
ü | Discussing market-based incentive programs, including performance metrics and target, within the peer group companies, and providing guidance and recommendations for modifications to program elements to ensure competitiveness; and |
ü | Reviewing an overview of industry trends |
Executive Compensation
FPL reports to the Compensation Committee and works with management as directed by the Compensation Committee. The Compensation Committee retains the right to terminate or replace the consultantFPL at any time. Pursuant to the Compensation Committee’s charter, the Compensation Committee has the power to engage suchother consultants and other advisors as it deems necessary.required.
Through a review and consultation with FPL, the Compensation Committee assessed the independence of FPL in light of, among other factors, the independence factors established by the NYSE. As a result of this assessment, the Compensation Committee has determined that FPL’s work raised no conflict of interest currently or during the year ended December 31, 2016.2017.
Peer Group Data
The Compensation Committee uses comparison data from various companies it considers peers as a guide in its review and determination of base salaries, cash payments, equity awards, and long-term performance awards. Prior to approving the 20162017 incentive compensation program the Compensation Committee reviewed peer group data to assist in its determination of total target direct compensation (on an aggregate and individual basis), as well as the appropriate mix of equity versus cash, short-term versus long-term, and performance-based versus time-based awards to be paid or granted for 20162017 performance. The Compensation Committee evaluates whether the compensation elements and levels that are provided to our named executive officers are generally appropriate relative to the compensation elements and levels provided to their counterparts at our peer companies, in light of our performance relative to our peers and in light of each named executive officer’s contribution to our performance. This approach allows us to respond to competitive dynamics in the market and provides us with the flexibility needed to maintain and enhance our named executive officers’ engagement, focus, and motivation for the future.motivation.
20162017 Peer Group for 20162017 Compensation Decisions
The Compensation Committee with the help of FPL periodically reviews the composition of our peer group and the criteria and data used in compiling our peer group to ensure that each company’s size and operations remain comparable to ours. InThe Compensation Committee met in January 2017 to review the peer group to be used for 2017 compensation decisions (2017 Peer Group) and decided to make the following modifications to the 2017 Peer Group, as recommended by FPL:
Given our company’s continued growth during 2016, the Compensation Committee reviewed data provided by FPL regarding the appropriate companies to include in the peer group. The peer group recommended by FPL and used by the Compensation Committee for 2016 compensation decisions (2016 Peer Group), was amended from the prior year to include three companies: Equinix, Inc., Essex Property Trust, Inc. and VEREIT, Inc. Additionally, Aimco, CBL & Associates Properties, Inc. and Duke Realty Corporation were removed from the 2016 Peer Group. Given our company’s substantial growth in size and addition to the S&P 500 Index during 2015, the Compensation Committee determined thesethat substitutions were warranted to ensure among other factors, that our total and equity market capitalization remained near the median of the peer group for 2016. 2017. Boston Properties, Inc., Ventas, Inc. and Vornado Realty Trust were added to incorporate additional best-in-class S&P 500 REITs that were slightly larger in size in terms of both total and equity market capitalization. DDR Corp. and SL Green Realty Corp. were removed based on relative size and additional factors described below. Our 20162017 Peer Group consists of the following 1718 public real estate companies:
Avalon Bay Communities, Inc. | National Retail Properties, Inc.* |
Digital Realty Trust, Inc. | |
Equinix, Inc. | |
Essex Property Trust, Inc. | |
Federal Realty Investment Trust | VEREIT, Inc.* |
HCP, Inc. | |
Host Hotels & Resorts, Inc. | |
Kimco Realty Corporation | Welltower, Inc. |
*Denotes a net lease peer
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Executive Compensation
The companies in our 20162017 Peer Group focus on a variety of asset classes including those having a netwith similar lease component to the extent available,types, and those that are similar to us in size to us in terms of total market capitalization and equity market capitalization (common and preferred stock, partnership units convertible into stock and long and short-term debt) and equity market capitalization (common stock and convertible partnership units). The Compensation Committee believes that total market and equity market capitalization are the most relevant indicators of size for real estate companies, acknowledging that other industries may use different indicators like revenue. The companies were selected so that our total and equity market capitalization remained near the median of the peer group:
Executive Compensationgroup. All companies selected were less than 2 times our size based on total market capitalization.
20162017 Peer Group Comparison(1)
(in billions)
(1) | As of December 31, |
The Compensation Committee evaluates our peer group periodically and may make adjustments to this peer group to reflect changes in the size or operations of the company or our peers.
Management Involvement
In setting compensation for named executive officers, the Compensation Committee solicits input from the CEO concerning each of the other named executive officers other than himself. In addition, from time to time, the Compensation Committee will direct management to work with the Compensation Committee’s consultant in providing proposals, program design, and compensation recommendations. Each year, the CEO provides the Compensation Committee with a report of the company’s operating and financial results for the past fiscal year relative to the company’s performance metrics. He also discusses his personal assessment of individual performance of each of the other named executive officers. In addition, at the request of the Compensation Committee, the CEO makes recommendations regarding salary and incentive compensation awards for each named executive officer other than himself. The Compensation Committee considers these recommendations and other factors as discussed above in making the final determinations.
In structuring executive compensation, the Compensation Committee considers how each component of compensation motivates performance, promotes retention, and creates long-term stockholder value. Base salaries are primarily intended to attract and retain highly qualified executives and to reward them for their continued service. Annual incentive cash payments, equity awards, and long-term performance shares are designed to (i) directly reward performance, (ii) achieve specific strategic and operating objectives, and (iii) provide incentives to create long-term stockholder value. All of our equity incentives are intended primarily intended to align named executive officers’ long-term interests with stockholders’ long-term interests although we believe they also play a role in helping us reward performance, and to attract, and retain top executives.
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Executive Compensation
The following table outlines the primary elements of our 20162017 executive compensation program:
ELEMENT | OBJECTIVE SERVED |
Base Salary | Fixed base pay rewards performance of core job duties and recognizes individual achievements, contributions, and |
Short-term Incentive Program | Variable cash |
Long-term Incentive Program | Variable equity compensation motivates executives to achieve long-term financial goals, such as |
Equity Based Incentive Awards – Restricted Shares (Time-Based) | Fixed equity compensation that vests over future periods fosters retention and aligns the named executive officers’ interest with the long-term interests of our stockholders. |
Incentive Programs and Performance Metrics
In February 2017, following consultation with and based on the recommendations of FPL, the Compensation Committee approved changes to the design of the STIP and LTIP programs applicable to the company’s NEOs for 2017. While the Compensation Committee preserved much of the previous incentive compensation program in terms of the categories used to measure performance, they recalibrated the mix of cash versus equity targeted under the programs and increased each named executive officers’ total target compensation, to collectively better align with median levels of peer compensation. Consistent with peer compensation practices, the Compensation Committee also adjusted the bandwidth of earnings potential above target, with an increased maximum payout of 200% of target, and a corresponding level of enhanced rigor to achieve maximum performance to further motivate and reward outstanding performance. These changes resulted in (i) increased total target compensation for each NEO from the 2016 levels, (ii) a reduction in the target bonus opportunity in the STIP, now awarded in cash, and (iii) a greater proportion of 2017 total target compensation tied to long-term performance objectives, awarded in equity. The impact of these changes is a shift in the composition of the program which is now weighted heavier in equity, along with a greater portion of compensation tied to long-term, three-year performance.
CEO 2016 Cash vs Equity Mix CEO 2017 Cash vs Equity Mix
To effectuate these changes to the 2017 program, the company and Mr. Case entered into an amendment to Mr. Case’s employment agreement which provided for the following:
Reduced Mr. Case’s targeted annual cash performance bonus from no less than 200% of his base salary to no less than 150% of his base salary, and | ||
ü | Removed the provision which required that no less than 50% of his annual equity awards be in the form of time-based awards. |
Each year, the Compensation Committee, with input from FPL, reviews the metrics underlying the short-term and long-term incentive programs, and considers various industry performance indicators, including GAAP and non-GAAP earnings metrics. The Compensation Committee believes that the current mix of operational, liquidity, and financial earning metrics used for the 2017 performance year align with our strategy to attain long-term financial stability that will support sustained cash flows beneficial to our stockholders.
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Executive Compensation
Total Target Direct Compensation
The Compensation Committee worked with FPL, Associates, L.P. (FPL), the Compensation Committee’s independent consultant, to determine the levels of total target direct compensation to achieve the appropriate balance between (i) cash and equity compensation, (ii) long-term and short-term compensation, (iii) performance-based and time-based equity, and (iv) fixed and variable compensation. As an initial reference point, the Committee reviewed the median benchmark of each executive as well as the aggregate level of total target direct compensation. This process allows the Committee to ensure pay is competitive for the individual and account for their tenure and experience, as well as ensure that the total amount for our executive team is reasonable. The Compensation Committee reviewed the median and aggregate total target direct compensation within our peer group based on market data provided in November 2015January 2017 by FPL, to assess the structure of the program, as well as individual and aggregate compensation levels.FPL. When establishing total target direct compensation levels for each named executive officer, the Compensation Committee gave consideration and special emphasis to individuals’ personal contributions to the organization, as well as skill sets, qualifications, and experience. Other factors considered were historicalexperience, seeking to incentivize high performing named executive officers with competitive pay, and the recent trajectory of individual’s pay.consistent with peer group median compensation levels. After review and consideration, the Compensation Committee approved the following total target direct compensation and structure for 20162017 compensation. Total target direct compensation for 20162017 was composed of (i) base salary, (ii) target annual short-term incentive opportunity (two-thirds cash and one-third equity)(awarded in cash), (iii) performance shares, and (iv) the annual grant of restricted shares. In the aggregate, the 20162017 total target direct compensation established for the named executive officers approximated the estimated peer group median. Additionally, Mr. Case’s 2017 total target direct compensation approximated the estimated 2017 peer group median.
TOTAL TARGET DIRECT COMPENSATION | TOTAL TARGET DIRECT COMPENSATION | TOTAL TARGET DIRECT COMPENSATION | ||||||
EXECUTIVE | 2016 | 2016 | 2017 | |||||
John P. Case | $ | 6,250,000 | $ | 6,250,000 | $ | 7,025,000 | ||
Sumit Roy | $ | 3,000,000 | 3,000,000 | 3,500,000 | ||||
Paul M. Meurer | $ | 2,100,000 | 2,100,000 | 2,250,000 | ||||
Michael R. Pfeiffer | $ | 1,500,000 | 1,500,000 | 1,750,000 | ||||
Neil M. Abraham | $ | 1,250,000 | 1,250,000 | 1,600,000 | ||||
Total | $ | 14,100,000 | $ | 14,100,000 | $ | 16,125,000 |
For our CEO, the Compensation Committee used the following structure for determining the various elements of direct compensation payable for 2016:2017:
Set forth below is a table that illustrates the application of the structure for 20162017 compensation decisions for our CEO.
CEO ANNUAL CASH | CEO ANNUAL EQUITY | CEO TOTAL | ||||||||
TARGET STIP | TARGET LTIP | ANNUAL | TOTAL TARGET | |||||||
ANNUAL | TARGET STIP | RESTRICTED | PERFORMANCE | RESTRICTED | DIRECT | |||||
SALARY | CASH AWARD | SHARES | SHARES | SHARES | COMPENSATION | |||||
$875,000 | $2,250,000 | $1,125,000 | $1,000,000 | $1,000,000 | $6,250,000 |
CEO ANNUAL CASH | CEO ANNUAL EQUITY | CEO TOTAL | ||
ANNUAL SALARY | TARGET STIP CASH AWARD | TARGET LTIP PERFORMANCE | ANNUAL RESTRICTED SHARES | TOTAL TARGET DIRECT COMPENSATION |
$925,000 | $1,600,000 | $3,500,000 | $1,000,000 | $7,025,000 |
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Executive Compensation
Executive Compensation
CEO Total Target Direct Compensation
The Compensation Committee believes that a significant portion of executive compensation should be at-risk and tied to our performance in order to best align management’s interests with those of our stockholders. In 2016,2017, approximately 70%73% of our CEO’s total target direct compensation consisted of compensation that is at-risk based on achievement of certain objective performance metrics. Similar guiding principles were used for our other named executive officers, resulting in comparable percentages of at-risk compensation.
General Note to Discussion of Pay Components
Some of the components of 20162017 compensation disclosed in the following sections of this “Compensation Discussion and Analysis” section differ from the Summary Compensation Table on page 39.38. SEC rules require that the Summary Compensation Table include equity compensation in the year granted, while in our case, the Compensation Committee awards equity compensation under our STIP and time-based restricted stock programequity compensation after the performance year, upon the successful completion of the external year-end audit process. Therefore, equity-basedtime-based equity awards granted under these programs in January 2016February 2017 for the 20152016 performance year are shown in the Summary Compensation Table as 2017 compensation. As discussed above, the 2017 incentive program is weighted heavier in long-term performance shares which were also granted in February 2017. This resulted in the largest components of equity compensation for the 2016 compensation. However,and 2017 performance years included in 2017 stock awards in the equity-based awards under the STIP andSummary Compensation Table. The time-based restricted stock programequity awards for 20162017 discussed in the following sections for all named executive officers will be included in the Summary Compensation Table in next year’s proxy statement.
Base Salaries
In connection with its review of fiscal 20152016 performance, and in consideration of the increased responsibilities that come with the continued growth of the company, the Compensation Committee decided to increase the base salaries paid to all of our named executive officers commencing on January 1, 2016. The Compensation Committee also considered the target compensation relative to peer group compensation data, historical pay, and the trajectory of compensation increases when2017. When making its decision for salary changes.to increase 2017 salaries, the Compensation Committee sought to incentivize high performing named executive officers with competitive pay, consistent with peer group median compensation levels. The 2016 and 2017 base salaries are reflected in the table below, as well as the salary increases approved for 2017.below.
NAMED EXECUTIVE | SALARIES FOR FISCAL YEAR | SALARIES FOR FISCAL YEAR | ||||||||||
OFFICER | PRINCIPAL POSITION IN 2016 | 2015 | 2016 | 2017 | PRINCIPAL POSITION IN 2017 | 2016 | 2017 | |||||
John P. Case | Chief Executive Officer | $825,000 | $875,000 | $925,000 | Chief Executive Officer | $875,000 | $925,000 | |||||
Sumit Roy | President, | 475,000 | 525,000 | 550,000 | President, Chief Operating Officer | 525,000 | 550,000 | |||||
Chief Operating Officer | ||||||||||||
Paul M. Meurer | Executive Vice President, | 425,000 | 450,000 | 475,000 | Executive Vice President, Chief Financial Officer and Treasurer | 450,000 | 475,000 | |||||
Chief Financial Officer and Treasurer | ||||||||||||
Michael R. Pfeiffer | Executive Vice President, | 400,000 | 420,000 | 450,000 | Executive Vice President, General Counsel and Secretary | 420,000 | 450,000 | |||||
General Counsel and Secretary | ||||||||||||
Neil M. Abraham | Executive Vice President, | 300,000 | 335,000 | 375,000 | Executive Vice President, Chief Investment Officer | 335,000 | 375,000 | |||||
Chief Investment Officer |
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Executive Compensation
Short-Term Incentive Program (STIP)
During December 2015,February 2017, the Compensation Committee approved the 20162017 STIP, which is structured so that the named executive officers’ annual incentive awards closely align with the company’s operating and financial performance. The components of the 20162017 STIP were as follows:
Objective Company Performance Criteria – Weighted 70%Individual Performance – Weighted 30%
Objective Company Performance Criteria – Weighted 70% | |
Individual Performance – Weighted 30% | |
ü | All of the compensation awarded under this program was at-risk. |
ü | No compensation was awarded for below-threshold performance and maximum payouts were capped at |
ü | Awards were paid |
Objective Company Performance Criteria – Criteria—70%
The company performance criteria, weightings, and amounts that can be earned under the 20162017 STIP, in addition to our actual performance and amounts earned for 20162017 performance, are set forth in the following table:
THRESHOLD | TARGET | MAXIMUM | 2016 | 2016% | |||||||||||||
PERFORMANCE GOALS | WEIGHTING | 50% | 100% | 150% | ACTUAL | EARNED(2) | WEIGHTING | THRESHOLD 50% | TARGET 100% | MAXIMUM 200% | 2017 ACTUAL | 2017 % EARNED (2) | |||||
AFFO per share(1) | 40% | $2.79 | $2.86 | $2.90 | $2.88 | 125% | 40% | $2.95 | $3.02 | $3.10 | $3.06 | 150% | |||||
Fixed charge coverage ratio | 20% | 3.0x | 3.3x | 3.7x | 4.2x | 150% | 20% | 3.0x | 3.3x | 3.7x | 4.8x | 200% | |||||
Portfolio occupancy | 10% | 96.75% | 98.00% | 98.60% | 98.30% | 125% | 10% | 96.75% | 98.00% | 98.70% | 98.40% | 157% | |||||
Total Weighted Payout Prior to Individual Performance | Total Weighted Payout Prior to Individual Performance | 132% | Total Weighted Payout Prior to Individual Performance | 165% |
(1) | AFFO per share is defined as Funds from Operations adjusted for unique revenue and expense items, which we believe are not as pertinent to the measurement of our ongoing operating performance, and is consistent with the presentation of AFFO in our public SEC filings. Refer to page |
(2) | The Compensation Committee used interpolation for results between threshold and maximum criteria. Performance in excess of maximum goals was capped at |
The Compensation Committee believes these annual targeted operating and financial goals align with our strategy to attain long-term financial stability that will support sustained cash flows beneficial to our stockholders. The goals for the AFFO per share metric were increased from 20152016 with the maximum payout set atexceeding the top end of the company’s AFFO per share earnings guidance range for 2016.2017. The target goals for the fixed charge coverage ratio, a liquidity metric, and portfolio occupancy, an operational metric, remained unchanged. Theunchanged, with a slight increase in the maximum goal for portfolio occupancy. These goals are established each year after reviewing the company’s financial and operating projections, including the level of upcoming lease expirations. For these two metrics, the company achieved record-high results to attain at or near maximum payouts, including in 2017 when we matched our 10-year high year-end occupancy rate and achieved a record-high fixed charge coverage ratio. Accordingly, the Compensation Committee believes that these goals remain rigorous, requiring the company to thoughtfully manage its capital structure thoughtfully, successfully access the capital markets, and actively resolve lease turnoverrollover to achieve payouts in excess of target for these metrics.
Individual Performance – 30%
As a component of the STIP, individual performance is used by the Compensation Committee to award forreward individual goals achieved. The Compensation Committee used the following process to establish individual performance goals and assess individual performance at the end of the performance year.
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Executive Compensation
ü | At the beginning of |
ü | In November |
ü | The CEO evaluated each named executive officer’s performance, other than his own, and recommended to the Compensation Committee the percentages that should be earned under this individual performance component. |
ü | The Compensation Committee engaged in a discussion with the CEO regarding his recommendations and his assessments and made the final determination regarding this metric. |
ü | The Compensation Committee engaged in a review of the CEO’s performance as it relates to the company’s performance, as well as the state of our industry and market competitive practices, in determining the percentage that the CEO earned under this individual performance component. |
Executive Compensation
The Compensation Committee incorporated the recommendations provided by the CEO for the individual performance percentages for the named executive officers other than himself. The percentages earned under the individual performance metric and the material factors considered are set forth below.
John P. Case—150%
Mr. Case successfully executed our business plan, leading the company to strongfavorable financial and operating results. Under his leadership, AFFO per share increased 5.1%6.3%, substantially above our long-term average earnings growth rate, which allowed us to increase our dividends paid per common share by 5.3%5.6% in 2016. These results contributed to a TSR of 16.0% in 2016, surpassing the mean or average performance of our peer group, the NAREIT US Equity REIT Index, the NASDAQ Composite, and the S&P 500 Index. Additionally, he2017. He also effectively led the senior management team in the achievement of their objectives.objectives in all areas of the business. Throughout the year, Mr. Case actively engaged with stockholders and other constituencies to communicate ourthe company’s results and strategic vision. He also playedcontinues to play a key role in our Board’s in-depthongoing strategic review that occurredreviews in 2016,order to properly positioningposition the company to continue to perform in the future. Additionally, Mr. Case leverages his leadership and involvement in other related organizations, such as the Executive Board of NAREIT and President’s Council of The Real Estate Roundtable, to further develop the company’s reputation in the broader real estate industry. The Compensation Committee determined that his performance well-exceeded his objectives.
Sumit Roy—150%200%
Mr. Roy executed our operational strategy during the year by remaining focused on optimizing efficiencies throughout the organization. In 2016,2017, our general and administrative expense as a percentage of rental revenue was 4.9%5.0%, the lowest in our history and the lowest amongst our peers in the net lease sector. He continues to ensurecapitalize on the scalability of our business model while ensuring the appropriate resources and structure are in place to effectively position the company for its continued growth. Additionally, he chairs our Investment Committee, and he oversaw the active management of our existing portfolio to maximize value by achieving high occupancy, andabove-average re-leasing rates, and strategically selling non-core assets to further strengthen the portfolio.assets. The Compensation Committee determined that his performance well-exceeded his objectives.
Paul M. Meurer—125%150%
Mr. Meurer was instrumental in the company accessing the capital markets in 2016,2017, raising approximately $573 million$1.4 billion in equity capital at company-record high pricing and issuing $600 million$2.0 billion in 10-year unsecured bonds at the lowest yield for debt of this term in our company’s history.bonds. He led the execution of the company’s capital raising effort, which contributedhelped fund our acquisitions activity, reduce our leverage, and extend the average term on our debt. In 2017, Moody’s Investors Service raised our corporate credit rating on our senior unsecured notes and bonds to the company’s acquisition of properties at investment spreads well above our historical average. In 2016, the company achieved an increase in its credit ratings outlook to “Positive” from Moody’s and S&P, providing“A3” giving us with the highest credit ratings amongst our peersrating in the net lease sector. The Compensation Committee determined that his performance exceeded his objectives.
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Executive Compensation
Michael R. Pfeiffer—125%100%
Mr. Pfeiffer successfully provided oversight and legal expertise for the $1.86$1.5 billion of acquisitions closed during the year, and the approximate $1.2$3.4 billion of combined equity and long-term debt capital raised. He also continued to enhance the company’s risk management oversight and streamline the internal legal processes to ensure efficiency, and develop key areas of internal legal expertise to support all functions of the company.efficiency. The Compensation Committee determined that his performance exceededmet his objectives.
Neil M. Abraham—125%100%
Mr. Abraham successfully executed our investment and research strategy during the year, achieving the highest volume of property-level acquisitions in our company’s history.year. In 2016,2017, we invested $1.86$1.5 billion in high-quality real estate properties at attractive yields. We achieved this level of acquisitions while remaining selective and disciplined with our investment strategy, acquiring just 6.5%5% of the $28.5$30.4 billion of acquisition opportunities sourced. The Compensation Committee determined that his performance exceededmet his objectives.
The incentive opportunities and the total actual incentive award earned by each named executive officer for 20162017 under the STIP are set forth in the table below. Our CEO’s 20162017 target incentive opportunity was established based on the total target direct compensation structure outlined on page 28.29. For our other named executive officers, the target incentive opportunities were intended to be between 38%23% and 53%26% of each individual’s 20162017 total target direct compensation level. Two-thirds of theThe earned incentive award was paid in cash in February 2017, while the remaining one-third was awarded in restricted shares that vest evenly over four years commencing on January 1 of the year following the grant, subject to continued employment. The restricted shares for all NEOs were granted effective as of February 14, 2017, based on the dollar value of the earned incentive award allocated to restricted shares and our closing stock price of $60.78 on that day.2018.
Executive Compensation
2016 Incentive Opportunities and Earned Incentive Compensation under the STIP
INCENTIVE OPPORTUNITY | EARNED INCENTIVE COMPENSATION | ||||||||||
NAMED EXECUTIVE OFFICER | TARGET ANNUAL INCENTIVE(1) | PERCENTAGE OF TARGET EARNED(2) | ACTUAL 2016 INCENTIVE EARNED | CASH PAYMENT (67% TOTAL EARNED) | RESTRICTED SHARES (33% TOTAL EARNED) | ||||||
John P. Case | $3,375,000 | 137.5 | % | $4,640,625 | $3,093,750 | 25,450 | |||||
Sumit Roy | 1,593,412 | 137.5 | % | 2,190,940 | 1,460,627 | 12,015 | |||||
Paul M. Meurer | 1,005,000 | 130.0 | % | 1,306,500 | 871,000 | 7,165 | |||||
Michael R. Pfeiffer(3) | 570,000 | 130.0 | % | 741,000 | 494,000 | 4,063 | |||||
Neil M. Abraham | 497,501 | 130.0 | % | 646,751 | 431,167 | 3,546 |
INCENTIVE OPPORTUNITY | EARNED INCENTIVE COMPENSATION | ||||
NAMED EXECUTIVE OFFICER | TARGET ANNUAL INCENTIVE(1) | MAXIMUM ANNUAL INCENTIVE(1) | PERCENTAGE OF MAXIMUM EARNED(2) | ACTUAL 2017 INCENTIVE EARNED | |
John P. Case | $1,600,000 | $3,200,000 | 87.9% | $2,811,429 | |
Sumit Roy | 825,000 | 1,650,000 | 87.9% | 1,449,643 | |
Paul M. Meurer | 593,750 | 1,187,500 | 80.4% | 954,241 | |
Michael R. Pfeiffer | 450,000 | 900,000 | 72.9% | 655,714 | |
Neil M. Abraham | 375,000 | 750,000 | 72.9% | 546,429 |
(1) | The maximum annual incentive is equal to |
(2) | Captures the weighted average percentage achieved based on the company performance criteria and the individual performance criteria. |
Long-Term Incentive Program (LTIP)
During January 2016,February 2017, the Compensation Committee approved the grant of 2016-20182017-2019 performance shares to each named executive officer. The following is a summary of the key metrics criteria and terms:
Relative TSR relative performancePerformance – Weighted 70%
71%
Debt-to-EBITDA Ratio – Weighted 10%
13%
Dividend per share Growth Rate – Weighted 20%
16%
ü | Long-term performance shares were awarded in |
ü | No compensation is awarded for below-threshold performance and maximum goals are capped at |
ü | 50% of the performance shares earned based on the achievement of the performance goals during the |
ü | The performance shares provide for a cash payment following vesting equal to the aggregate cash dividends that would have been paid on the total number of performance shares earned, if any, as if the shares had been outstanding from January 1, |
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Executive Compensation
Specifically, the performance measures and weightings for the 2016-20182017-2019 performance shares are based on the following objective performance measures, each of which are measured over the three-year performance period.period:
PERFORMANCE GOALS | WEIGHTING | THRESHOLD 50%(1) | TARGET 100% | MAXIMUM 150%(1) | |||
TSR position within MSCI US REIT Index(2) | 50% | 35thPercentile | 55thPercentile | 75thPercentile (or greater) | |||
TSR less TSR of the NAREIT Freestanding Index(2) | 20% | –150 bps | +75 bps | +300 bps (or greater) | |||
Debt-to-EBITDA Ratio | 10% | 6.3x | 6.0 x | 5.5x (or less) | |||
Dividend per share Growth Rate | 20% | 2.0% | 6.0 % | 10.0% |
PERFORMANCE GOALS | WEIGHTING | THRESHOLD 50%(1) | TARGET 100% | MAXIMUM 200%(1) |
TSR position within MSCI US REIT Index(2) | 45% | 35th Percentile | 55th Percentile | 80th Percentile (or greater) |
TSR position within J.P. Morgan Net Lease Peer Group(2) | 26% | 35th Percentile | 55th Percentile | 80th Percentile (or greater) |
Debt-to-EBITDA Ratio | 13% | 6.3x | 6.0x | 5.5x (or less) |
Dividend per share Growth Rate | 16% | 2.0% | 6.0% | 12.0% |
(1) | The maximum number of performance shares earned is equal to |
(2) | TSR is calculated by comparing the trailing 20-trade-day average stock price at the end of the performance period, assuming contemporaneous reinvestment of dividends, to the closing stock price on December 31, |
Executive Compensation
We are a member of the MSCI US REIT Index, which is a broad REIT index, and the NAREIT Freestanding Index, which is a net lease focused REIT index.J.P. Morgan Net Lease Peer Group. Both indices are used to measure performance between REITs within and across the sub sectors.subsectors. The Compensation Committee selected the J.P. Morgan Net Lease Peer Group, a group of peers categorized as “triple net lease REITs” included in the J.P. Morgan REIT database published by J.P. Morgan North American Equity Research, in order to provide a set of companies that are more comparable to Realty Income in terms of lease type. There are many ways to compare our performance to each of these indices. The Compensation Committee analyzed the various methods and determined that comparisons on a percentile basis, and based on a spread, were bothwas widely used in the marketplace and appropriate for evaluating our performance during the 2016-20182017-2019 performance period. The Compensation Committee believes that these goals remain rigorous, specifically the relative TSR metrics which require the company to outperform the indices to even achieve payouts at target. The Debt-to-EBITDA ratio and dividend per share growth rate metrics require the company to manage its capital structure thoughtfully, and increase earnings to support the payment of monthly dividend in order to achieve payouts in excess of target for these metrics.
The long-term performance shares granted in January 2016February 2017 to our named executive officers are as follows:
PERFORMANCE SHARE | PERFORMANCE SHARES | |
NAMED EXECUTIVE OFFICER | TARGET DOLLAR VALUE | GRANTED AT TARGET(1) |
John P. Case | $1,000,000 | 20,619 |
Sumit Roy | 661,191 | 13,633 |
Paul M. Meurer | 483,750 | 9,974 |
Michael R. Pfeiffer | 382,500 | 7,887 |
Neil M. Abraham | 313,125 | 6,456 |
NAMED EXECUTIVE OFFICER | PERFORMANCE SHARE TARGET DOLLAR VALUE | PERFORMANCE SHARES GRANTED AT TARGET(1) |
John P. Case | $3,500,000 | 52,846 |
Sumit Roy | 1,652,778 | 24,955 |
Paul M. Meurer | 918,750 | 13,872 |
Michael R. Pfeiffer | 661,111 | 9,982 |
Neil M. Abraham | 661,111 | 9,982 |
(1) | The number of performance shares granted at target value reflect the grant date fair value of |
Time-Based Restricted Shares
The Compensation Committee grants restricted share awards on an annual basis, which are designed to: (i) increase the named executive officers’ common stock ownership, (ii) motivate our named executive officers to improve long-term common stock price performance, (iii) align the named executive officers’ interests with the interests of stockholders, and (iv) operate as a retention mechanism for key members of management.
In connection with the determination of the 20162017 compensation program, the Compensation Committee proposed initial 20162017 annual restricted share award values to be granted in February 2017.2018. The proposed annual award values for all NEOs were reviewed and approved on February 14, 201716, 2018 and will vest evenly over four years commencing on January 1 of the year following the grant. The Compensation Committee approved a four-year vesting period for the equity awards granted to NEOs, concluding that a four-year vesting period is more inline with peer compensation practices than the five-year vesting period which had historically been used.
The time-based restricted shares granted are as follows:
RESTRICTED SHARE | ANNUAL RESTRICTED | |
NAMED EXECUTIVE OFFICER | DOLLAR VALUE | SHARES GRANTED(1) |
John P. Case | $1,000,000 | 16,453 |
Sumit Roy | 220,397 | 3,626 |
Paul M. Meurer | 161,250 | 2,653 |
Michael R. Pfeiffer(2) | 127,500 | 2,098 |
Neil M. Abraham | 104,375 | 1,718 |
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Executive Compensation
NAMED EXECUTIVE OFFICER | RESTRICTED SHARE DOLLAR VALUE | ANNUAL RESTRICTED SHARES GRANTED(1) |
John P. Case | $1,000,000 | 20,016 |
Sumit Roy | 472,222 | 9,452 |
Paul M. Meurer | 262,500 | 5,254 |
Michael R. Pfeiffer(2) | 188,889 | 3,780 |
Neil M. Abraham | 188,889 | 3,780 |
(1) | Annual restricted shares reflect the actual number of shares that were granted by the Compensation Committee on February |
(2) | Given that Mr. Pfeiffer is retirement eligible prior to the final vesting date of shares granted, he was granted restricted share units (RSUs) instead of restricted shares in order to preserve the deferral of his income taxation until the issuance of the shares to him upon vesting. |
20142015 LTIP Award Payout
In February 2017,2018, the Compensation Committee certified percentage achievement for the 2014-20162015-2017 performance shares that were granted in April 2014,February 2015, based on our performance relative to the following metrics during the three-year performance period ending December 31, 2016.2017:
PERFORMANCE GOALS | WEIGHTING | THRESHOLD 50% | TARGET 100% | MAXIMUM 150% | 2016 ACTUAL | % EARNED |
TSR position within MSCI US REIT Index | 60% | 35th Percentile | 55th Percentile | 75th Percentile (or greater) | 82nd Percentile | 150% |
TSR less TSR of the NAREIT Freestanding Index | 20% | –150 bps | +75 bps | +300 bps (or greater) | +990 bps | 150% |
Debt-to-EBITDA Ratio | 20% | 7.0x | 6.5x | 6.0x (or less) | 5.7x | 150% |
Executive Compensation
PERFORMANCE GOALS | WEIGHTING | THRESHOLD 50% | TARGET 100% | MAXIMUM 150% | 2017 | % EARNED |
TSR position within MSCI US REIT Index | 50% | 35th Percentile | 55th Percentile | 75th Percentile (or greater) | 71st Percentile | 140.3% |
TSR less TSR of the NAREIT Freestanding Index | 20% | −150 bps | +75 bps | +300 bps (or greater) | +225 bps | 133.4% |
Debt-to-EBITDA Ratio | 10% | 6.3x | 6.0x | 5.5x (or less) | 5.5x | 150% |
Dividend Per Share Growth Rate | 20% | 2% | 6% | 10% | 15.3% | 150% |
For purposes of these metrics, TSR was calculated by comparing the trailing 20-trade-day average stock price at the end of the performance period, December 31, 2016,2017, assuming contemporaneous reinvestment of dividends, to the closing stock price on December 31, 2013.2014. Based on achievement above maximumtarget performance levels for all metrics, each named executive officer received 150%141.8% of the target shares granted. Fifty percent of the performance shares earned were issued as common stock that immediately vested. The remaining fifty percent are units subject to time vesting through January 1, 2018.2019. The following table sets forth the performance shares earned by each NEO under the 20142015 LTIP. Mr. Abraham did not receive a 20142015 LTIP award payout, as he was not an NEOexecutive officer during that performance year.
TARGET PERFORMANCE | PERFORMANCE | |
NAMED EXECUTIVE OFFICER | SHARES GRANTED | SHARES EARNED |
John P. Case | 21,492 | 32,238 |
Sumit Roy | 10,953 | 16,430 |
Paul M. Meurer | 10,542 | 15,813 |
Michael R. Pfeiffer | 9,177 | 13,766 |
NAMED EXECUTIVE OFFICER | TARGET PERFORMANCE SHARES GRANTED | PERFORMANCE SHARES EARNED |
John P. Case | 19,230 | 27,270 |
Sumit Roy | 12,158 | 17,241 |
Paul M. Meurer | 9,884 | 14,016 |
Michael R. Pfeiffer | 7,746 | 10,984 |
One-Time Stock Grants
The company does not have an ongoing practice of providing NEOs with equity grants outside of the executive compensation program established at the beginning of each performance year; however, certain instances can warrant additional one-time equity grants. In November 2016, the Compensation Committee awarded each named executive officer, as well as 24 other employees across the organization, a one-time equity grant of restricted shares for their exceptional contributions to the company’s performance. Since the end of 2013, the company has significantly grown and strengthened the portfolio, contributing to consistent earnings and dividend growth, and high overall and relative TSR performance. Specifically, during this period, the company:
The Compensation Committee believes that these awards were necessary to continue to motivate the NEOs to strive to maintain this level of exceptional performance and to promote continued retention of the individuals that have been the most significant contributors to the company’s success. The awards vest in four equal installments on each anniversary of the grant date, subject to continued employment. The time-based restricted shares granted are as follows:
RESTRICTED SHARE | RESTRICTED | |
NAMED EXECUTIVE OFFICER | DOLLAR VALUE | SHARES GRANTED(1) |
John P. Case | $1,000,000 | 18,423 |
Sumit Roy | 499,973 | 9,211 |
Paul M. Meurer | 200,022 | 3,685 |
Michael R. Pfeiffer(2) | 200,022 | 3,685 |
Neil M. Abraham | 200,022 | 3,685 |
Outstanding 2013 Performance Award Granted in Connection with Promotion of our CEO
In September 2013, in connection with Mr. Case’s promotion to Chief Executive Officer, the Compensation Committee determined that it was appropriate and in the company’s best interest to include, as part of his promotional equity compensation, a one-time equity grant of 51,454 shares of restricted common stock (the 2013 Performance Award). The 2013 Performance Award is subject to performance vesting on December 31, 2013, 2014, 2015 and 2016 subject to the achievement of seven annual performance metrics including: (i) AFFO per share growth, (ii) dividend per share growth, (iii) interest coverage ratio, (iv) fixed charge coverage ratio, (v) debt-to-EBITDA, (vi) portfolio occupancy rate, and (vii) acquisitions volume. The Compensation Committee believes that this grant promoted retention amidst a very competitive environment amongst REITs, further aligned Mr. Case’s interests with those of our stockholders, and would continually motivate him to focus on a variety of key performance metrics.
Executive Compensation
The vesting of these shares was based on our performance results relative to the previously mentioned performance metrics, with a range of zero shares vesting for a “poor” rating to 3,676 shares vesting for an “outstanding” rating per metric. However, in no event was more than an aggregate of 12,864 shares to vest with respect to any calendar year, and no more than 51,454 shares was to vest, in the aggregate, pursuant to the 2013 Performance Award. During 2016, based on our strong operating and financial performance under these metrics, each of the metrics were achieved at the outstanding level and 12,862 shares of the 2013 Performance Award vested on December 31, 2016, representing the maximum number that may vest in this final tranche.
Restricted Shares Granted in JanuaryFebruary 2017 for 2016 for 2015 Performance
Our time-vesting, restricted share and restricted share unit awards are typically granted after fiscal year-end in recognition of the company’s prior year performance under the performance metrics for that year, as well as each named executive officer’s individual performance for the prior fiscal year. For a discussion of restricted share awards that were granted in January 2016February 2017 under our 20152016 STIP and restricted share awards granted in January 2016,February 2017, which were intended to be compensation for 2015,2016, see pages 2730 to 3133 of the company’s 20162017 Proxy Statement filed with the SEC on April 1, 2016.3, 2017.
Restricted Share Vesting
Our restricted shares and restricted share units typically vest 20% to 25% per year on January 1, but are subject to accelerated vesting in the event of retirement, which is defined as a voluntary termination of employment by persons who are at least 60 years of age and who have provided at least ten years of service to the company.
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Executive Compensation
The Compensation Committee believes that this vesting approach is (i) consistent with market practices, (ii) easy to administer, and (iii) preserves the benefit of acceleration, which occurs only upon actual retirement.
Given that Mr. Pfeiffer is eligible for retirement prior to the end of the vesting period, he was granted restricted share units (RSUs)RSUs in January 2016, November 2016,February 2017 and February 20172018 instead of restricted shares in order to preserve the deferral of his income taxation until the issuance of the shares upon vesting. The RSUs have dividend equivalents that pay out concurrently on the payment date of the dividend, regardless of the vested status of the RSUs. This provides the RSUs with the same economic rights as shares of restricted stock, which are entitled to cash dividends on the dividend payment date.
Changes to 20172018 Incentive Programs
In February 2017, following consultation with and based on the recommendations of FPL,2018, the Compensation Committee approved changes toadopted the design of the2018 STIP and LTIP programs applicablewith the same performance goal categories and substantially similar weightings to those used in the company’s NEOs2017 program. The 2018 Peer Group used for 2017. While2018 compensation decisions is consistent with the 2017 Peer Group listed on page 26. Below is the 2018 target incentive opportunity established by the Compensation Committee preserved much of the 2016 incentive compensation program in terms of the categories used to measure performance, they recalibrated the mix of cash versus equity targeted under the programs. Consistent with peer compensation practices, the Compensation Committee also adjusted the bandwidth of earnings potential above target, with an increased maximum payout of 200% of target, and a corresponding level of enhanced rigor to achieve maximum performance to further motivate and reward outstanding performance. These changes resulted in (i) an increased total target compensation for each NEO from the 2016 levels, (ii) a reduction in the target bonus opportunity in the STIP, now awarded entirely in the form of cash, and (iii) a greater proportion of 2017 total target compensation tied to long-term performance objectives, awarded in equity.February 2018:
NAMED EXECUTIVE OFFICER | 2018 BASE SALARY | 2018 TARGET STIP(1) | 2018 TARGET LTIP(2) | 2018 TOTAL TARGET COMPENSATION |
John P. Case | $1,000,000 | $1,850,000 | $5,300,000 | $8,150,000 |
Sumit Roy | 550,000 | 935,000 | 2,315,000 | 3,800,000 |
Paul M. Meurer | 525,000 | 656,250 | 1,318,750 | 2,500,000 |
Michael R. Pfeiffer | 450,000 | 500,000 | 850,000 | 1,800,000 |
Neil M. Abraham | 385,000 | 385,000 | 880,000 | 1,650,000 |
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Executive Compensation
The target amounts under the 2017 programs are set forth in the following table:
NAMED EXECUTIVE OFFICER | 2017 BASE | 2017 TARGET | 2017 TARGET | 2017 TOTAL TARGET | |||||
John P. Case | $925,000 | $1,600,000 | $4,500,000 | $7,025,000 | |||||
Sumit Roy | 550,000 | 825,000 | 2,125,000 | 3,500,000 | |||||
Paul M. Meurer | 475,000 | 593,750 | 1,181,250 | 2,250,000 | |||||
Michael R. Pfeiffer | 450,000 | 450,000 | 850,000 | 1,750,000 | |||||
Neil M. Abraham | 375,000 | 375,000 | 850,000 | 1,600,000 |
(1) | The | |
(2) | The | |
The performance categories and their weightings under the 2017 STIP remain the same as in 2016. For the performance shares under the 2017 LTIP, the Compensation Committee replaced the NAREIT freestanding index with respect to the relative TSR objective with the J.P. Morgan Net Lease Peer Group, a group of peers categorized as “triple net lease REITs” included in the J.P. Morgan REIT database published by J.P. Morgan North American Equity Research, in order to provide a set of companies that are more comparable to Realty Income in terms of lease-type. The Compensation Committee also made certain modifications to the weightings of the objectives for the 2017 performance shares but continued the practice of having the relative TSR objectives represent approximately 70% of the total weighting. The service-vesting period for the time-vesting restricted stock or RSUs, which are expected to be granted in 2018, is four years following the grant date. This service-vesting period is in-line with market practice.
To effectuate these changes to the 2017 program, the company and Mr. Case entered into an amendment to Mr. Case’s employment agreement which provided for the following:
Changes to 2017 Peer Group
The Compensation Committee reviews our peer group and makes updates from time to time. Subsequent to 2016 and consistent with our standard practices, the Compensation Committee, with the help of FPL, reviewed the composition of our 2016 Peer Group to ensure that each company’s size and operations remained comparable to ours for 2017. Given our company’s continued growth during 2016, the Compensation Committee determined that substitutions were warranted to ensure, among other factors, that our total and equity market capitalization remained near the median of the peer group for 2017. The Compensation Committee met in January 2017 to review the peer group to be used for 2017 compensation decisions (2017 Peer Group) and decided to make the following modifications to the 2017 Peer Group, as recommended by FPL:
Boston Properties, Inc., Ventas, Inc. and Vornado Realty Trust were added to incorporate additional best-in-class S&P 500 REITs that are slightly larger in size in terms of both total and equity market capitalization. DDR Corp. and SL Green Realty Corp. were removed based on relative size and additional qualitative factors. These substitutions resulted in a net increase of one company to the number of peers and positions us at the 52ndpercentile in terms of total market capitalization, and at the 56thpercentile in terms of equity market capitalization relative to this updated peer group.
The Compensation Committee evaluates our peer group periodically and may make adjustments to this peer group to reflect changes in the size or operations of the company or our peers.
Severance and Change in Control Arrangements
Each of the named executive officers has the right to receive severance compensation upon the occurrence of certain events as specified in their employment agreements. In addition, our award agreements provide certain rights in connection with a change of control and certain terminations of employment.
Executive Compensation
The following is a list of the scenarios under which the named executive officers have rights to receive severance compensation.
ü | Qualifying Termination |
ü | Change in Control Termination |
ü | Death |
ü | Disability |
ü | For our CEO, a non-renewal of his employment agreement |
Further detail surrounding the payments and benefits upon the occurrence of each scenario can be found in the section titled “Potential Payments Upon Termination or Change in Control” on page 43.42. The Compensation Committee believes these benefits are reasonable. The payments and benefit levels under the employment agreements did not influence and were not influenced by other elements of compensation. The agreements were designed to help (i) attract and retain key employees, (ii) preserve key employee’s morale and productivity, (iii) align with best practices, and (iv) promote continuity of management in the event of an actual or threatened change in control. These change in control benefits allow executives to assess takeover bids objectively without regard to the potential impact on their individual job security.
Other Benefits and Policies
We provide medical and other benefits to our named executive officers that are similar to those benefits offered to all of our full-time employees, including a 401(k) plan with a matching contribution by the company and coverage under a health and disability insurance program.
Executive Stock Ownership Requirements
Effective January 1, 2013, the Board of Directors implemented stock ownership requirements for the company’s CEO and the other named executive officers to closely align the interests of these individuals with the interests of our stockholders. The minimum share requirement is five times base salary for our CEO, four times base salary for our President, and three times base salary for the other named executive officers using their salary on January 1, 2013 or the date they became subject to the guidelines. Each executive has five years from the later of the date of adoption or date of appointment to an executive-level position to achieve the requirement.
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Executive Compensation
All vested and unvested restricted share and RSU awards qualify towards satisfaction of the requirement. Performance shares do not qualify towards the requirement. Compliance is evaluated on an annual basis as of December 31 of each year. The following table sets forth the requirements for each of our named executive officers:
NAMED EXECUTIVE OFFICER | GUIDELINE | MINIMUM STOCK OWNERSHIP REQUIREMENT(1) | STOCK OWNERSHIP AS OF DECEMBER 31, 2016(2) | GUIDELINE | MINIMUM STOCK OWNERSHIP REQUIREMENT(1) | STOCK OWNERSHIP |
John P. Case | 5x base salary | 87,565 | 182,045 | 5x base salary | 87,565 | 191,598 |
Sumit Roy | 4x base salary | 39,726 | 84,391 | 4x base salary | 39,726 | 84,522 |
Paul M. Meurer | 3x base salary | 26,448 | 57,264 | 3x base salary | 26,448 | 47,550 |
Michael R. Pfeiffer | 3x base salary | 26,448 | 49,348 | 3x base salary | 26,448 | 46,686 |
Neil M. Abraham | 3x base salary | 18,817 | 10,862 | 3x base salary | 18,817 | 14,803 |
(1) | The requirement for each NEO was determined first in dollars as a multiple of the executive’s annual base salary as of the date they become subject to this requirement, and then by converting such amount to a fixed number of shares based on the company’s average closing common stock price for the 60 trading days prior to such date. An executive’s stock ownership requirement will only be re-established upon a change to a different executive position. |
(2) | As of December 31, |
Section 162(m) of the Code limitsdisallows a tax deduction for any publicly held corporation for individual compensation exceeding $1 million in any taxable year for “covered employees.” Prior to the deductibilityTax Cuts and Jobs Act of 2017, covered employees generally consisted of our Chief Executive Officer and each of the next three highest compensated officers serving at the end of the taxable year other than our Chief Financial Officer, and compensation paidthat qualified as “performance-based” under Section 162(m) was exempt from this $1 million deduction limitation. As part of the Tax Cuts and Jobs Act of 2017, the ability to our CEO, and our three other most highly compensatedrely on this exemption was, with certain limited exceptions, eliminated; in addition, the definition of covered employees was expanded to generally include all named executive officers, other thanofficers. The Board, after considering the Chief Financial Officer. To qualify for deductibility underpotential impact of the application of Section 162(m), and future guidance of the new rules, reserves the right to provide compensation (including base salary, cash bonus, compensation attributable to vesting of stock grants and nonqualified benefits) in excess of $1,000,000 per year, paid to each of these named executive officers generally mustthat may not be “performance-based”tax deductible if it believes providing that compensation as determined under Section 162(m). Whileis in the Compensation Committee considers whether to structure compensation so that it satisfies the “performance-based” compensation requirements under Section 162(m), the Compensation Committee balances the costs and burdens involved in doing so against the value to us, and our stockholders,best interests of the potential tax benefits. The tax deductibility of our compensation is just one of many factors that the Compensation Committee considers when makingcompany and its compensation decisions.stockholders.
The Compensation Committee of the Board of Directors of Realty Income Corporation, a Maryland corporation, or Realty Income, has reviewed and discussed the Compensation Discussion and Analysis with management, and based on the review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for the 20172018 Annual Meeting of stockholders and in Realty Income’s 20162017 Annual Report on Form 10-K.
Submitted on March 14, 201713, 2018 by the members of the Compensation Committee of Realty Income’s Board of Directors.
Priya Cherian Huskins, Chair Michael D. McKee Gregory T. McLaughlin
|
The above report of the Compensation Committee will not be deemed to be incorporated by reference into any filing by the company under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the company specifically incorporates the same by reference.
Realty Income| | 37 |
The following table sets forth information concerning the compensation of our Chief Executive Officer, Chief Financial Officer and three other most highly compensated executive officers (collectively, the named executive officers), for the fiscal years ended December 31, 2017, 2016 2015 and 2014.2015. In general, non-equity incentive plan compensation aligns with the performance year noted; however, stock awards are included in the year of grant which may not align with the performance year to which they relate.
NON-EQUITY | |||||||||||
NAME AND PRINCIPAL | STOCK | INCENTIVE PLAN | ALL OTHER | ||||||||
POSITION IN 2016 | YEAR | SALARY(1) | AWARDS(2)(3) | COMPENSATION(4) | COMPENSATION(5) | TOTAL | |||||
John P. Case | 2016 | $875,000 | $4,361,823 | $3,093,750 | $ 9,468 | $8,340,041 | |||||
Chief Executive Officer | 2015 | 825,000 | 3,073,391 | 2,842,583 | 9,468 | 6,750,442 | |||||
2014 | 800,000 | 3,390,980 | 2,564,125 | 9,318 | 6,764,423 | ||||||
Sumit Roy | 2016 | 525,000 | 3,006,348 | 1,460,627 | 8,940 | 5,000,915 | |||||
President, | 2015 | 475,000 | 1,665,108 | 1,251,813 | 8,940 | 3,400,861 | |||||
Chief Operating Officer | 2014 | 406,250 | 1,312,061 | 807,413 | 8,790 | 2,534,514 | |||||
Paul M. Meurer | 2016 | 450,000 | 1,285,143 | 871,000 | 9,468 | 2,615,611 | |||||
Executive Vice President, | 2015 | 425,000 | 976,184 | 851,278 | 9,468 | 2,261,930 | |||||
Chief Financial Officer and | |||||||||||
Treasurer | 2014 | 400,000 | 1,287,026 | 711,200 | 8,790 | 2,407,016 | |||||
Michael R. Pfeiffer | 2016 | 420,000 | 950,383 | 494,000 | 10,788 | 1,875,171 | |||||
Executive Vice President, | 2015 | 400,000 | 752,477 | 459,911 | 10,788 | 1,623,176 | |||||
General Counsel and | |||||||||||
Secretary | 2014 | 375,000 | 1,080,471 | 507,875 | 9,318 | 1,972,664 | |||||
Neil M. Abraham(6) | 2016 | 335,000 | 902,777 | 431,167 | 33,940 | 1,702,884 | |||||
Executive Vice President, | |||||||||||
Chief Investment Officer |
NAME AND PRINCIPAL POSITION IN 2016 | YEAR | SALARY(1) | STOCK AWARDS(2)(3) | NON-EQUITY INCENTIVE PLAN COMPENSATION(4) | ALL OTHER COMPENSATION(5) | TOTAL |
John P. Case | 2017 | $925,000 | $6,180,152 | $2,811,429 | $126,764 | $10,043,345 |
Chief Executive Officer | 2016 | 875,000 | 4,361,823 | 3,093,750 | 9,468 | 8,340,041 |
2015 | 825,000 | 3,073,391 | 2,842,583 | 9,468 | 6,750,442 | |
Sumit Roy | 2017 | 550,000 | 2,666,419 | 1,449,643 | 68,786 | 4,734,848 |
President, Chief Operating Officer | 2016 | 525,000 | 3,006,348 | 1,460,627 | 8,940 | 5,000,915 |
2015 | 475,000 | 1,665,108 | 1,251,813 | 8,940 | 3,400,861 | |
Paul M. Meurer | 2017 | 475,000 | 1,550,480 | 954,241 | 67,082 | 3,046,803 |
Executive Vice President, Chief Financial Officer and Treasurer | 2016 | 450,000 | 1,285,143 | 871,000 | 9,468 | 2,615,611 |
2015 | 425,000 | 976,184 | 851,278 | 9,468 | 2,261,930 | |
Michael R. Pfeiffer | 2017 | 450,000 | 1,060,783 | 655,714 | 60,960 | 2,227,457 |
Executive Vice President, General Counsel and Secretary | 2016 | 420,000 | 950,383 | 494,000 | 10,788 | 1,875,171 |
2015 | 400,000 | 752,477 | 459,911 | 10,788 | 1,623,176 | |
Neil M. Abraham(6) | 2017 | 375,000 | 1,006,242 | 546,429 | 9,090 | 1,936,761 |
Executive Vice President, Chief Investment Officer | 2016 | 335,000 | 902,777 | 431,167 | 33,940 | 1,702,884 |
(1) | The amounts shown include amounts earned, but a portion of such amount may be deferred, at the election of the officer under our 401(k) retirement plan. |
(2) | For |
GRANT DATE | ||||
NAMED EXECUTIVE OFFICER | FAIR VALUE | MAXIMUM VALUE | ||
John P. Case | $1,046,781 | $1,513,608 | ||
Sumit Roy | 692,117 | 1,000,773 | ||
Paul M. Meurer | 506,357 | 732,173 | ||
Michael R. Pfeiffer | 400,405 | 578,978 | ||
Neil M. Abraham | 327,757 | 473,929 |
NAMED EXECUTIVE OFFICER | GRANT DATE FAIR VALUE | MAXIMUM VALUE |
John P. Case | $3,633,277 | $6,914,348 |
Sumit Roy | 1,715,709 | 3,265,100 |
Paul M. Meurer | 953,730 | 1,815,003 |
Michael R. Pfeiffer | 686,283 | 1,306,039 |
Neil M. Abraham | 686,283 | 1,306,039 |
(3) | The stock awards shown reflect the grants of restricted stock during each of the fiscal years presented. Because we believe that the information is relevant to our investors, we have chosen to present supplemental disclosure regarding the grant of restricted stock on February |
(4) | This column represents the cash incentive award earned in the year indicated pursuant to our STIP, which is paid the following year. The amounts earned under the 2017 STIP are paid entirely in the form of cash. The amounts earned under the 2016 and 2015 STIP were paid two-thirds in cash and one-third in shares of restricted stock. See “Compensation Discussion and Analysis—Short-Term Incentive Program” on page |
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Compensation Tables
(5) | The following table sets forth matching contributions by us to the named executive officers’ 401(k) savings account, |
NAMED EXECUTIVE OFFICER | 401(k) MATCHING CONTRIBUTIONS | GROUP TERM LIFE INSURANCE PAYMENTS | DIVIDENDS ON EARNED PERFORMANCE SHARES |
John P. Case | $8,100 | $1,518 | $117,146 |
Sumit Roy | 8,100 | 990 | 59,696 |
Paul M. Meurer | 8,100 | 1,518 | 57,464 |
Michael R. Pfeiffer | 8,100 | 2,838 | 50,022 |
Neil M. Abraham | 8,100 | 990 | — |
Compensation Tables
401(k) MATCHING | GROUP TERM LIFE | ||||||
NAMED EXECUTIVE OFFICER | CONTRIBUTIONS | INSURANCE PAYMENTS | OTHER(a) | ||||
John P. Case | $7,950 | $1,518 | — | ||||
Sumit Roy | 7,950 | 990 | — | ||||
Paul M. Meurer | 7,950 | 1,518 | — | ||||
Michael R. Pfeiffer | 7,950 | 2,838 | — | ||||
Neil M. Abraham | 7,950 | 990 | $25,000 |
(6) | Mr. Abraham became a named executive officer during 2016, accordingly, we are only presenting compensation for 2017 and 2016. |
Narrative to Summary Compensation Table
Each of our named executive officers is party to an employment agreement, which, in material part, establishes a minimum salary and provides for certain severance benefits, as described under “Potential Payments upon Termination or Change in Control” below. The employment agreements for each of our named executive officers, other than Mr. Case, continue until terminated by either party. The minimum salaries of our named executive officers are equal to their current salaries.
In connection with Mr. Case’s appointment to CEO, the company and Mr. Case entered into an Amended and Restated Employment Agreement (the Case Employment Agreement), effective September 3, 2013 through December 31, 2016. The Agreement was automatically renewed during 2016, and is effective through December 31, 2018, unless terminated earlier. Under the Case Employment Agreement, Mr. Case will serve as CEO, and will report to the Board of Directors. The Case Employment Agreement provides for a minimum annual base salary of $800,000 in each calendar year starting in 2014, subject to increase at the discretion of the Compensation Committee.
In February 2017, the company and Mr. Case entered into an amendment to the Case Employment Agreement. The amendment provides forreduced Mr. Case’s targeted annual cash performance bonus from no less than 200% of his base salary to no less than 150% of his base salary, and removed the following changes:provision which required that no less than 50% of his annual equity awards be in the form of time-based awards.
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Compensation Tables
Grants of Plan-Based Awards Table
The following table sets forth summary information concerning all grants of plan-based awards made to the named executive officers during 2016.2017. These awards consist of cash bonus amounts pursuant to the 20162017 STIP, restricted stock awards pursuant to the 20152016 STIP, time-based restricted stock awards pursuant to the 20152016 compensation program, the promotional grant to Mr. Roy,and performance shares granted pursuant to the 2016 LTIP, and one-time time-based restricted stock grants made in November 2016.2017 LTIP. Additionally, we have provided supplemental information in footnote 4 with respect to stock awards pursuant to the 20162017 STIP granted in February 2017,2018, and time-based restricted stock awards granted in February 20172018 that is considered 20162017 compensation.
GRANT DATE | |||||||||||||||||||
ESTIMATED FUTURE PAYOUTS | ESTIMATED FUTURE PAYOUTS | ALL OTHER STOCK | FAIR VALUE | ||||||||||||||||
UNDER NON-EQUITY INCENTIVE | UNDER EQUITY INCENTIVE | AWARDS: NUMBER | OF STOCK | ||||||||||||||||
GRANT | PLAN AWARDS(1) | PLAN AWARDS(2) | OF SHARES OF | AND OPTION | |||||||||||||||
NEO | DATE | THRESHOLD | TARGET | MAXIMUM | THRESHOLD | TARGET | MAXIMUM | STOCK OR UNITS(3)(4) | AWARDS(5)(6) | ||||||||||
John P. Case | 1/14/16 | — | — | — | — | — | — | 27,201 | $1,421,292 | ||||||||||
1/14/16 | — | — | — | — | — | — | 17,106 | 893,750 | |||||||||||
1/14/16 | — | — | — | 10,310 | 20,619 | 30,929 | — | 1,046,781 | |||||||||||
11/10/16 | — | — | — | — | — | — | 18,423 | 1,000,000 | |||||||||||
$1,125,000 | $2,250,000 | $3,375,000 | — | — | — | — | — | ||||||||||||
Sumit Roy | 1/14/16 | — | — | — | — | — | — | 11,979 | 625,906 | ||||||||||
1/14/16 | — | — | — | — | — | — | 22,742 | 1,188,352 | |||||||||||
1/14/16 | — | — | — | 6,817 | 13,633 | 20,450 | — | 692,117 | |||||||||||
11/10/16 | — | — | — | — | — | — | 9,211 | 499,973 | |||||||||||
531,137 | 1,062,274 | 1,593,411 | — | — | — | — | — | ||||||||||||
Paul M. Meurer | 1/14/16 | — | — | — | — | — | — | 8,146 | 425,639 | ||||||||||
1/14/16 | — | — | — | — | — | — | 2,930 | 153,125 | |||||||||||
1/14/16 | — | — | — | 4,987 | 9,974 | 14,961 | — | 506,357 | |||||||||||
11/10/16 | — | — | — | — | — | — | 3,685 | 200,022 | |||||||||||
335,000 | 670,000 | 1,005,000 | — | — | — | — | — | ||||||||||||
Michael R. Pfeiffer | 1/14/16 | — | — | — | — | — | — | 4,401 | 229,956 | ||||||||||
1/14/16 | — | — | — | — | — | — | 2,296 | 120,000 | |||||||||||
1/14/16 | — | — | — | 3,944 | 7,887 | 11,831 | — | 400,405 | |||||||||||
11/10/16 | — | — | — | — | — | — | 3,685 | 200,022 | |||||||||||
190,000 | 380,000 | 570,000 | — | — | — | — | — | ||||||||||||
Neil M. Abraham | 1/14/16 | — | — | — | — | — | — | 7,177 | 374,998 | ||||||||||
1/14/16 | — | — | — | 3,228 | 6,456 | 9,684 | — | 327,757 | |||||||||||
11/10/16 | — | — | — | — | — | — | 3,685 | 200,022 | |||||||||||
165,834 | 331,667 | 497,501 | — | — | — | — | — |
GRANT | ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS(1) | ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS(2) | ALL OTHER STOCK AWARDS: NUMBER OF SHARES OF | GRANT DATE FAIR VALUE OF STOCK AND OPTION | ||||||
NEO | DATE | THRESHOLD | TARGET | MAXIMUM | THRESHOLD | TARGET | MAXIMUM | STOCK OR UNITS(3)(4) | AWARDS(5)(6) | |
John P. Case | 2/14/2017 | — | — | — | — | — | — | 25,450 | $1,546,875 | |
2/14/2017 | — | — | — | — | — | — | 16,453 | 1,000,000 | ||
2/14/2017 | — | — | — | 26,423 | 52,846 | 105,692 | — | 3,633,277 | ||
$800,000 | $1,600,000 | $3,200,000 | — | — | — | — | — | |||
Sumit Roy | 2/14/2017 | — | — | — | — | — | — | 12,015 | 730,313 | |
2/14/2017 | — | — | — | — | — | — | 3,626 | 220,397 | ||
2/14/2017 | — | — | — | 12,478 | 24,955 | 49,910 | — | 1,715,709 | ||
412,500 | 825,000 | 1,650,000 | — | — | — | — | — | |||
Paul M. Meurer | 2/14/2017 | — | — | — | — | — | — | 7,165 | 435,500 | |
2/14/2017 | — | — | — | — | — | — | 2,653 | 161,250 | ||
2/14/2017 | — | — | — | 6,936 | 13,872 | 27,744 | — | 953,730 | ||
296,875 | 593,750 | 1,187,500 | — | — | — | — | — | |||
Michael R. Pfeiffer | 2/14/2017 | — | — | — | — | — | — | 4,063 | 247,000 | |
2/14/2017 | — | — | — | — | — | — | 2,098 | 127,500 | ||
2/14/2017 | — | — | — | 4,991 | 9,982 | 19,964 | — | 686,283 | ||
225,000 | 450,000 | 900,000 | — | — | — | — | — | |||
Neil M. Abraham | 2/14/2017 | — | — | — | — | — | — | 3,546 | 215,584 | |
2/14/2017 | — | — | — | — | — | — | 1,718 | 104,375 | ||
2/14/2017 | — | — | — | 4,991 | 9,982 | 19,964 | — | 686,283 | ||
187,500 | 375,000 | 750,000 | — | — | — | — | — |
(1) | These columns represent cash incentive amounts that could have been paid to the named executive officers under the STIP for |
(2) | Amounts shown as granted on |
(3) | The |
(4) | The |
Compensation Tables
our investors, we have chosen to present supplemental disclosure regarding the grants of restricted stock on February |
40 | Realty Income | 2018 Proxy Statement |
Compensation Tables
NAMED EXECUTIVE OFFICER | EQUITY AWARDS GRANTED UNDER 2016 STIP(a) | EQUITY AWARDS ANNUAL GRANT(a) | PERFORMANCE SHARES GRANTED UNDER 2016 LTIP | ONE-TIME GRANTS IN NOVEMBER 2016(b) | TOTAL STOCK AWARD COMPENSATION FOR 2016 | TOTAL 2016 STOCK AWARD COMPENSATION PRESENTED IN SUMMARY COMPENSATION TABLE | |||||||
John P. Case | $1,546,875 | $1,000,000 | $1,046,781 | $1,000,000 | $4,593,656 | $4,361,823 | |||||||
Sumit Roy | 730,313 | 220,397 | 692,117 | 499,973 | 2,142,800 | 3,006,348 | |||||||
Paul M. Meurer | 435,500 | 161,250 | 506,357 | 200,022 | 1,303,129 | 1,285,143 | |||||||
Michael R. Pfeiffer(c) | 247,000 | 127,500 | 400,405 | 200,022 | 974,927 | 950,383 | |||||||
Neil M. Abraham | 215,584 | 104,375 | 327,757 | 200,022 | 847,738 | 902,777 |
NAMED EXECUTIVE OFFICER | EQUITY AWARDS ANNUAL GRANT(a) | PERFORMANCE SHARES GRANTED UNDER 2017 LTIP | TOTAL STOCK AWARD FOR 2017 | TOTAL 2017 STOCK AWARD COMPENSATION PRESENTED IN SUMMARY COMPENSATION TABLE |
John P. Case | $1,000,000 | $3,633,277 | $4,633,277 | $6,180,152 |
Sumit Roy | 472,222 | 1,715,709 | 2,187,931 | 2,666,419 |
Paul M. Meurer | 262,500 | 953,730 | 1,216,230 | 1,550,480 |
Michael R. Pfeiffer(b) | 188,889 | 686,283 | 875,172 | 1,060,783 |
Neil M. Abraham | 188,889 | 686,283 | 875,172 | 1,006,242 |
(a) | The grant date fair |
(b) |
Given that Mr. Pfeiffer is retirement eligible prior to the final vesting date of shares granted, he was granted RSUs instead of restricted shares in order to preserve the deferral of his income taxation until the issuance of the shares to him upon vesting. |
(5) | For restricted stock granted on |
(6) | The Compensation Committee grants restricted stock awards in accordance with the provisions of our 2012 Incentive Award Plan. The vesting schedule for restricted stock granted |
Outstanding Equity Awards Table as of December 31, 20162017
The following table sets forth summary information concerning outstanding restricted stock and performance shares held by each named executive officer as of December 31, 2016.2017. None of the named executive officers held any exercisable or unexercisable options as of December 31, 2016. 2017.
STOCK AWARDS | STOCK AWARDS | |||||||||||||||||||
NAMED EXECUTIVE OFFICER | NUMBER OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED AS OF DECEMBER 31, 2016(1) | MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT YET VESTED(2) | EQUITY INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES THAT HAVE NOT VESTED(3) | EQUITY INCENTIVE PLAN AWARDS: MARKET VALUE OF UNEARNED SHARES THAT HAVE NOT VESTED(2)(3) | NUMBER OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED AS OF DECEMBER 31, 2017(1) | MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT YET VESTED(2) | EQUITY INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES THAT HAVE NOT VESTED(3) | EQUITY INCENTIVE PLAN AWARDS: MARKET VALUE OF UNEARNED SHARES THAT HAVE NOT VESTED(2)(3) | ||||||||||||
John P. Case(4) | 157,838 | $9,072,528 | 81,702 | $4,696,231 | 151,102 | $8,615,836 | 127,164 | $7,250,863 | ||||||||||||
Sumit Roy(5) | 82,478 | 4,740,835 | 48,300 | 2,776,255 | 75,297 | 4,293,435 | 70,862 | 4,040,523 | ||||||||||||
Paul M. Meurer(6) | 46,270 | 2,659,600 | 40,613 | 2,334,435 | 39,232 | 2,237,009 | 50,755 | 2,894,050 | ||||||||||||
Michael R. Pfeiffer(7) | 39,781 | 2,286,612 | 33,272 | 1,912,446 | 30,263 | 1,725,596 | 39,680 | 2,262,525 | ||||||||||||
Neil M. Abraham(8) | 10,862 | 624,348 | 6,456 | 371,091 | 13,770 | 785,165 | 19,666 | 1,121,355 |
(1) | The amounts in this column represent the portion of restricted stock awards and units that were granted from 1/4/ |
(2) | Market value has been calculated by multiplying the closing market price of our common stock at 12/ |
(3) | This column represents unvested performance shares and units earned for the 2014-2016 and 2015-2017 performance periods based on actual performance. In February 2017 and 2018, the Compensation Committee certified percentage achievement for the 2014-2016 performance shares that were granted in April 2014 and 2015-2017 performance shares that were granted in February 2015, respectively, based on our performance relative to the metrics during each of the three-year performance periods. This column also includes, the performance shares as if they were earned at the maximum level for the |
Compensation Tables
(4) | The restricted stock awards for Mr. Case vest according to the following schedule: |
(5) | The restricted stock awards for Mr. Roy vest according to the following schedule: |
(6) | The restricted stock awards for Mr. Meurer vest according to the following schedule: |
Realty Income | 2018 Proxy Statement | 41 |
Compensation Tables
(7) | The restricted stock and restricted stock unit awards for Mr. Pfeiffer vest according to the following schedule: | |
(8) | The restricted stock awards for Mr. Abraham vest according to the following schedule: |
Stock Vested During 20162017 Table
The following table sets forth summary information concerning the vesting of restricted stock and performance shares for each named executive officer during the year ended December 31, 2016. During the year ended December 31, 2016, none2017. None of the named executive officers held or exercised any stock options.options in 2017.
STOCK AWARDS | STOCK AWARDS | |||||||||
NAMED EXECUTIVE OFFICER | NUMBER OF SHARES ACQUIRED ON VESTING(1)(2) | VALUE REALIZED ON VESTING(3) | NUMBER OF SHARES ACQUIRED ON VESTING(1)(2) | VALUE REALIZED ON VESTING(3) | ||||||
John P. Case | 71,424 | $3,875,740 | 64,758 | $3,769,910 | ||||||
Sumit Roy | 17,574 | 969,546 | 31,036 | 1,808,270 | ||||||
Paul M. Meurer | 17,814 | 919,737 | 24,763 | 1,448,356 | ||||||
Michael R. Pfeiffer | 17,510 | 904,041 | 22,562 | 1,318,463 | ||||||
Neil M. Abraham | — | — | 2,356 | 134,308 |
(1) | For | |
(2) | The number of shares acquired on vesting includes shares withheld to pay federal and state income taxes. | |
(3) | This column represents the value realized on vesting as calculated by multiplying the closing market price of our common stock on the applicable vesting dates by the number of shares that vested. |
No Pension Benefits or Nonqualified Deferred Compensation
We do not provide any retirement benefits other than the opportunity to participate in a 401(k) plan. We do not currently sponsor any qualified or non-qualified defined benefit plans, any non-qualified defined contribution plans or deferred compensation plans. The Compensation Committee may elect to adopt such benefits if they determine that doing so is in the company’s best interest.
Potential Payments Upon Termination or Change in Control
Employment Agreements.Each of the named executive officers has the right to receive severance compensation upon the occurrence of certain events as specified in their employment agreements. We are party to two separate forms of employment agreements, including one for Mr. Case and oneanother for the other named executive officers. The employment agreements provide that the named executive officers will be entitled to receive severance payments upon a “Qualifying Termination” which is defined as:
ü | a termination by us without “cause,” | |
ü | for our CEO, a termination for “good reason,” or | |
ü | for our named executive officers other than the CEO, a “constructive termination” by the executive as applicable. |
Our named executive officers are also entitled to receive severance payments if a Qualifying Termination occurs within twelve months after a change in control (these terms are further defined in the employment agreements). In addition, our equity award agreements provide certain rights in connection with a change in control and a Qualifying Termination of employment.
42 | Realty Income| |
Compensation Tables
Case Employment Agreement.The employment agreement, as amended, for Mr. Case was entered into in connection with his appointment to CEO in September 2013, and was amended in February 2017. The employment agreement, as well as the restricted stock award agreements and performance share award agreements, stipulate the following severance payments and benefits upon the occurrence of each scenario listed below:
Qualifying Termination Not in Connection with a Change in Control | ||
a severance payment equal to twenty-four months’ base salary | ||
an amount equal to two times his “bonus amount,” which is generally defined to mean | ||
any accrued and unpaid wages and accrued but unused vacation pay, as well as any earned but unpaid annual bonus with respect to the prior fiscal year | ||
continuation of medical insurance coverage, at our expense, for a period of twelve months from the date of termination or until he becomes covered under another group medical insurance plan, whichever occurs first | ||
all of Mr. Case’s unvested time-based restricted stock granted shall immediately vest, and his outstanding performance awards would be accelerated based on achievement of the performance goals through the termination date, pro-rated based on the amount of time he was employed during the performance period through the termination date | ||
Qualifying Termination in Connection with a Change in Control | ||
a severance payment equal to thirty-six months’ base salary | ||
an amount equal to three times his bonus amount, as defined above | ||
a pro-rated portion of his target bonus for the year of termination | ||
any accrued and unpaid wages and accrued but unused vacation pay, as well as any earned but unpaid annual bonus with respect to the prior fiscal year | ||
continuation of medical insurance coverage, at our expense, for a period of twelve months from the date of termination or until he becomes covered under another group medical insurance plan, whichever occurs first | ||
all of Mr. Case’s unvested time-based restricted stock shall immediately vest, and his other outstanding performance awards would be accelerated based on achievement of the performance goals through the change in control date, pro-rated based on the amount of time he was employed during the performance period through the change in control | ||
Death or Disability | ||
a payment equal to twelve months’ base salary | ||
a payment equal to his bonus amount, as defined above | ||
any accrued and unpaid wages and accrued but unused vacation pay, as well as any earned but unpaid annual bonus with respect to the prior fiscal year | ||
company-paid healthcare continuation coverage for Mr. Case and his dependents for a period of twelve months after the termination date, or until Mr. Case or his dependents, as applicable, become covered under another group medical insurance plan, whichever occurs first | ||
in the case of death, his heirs will be entitled to life insurance benefits under our group life insurance program | ||
all of Mr. Case’s unvested time-based restricted stock shall immediately vest and all of the target number of performance shares would be accelerated, if during the performance period. If following the end of the performance period, Mr. Case will vest in the remaining unvested performance shares |
Realty Income | 2018 Proxy Statement | 43 |
Compensation Tables
Termination due to Non-renewal of Employment Agreement | ||
a payment equal to eighteen months’ base salary | ||
a payment equal to one and one-half times his bonus amount, as defined on the previous page | ||
any accrued and unpaid wages and accrued but unused vacation pay, as well as any earned but unpaid annual bonus with respect to the prior fiscal year | ||
continuation of medical insurance coverage, at our expense, for a period of twelve months from the date of termination or until he becomes covered under another group medical insurance plan, whichever occurs first | ||
all of Mr. Case’s unvested time-based restricted stock shall immediately vest and all performance-based equity awards would be accelerated. Performance share vesting is based on performance through the termination date |
Employment Agreement for Other Named Executive Officers.The employment agreements, as amended, for our named executive officers other than the CEO, as well as the restricted stock award agreements and performance share award agreements, stipulate the following severance payments and benefits upon the occurrence of each scenario listed below:
Qualifying Termination Not in Connection with a Change in Control | ||
a severance payment equal to twelve months’ base salary | ||
an amount equal to the average of the last three years’ cash bonus paid | ||
any accrued but unpaid wages and accrued but unused vacation pay | ||
continuation of medical insurance coverage, at our expense, for a period of twelve months from the date of termination or until the executive officer becomes covered under another group medical insurance plan, whichever occurs first | ||
all unvested time-based restricted stock shall immediately vest, and outstanding performance shares would be accelerated based on achievement of the performance goals through the termination date, pro-rated based on the amount of time the executive was employed during the performance period through the termination date | ||
Qualifying Termination in Connection with a Change in Control | ||
a severance payment equal to twenty-four months’ base salary | ||
an amount equal to two times the average of the last three years’ cash bonuses paid | ||
any accrued but unpaid wages and accrued but unused vacation pay | ||
continuation of medical insurance coverage, at our expense, for a period of eighteen months from the date of termination or until the named executive officer becomes covered under another group medical insurance plan, whichever occurs first | ||
all unvested time-based restricted stock shall immediately vest, and outstanding performance shares would be accelerated based on achievement of the performance goals through the change in control date, pro-rated based on the amount of time the executive was employed during the performance period through the change in control |
44 | Realty Income| |
Compensation Tables
Death or Disability | ||
accrued but unpaid wages and accrued but unused vacation pay, if any, as of the date of his death or disability | ||
if the executive dies or becomes disabled during the performance period, the executive will vest in all of the target number of performance shares. If the executive dies or becomes disabled after the performance period, the executive will vest in the remaining unvested earned performance shares | ||
in the case of death, the executives’ heirs will be entitled to life insurance benefits under our group life insurance program and all shares of unvested time-based restricted stock held by the employee will immediately vest in full | ||
in the case of disability, all shares of unvested time-based restricted stock will continue to vest as scheduled |
Change in Control without a Qualifying Termination.Vesting of outstanding restricted stock awards that were granted prior to December 2015 accelerate in the event of a change in control without a Qualifying Termination. Restricted stock awards granted after December 2015 accelerate only if there is a Qualifying Termination following a change in control. Outstanding performance shares accelerate based on achievement of the performance goals through the change in control date, pro-rated based on the amount of time the executive was employed during the performance period through the change in control.
Retirement.None of the named executive officers were retirement eligible as of December 31, 2016.2017. In the event that an executive officer retires, which can occur after a named executive officer turns 60 and has provided ten years of service, the named executive officer is entitled to receive accelerated vesting of 100% of any equity awards granted. Effective January 2015, in the event of a retirement (employing the same 60 years old plus ten years of service definition), restricted stock awards granted after this date will become fully vested. Additionally, in the event that a named executive officer retires during an outstanding performance period, the number of performance shares will vest based on the executive’s achievement of the performance goals through the retirement date, and pro-rated based on the amount of time the executive was employed during the performance period. If the named executive officer retires after the completion of the performance period, but prior to the vesting of performance shares earned, unvested performance shares will vest on the date of retirement.
Upon Mr. Case’s “retirement,” which can occur after Mr. Case turns 60 and has provided at least ten consecutive years of service as an employee of the company, all then-outstanding equity awards held by Mr. Case will vest in full, with the exception of any performance shares, which vest at 100% of target.
Termination for Cause.Upon termination for failure to perform duties, the named executive officer is not entitled to any payment or benefit other than the payment of accrued but unpaid wages and accrued but unused vacation as of the date of such termination, and the pro-rated vesting of the portion of unvested restricted shares that are schedulescheduled to vest at the next vesting date.
Termination by Named Executive Officer.The named executive officer may also terminate the agreement at any time, upon two weeks notice to the company, which will not result in any severance payments.
Realty Income| | 45 |
Compensation Tables
Termination and Change in Control Scenario Table
The table below estimates the payment and benefits to each of the named executive officers, assuming that on December 31, 2016 2017 (i) a Qualifying Termination occurred, not in connection with a change in control, (ii) a change in control and Qualifying Termination (Change in Control Termination) occurred, (iii) a change in control occurred, (iv) employment terminated due to death or disability, or (v) with respect to Mr. Case only, his employment terminated due to the company’s non-renewal of the employment agreement. Excluded from the table below are certain benefits provided to all employees, such as accrued vacation, and benefits provided under other insurance policies. With the exception of medical benefits, which are paid monthly, the following amounts represent lump-sum payments and benefits. The closing price of our stock on December 30, 201629, 2017 was $57.48$57.02 per share and is used to calculate equity values for the following table.
NEO AND TRIGGER | SEVERANCE PAYMENTS(1) | BONUS PAYMENTS(2) | MEDICAL BENEFITS(3) | VALUE OF ACCELERATED EQUITY AWARDS(4) | LIFE INSURANCE BENEFIT(5) | TOTAL | |||||||||||||
John P. Case | |||||||||||||||||||
Qualifying Termination | $ | 1,750,000 | $ | 9,311,333 | $ | 22,939 | $ | 12,425,969 | — | $ | 23,510,241 | ||||||||
Change in Control Termination | 2,625,000 | 12,279,500 | 22,939 | 12,425,969 | — | $ | 27,353,408 | ||||||||||||
Change in Control | — | — | — | 8,820,249 | — | $ | 8,820,249 | ||||||||||||
Death or Disability | 875,000 | 6,343,167 | 22,939 | 12,598,409 | 600,000 | $ | 20,439,515 | ||||||||||||
Non-renewal of Employment Agreement | 1,312,500 | 7,827,250 | 22,939 | 13,768,913 | — | $ | 22,931,602 | ||||||||||||
Sumit Roy | |||||||||||||||||||
Qualifying Termination | 525,000 | 1,173,284 | 22,939 | 6,645,253 | — | $ | 8,366,476 | ||||||||||||
Change in Control Termination | 1,050,000 | 2,346,568 | 34,409 | 6,645,253 | — | $ | 10,076,230 | ||||||||||||
Change in Control | — | — | — | 4,119,984 | — | $ | 4,119,984 | ||||||||||||
Death | — | — | — | 6,852,881 | 600,000 | $ | 7,452,881 | ||||||||||||
Disability | — | — | — | 2,112,045 | — | $ | 2,112,045 | ||||||||||||
Paul M. Meurer | |||||||||||||||||||
Qualifying Termination | 450,000 | 811,159 | 22,939 | 4,327,765 | — | $ | 5,611,863 | ||||||||||||
Change in Control Termination | 900,000 | 1,622,318 | 34,409 | 4,327,765 | — | $ | 6,884,492 | ||||||||||||
Change in Control | — | — | — | 3,479,303 | — | $ | 3,479,303 | ||||||||||||
Death | — | — | — | 4,406,992 | 600,000 | $ | 5,006,992 | ||||||||||||
Disability | — | — | — | 1,747,392 | — | $ | 1,747,392 | ||||||||||||
Michael R. Pfeiffer | |||||||||||||||||||
Qualifying Termination | 420,000 | 487,262 | 22,939 | 3,674,208 | — | $ | 4,604,409 | ||||||||||||
Change in Control Termination | 840,000 | 974,524 | 34,409 | 3,674,208 | — | $ | 5,523,141 | ||||||||||||
Change in Control | — | — | — | 3,077,450 | — | $ | 3,077,450 | ||||||||||||
Death | — | — | — | 3,712,691 | 600,000 | $ | 4,312,691 | ||||||||||||
Disability | — | — | — | 1,426,079 | — | $ | 1,426,079 | ||||||||||||
Neil M. Abraham | |||||||||||||||||||
Qualifying Termination | 335,000 | 378,084 | 22,939 | 748,045 | — | $ | 1,484,068 | ||||||||||||
Change in Control Termination | 670,000 | 756,168 | 34,409 | 748,045 | — | $ | 2,208,622 | ||||||||||||
Change in Control | — | — | — | 123,697 | — | $ | 123,697 | ||||||||||||
Death | — | — | — | 995,439 | 600,000 | $ | 1,595,439 | ||||||||||||
Disability | — | — | — | 371,091 | — | $ | 371,091 |
NEO AND TRIGGER | SEVERANCE PAYMENTS(1) | BONUS PAYMENTS(2) | MEDICAL BENEFITS(3) | VALUE OF ACCELERATED EQUITY AWARDS(4) | LIFE INSURANCE BENEFIT(5) | TOTAL | ||||||||||||||||||
John P. Case | ||||||||||||||||||||||||
Qualifying Termination | $ | 1,850,000 | $ | 8,643,270 | $ | 23,000 | $ | 13,269,999 | — | $ | 23,786,269 | |||||||||||||
Change in Control Termination | 2,775,000 | 11,559,191 | 23,000 | 13,269,999 | — | $ | 27,627,190 | |||||||||||||||||
Change in Control | — | — | — | 8,071,656 | — | $ | 8,071,656 | |||||||||||||||||
Death or Disability | 925,000 | 5,727,350 | 23,000 | 15,278,851 | 600,000 | $ | 22,554,201 | |||||||||||||||||
Non-renewal of Employment Agreement | 1,387,500 | 7,185,310 | 23,000 | 15,866,853 | — | $ | 24,462,663 | |||||||||||||||||
Sumit Roy | ||||||||||||||||||||||||
Qualifying Termination | 550,000 | 1,387,361 | 23,000 | 6,996,658 | — | $ | 8,957,019 | |||||||||||||||||
Change in Control Termination | 1,100,000 | 2,774,722 | 34,500 | 6,996,658 | — | $ | 10,905,880 | |||||||||||||||||
Change in Control | — | — | — | 4,126,956 | — | $ | 4,126,956 | |||||||||||||||||
Death | — | — | — | 7,945,281 | 600,000 | $ | 8,545,281 | |||||||||||||||||
Disability | — | — | — | 3,651,846 | — | $ | 3,651,846 | |||||||||||||||||
Paul M. Meurer | ||||||||||||||||||||||||
Qualifying Termination | 475,000 | 892,173 | 23,000 | 4,319,379 | — | $ | 5,709,552 | |||||||||||||||||
Change in Control Termination | 950,000 | 1,784,346 | 34,500 | 4,319,379 | — | $ | 7,088,225 | |||||||||||||||||
Change in Control | — | — | — | 3,096,699 | — | $ | 3,096,699 | |||||||||||||||||
Death | — | — | — | 4,846,700 | 600,000 | $ | 5,446,700 | |||||||||||||||||
Disability | — | — | — | 2,609,691 | — | $ | 2,609,691 | |||||||||||||||||
Michael R. Pfeiffer | ||||||||||||||||||||||||
Qualifying Termination | 450,000 | 536,542 | 23,000 | 3,383,814 | — | $ | 4,393,356 | |||||||||||||||||
Change in Control Termination | 900,000 | 1,073,084 | 34,500 | 3,383,814 | — | $ | 5,391,398 | |||||||||||||||||
Change in Control | — | — | — | 2,569,397 | — | $ | 2,569,397 | |||||||||||||||||
Death | — | — | — | 3,763,263 | 600,000 | $ | 4,363,263 | |||||||||||||||||
Disability | — | — | — | 2,037,667 | — | $ | 2,037,667 | |||||||||||||||||
Neil M. Abraham | ||||||||||||||||||||||||
Qualifying Termination | 375,000 | 434,199 | 23,000 | 1,343,011 | — | $ | 2,175,210 | |||||||||||||||||
Change in Control Termination | 750,000 | 868,398 | 34,500 | 1,343,011 | — | $ | 2,995,909 | |||||||||||||||||
Change in Control | — | — | — | 557,846 | — | $ | 557,846 | |||||||||||||||||
Death | — | — | — | 1,722,460 | 600,000 | $ | 2,322,460 | |||||||||||||||||
Disability | — | — | — | 937,295 | — | $ | 937,295 |
(1) | Amount represents 12 months base salary in the case of a Qualifying Termination and 24 months base salary in the case of a Change in Control Termination, for all officers excluding Mr. Case. For Mr. Case, the amount represents 24 months base salary in the case of a Qualifying Termination, 36 months base salary in the case of a Change in Control Termination, 12 months base salary in the case of Death or Disability, and 18 months base salary in the case of Non-renewal of Employment Agreement. |
(2) | Amount represents the applicable scenario multiple of the average of annual bonuses paid based on performance for 2017, 2016 |
(3) | Amount represents estimated continuation of group medical insurance coverage at our expense for a period of 12 months in the case of a Qualifying Termination and for 18 months in the case of a Change in Control Termination, for all officers excluding Mr. Case. For Mr. Case this amount represents continuation of group medical insurance coverage at our expense for a period of 12 months in the case of a Qualifying Termination, a Change in Control Termination, Death or Disability, and Non-renewal of Employment Agreement. |
46 | Realty Income | 2018 Proxy Statement |
Compensation Tables
(4) | Amount represents the aggregate value of the acceleration of vesting of the named executive officer’s outstanding restricted stock awards. For purposes of this calculation, each named executive officer’s total unvested restricted stock awards on December 31, |
(5) | Amount represents life insurance benefits that would have been paid by a third-party insurance company to the beneficiaries of the named executive officers if they had died on December 31, |
Pursuant to Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and applicable SEC rules, we have prepared the ratio of the annual total compensation of our CEO to the median of the annual total compensation of our other employees. We determined our median employee based on our employees’ base salaries for 2017. Regularly scheduled employees newly hired or on leave during 2017 were assumed to have worked for the entire 2017 measurement period. We captured all employees as of December 31, 2017, consisting of approximately 154 individuals all located in the U.S. We then determined the annual total compensation of our median employee, which includes base salary for 2017, annual cash bonus earned for 2017, the grant date fair value of equity awards granted during the 2017 measurement period, health care costs paid by the company, matching 401(k) contributions, and the cost of term life insurance paid by the company. The annual total compensation of our median employee for 2017 was $114,692. Our Chief Executive Officers’ annual total compensation for 2017 was $10,066,345, which includes compensation as disclosed in the Summary Compensation Table on page 38 and health care costs paid by the company. Based on the foregoing, our estimate of the ratio of the annual total compensation of our CEO to the annual total compensation of our median employee was 88 to 1.
Realty Income | 2018 Proxy Statement | 47 |
Section 16(a) Beneficial Ownership
Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities (collectively Insiders) to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities of Realty Income. Insiders are required by regulation of the SEC to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of copies of Forms 3, 4, and 5 and the amendments thereto, received by the company for the year ended December 31, 2016,2017, or written representations from certain reporting persons, we believe that during the year ended December 31, 2016,2017, all filing requirements were complied with by our named executive officers, directors and beneficial owners of more than ten percent of our stock.
We have adopted a written policy regarding the review, approval, and ratification of any related party transaction. Under this policy, the Audit Committee shall review the relevant facts and circumstances of each related party transaction, including whether the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party and the extent of the related party’s interest in the transaction, taking into account the conflicts of interest and corporate opportunity provisions of our Code of Business Ethics. The Audit Committee either approves or disapproves the related party transaction. Any related party transaction shall be consummated and shall continue only if the Audit Committee has approved or ratified such transaction in accordance with the guidelines set forth in the policy. For purposes of our policy, a “Related Party” is (i) any person who is, or at any time since the beginning of the company’s last fiscal year was, our director or executive officer or a nominee to become our director, (ii) any person who is known to be the beneficial owner of more than 5% of any class of our voting securities, (iii) any immediate family member of any of the foregoing persons, which means any spouse, child, stepchild, parent, stepparent, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and (iv) any firm, corporation or other entity in which any of the foregoing persons is employed, is a general partner, principal or in a similar position, or in which such person has a 5% or greater beneficial ownership interest.
We had no related party transactions in 2016.2017.
48 | Realty Income| |
Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth, as of March 9, 2017,8, 2018, based on 271,111,850284,374,321 shares of common stock outstanding on that date, certain information with respect to the beneficial ownership of shares of our common stock by (i) each director, each nominee, and each named executive officer, (ii) all current directors and executive officers of Realty Income as a group, and (iii) each person known to us to own beneficially more than 5% of the outstanding shares of our common stock. Except as otherwise noted, we believe the beneficial owners of shares of our common stock listed below, based on information furnished by those owners, have sole voting and investment power with respect to their shares:
NAME OF BENEFICIAL OWNER | SHARES OF BENEFICIAL OWNERSHIP OF COMMON STOCK OF THE COMPANY | PERCENT OF CLASS |
John P. Case (1) | 180,794 | 0.1 |
Sumit Roy (2) | 80,281 | * |
Paul M. Meurer (3) | 43,437 | * |
Michael R. Pfeiffer (4) | 27,070 | * |
Neil M. Abraham (5) | 16,972 | * |
Michael D. McKee (6) | 141,500 | * |
Kathleen R. Allen (7) | 78,000 | * |
A. Larry Chapman (8) | 23,757 | * |
Priya Cherian Huskins (9) | 19,313 | * |
Ronald L. Merriman (10) | 16,075 | * |
Stephen E. Sterrett (11) | 16,000 | * |
Gregory T. McLaughlin (12) | 15,986 | * |
All current directors and executive officers of the company, as a group (14 persons) | 687,736 | 0.2 |
NAME OF BENEFICIAL OWNER | SHARES OF BENEFICIAL OWNERSHIP OF COMMON STOCK OF THE COMPANY | PERCENT OF CLASS | ||||
John P. Case(1) | 206,932 | 0.1 | ||||
Sumit Roy(2) | 92,250 | * | ||||
Paul M. Meurer(3) | 62,256 | * | ||||
Michael R. Pfeiffer(4) | 35,760 | * | ||||
Neil M. Abraham(5) | 15,304 | * | ||||
Michael D. McKee(6) | 137,500 | 0.1 | ||||
Kathleen R. Allen, Ph.D.(7) | 74,000 | * | ||||
Priya Cherian Huskins(8) | 24,513 | * | ||||
A. Larry Chapman(9) | 19,757 | * | ||||
Gregory T. McLaughlin(10) | 18,936 | * | ||||
Ronald L. Merriman(11) | 12,075 | * | ||||
Stephen E. Sterrett(12) | 12,000 | * | ||||
All current directors and executive officers of the company, as a group (18 persons) | 813,353 | 0.3 |
* Less than one-tenth of one percent
STOCKHOLDERS HOLDING 5% OR MORE | SHARES OF BENEFICIAL OWNERSHIP OF COMMON STOCK OF THE COMPANY | PERCENT OF CLASS | ||||
The Vanguard Group, Inc.(13) | 44,103,106 | 17.05 | % | |||
100 Vanguard Blvd. | ||||||
Malvern, PA 19355 | ||||||
BlackRock, Inc.(14) | 24,950,782 | 9.60 | % | |||
55 East 52nd Street | ||||||
New York, NY 10055 | ||||||
Vanguard Specialized Funds—Vanguard REIT Index Fund(15) | 19,618,636 | 7.58 | % | |||
100 Vanguard Blvd. | ||||||
Malvern, PA 19355 | ||||||
State Street Corp.(16) | 16,147,885 | 6.25 | % | |||
One Lincoln St. | ||||||
Boston, MA 02111 |
STOCKHOLDERS HOLDING 5% OR MORE | SHARES OF BENEFICIAL OWNERSHIP OF COMMON STOCK OF THE COMPANY | PERCENT OF CLASS |
The Vanguard Group, Inc.(13) 100 Vanguard Blvd. Malvern, PA 19355 | 49,188,024 | 17.45% |
BlackRock, Inc.(14) 55 East 52nd Street New York, NY 10055 | 29,151,832 | 10.30% |
State Street Corp. (15) One Lincoln St. Boston, MA 02111 | 18,992,434 | 6.74% |
Vanguard Specialized Funds—Vanguard REIT Index Fund(16) 100 Vanguard Blvd. Malvern, PA 19355 | 18,452,871 | 6.54% |
(1) | Mr. Case’s total includes |
(2) | Mr. Roy’s total includes |
(3) | Mr. Meurer’s total includes |
(4) | Mr. Pfeiffer’s total includes |
(5) | Mr. Abraham’s total includes |
Realty Income | 2018 Proxy Statement | 49 |
(6) | Mr. McKee’s total includes |
(7) | Dr. Allen’s total includes |
(8) | |
Mr. Chapman’s total includes 8,001 shares of unvested restricted stock and | |
Mr. Merriman’s total includes | |
Mr. Sterrett’s total includes | |
(12) | Mr. McLaughlin’s total includes 15,986 shares owned of record by The McLaughlin Family Trust dated May 28, 2009, of which he is a trustee and has shared voting and investment power. |
(13) | Based on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on February |
(14) | Based on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on January |
(15) | Based on the information provided pursuant to a statement on a Schedule 13G filed with the SEC on February 14, 2018, State Street Corporation does not have the power to vote or direct the vote of any shares of our common stock, or to dispose or direct the disposition of any shares of our common stock. State Street Corporation has the shared power to vote or direct the vote of and the shared power to dispose or direct the disposition of 18,992,434 shares of our common stock. |
(16) | Based on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on February |
Equity Compensation Plan Information as of
December 31, 2016
2017
The following table sets forth certain equity compensation plan information as of December 31, 2016.2017. We historically have only granted shares of restricted stock, restricted stock units, and long-term performance shares under the equity plan.
PLAN CATEGORY(1) | NUMBER OF SECURITIES | WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS (b) | NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE | |||||
Equity compensation plans approved by security holders | 178,211 | (2) | n/a | 1,736,774 | (3) | |||
Equity compensation plans not approved by security holders | — | n/a | — | |||||
Total | 178,211 | 1,736,774 |
PLAN CATEGORY(1) | NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS, AND RIGHTS (a) | WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS (b) | NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (a)) (c) |
Equity compensation plans approved by security holders | 270,178(2) | n/a | 1,432,329(3) |
Equity compensation plans not approved by security holders | — | n/a | — |
Total | 270,178 | 1,432,329 |
(1) | Each of our equity compensation plans has been approved by our stockholders. | |
(2) | ||
(3) | Represents shares of our common stock available for issuance under our 2012 Stock Incentive Award Plan. This amount has been reduced by the |
50 | Realty Income| |
Annual Review of Independent Registered Public Accounting Firm
In connection with its oversight responsibilities, the Audit Committee assesses the performance of our independent registered public accounting firm on an annual basis. In conducting its assessment, the Audit Committee considers various audit quality indicators including:
ü | Global firm | |
ü | Global and national | |
ü | Competency and service by the engagement team, including industry | |
ü | Management’s input as to the firm’s technical expertise and | |
ü | Quality and breadth of services provided relative to the cost of those services. |
The results of this assessment were taken into consideration when determining whether to reappoint KPMG LLP for the year ended December 31, 2017.2018. Based on its evaluation, the Audit Committee believes that the continued retention of KPMG LLP to serve as our independent registered public accounting firm is in the best interest of the company.
Rotation of Key Audit Partners
The Audit Committee is directly involved in the selection of the lead audit engagement partner whenever a rotational change is required, typically every five years. During the year ended December 31, 2016, the Audit Committee oversaw the required rotation of KPMG’s lead audit partner, as required by SEC rules. The approval of the lead partner was based on meetings between members of the Audit Committee and the prospective candidate and input received from KPMG LLP and the company’s management.
Fees Paid to Independent Registered Public Accounting Firm
The fees paid to KPMG LLP, our independent registered public accounting firm, relating to 20162017 and 20152016 were as follows:
2016(1) | 2015(1) | |||||||
Total audit fees(2) | $ | 1,768,000 | $ | 1,715,000 | ||||
Tax fees(3) | 370,000 | 627,000 |
2017(1) | 2016(1) | |
Total audit fees (2) | $1,970,400 | $1,768,000 |
Tax fees (3) | 315,194 | 370,000 |
(1) | There were no |
(2) | Includes the aggregate fees billed by KPMG LLP for the audit of our annual financial statements, the reviews of the financial statements included in our Quarterly Reports on Form 10-Q, the issuances of comfort letters to underwriters, the reviews of registration statements in connection with the issuance of consents totaling approximately $255,000 in 2017 and $235,000 in 2016, |
(3) | Includes the aggregate fees billed by KPMG LLP for tax services. Tax services consisted of tax return preparation and tax compliance. |
Pre-approval Policies and Procedures
The Audit Committee’s charter provides that the Audit Committee has the sole authority and responsibility to pre-approve all audit and permitted non-audit services to be provided to the company. Pursuant to its charter, the Audit Committee has established pre-approval policies and procedures for permitted non-audit services. The Audit Committee considers each engagement on a case-by-case basis according to certain required criteria, including the skill set necessary for the engagement and ensuring the engagement should not involve work that would result in our registered public accounting firm eventually auditing their own work. The Audit Committee is regularly updated on the status of all outstanding engagements. If we anticipate that the fees for specific engagements may exceed the amount initially approved by the Audit Committee, the Audit Committee will consider proposals to increase the fees for such engagements on a case-by-case basis.
The Audit Committee has delegated a portion of its responsibility to pre-approve non-audit engagement services to be performed by our auditor in the following manner:
ü | Select members of management have authority up to $100,000; | |
ü | The Audit Committee Chair has authority up to $250,000; and | |
ü | The Audit Committee has authority for engagement services greater than $250,000. |
Realty Income| | 51 |
Audit Related Matters
The decisions made pursuant to these delegated authorities must be presented to the full Audit Committee at its next scheduled meeting, whereby the above approval threshold levels are reset. All of the services performed by KPMG LLP in 20162017 were approved in advance by the Audit Committee pursuant to the foregoing pre-approval policy and procedures.
The Audit Committee of the Board of Directors of Realty Income Corporation, a Maryland corporation (Realty Income), is comprised of independent directors as required by the listing standards of the New York Stock Exchange (NYSE). The Audit Committee operates pursuant to a written charter, as required by the NYSE and the rules and regulations of the Securities and Exchange Commission (SEC), which was adopted by Realty Income’s Board of Directors. In 2016,2017, the Audit Committee met eight times.
The role of the Audit Committee is to appoint, retain, and oversee our independent registered public accounting firm, which is currently KPMG LLP, and to oversee Realty Income’s financial reporting process on behalf of the Board of Directors. Management of Realty Income has the primary responsibility for the preparation of Realty Income’s consolidated financial statements as well as executing Realty Income’s financial reporting process, principles, and internal controls. The independent registered public accounting firm is responsible for performing an audit of Realty Income’s consolidated financial statements and internal controls over financial reporting, and expressing an opinion as to the conformity of such consolidated financial statements with U.S. generally accepted accounting principles, and management’s assessment of and the effectiveness of Realty Income’s internal controls over financial reporting.
In this context, the Audit Committee has reviewed and discussed with management and KPMG LLP the audit of the consolidated financial statements and the audit of Realty Income’s internal controls over financial reporting, as of and for the year ended December 31, 2016.2017. The Audit Committee has discussed with KPMG LLP the matters required to be discussed by Public Company Accounting Oversight Board (PCAOB) AS No. 1301. In addition, the Audit Committee has received the written disclosures and the letter from KPMG LLP required by applicable requirements of the PCAOB regarding KPMG LLP’s communications with the Audit Committee concerning independence, and it has discussed with the auditors their independence from Realty Income and its management. The Audit Committee has also considered whether KPMG LLP’s preparation of tax returns, tax consulting services, and other non-audit services to Realty Income is compatible with maintaining KPMG LLP’s independence.
Based on the reports and discussions described above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in Realty Income’s Annual Report on Form 10-K for the year ended December 31, 2016,2017, for filing with the SEC.
Submitted on March 13, 201715, 2018 by the members of the Audit Committee of Realty Income’s Board of Directors.
Ronald L. Merriman, Chair
Kathleen R. Allen, Ph.D. A. Larry Chapman Gregory T. McLaughlin |
The above report of the Audit Committee will not be deemed to be incorporated by reference into any filing by the company under the Securities Act of 1933, as amended (the Exchange Act), except to the extent that Realty Income specifically incorporates the same by reference.
52 | Realty Income| |
When is the Annual Meeting?
The Annual Meeting will be held on May 16, 2017,18, 2018, at the San Diego Marriott Del Mar, 11966 El Camino Real, San Diego, California 92130. Stockholders will be admitted to the Annual Meeting at 8:30 a.m. Pacific Time and the program will begin promptly at 9:00 a.m. Pacific Time.
Do I need a ticket to attend the Annual Meeting?
No, you do not need a ticket, but you will need to identify yourself as a stockholder when you arrive in order to receive certain Annual Meeting materials. Complimentary parking will be available.
What is the purpose of the Annual Meeting?
At the Annual Meeting, stockholders as of the close of business on the record date, March 9, 2017,8, 2018, will consider and vote upon:
The election of eight director nominees named in this Proxy Statement to serve until the |
The ratification of KPMG LLP as our independent registered public accounting firm for the year ending December 31, |
A non-binding advisory proposal to approve the compensation of our named executive officers as described in this Proxy Statement (also known as the “say-on-pay” vote); |
The transaction of such other business as may properly come before the Annual Meeting or any postponement or adjournment of the Annual Meeting. |
Who is entitled to vote at the Annual Meeting?
Holders of our common stock at the close of business on March 9, 20178, 2018 are entitled to receive notice of and to vote their shares at the Annual Meeting. As of that date, there were 271,111,850284,374,321 shares of common stock outstanding and entitled to vote. Each outstanding share of our common stock is entitled to one vote on each matter properly brought before the Annual Meeting.
How will I receive my Proxy Materials for the Annual Meeting?
Beginning on or about April 6, 2017,2, 2018, Proxy Materials (including the Proxy Statement, proxy card, and Annual Report) for the Annual Meeting will be sent via e-mail or mail to our stockholders of record in accordance with their preference if indicated previously. If a preference has not been specified, we will either mail to those stockholders our Proxy Materials or a Notice of Availability of Proxy Materials (Notice) which contains instructions on how to access our materials by mail, e-mail, or on the Internet.
In accordance with the SEC notice and access rule, the Notice allows us to provide our stockholders with the information they need to vote through various delivery options, while lowering the costs of print and delivery and reducing the environmental impact. The Notice is not a proxy and cannot be used to vote your shares. If you receive a Notice this year, you will not receive paper copies of the Proxy Materials unless you request the materials by following the instructions on the Notice or by accessing the website identified on the Notice.
What is the difference between holding shares as a stockholder of record or as a beneficial owner?
If your shares are registered directly in your name with our transfer agent, Wells Fargo Shareowner Services,Equiniti Trust Company, you are considered a “stockholder of record.” In this case, you receive your dividend check from Wells Fargo Shareowner Services.Equiniti Trust Company. This year we have engaged the services of Broadridge Financial Solutions (Broadridge) to mail our Proxy Materials or Notice to our registered holders.
If your shares are held by a bank, in a brokerage account, or other holder of record, you are considered a “beneficial owner” of shares held in street name. The Proxy Materials or Notice may be forwarded to you by your bank, broker, or other holder of record. As the beneficial owner, you have the right to direct your bank, broker, or other holder of record on how to vote your shares by following their instructions for authorizing your proxy.
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Frequently Asked Questions
Is it necessary to vote if my shares are held in my brokerage account?
It is important to vote your shares even if your shares are held in a brokerage account. Otherwise, your shares may not be voted on certain matters unless you provide voting instructions to your bank, broker or other holder of record. If you are unsure, please vote your Realty Income shares using the voting information provided.
How do I vote?
You may vote or authorize a proxy to vote using any of the following methods:
By Internet | ||
![]() ![]() | Authorize a proxy to vote your shares via the website www.proxyvote.com, which is available 24 hours per day until 11:59 p.m., Eastern Time, May | |
By Telephone | ||
![]() ![]() | Authorize a proxy to vote your shares by calling toll-free 1-800-690-6903, 24 hours per day until 11:59 p.m., Eastern Time, May | |
By Mail | ||
![]() ![]() | If you received and/or requested via the Notice a printed set of the Proxy Materials (including the Proxy Statement, proxy card, and Annual Report), authorize a proxy to vote your shares by completing, signing, and returning the proxy card in the prepaid envelope provided. If the prepaid envelope is missing, please mail your completed proxy to: Realty Income Corporation, Vote Processing, c/o Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717. | |
In person at the Annual Meeting | ||
![]() ![]() | Vote your shares in person by attending the Annual Meeting. You may also be represented by another person at the Annual Meeting by executing a proper proxy designating that person as your representative. If you are a beneficial owner of shares, you must obtain a “legal proxy” from your broker, bank or other holder of record and present it to the inspector of election at the Annual Meeting to be able to vote in person at the Annual Meeting. |
How does the Board of Directors recommend I vote on the proposals?
Our Board of Directors recommends that you vote your shares as follows:
ü | Proposal 1:FORthe election to the Board of Directors of the eight nominees listed in this Proxy Statement; |
ü | Proposal 2:FORthe ratification of KPMG LLP as our independent registered public accounting firm for the year ending December 31, |
ü | Proposal 3:FORthe say-on-pay |
What happens if I do not indicate my voting preferences?
If you are a stockholder of record and you submit your proxy card or authorize your proxy by telephone or Internet, but do not indicate your voting preferences, the persons named in the proxy will vote the shares represented by that proxy consistent with the recommendation of our Board of Directors, which are as follows:
ü | Proposal 1FORthe election to the Board of Directors of the eight nominees listed in this Proxy Statement; |
ü | Proposal 2FORthe ratification of KPMG LLP as our independent registered public accounting firm for the year ending December 31, |
ü | Proposal 3FORthe say-on-pay |
In the discretion of the proxy holders on any other matter that may properly come before the Annual Meeting.
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Frequently Asked Questions
If you hold your shares through a broker and do not instruct your broker on how to vote your shares, your broker cannot vote your shares on “non-routine” matters as defined by the NYSE, including the election of directors say-on-pay vote, or frequencythe say-on-pay vote, but can vote your shares on “routine” matters as defined by the NYSE, including the proposal regarding ratification of the appointment of our auditor.
Can I change my vote after I submit my proxy?
If you are a stockholder of record, you may revoke your proxy at any time before it is voted at the Annual Meeting by doing one of the following:
If your shares are held in the name of a broker, bank, trust, or other nominee, you may change your voting instructions by following the instructions provided by your broker, bank, or other record holder.
Your attendance at the Annual Meeting will not by itself be sufficient to revoke a proxy unless you vote in person or give written notice of revocation to our Corporate Secretary before the polls are closed. Any written notice revoking a proxy should be sent to Michael R. Pfeiffer, our Corporate Secretary, at our corporate offices at 11995 El Camino Real, San Diego, California 92130.
What are the quorum and voting requirements on the fourthree proposals mentioned in this Proxy Statement?
The presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at the Annual Meeting on any matter will constitute a quorum. Abstentions and “broker non-votes” are counted as present for purposes of determining a quorum. A “broker non-vote” occurs when a bank, broker, or other holder of record of shares for a beneficial owner properly executes and returns a proxy card, but does not vote on a matter because the bank, broker, or other holder does not have discretionary authority to vote the shares and has not received voting instructions from the beneficial owner.
The following outlines the vote required and impact of abstentions and broker non-votes for each proposal at the Annual Meeting:
PROPOSAL NUMBER | SUBJECT | VOTE REQUIRED(2) | IMPACT OF ABSTENTIONS AND BROKER NON-VOTES, IF ANY |
1 | Election of Directors(1) | The affirmative vote of a majority of the votes cast is necessary for the election of each director nominee. | Abstentions and broker non-votes will not count as a vote cast “FOR” or “AGAINST” a nominee’s election and thus will have no effect in determining whether a director nominee has received a majority of the votes cast. Brokers do not have discretionary authority to vote your shares for director nominees. |
2 | Ratification of Appointment of Independent Registered Public Accounting Firm | The affirmative vote of a majority of the votes cast is necessary for the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, | Abstentions will have no effect on the outcome of the vote. Broker non-votes are not expected to result from this proposal since as a beneficial owner, your bank, broker, or other holder of record is permitted to vote your shares even if the broker does not receive voting instructions from you. |
3 | Say-on-Pay Vote | The affirmative vote of a majority of the votes cast is necessary for the approval of the say-on-pay vote. | Abstentions and broker non-votes will not be counted as votes cast and will have no effect on the outcome of the vote. Brokers do not have discretionary authority to vote your shares for the say-on-pay vote. |
Frequently Asked Questions
|
(1) | In accordance with the policy adopted by our Board of Directors, in this election, an incumbent candidate for director who does not receive the required votes for re-election is expected to offer his or her resignation to the Board of Directors. The Nominating/Corporate Governance Committee of the Board of Directors, or a committee of independent directors in the event the incumbent is a member of the Nominating/Corporate Governance Committee, will then make a determination as to whether to accept or reject the tendered resignation, generally within 90 days after certification of the election results of the stockholder vote. Following such determination, we will publicly disclose the decision regarding any tendered resignation and the rationale behind such decision in a filing of a Current Report on Form 8-K with the SEC. If a director’s offer to resign is not accepted by the Board of Directors (or properly constituted committee) or such director does not otherwise submit his or her resignation to the Board of Directors, such director shall continue to serve until his or her successor is duly elected and qualifies, or until his or her earlier resignation or removal. |
(2) | Pursuant to the terms of our Bylaws, a “majority of votes cast” standard requires that the number of votes cast “FOR” a proposal or director nominee must exceed the number of votes cast “AGAINST” such proposal or director nominee. |
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Frequently Asked Questions
Will any other business be conducted at the Annual Meeting?
Our Board of Directors does not know of any matters to be presented at the meeting other than those mentioned in this Proxy Statement. If any other matters are properly brought before the meeting, it is intended that the proxies will be voted in accordance with the discretion of the person or persons voting the proxies. Under the NYSE rules, if you are a beneficial owner, your bank, broker, or other holder of record may not vote your shares on any contested stockholder proposal without instructions from you.
If the Annual Meeting is postponed or adjourned for any reason, at any subsequent convening or resumption of the Annual Meeting, all proxies will be voted in the same manner as such proxies would have been voted at the Annual Meeting as originally convened (except for any proxies that have effectively been revoked or withdrawn).
Who will count the vote?
Representatives of Broadridge will tabulate the votes and act as inspector of election.
Can I access the Notice of Annual Meeting, Proxy Statement and Annual Report on the Internet?
This Proxy Statement (which includes the Notice of Annual Meeting) and our 20162017 Annual Report are available on our website at http://www.realtyincome.com/investors/financial-information/annual-reports-and-proxy/default.aspx.annual-reports-and-proxy. You can also view these materials at www.proxyvote.com by using the control number provided on your proxy card, in your e-mailed Proxy Materials, or on your Notice.
Who bears the cost of soliciting proxies?
We will bear the cost of soliciting proxies from our stockholders. In addition to solicitation by mail, our directors, officers, employees, and agents may solicit proxies by telephone, Internet, or otherwise. These directors, officers, and employees will not be additionally compensated for the solicitation, but may be reimbursed for out-of-pocket expenses incurred in connection with the solicitation. Copies of solicitation material will be furnished to brokerage firms, fiduciaries, and other custodians who hold shares of our common stock of record for beneficial owners for forwarding to such beneficial owners. We may also reimburse persons representing beneficial owners for their reasonable expenses incurred in forwarding such materials.
Stockholders who authorize their proxies through the Internet should be aware that they may incur costs to access the Internet, such as usage charges from telephone companies or Internet service providers and these costs must be borne by the stockholder.
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Stockholder Proposals for 2018 2019
Annual Meeting
In order for stockholder proposals otherwise satisfying the eligibility requirements of SEC Rule 14a-8 to be considered for inclusion in our proxy statementProxy Statement for our 20182019 annual meeting of stockholders, they must be received by us at our principal office, 11995 El Camino Real, San Diego, CA 92130 on or before December 7, 2017.3, 2018.
For an eligible stockholder or group of stockholders to nominate a director nominee for election at our 2019 annual meeting of stockholders pursuant to the proxy access provision of our Bylaws, such eligible stockholder or group of stockholders must comply with the then current advance notice requirements in our Bylaws and deliver the proposal to our Corporate Secretary between November 3, 2018 and December 3, 2018 in order for such proposal to be considered timely. In addition, our Bylaws require the eligible stockholder or group of stockholders to update and supplement such information as of specified dates.
In addition, if a stockholder desires to bring business (including director nominations) before our 20182019 annual meeting of stockholders that is not the subject of a proposal timely submitted for inclusion in our 2018 proxy statement,2019 Proxy Statement, written notice of such business, as currently prescribed in our Bylaws, must be received by our Corporate Secretary between November 7, 20173, 2018 and December 7, 2017.3, 2018. For additional requirements, a stockholder may refer to our current Bylaws, Article III, Section 12, “Advance Notice of Stockholder Nominees for Director and Other Stockholder Proposals,” and Article III, Section 15, “Proxy Access,” a copy of which may be obtained from our Corporate Secretary upon request and without charge. See “Communications with the Board” for contact information. If we do not receive timely notice pursuant to our Bylaws, the proposal will be excluded from consideration at the meeting.
This Proxy Statement 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. When used in this proxy statement,Proxy Statement, 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, and future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Proxy Statement. 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 Proxy Statement or to reflect the occurrence of unanticipated events.
Householding of Proxy Materials
SEC rules permit companies and intermediaries (such as banks and brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.
A number of banks and brokers with account holders who are our stockholders will be householding our proxy materials. A single Proxy Statementproxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. If you have received notice from your bank or broker that it will be householding communications to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement and annual report, please notify your bank or broker, direct your written request to Investor Relations, 11995 El Camino Real, San Diego, CA 92130, or contact Investor Relations by telephone at (877) 924-6266. Stockholders who currently receive multiple copies of the Proxy Statementproxy statement at their address and would like to request householding of their communications should contact their bank or broker.
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Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended (the Exchange Act), which might incorporate future filings made by us under those statutes, the preceding Audit Committee Report will not be incorporated by reference into any of those prior filings, nor will any such report be incorporated by reference into any future filings made by us under those statutes. In addition, information on our website, other than our Proxy Statement, Notice of Annual Meeting and form of proxy, is not part of the proxy soliciting material and is not incorporated herein by reference.
By Order of the Board of Directors, | |
![]() | |
![]() Michael R. Pfeiffer Executive Vice President, General Counsel and Secretary |
April 3, 20172, 2018
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REALTY INCOME CORPORATION SHAREOWNER SERVICES P.O. BOX 64945 ST. PAUL, MN 55164-0945 | VOTE BY INTERNET -www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | |
KEEP THIS PORTION FOR YOUR RECORDS | |
DETACH AND RETURN THIS PORTION ONLY | |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
REALTY INCOME CORPORATION
The Board of Directors recommends a vote FOR the election of the eight director nominees, FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, |
Proposal 1.To elect the following eight director nominees to serve until the | For | Against | Abstain | |||
Nominees: | ||||||
1a. | Kathleen R. Allen | ☐ | ☐ | ☐ | ||
1b. | John P. Case | ☐ | ☐ | ☐ | ||
1c. | A. Larry Chapman | ☐ | ☐ | ☐ | ||
1d. | Priya Cherian Huskins | ☐ | ☐ | ☐ | ||
1e. | Michael D. McKee | ☐ | ☐ | ☐ | ||
1f. | Gregory T. McLaughlin | ☐ | ☐ | ☐ | ||
1g. | Ronald L. Merriman | ☐ | ☐ | ☐ | ||
1h. | Stephen E. Sterrett | ☐ | ☐ | ☐ | ||
For address changes and/or comments, please check this box and write them on the back where indicated. | ☐ | |||||
For | Against | Abstain | ||
Proposal 2.Ratification of the appointment of KPMG LLP as the Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, | ☐ | ☐ | ☐ | |
Proposal 3.Non-binding advisory vote to approve the compensation of our named executive officers. | ☐ | ☐ | ☐ | |
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS, AS INDICATED ABOVE. THE VOTES YOU ARE ENTITLED TO CAST WILL BE CAST IN THE DISCRETION OF THE PROXY HOLDER ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. |
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date |
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
REALTY INCOME CORPORATION | |||||||
ANNUAL MEETING OF STOCKHOLDERS | |||||||
9:00 a.m., Pacific Time San Diego Marriott Del Mar 11966 El Camino Real San Diego, CA 92130 | |||||||
This proxy is solicited on behalf of the Board of Directors of Realty Income Corporation for exercise at the Annual Meeting of Stockholders on May | |||||||
The shares of stock held in your account will be voted as you specify on the reverse side. | |||||||
If this proxy is executed but no choice is specified, the proxy will be voted | |||||||
By signing the proxy, you acknowledge receipt of the Notice of the Annual Meeting of Stockholders and of the accompanying Proxy Statement, the terms of each of which are incorporated by reference, and you revoke all prior proxies and appoint Michael R. Pfeiffer and Sumit Roy, and each of them as your proxies with full power of substitution in each of them, to attend the Annual Meeting and any adjournment or postponement thereof, to cast on your behalf all votes that you are entitled to cast on the matters shown on the reverse side and any other matters which may properly come before the Annual Meeting and any adjournment or postponement thereof and otherwise to represent you at the Annual Meeting and any adjournment or postponement thereof with all powers possessed by you, if personally present. | |||||||
Address Changes/Comments: | |||||||
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) | |||||||
Continued and to be signed on reverse side | |||||||
V.1.1