ORealty Income

We note your Annualized Pro forma Adjustment used to calculate Annualized Pro forma Adjusted EBITDAre, with the pro forma amounts incorporating operating income from acquired or stabilized properties, and removing operating income from properties disposed, to provide pro forma effect as if transactions that occurred during the period had occurred at the beginning of such period.

Rest of the question

Please address the following: • Tell us how your presentation of the separate Annualized pro forma adjustments complies with Article 11 of Regulation S-X, as it does not appear you discuss whether the pro forma adjustments provided include all adjustments required to present the amount on a pro forma basis; • Discuss your use of operating income, and not a similarly calculated Adjusted EBITDAre for properties both acquired and stabilized as well as disposed, and how you determined the use of operating income presents such amounts on a consistent basis to the other components of Adjusted EBITDAre; and • Pursuant to Item 10(e)(1)(i) of Regulation S-K, provide the required disclosures pertaining to operating income given such measure also appears to be a non-GAAP financial measure, or tell us why you believe such disclosure is not required. In closing, we remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff.

No reply letter found.

We note your definition of EBITDA. Please note that measures calculated differently from EBITDA (as described in Exchange Act Release No. 47226) should not be characterized as EBITDA and their titles should be distinguished from EBITDA, such as Adjusted EBITDA. Reference is also made to Question 103.01 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures.

Exchange Act Release No. 47226 defines EBITDA as earnings before interest, taxes, depreciation and amortization. Since our definition of EBITDA is calculated differently than as defined in Question 103.01, in future filings, we will rename our EBITDA measure to “Adjusted EBITDA”. Read in the reply ↗

Please explain to us how you concluded that it would be appropriate to present annualized EBITDA results, and explain to us how you determined annualized results provide meaningful information to investors.

We believe that disclosure of an EBITDA metric that annualizes the most recent quarterly EBITDA results is the most meaningful presentation of this metric because it represents the Company’s current earnings run rate at a given point in time. Twelve-month trailing EBITDA results could be misleading to an investor if our company had undergone significant acquisition or disposition activities, because it would not necessarily be indicative of our company’s current financial position at the end of a period.

Rest of the answer

Additionally, the use of this annualized EBITDA metric aligns with our definition of EBITDA in the performance share award agreements for our named executive officers (our “NEOs”), and is incorporated into the debt-to-EBITDA ratio, which is one of the metrics used to determine the amount of performance share awards granted to our NEOs.

In future filings, we will add the underlined language below to the following paragraph currently included on page 45:

Adjusted EBITDA, a non-GAAP financial measure, means, for the most recent quarter, earnings (net income) before (i) interest expense, including non-cash loss (gain) on swaps, (ii) income and franchise taxes, (iii) real estate depreciation and amortization, (iv) impairment losses, and (v) gain on sales of real estate. Our Adjusted EBITDA may not be comparable to Adjusted EBITDA reported by other companies that interpret the definitions of Adjusted EBITDA differently than we do. Management believes Adjusted EBITDA to be a meaningful measure of a REIT’s performance because it is widely followed by industry analysts, lenders and investors. Management also believes the use of an annualized quarterly Adjusted EBITDA metric is meaningful because it represents the Company’s current earnings run rate for the period presented. The ratio of our total debt to our annualized quarterly Adjusted EBITDA is also used to determine vesting of performance share awards granted to our named executive officers. Adjusted EBITDA should be considered along with, but not as an alternative to net income as a measure of our operating performance. Our ratio of debt to Adjusted EBITDA, which is used by management as a measure of leverage, is calculated by annualizing quarterly Adjusted EBITDA and then dividing by our total debt per the consolidated balance sheet.

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In making this response, the Company acknowledges that (i) we are responsible for the adequacy and accuracy of the disclosure in the filing, (ii) the Staff’s comments or changes to disclosure in response to the Staff’s comments do not foreclose the Commission from taking any action with respect to the filing, and (iii) the Company may not assert the Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

Read in the reply ↗