9. Noncontrolling Interests

In January 2013, we completed our acquisition of ARCT. Equity issued as consideration for this transaction included common and preferred partnership units issued by Tau Operating Partnership, L.P., or Tau Operating Partnership, the consolidated subsidiary which owns properties acquired through the ARCT acquisition. Realty Income and its subsidiaries hold a 99.4% interest in Tau Operating Partnership, and consolidate the entity.

In June 2013, we completed the acquisition of a portfolio of properties by issuing common partnership units in Realty Income, L.P. The units were issued as consideration for the acquisition. At March 31, 2016, the remaining units from this issuance represent a 1.3% ownership in Realty Income, L.P. Realty Income holds the remaining 98.7% interests in this entity and consolidates the entity.

A.Neither of the common partnership units have voting rights. Both common partnership units are entitled to monthly distributions equal to the amount paid to common stockholders of Realty Income, and are redeemable in cash or Realty Income common stock, at our option, and at a conversion ratio of one to one, subject to certain exceptions. Noncontrolling interests with redemption provisions that permit the issuer to settle in either cash or common stock, at the option of the issuer, were evaluated to determine whether temporary or permanent equity classification on the balance sheet was appropriate. We determined that the units meet the requirements to qualify for presentation as permanent equity.

The following table represents the change in the carrying value of all noncontrolling interests through March 31, 2016 (dollars in thousands):

	Tau Operating			Realty Income, L.P.
	Partnership units(1)			units(2)			Total
Carrying value at December 31, 2015	$	13,410		$	8,327		$	21,737
Redemptions	-			(101		)	(101		)
Distributions	(189		)	(197		)	(386		)
Allocation of net income	64			177			241

Carrying value at March 31, 2016	$	13,285		$	8,206		$	21,491

⁽¹⁾

317,022 Tau Operating Partnership units were issued on January 22, 2013 and remained outstanding as of March 31, 2016 and December 31, 2015.

⁽²⁾

534,546 Realty Income, L.P. units were issued on June 27, 2013, 331,364 units were outstanding as of December 31, 2015, and 327,364 remain outstanding as of March 31, 2016.

B.The Tau Operating Partnership preferred units were recorded at fair value as of the date of acquisition. Since they were redeemable at a fixed price on a determinable date, we initially classified them in other liabilities on our consolidated balance sheets. Payments on these preferred units were made monthly at a rate of 2% per annum and were included in interest expense. In January 2015, we redeemed all 6,750 Tau Operating Partnership preferred units for $1,000 per unit, plus accrued and unpaid distributions.

C.During the first quarter of 2016 we adopted ASU 2015-02, which amends Topic 810, Consolidation. This ASU amended the criteria used to evaluate whether an entity is a variable interest entity, or VIE, resulting in the conclusion that all limited partnerships are considered VIEs, unless substantive kick-out rights or participating rights exist. Accordingly, at March 31, 2016 we determined that both Tau Operating Partnership and Realty Income, L.P. are VIEs. We have concluded that we are the primary beneficiary of these VIEs, based on our controlling financial interests. We evaluated the minority unitholder rights noting that they do not hold substantive kick-out rights or participating rights. Below is a summary of selected financial data of consolidated VIEs for which we are the primary beneficiary included in the consolidated balance sheets at March 31, 2016 and December 31, 2015 (in thousands):

	March 31, 2016		December 31, 2015
Net real estate	$	3,041,765	$	3,033,180
Total assets		3,525,643		3,529,667
Total debt		241,044		389,105
Total liabilities		342,149		478,955