11. 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 99.3% 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 a newly formed entity, Realty Income, L.P. The units were issued as consideration for the acquisition. At December 31, 2014, the remaining units represent a 2.1% ownership in Realty Income, L.P. Realty Income holds the remaining 97.9% interests in this entity, and consolidates the entity.

A. Neither of the common partnership units has 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 evaluated this guidance and 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 December 31, 2014 (dollars in thousands):

	Tau Operating			Realty Income, L.P.
	Partnership units(1)			units(2)			Total
Carrying value at December 31, 2013	$	13,489		$	22,422		$	35,911
Reallocation of equity	-			(6,647		)	(6,647		)
Redemptions	-			(1,032		)	(1,032		)
Distributions	(695		)	(1,144		)	(1,839		)
Allocation of net income	273			1,032			1,305
Carrying value at December 31, 2014	$	13,067		$	14,631		$	27,698

	Tau Operating			Realty Income, L.P.
	Partnership units(1)			units(2)			Total
Fair value of units issued during 2013	$	13,962		$	22,601		$	36,563
Distributions	(691		)	(680		)	(1,371		)
Allocation of net income	218			501			719
Carrying value at December 31, 2013	$	13,489		$	22,422		$	35,911

(1) 317,022 Tau Operating Partnership units were issued on January 22, 2013 and remained outstanding as of December 31, 2014 and 2013.

(2) 534,546 Realty Income, L.P. units were issued on June 27, 2013 and outstanding as of December 31, 2013, and 499,546 units remain outstanding as of December 31, 2014.

During 2014 we recorded an equity reclassification adjustment of $6.6 million between noncontrolling interests and additional paid in capital to adjust the carrying value of the Realty Income, L.P. noncontrolling interests to be in-line with their equity ownership interest in the entity.

B. The Tau Operating Partnership preferred units were recorded at fair value as of the date of acquisition. Since they are redeemable at a fixed price on a determinable date, we have classified them in other liabilities on our consolidated balance sheets. Payments on these preferred units are made monthly at a rate of 2% per annum and are included in interest expense. As of December 31, 2014 and 2013, the preferred units have a carrying value of $6.75 million.