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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number 1-13318
REALTY INCOME CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 33-0580106
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
220 West Crest Street, Escondido, California 92025
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(Address of principal executive offices)
Registrant's telephone number, including area code: (760)741-2111
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Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
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Common Stock, $1.00 Par Value New York Stock Exchange
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Securities registered pursuant to Section 12 (g) of the Act: None
----
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
(continued)
At March 16, 1998 the aggregate market value of the Registrant's
shares of common stock, $1.00 par value, held by non-affiliates of the
Registrant was $667,479,358, at the New York Stock Exchange closing
price of $26.00.
There were 26,464,471 shares of common stock outstanding at March 16,
1998.
Documents incorporated by reference: Part III, Item 10, 11 and 12
incorporate by reference certain specific portions of the definitive
proxy statement for Realty Income Corporation's Annual Meeting to be
held on May 5, 1998, to be filed pursuant to Regulation 14A. Only
those portions of the proxy statement which are specifically
incorporated by reference herein shall constitute a part of this
Annual Report.
FORWARD-LOOKING STATEMENT
- -------------------------
This report on Form 10-K, including documents incorporated herein by
reference, contain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
When used in this annual report, the words estimated, anticipated and
similar expressions are intended to identify forward-looking
statements. Such forward-looking statements are inherently subject to
risk and uncertainties, many of which cannot be predicted with
accuracy and some of which might not even be anticipated. Future
events and actual results, financial and otherwise, may differ
materially from the results discussed in the forward-looking
statements. In particular, among the factors that could cause actual
results to differ materially are the continued qualification as a real
estate investment trust, general business and economic conditions,
competition, interest rates, accessibility of debt and equity capital
markets and other risks inherent in the real estate business including
tenant defaults, potential liability relating to environmental matters
and illiquidity of real estate investments. For further description
and detail of other factors please see "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in this Form 10-K. Readers are cautioned not to place
undue reliance on forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
Page 2
REALTY INCOME CORPORATION
Index To Form 10-K
==================
Page
PART I ----
Item 1: Business......................................... 4
Item 2: Properties....................................... 23
Item 3: Legal Proceedings................................ 23
Item 4: Submission of Matters to a
Vote of Security Holders......................... 23
PART II
Item 5: Market for the Registrant's Common
Equity and Related Stockholder Matters........... 24
Item 6: Selected Financial Data.......................... 25
Item 7: Management's Discussion and Analysis
of Financial Condition and Results of
Operations....................................... 26
Item 8: Financial Statements and Supplementary Data...... 40
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...........127
PART III
Item 10: Directors and Executive Officers
of the Registrant................................127
Item 11: Executive Compensation...........................127
Item 12: Security Ownership of Certain
Beneficial Owners and Management.................127
Item 13: Certain Relationships and Related
Transactions.....................................128
PART IV
Item 14: Exhibits, Financial Statement Schedules
and Reports on Form 8-K..........................128
SIGNATURES....................................................132
EXHIBIT INDEX.................................................134
Page 3
PART I
======
ITEM 1: BUSINESS
- -----------------
THE COMPANY
===========
Realty Income Corporation, a Maryland corporation ("Realty Income" or
the "Company") was organized to operate as an equity real estate
investment trust ("REIT"). Realty Income is a fully integrated self-
administered real estate company with in-house acquisition, leasing,
legal, retail and real estate research, portfolio management and
capital markets expertise. As of December 31, 1997, the Company owned
a diversified portfolio of 826 retail properties located in 43 states
with over 6.3 million square feet of leasable space. Of the 826
properties in the portfolio, 819 are single-tenant properties with the
remainder being multi-tenant properties. As of December 31, 1997,
812, or over 99%, of the 819 single-tenant properties were net leased
with an average remaining lease term (excluding extension options) of
approximately 8.4 years.
The Company's primary business objective is to generate a consistent
and predictable level of funds from operations ("FFO") per share and
distributions to stockholders. Additionally, the Company generally
will seek to increase FFO per share and distributions to stockholders
through both active portfolio management and the acquisition of
additional properties. The Company also seeks to lower the ratio of
distributions to stockholders as a percentage of FFO in order to allow
internal cash flow to be used to fund additional acquisitions and for
other corporate purposes.
Realty Income adheres to a focused strategy of acquiring freestanding,
single-tenant, retail properties leased to regional and national
retail chains under long-term, net lease agreements. The Company
typically acquires retail store locations which provides capital to
the operators for continued expansion and other corporate purposes.
Realty Income's acquisitions and investment activities are
concentrated in highly specific target markets and focus primarily on
middle-market retailers providing goods and services which satisfy
basic consumer needs. The Company's net lease agreements generally
are for initial terms of 10 to 20 years, require the tenant to pay a
minimum monthly rent and property operating expenses (taxes, insurance
and maintenance), and provide for future rent increases (typically
subject to ceilings) based on increases in the consumer price index or
additional rent calculated as a percentage of the tenant's gross sales
above a specified level.
From 1970 and through December 31, 1997, Realty Income has acquired
and leased back to regional and national retail chains 797 properties
(including 32 properties that have been sold) and has collected over
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98% of the contractual rent obligations on those properties. Realty
Income believes that the long-term ownership of an actively managed,
diversified portfolio of retail properties, leased under long-term net
lease agreements, will produce consistent, predictable income and the
potential for share price appreciation. Management believes that the
income generated under long-term leases, coupled with the tenant's
responsibility for property expenses under the net lease structure,
generally produces a more predictable income stream than many other
types of real estate portfolios.
The Company was formed on September 9, 1993 in the State of Delaware
and reincorporated in Maryland in May 1997. Realty Income commenced
operations as a REIT on August 15, 1994 through the merger of 25
public and private real estate limited partnerships with and into the
Company (the "Consolidation"). Each of the partnerships was formed
between 1970 and 1989 for the purpose of acquiring and managing long-
term, net leased properties.
The five senior officers of the Company, who have each managed the
Company's properties and operations for between seven and 12 years,
owned approximately 1.0% of the Company's outstanding common stock
with a market value of approximately $6.2 million as of March 16,
1998. The directors and five senior officers of the Company, as a
group, owned approximately 3.2% of the Company's outstanding common
stock with a market value of approximately $20.6 million as of March
16, 1998.
Thomas A. Lewis succeeded William E. Clark as Chief Executive Officer
of the Company in May 1997. Mr. Lewis has been an officer of the
Company since 1987 and has served as the Vice Chairman of the Board of
Directors since 1994. Mr. Clark has continued as Chairman of the
Board of Directors of the Company.
The Company's common stock is listed on the New York Stock Exchange
under the symbol "O" and its central index key ("CIK") number is
726728.
Realty Income has 48 employees as of March 16, 1998.
RECENT DEVELOPMENTS
===================
During 1997, the Company continued implementing its growth plan, which
is intended to increase the Company's funds from operations per share.
As part of its growth plan, in 1997 the Company acquired 96 additional
net leased retail properties with an aggregate initial annual
contractual base rental revenue of approximately $14.7 million.
ACQUISITION OF 96 PROPERTIES DURING 1997. During 1997, the Company
continued to increase the size of its portfolio through a strategic
program of real estate acquisitions. The Company acquired 96
Page 5
additional properties (the "New Properties"), and selectively sold 10
properties, increasing the number of properties in its portfolio by
11.6% to 826 properties at December 31, 1997 from 740 properties at
December 31, 1996. Of the New Properties, 88 were occupied as of
February 28, 1998 and the remaining properties were pre-leased and
under construction pursuant to contracts under which the tenants have
agreed to develop the properties (with development costs funded by the
Company) and to begin paying rent when the premises open for business.
The New Properties were acquired for an aggregate cost of
approximately $139.2 million (which excludes the estimated unfunded
development costs totaling $2.9 million on properties under
construction) at December 31, 1997. During 1997, the Company also
invested $3.1 million in 12 development properties acquired during
1996. The New Properties are located in 27 states, will contain
approximately 1.1 million leasable square feet and are 100% leased
under net leases, with an average initial lease term of 14.4 years.
The weighted average annual unleveraged return on the cost of the New
Properties (including the estimated unfunded development cost of
properties under construction) is estimated to be 10.4%, computed as
estimated contractual net operating income (which in the case of a net
leased property is equal to the base rent or, in the case of
properties under construction, the estimated base rent under the
lease) for the first year of each lease, divided by the estimated
total development costs. Since it is possible that a tenant could
default on the payment of contractual rent, no assurance can be given
that the actual return on the cost of the New Properties will not
differ from the foregoing percentage
INCREASE IN MONTHLY DISTRIBUTION. In December 1997, the Company
increased its monthly distribution to $0.16 per share from $0.1575 per
share, representing an increase of 1.6%. Effective April 1998, the
Company increased its monthly distribution to $0.1625 per share,
representing an increase of 1.6%. The monthly distribution of $0.1625
per share represents a current annualized distribution of $1.95 per
share, and an annualized distribution yield of approximately 7.5%
based on the last reported sale price of the Company's Common Stock on
the New York Stock Exchange ("NYSE") of $26.00 on March 16, 1998.
Although the Company expects to continue its policy of paying monthly
distributions, there can be no assurance that the current level of
distributions will be maintained by the Company or as to the actual
distribution yield for any future period.
UNSECURED CREDIT FACILITY. In December 1997, the Company negotiated
several modifications to its credit facility (the "Credit Facility"),
including (i) an increase in borrowing capacity to $150 million; (ii)
a reduction in the interest rate to London Interbank Offered Rate
("LIBOR") plus 0.85% and 0.15% per annum on the total credit
commitment; (iii) the addition of a competitive bid rate option for up
to 50% of the credit commitment; and (iv) an extension of the credit
facility to December 2000. This credit facility has been and is
expected to be used to acquire additional retail properties leased to
regional and national retail chains under long-term lease agreements.
Page 6
As of March 16, 1998, $138.0 million of borrowing capacity was
available to the Company under the credit facility. At that time, the
outstanding balance was $12.0 million with an effective interest rate
of 6.6%.
STOCK OFFERINGS. In February 1998, the Company issued 751,174 shares
of common stock at a net price to the Company of $25.295 per share to
a unit investment trust. The net proceeds of $19.0 million were used
to repay borrowings under the credit facility.
In October 1997, Realty Income issued 2.7 million shares of common
stock at a price of $27.00 per share. The net proceeds of $68.7
million were used to repay borrowings of $62.6 under the credit
facility and to acquire properties.
NOTES OFFERING. On May 6, 1997, Realty Income issued $110 million of
7.75% Notes due 2007 (the "Notes"). The Notes were sold at 99.929% of
par for a yield of 7.76%. After taking into effect the $1.1 million
gain realized on a treasury interest rate lock agreement entered into
by the Company, the effective interest rate to the Company on the
Notes is 7.62%. The net proceeds from the sale of the Notes were used
to repay $93.7 million of outstanding borrowings under the Company's
credit facility and to acquire properties. Currently, there is no
formal trading market for the Notes and the Company has not listed and
does not intend to list the Notes on any securities exchange.
The Company received investment grade corporate credit ratings from
Duff & Phelps Rating Company, Moody's Investor Service, Inc., and
Standard & Poor's Rating Group in December 1996. Currently, Duff &
Phelps has assigned a rating of BBB, Moody's has assigned a rating of
Baa3, and Standard & Poor's has assigned a rating of BBB- to the
Company's senior debt. These ratings are subject to change based
upon, among other things, the Company's results of operations and
financial condition.
BUSINESS OBJECTIVES AND STRATEGY
================================
GENERAL. The Company's primary business objective is to generate a
consistent and predictable level of funds from operations per share
and distributions to stockholders. Additionally, the Company
generally seeks to increase FFO per share and distributions to
stockholders through both active portfolio management and the
acquisition of additional properties. The Company also seeks to lower
the ratio of distributions to stockholders as a percentage of FFO in
order to allow internal cash flow to be used to fund additional
acquisitions and for other corporate purposes. The Company's current
earnings and profits for federal taxable income tax purposes for 1996
and 1997 has been approaching the level of distributions paid during
1996 and 1997, respectively. As the level of earnings and profits for
federal taxable tax purposes increases, the Company anticipates
Page 7
increasing its distributions. The Company increased its monthly
distributions per share from $0.1575 to $0.1600 in December 1997 and
to $0.1625 in April 1998. See "Business - Distribution Policy".
The Company's portfolio management focus includes: (i) contractual
rent increases on existing leases; (ii) rental increases at the
termination of existing leases when market conditions permit; and
(iii) the active management of the Company's property portfolio,
including selective sales of properties. The Company generally
pursues the acquisition of additional properties under long-term, net
lease agreements with initial contractual base rent which, at the time
of acquisition and as a percentage of acquisition costs, is in excess
of the Company's estimated cost of capital.
INVESTMENT PHILOSOPHY. Realty Income believes that the long-term
ownership of an actively managed, diversified portfolio of retail
properties leased under long-term, net lease agreements can produce
consistent, predictable income and the potential for long-term share
price appreciation. Under a net lease agreement, the tenant agrees to
pay a minimum monthly rent and property expenses (taxes, maintenance,
and insurance) plus, typically, future rent increases (generally
subject to ceilings) based on increases in the consumer price index
or, in some cases, additional rent calculated as a percentage of the
tenant's gross sales above a specified level. The Company believes
that long-term leases, coupled with the tenants assuming
responsibility for property expenses under the net lease structure,
generally produce a more predictable income stream than many other
types of real estate portfolios, while continuing to offer the
opportunity for capital appreciation.
INVESTMENT STRATEGY. In identifying new properties for acquisition,
Realty Income focuses on providing expansion capital to retail chains
by acquiring, then leasing back their retail store locations. The
Company classifies retail tenants into three categories: venture,
middle market, and upper market. Venture companies are those which
typically offer a new retail concept in one geographic region of the
country and operate between five and 50 retail outlets. Middle market
retail chains are those which typically have 50 to 500 retail outlets,
operations in more than one geographic region, have been successful
through one or more economic cycles, have a proven, replicable
concept, and an objective of further expansion. The upper market
retail chains typically consist of companies with 500 or more stores
which operate nationally in a mature retail concept. Upper market
retail chains generally have strong operating histories and access to
several sources of capital.
Realty Income primarily focuses on acquiring properties leased to
middle market retail chains which the Company believes are more
attractive for investment because: (i) they generally have overcome
many of the operational and managerial obstacles that affect venture
companies; (ii) they typically require capital to fund expansion but
have limited financing options; (iii) historically, they generally
Page 8
have provided attractive risk-adjusted returns to the Company over
time, since their financial strength has in many cases tended to
improve as their businesses have matured; (iv) their relatively large
size allows them to spread corporate expenses among a greater number
of stores; and (v), middle market retailers typically have the
critical mass to survive if a number of locations have to be closed
due to underperformance. Realty Income also selectively seeks
opportunities with venture and upper market retail chains.
Periodically, opportunities arise in the venture market where the
company feels that the real estate used by the tenant is of high
quality and can be purchased at prices that are favorable in the
market place. Realty Income also plans to explore various
opportunities with upper market retailers when the Company feels that
it can achieve pricing superior to the marketplace because it can
provide large amounts of capital to enable an upper market retail
tenant to accomplish its expansion goals.
CREDIT STRATEGY. Realty Income principally provides sale leaseback
financing to less than investment grade retail chains. From 1970 and
through December 31, 1997, Realty Income has acquired and leased back
to regional and national retail chains 797 properties (including 32
properties that have been sold) and has collected over 98% of the
contractual rent obligations on those properties. The Company
believes that it is within this market that it can receive the best
risk-adjusted return on the financing that it provides to retailers.
Realty Income believes that the primary financial obligations of
middle market retailers typically include their bank and other debt,
payment obligations to suppliers and real estate lease obligations.
Because the Company owns the land and building on which the tenant
conducts its retail business, the Company believes that the risk of
default on the retailers' lease obligations is less than the
retailers' unsecured general obligations. It has been the Company's
experience that since retailers must retain their profitable retail
locations in order to survive, in the event of a Chapter 11
reorganization they are less likely to reject a lease for a profitable
location, which would terminate their right to use the property.
Thus, as the property owner, the Company believes it will fare better
than unsecured creditors of the same retailer in the event of a
Chapter 11 reorganization. In addition, Realty Income believes that
the risk of default on the real estate leases can be further mitigated
by monitoring the performance of the retailers' individual unit
locations and selling those units that are weaker performers.
In order to qualify for inclusion in the Company's portfolio, new
acquisitions must meet stringent investment and credit requirements.
The properties must generate attractive current yields, and the tenant
must meet the Company's credit standards. The Company has established
a three part analysis that examines each potential investment based
on: 1) industry, company, market conditions and credit profile; 2)
location profitability, if available; and 3) overall real estate
characteristics, value, and comparative rental rates. Companies that
Page 9
have been approved for acquisition are generally those with fifty or
more retail stores located in highly visible areas, with easy access
to major thoroughfares, attractive demographics.
ACQUISITION STRATEGY. Realty Income seeks to invest in industries
that are dominated by independent local operators and in which several
well organized regional and national chains are capturing market share
through service, quality control, economies of scale, mass media
advertising, and selection of prime retail locations. The Company
executes its acquisition strategy by acting as a source of capital to
regional and national retail chain stores in a variety of industries
by acquiring, then leasing back, their retail store locations.
Relying on executives from its acquisitions, retail and real estate
research, portfolio management, finance, accounting, operations,
capital markets, and legal departments, the Company undertakes
thorough research and analysis in identifying appropriate industries,
tenants, and property locations for investment. In selecting real
estate for potential investment, the Company generally will seek to
acquire properties that have the following characteristics:
* Freestanding, commercially zoned property with a single tenant;
* Properties that are important retail locations for national and
regional retail chains;
* Properties that are located within attractive demographic areas
relative to the business of their tenants, with high visibility
and easy access to major thoroughfares;
* Properties that can be purchased with the simultaneous
execution or assumption of long-term, net lease agreements,
providing the opportunity for both current income and future
rent increases (typically subject to ceilings) based on
increases in the consumer price index or through the payment of
additional rent calculated as a percentage of the tenant's
gross sales above a specified level; and
* Properties that can be acquired at prices generally ranging from
$300,000 to $10 million.
PORTFOLIO MANAGEMENT STRATEGY. The active management of the property
portfolio is an essential component of the Company's long-term
strategy. The Company continually monitors its portfolio for changes
that could affect the performance of the industries, tenants, and
locations in which it has invested. Realty Income's investment
committee meets weekly to review industry and tenant research and
property due diligence, and the executive committee meets at least
monthly to discuss property operations and portfolio management. This
monitoring typically includes ongoing review and analysis of: (i) the
performance of various tenant industries; (ii) the operation,
management, business planning, and financial condition of the tenants;
(iii) the health of the individual markets in which the Company owns
Page 10
properties, from both an economic and real estate standpoint; and (iv)
the physical maintenance of the Company's individual properties. The
portfolio is analyzed on an ongoing basis with a view towards
optimizing performance and returns.
While the Company generally intends to hold its net leased properties
for long-term investment, the Company actively manages its portfolio
of net leased properties. The Company intends to pursue a strategy of
identifying properties that may be sold at attractive prices,
particularly where the Company believes reinvestment of the sales
proceeds can generate a higher cash flow to the Company than the
property being sold. While the Company intends to pursue such a
strategy, it will only do so within the constraints of the income tax
rules regarding REIT status.
CAPITAL STRATEGY. The Company has a $150 million revolving, unsecured
acquisition Credit Facility which expires in December 2000. As of
March 16, 1998, the outstanding balance on the Credit Facility was
$12.0 million with an effective rate of approximately 6.6%. A
commitment fee of 0.15% per annum accrues on the total credit
commitment. The Company is and has been in compliance with the
various leverage and interest coverage ratio limitations required by
the Credit Facility. The Credit Facility has been and is expected to
be used to acquire additional retail properties leased to regional and
national retail chains under long term net lease agreements.
The Company utilizes its Credit Facility as a vehicle for the short-
term financing of the acquisition of new properties. When outstanding
borrowings under the Credit Facility reach a certain level (generally
in the range of $60 to $100 million), the Company intends to refinance
those borrowings with the net proceeds of long-term or permanent
financing, which may include the issuance of common stock, preferred
stock or convertible preferred stock, debt securities or convertible
debt securities. However, there can be no assurance that the Company
will be able to effect any such refinancing or that market conditions
prevailing at the time of refinancing will enable the Company to issue
equity or debt securities upon acceptable terms. The Company believes
that it is best served by a conservative capital structure, with a
majority of its capital consisting of equity. As of December 31, 1997,
the Company's total indebtedness was approximately 20.3% of its equity
market capitalization (defined as shares of the Company's common stock
outstanding multiplied by the last reported sales price of the common
stock on the NYSE on December 31, 1997).
Management believes that the Company's cash and cash equivalents on
hand, cash provided from operating activities and borrowing capacity
are sufficient to meet its liquidity needs other than the repayment of
debt for the foreseeable future, except that the Company will require
additional sources of capital to fund property acquisitions.
The Company received investment grade credit ratings from Duff &
Phelps Credit Rating Company, Moody's Investor Service, Inc., and
Page 11
Standard & Poor's Rating Group in December 1996. Currently, Duff &
Phelps has assigned a rating of BBB, Moody's has assigned a rating of
Baa3, and Standard & Poor's has assigned a rating of BBB- to the
Company's senior debt. These ratings are subject to change based
upon, among other things, the Company's results of operations and
financial condition.
COMPETITIVE ADVANTAGES. The Company believes that, to utilize its
investment philosophy and strategy most successfully, it must seek to
maintain the following competitive advantages:
(i) SIZE AND TYPE OF INVESTMENT PROPERTIES: The Company believes
that smaller ($300,000 to $10,000,000) retail net leased properties
represent an attractive investment opportunity in today's real estate
environment. Due to the complexities of acquiring and managing a
large portfolio of relatively small assets, the Company believes that
these types of properties have not experienced significant
institutional participation or the corresponding yield reduction
experienced by larger income producing properties. The Company
believes the less intensive day to day property management required by
net lease agreements, coupled with the active management of a large
portfolio of smaller properties by the Company, is an effective
investment strategy.
The tenants of Realty Income's freestanding retail properties provide
goods and services which satisfy basic consumer needs. In order to
grow and expand, they need capital. Since the acquisition of real
estate is typically the single largest capital expenditure of many
such retailers, Realty Income's method of purchasing the property and
then leasing it back under a net lease arrangement, allows the retail
chain to free up capital.
(ii) INVESTMENT IN NEW INDUSTRIES: While specializing in single-
tenant properties, the Company will seek to further diversify its
portfolio among a variety of industries. The Company believes that
diversification will allow it to invest in industries that are
currently growing and have characteristics the Company finds
attractive. These characteristics include, but are not limited to,
industries dominated by local operators where regional and national
chain operators can gain substantial market share and dominance
through more efficient operations, as well as industries taking
advantage of major demographic shifts in the population base. For
example, in the early 1970s, Realty Income targeted the fast food
industry to take advantage of the country's increasing desire to dine
away from home, and in the early 1980s, it targeted the child day care
industry, responding to the need for professional child care as more
women entered the work force. During 1997, six new industries were
added to Realty Income's portfolio. The six new industries include:
apparel stores, book stores, office supply stores, pet supply stores,
shoe stores, and video rental stores.
Page 12
(iii) DIVERSIFICATION: Diversification of the portfolio by industry
type, tenant and geographic location is key to the Company's objective
of providing predictable investment results for its stockholders. As
the Company expands it will seek to further diversify its portfolio.
During 1997, 13 new retail chains were added to Realty Income's
portfolio.
(iv) MANAGEMENT SPECIALIZATION: The Company believes that its
management's specialization in single-tenant retail properties
operated under net lease agreements is important to meeting its
objectives. The Company plans to maintain this specialization and
will seek to employ and train high quality professionals in this
specialized area of real estate ownership, finance and management.
(v) TECHNOLOGY: The Company intends to stay at the forefront of
technology in its efforts to efficiently and economically carry out
its operations. The Company maintains a sophisticated information
system that allows it to analyze its portfolio's performance and
actively manage its investments. The Company believes that technology
and information based systems will play an increasingly important role
in its competitiveness as an investment manager and source of capital
to a variety of industries and tenants.
The Company anticipates that the year 2000 date issue will not
adversely affect its current software or computers and will not have a
material impact its consolidated financial position, results of
operations, or liquidity.
PROPERTIES
==========
As of January 1, 1998, Realty Income owned a diversified portfolio of
826 properties in 43 states consisting of over 6.3 million square feet
of leasable space. Of the 826 properties, 761, or 92%, were leased to
regional or national retail chain operators; 41, or 5%, were leased to
franchisees of retail chain operators; 16, or 2%, were leased to other
tenant types; eight or less than 1% were available for lease. At
January 1, 1998, over 98% of the properties were under net lease
agreements. Net leases typically require the tenant to be responsible
for property operating costs including property taxes, insurance and
maintenance.
The Company's net leased retail properties are retail locations
primarily leased to regional and national retail chain store
operators. At January 1, 1998, the properties averaged approximately
7,600 square feet of leasable retail space on approximately 44,500
square feet of land. Generally, buildings are single-story properties
with adequate parking on site to accommodate peak retail traffic
periods. The properties tend to be on major thoroughfares with
relatively high traffic counts and adequate access, egress and
proximity to sufficient population base to constitute a sufficient
market or trade area for the retailer's business.
Page 13
The following table sets forth certain information regarding the
Company's properties as of January 1, 1998, classified according to
the business of the respective tenants:
Approximate
Number of Leasable Annualized
Industry Properties Square Feet Rent (1)
=================== ========== ============ ===========
APPAREL STORES 2 98,100 $ 1,928,000
AUTOMOTIVE PARTS &
ACCESSORIES 99 525,200 6,280,000
AUTOMOTIVE SERVICE 93 311,600 6,434,000
BOOK STORES 1 30,000 450,000
CHILD CARE 317 2,016,100 24,473,000
CONSUMER ELECTRONICS 37 559,200 4,432,000
CONVENIENCE STORES 53 153,900 4,473,000
HOME FURNISHINGS &
ACCESSORIES 14 803,300 5,116,000
OFFICE SUPPLIES 7 174,500 2,215,000
PET SUPPLIES 1 16,000 253,000
RESTAURANTS 171 879,700 13,314,000
SHOE STORES 1 16,000 332,000
VIDEO RENTAL 18 135,200 2,286,000
OTHER 12 583,500 4,788,000
---------- ------------ ----------
TOTALS 826 6,302,300 $76,774,000
========== ============ ===========
[FN]
(1) Annualized rent is calculated by multiplying the monthly
contractual base rent as of January 1, 1998 by 12 and adding the 1997
historical percentage rent, which totaled $1.8 million (i.e.,
additional rent calculated as a percentage of the tenant's gross sales
above a specified level). For the properties under construction, an
estimated contractual base rent is used based upon the estimated total
costs of each property.
Of the 826 properties in the portfolio at January 1, 1998, 819 were
single-tenant properties with the remaining properties being multi-
tenant properties. As of January 1, 1998, 812, or 99%, of the single-
tenant properties were net leased with an average remaining lease term
(excluding extension options) of approximately 8.4 years.
Page 14
The following table sets forth certain information regarding the
timing of the initial lease term expirations on the Company's 812 net
leased, single-tenant retail properties as of January 1, 1998.
Percent of
Number of Annualized Annualized
Year Leases Expiring Base Rent (1)(2) Base Rent
======== =============== ================ ==========
1998 8 $ 304,000 0.4%
1999 29 1,272,000 1.8
2000 32 1,621,000 2.3
2001 50 4,133,000 5.8
2002 78 6,147,000 8.7
2003 66 5,137,000 7.2
2004 109 8,906,000 12.5
2005 85 5,991,000 8.4
2006 29 2,453,000 3.5
2007 87 5,495,000 7.7
2008 47 3,840,000 5.4
2009 16 1,142,000 1.6
2010 38 3,176,000 4.5
2011 36 4,644,000 6.5
2012 50 5,453,000 7.7
2013 4 1,826,000 2.6
2014 4 458,000 0.6
2015 27 4,976,000 7.0
2016 7 1,357,000 1.9
2017 9 2,733,000 3.8
2018 1 39,000 0.1
--------------- ---------------- ----------
Total 812 (2) $71,103,000 100.0%
=============== ================ ==========
[FN]
(1) Annualized rent is calculated by multiplying the monthly
contractual base rent as of January 1, 1998 by 12. For the properties
under construction, an estimated contractual base rent is used based
upon the estimated total costs of each property. Annualized rent does
not include percentage rents (i.e., additional rent calculated as a
percentage of the tenant's gross sales above a specified level), if
any, that may be payable under leases covering certain properties.
Percentage rent totaled $1.8 million in 1997.
(2) The table does not include seven multi-tenant properties (one of
which is vacant) and seven vacant, unleased single-tenant properties
owned by the Company. The lease expirations for properties under
construction are based on the estimated date of completion of such
properties.
The following table sets forth certain state-by-state information
regarding the properties owned by the Company as of January 1, 1998.
Page 15
Approximate Percent of
Number of Percent Leasable Annualized Annualized
State Properties Leased Square Feet Rent (1) Rent
=========== ========== ======= =========== ============= ========
Alabama 7 100% 49,800 $ 454,000 0.6%
Arizona 27 99 181,200 2,458,000 3.2
Arkansas 1 100 3,100 61,000 0.1
California 54 91 1,031,900 10,972,000 14.3
Colorado 42 98 231,800 3,215,000 4.2
Connecticut 7 100 121,100 1,545,000 2.0
Florida 52 100 480,000 4,772,000 6.2
Georgia 46 100 266,800 3,809,000 4.9
Idaho 11 100 52,000 765,000 1.0
Illinois 28 100 192,200 2,457,000 3.2
Indiana 23 100 122,100 1,516,000 2.0
Iowa 8 100 51,700 463,000 0.6
Kansas 18 100 183,500 2,010,000 2.6
Kentucky 12 100 36,000 919,000 1.2
Louisiana 2 100 10,700 126,000 0.2
Maryland 6 100 34,900 537,000 0.7
Massachusetts 5 100 25,900 545,000 0.7
Michigan 5 100 26,900 387,000 0.5
Minnesota 17 100 118,400 1,751,000 2.3
Mississippi 12 100 128,900 902,000 1.2
Missouri 29 100 168,500 2,063,000 2.7
Montana 2 100 30,000 299,000 0.4
Nebraska 9 100 93,700 1,153,000 1.5
Nevada 6 100 66,900 831,000 1.1
New Hampshire 1 100 6,400 125,000 0.2
New Jersey 2 100 22,700 353,000 0.4
New Mexico 3 100 12,000 107,000 0.1
New York 7 100 106,600 2,275,000 3.0
North Carolina 26 100 99,000 1,877,000 2.4
Ohio 59 100 280,100 4,474,000 5.8
Oklahoma 14 100 80,700 934,000 1.2
Oregon 17 100 92,400 1,284,000 1.7
Pennsylvania 9 100 62,700 924,000 1.2
South Carolina 20 100 77,800 1,224,000 1.6
South Dakota 1 100 6,100 79,000 0.1
Tennessee 18 100 172,100 1,985,000 2.6
Texas 135 99 1,089,800 10,586,000 13.8
Utah 7 100 45,400 591,000 0.8
Virginia 19 100 93,400 1,547,000 2.0
Washington 42 98 249,700 3,246,000 4.2
West Virginia 2 100 16,800 147,000 0.2
Wisconsin 11 100 60,500 738,000 1.0
Wyoming 4 100 20,100 268,000 0.3
---------- ------- ----------- ------------- --------
Totals 826 99% 6,302,300 $76,774,000 100.0%
========== ======= =========== ============= ========
Page 16
[FN]
(1) Annualized rent is calculated by multiplying the monthly
contractual base rent as of January 1, 1998 by 12 and adding the 1997
historic percentage rent, which totaled $1.8 million (i.e., additional
rent calculated as a percentage of the tenant's gross sales above a
specified level). For the properties under construction, an estimated
contractual base rent is used based upon the estimated total costs of
each property.
DESCRIPTION OF LEASING STRUCTURE. At January 1, 1998, over 98% of the
Company's properties were leased pursuant to net leases. In most
cases, the leases were for initial terms of from 10 to 20 years and
the tenant has an option to extend the initial term. The leases
generally provide for a minimum base rent plus future increases
(typically subject to ceilings) based on increases in the consumer
price index or additional rent based upon the tenant's gross sales
above a specified level (i.e., percentage rent). Where leases provide
for rent increases based on increases in the consumer price index,
generally such increases permanently become part of the base rent.
Where leases provide for percentage rent, this additional rent is
typically payable only if the tenant's gross sales for a given period
(usually one year) exceed a specified level, and then is typically
calculated as a percentage of only the amount of gross sales in excess
of such level. In general, the leases require the tenant to pay
property taxes, insurance, and expenses of maintaining the property.
Matters Pertaining to Certain Properties and Tenants
- ----------------------------------------------------
Eight of the Company's properties were vacant as of January 1, 1998
(one of which is a multi-tenant property and seven of which are
single-tenant properties) and available for lease. As of January 1,
1998, 26 of the Company's properties, which were under lease, were
vacant and available for sublease by the tenant. All of these tenants
were current with their rent and other obligations.
The Company's three largest tenants are Children's World Learning
Centers, La Petite Academy, and Golden Corral Restaurants which
accounted for approximately 20.4%, 13.8%, and 10.2%, respectively, of
the Company's rental revenue for the year ended December 31, 1997.
The financial position and results of operations of the Company and
its ability to make distributions to stockholders and debt service
payments may be materially adversely affected by financial
difficulties experienced by any such major tenants or other tenants.
For the year ended December 31, 1997, approximately 35.9%, and 19.8%
of the Company's rental revenues were attributable to tenants in the
child care and restaurant industries, respectively. A downturn in any
of these industries generally, whether nationwide or limited to
specific sectors of the United States, could adversely affect tenants
in those industries, which in turn could materially adversely affect
the financial position and results of operations of the Company and
Page 17
its ability to make distributions to stockholders and debt service
payments. In that regard, a substantial number of the Company's
properties are leased to middle market retail chains which generally
have more limited financial and other resources than certain upper
market retail chains and therefore are more likely to be adversely
affected by a downturn in their respective businesses or in the
regional or national economy generally.
On September 5, 1997, Levitz Furniture filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code.
Levitz Furniture occupies four of the Company's properties: two in
California, one in Texas and one in Florida. As of March 1, 1998, the
monthly base rent multiplied by 12 from the four stores leased to
Levitz Furniture was approximately $2.5 million, or approximately 3.3%
of the Company's total base rent at that date. While Levitz Furniture
has paid its most recent rental payments, there can be no assurance
that Levitz Furniture will continue to pay rent for the remainder of
the lease terms for the four Levitz properties. Likewise, there can
be no assurance that Levitz Furniture will not be released from its
obligations under its leases with the Company pursuant to the
bankruptcy proceedings. In the event that any of the aforementioned
should occur, it could result in an adverse impact on the Company's
financial condition, results of operations and ability to make
distributions to stockholders and debt service payments.
Eight of the Company's properties were vacant as of January 1, 1998
and available for lease. Four of the vacant properties were
previously leased to restaurant operators, one to a child care
operator, one to a convenience store operator, one to a automotive
parts store operator and one operated as a multi-tenant location. One
of the restaurant locations which had been vacant since November 1995
was sold in January 1998.
Development of Certain Properties
- ---------------------------------
Of the 96 New Properties acquired by the Company in 1997, 88 were
occupied as of March 1, 1998 and the remaining eight were pre-leased
and under construction pursuant to contracts under which the tenants
have agreed to develop the properties (with development costs funded
by the Company) and to begin paying rent when the premises open for
business. In the case of development properties, the Company
typically enters into an agreement with a tenant pursuant to which the
tenant retains a contractor to construct the improvements on the
property and the Company funds the costs of such development. The
tenant is contractually obligated to complete the construction on a
timely basis, generally within eight months after the Company
purchases the land, to pay construction cost overruns to the extent
they exceed the construction budget by more than a predetermined
amount. The Company also enters into a lease with the tenant at the
time the Company purchases the land, which generally requires that the
Page 18
tenant begin paying base rent, calculated as a percentage of the
Company's acquisition cost for the property, including construction
costs and capitalized interest, when the premises opens for business.
During 1997, the Company acquired 19 development properties, 11 of
which have been completed, were operating and paying rent as of March
1, 1998. The Company will continue to seek to acquire land for
development under similar arrangements.
DISTRIBUTION POLICY
===================
Distributions are paid to the Company's stockholders on a monthly
basis if, as and when declared by the Company's Board of Directors.
The April 1998 distribution of $0.1625 per share represents a current
annualized distribution of $1.95 per share, and an annualized
distribution yield of approximately 7.5% based on the last reported
sale price of $26.00 of the Company's common stock, on the NYSE on
March 16, 1998. In order to maintain its tax status as a REIT for
federal income tax purposes, the Company is generally required to
distribute dividends (other than capital gain dividends) to its
stockholders in an amount equal to at least 95% of its taxable income.
The Company intends to make distributions to its stockholders which
are sufficient to meet this requirement.
Future distributions by the Company will be at the discretion of its
Board of Directors and will depend on, among other things, its results
of operations, financial condition and capital requirements, the
annual distribution requirements under the REIT provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), its debt
service requirements and such other factors as the Board of Directors
may deem relevant. In addition, the Credit Facility contains
financial covenants which could limit the amount of distributions
payable by the Company in the event of a deterioration in the results
of operations or financial condition of the Company, and which
prohibit the payment of distributions on the common stock in the event
that the Company fails to pay when due (subject to any applicable
grace period) any principal of or interest on borrowings under the
Credit Facility.
Distributions by the Company to the extent of its current and
accumulated earnings and profits for federal income tax purposes
generally will be taxable to stockholders as ordinary income.
Distributions in excess of such earnings and profits generally will be
treated as a non-taxable reduction in the stockholders' basis in its
stock to the extent of such basis, and thereafter as a gain from the
sale of such stock. Approximately 5.2% of the distributions made or
deemed to have been made in 1997 were classified as a return of
capital for federal income tax purposes. The Company is unable to
predict the portion of 1998 or future distributions which may be
classified as a return of capital since such amount depends on the
Company's taxable income for the entire year.
Page 19
OTHER ITEMS
===========
COMPETITION FOR ACQUISITION OF REAL ESTATE. The Company faces
competition in the acquisition, operation and sale of its properties.
Such competition can be expected from other businesses, individuals,
fiduciary accounts and plans and other entities engaged in real estate
investment. Some of the Company's competitors are larger and have
greater financial resources than the Company. This competition may
result in a higher cost for properties the Company wishes to purchase.
The tenants leasing the Company's properties generally face
significant competition from other operators. This may result in an
adverse impact on that portion, if any, of the rental stream to be
paid to the Company based on a tenant's revenues and may also
adversely impact the tenants' results of operations or financial
condition.
ENVIRONMENTAL LIABILITIES. Investments in real property create a
potential for environmental liability on the part of the owner of such
property for contamination resulting from the presence or discharge of
hazardous substances on the property. Such liability may be imposed
without regard to knowledge of, or the timing, cause or person
responsible for the release of such substances onto the property.
There may be environmental problems associated with the Company's
properties which are not known to the Company. In that regard, a
number of the Company's properties are leased to operators of oil
change and tune-up facilities and to convenience stores which sell
petroleum-based fuels. These facilities or other of the Company's
properties utilize, or may have utilized in the past, underground
tanks for the storage of petroleum-based or waste products which could
create a potential for release of hazardous substances. The presence
of hazardous substances on a property may adversely affect the
Company's ability to sell such property and it may cause the Company
to incur substantial remediation costs. Although tenants of the
Company's properties generally are required by their leases to operate
in compliance with all applicable federal, state and local laws and
regulations and to indemnify the Company against any environmental
liabilities arising from the tenant's activities on the property, the
Company could nevertheless be subject to strict liability by virtue of
its ownership interest, and there can be no assurance that the tenants
would satisfy their indemnification obligations under the leases.
The Company believes that its properties are in compliance in all
material respects with all federal, state and local laws, ordinances
and regulations regarding hazardous or toxic substances or petroleum
products. The Company has not been notified by any governmental
authority, and is not otherwise aware, of any material noncompliance,
liability or claim relating to hazardous or toxic substances or
petroleum products in connection with any of its present properties.
Nevertheless, if environmental contamination should exist, the Company
could be subject to strict liability by virtue of its ownership
interest.
Page 20
In December 1996, the Company obtained a five year environmental
insurance policy on the property portfolio. Based upon the 826
properties in the portfolio at December 31, 1997, the cost of the
insurance will be approximately $90,000 during 1998. The limit of the
policy is $10.0 million for each loss and $20.0 million in the
aggregate, with a $100,000 deductible. There is a sublimit on
properties with underground storage tanks of $1.0 million per
occurrence and $5.0 million in the aggregate, with a deductible of
$25,000.
TAXATION OF THE COMPANY. The Company has elected to be taxed as a
REIT under the Code, commencing with its taxable year ended December
31, 1994. As long as the Company meets the requirements under the
Code for qualification as a REIT each year, the Company will be
entitled to a deduction when calculating its taxable income for
dividends paid to its stockholders. For the Company to qualify as a
REIT, however, certain detailed technical requirements must be met
(including certain income, asset, distribution and stock ownership
tests) under Code provisions for which, in many cases, there are only
limited judicial or administrative interpretations. Although the
Company intends to operate so that it will continue to qualify as a
REIT, the highly complex nature of the rules governing REITs, the
ongoing importance of factual determinations and the possibility of
future changes in the Company's circumstances preclude any assurance
that the Company will so qualify in any year.
If the Company were to fail to qualify as a REIT in any taxable year,
the Company would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular
corporate rates and would not be allowed a deduction in computing its
taxable income for amounts distributed to its stockholders. Moreover,
unless entitled to relief under certain statutory provisions, the
Company also would be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification is
lost. This treatment would substantially reduce the net earnings of
the Company available for investment or distribution to stockholders
because of the additional tax liability to the Company for the years
involved. Consequently, distributions to stockholders would be
substantially reduced and could be eliminated because of the Company's
increased tax liability. In addition, if the Company fails to qualify
as a REIT, all distributions to stockholders will be taxable as
ordinary income to the extent of current and accumulated earnings and
profits, but, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction.
Even if the Company qualifies for and maintains its REIT status, it is
subject to certain federal, state and local taxes on its income and
property. For example, if the Company has net income from a
prohibited transaction, such income will be subject to a 100% tax.
EFFECT OF DISTRIBUTION REQUIREMENTS. To maintain its status as a REIT
for federal income tax purposes, the Company generally is required
each year to distribute to its stockholders at least 95% of its
Page 21
taxable income (determined without regard to the dividends paid
deduction and by excluding net capital gains) each year. The Company
is also subject to tax at regular corporate rates to the extent that
it distributes less than 100% of its taxable income (including net
capital gains) each year. In addition, the Company is subject to a 4%
nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less
than the sum of 85% of its ordinary income for such calendar year, 95%
of its capital gain net income for the calendar year and any amount of
such income that was not distributed in prior years. The Company
intends to continue to make distributions to its stockholders to
comply with the distribution requirement of the Code and to reduce
exposure to federal income taxes and the nondeductible excise tax.
Differences in timing between the receipt of income and the payment of
expenses in arriving at taxable income and the effect of required debt
amortization payments could require the Company to borrow funds on a
short-term basis to meet the distribution requirements that are
necessary to achieve the tax benefits associated with qualifying as a
REIT.
DILUTION OF COMMON STOCK. The Company's future growth will depend in
large part upon its ability to raise additional capital. If the
Company were to raise additional capital through the issuance of
equity securities, the interests of holders of common stock could be
diluted. Likewise, the Company's Board of Directors is authorized to
cause the Company to issue preferred stock of any class or series
(with such dividends and voting and other rights as the Board of
Directors may determine). Accordingly, the Board of Directors may
authorize the issuance of preferred stock with voting, dividend and
other similar rights which could be dilutive to or otherwise adversely
affect the interests of holders of Common Stock.
REAL ESTATE OWNERSHIP RISKS. The Company is subject to all of the
general risks associated with the ownership of real estate, in
particular the risk that rental revenue from the properties will not
be sufficient to cover all corporate operating expenses and debt
service payments on indebtedness incurred by the Company. These risks
include adverse changes in general or local economic conditions,
changes in supply of or demand for similar or competing properties,
changes in interest rates and operating expenses, competition for
tenants, changes in market rental rates, inability to lease properties
upon termination of existing leases, renewal of leases at lower rental
rates and inability to collect rents from tenants due to financial
hardship, including bankruptcy. Other risks include changes in tax,
real estate, zoning and environmental laws which may have an adverse
impact upon the value of real estate, uninsured property liability,
property damage or casualty losses and unexpected expenditures for
capital improvements or to bring properties into compliance with
applicable federal, state and local laws. Acts of God and other
factors beyond the control of the Company's management might also
adversely affect the Company.
Page 22
DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts
of its executive officers and key employees. The loss of the services
of its executive officers and key employees could have a material
adverse effect on the Company's operations.
ITEM 2: PROPERTIES
- -------------------
Information pertaining to the properties of Realty Income can be found
under Item 1.
ITEM 3: LEGAL PROCEEDINGS
- --------------------------
The Company is subject to certain claims and lawsuits, the outcome of
which are not determinable at this time. In the opinion of
management, any liability that might be incurred by the Company upon
the resolution of these claims and lawsuits will not, in the
aggregate, have a material adverse effect on the Company's
consolidated operations, financial position or liquidity.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to stockholders during the fourth quarter of
the fiscal year.
Page 23
PART II
=======
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
- ----------------------------------------------------------
A. The stock of the Company is traded on the New York Stock Exchange
under the symbol "O." The following table shows the high and low
sales prices per share for the Common Stock as reported by the New
York Stock Exchange composite tape, and distributions declared per
share of common stock by Realty Income for the periods indicated.
Price Per Share
of Common Stock
------------------- Distributions
1997 High Low Declared (1)
- -----------------------------------------------------------------
First quarter $26.625 $23.000 $0.4725
Second quarter 26.500 22.625 0.4725
Third quarter 27.813 25.438 0.4725
Fourth quarter 27.438 23.750 0.4775
-------
$1.8950
=======
1996
- -----------------------------------------------------------------
First quarter $23.250 $20.250 $0.3100(2)
Second quarter 21.375 19.500 0.4650
Third quarter 23.750 20.375 0.4650
Fourth quarter 24.500 22.250 0.4700
-------
$1.7100
=======
[FN]
(1) Distributions currently are declared monthly by the Company based
on financial results for the prior months. At December 31, 1997 a
distribution of $0.1600 per share had been declared and was paid on
January 15, 1998.
(2) In the first quarter of 1996, two monthly distributions of $0.155
per share were declared.
B. There were approximately 15,500 holders of record of Realty
Income's shares of common stock as of March 16, 1998, however, Realty
Income believes the total number of beneficial shareholders of Realty
Income to be approximately 48,000.
Page 24
ITEM 6: SELECTED FINANCIAL DATA
- --------------------------------
(not covered by Independent Auditors' Report)
As of or for the years ended December 31,
(dollars in thousands, except per share data)
--------------------------------------------------
1997 1996 1995 1994 1993
========== ========== ========== ========== ==========
Total assets
(book value) $ 577,021 $ 454,097 $ 417,639 $ 352,768 $ 384,474
Cash and cash
equivalents 2,123 1,559 1,650 11,673 29,329
Lines of Credit
and notes
payable 132,600 70,000 18,597 12,616 255
Total
liabilities 143,706 79,856 36,218 17,352 2,570
Stockholders'
equity 433,315 374,241 381,421 335,416 381,904
Net cash
provided by
operating
activities 52,692 48,073 40,312 28,460 38,485
Net change in
cash and cash
equivalents 564 (91) (10,023) (17,656) 21,915
Total revenue 67,897 56,957 51,555 48,863 49,018
Consolidation
costs -- -- -- (11,201) --
Income from
operations 33,688 30,768 25,582 14,059 25,735
Net gain on
sales of
properties 1,082 1,455 18 1,165 3,583
Net income 34,770 32,223 25,600 15,224 29,318
Distributions
paid to
stockholders/
partners 44,367 48,079 36,710 44,666 40,831
Ratio of
earnings to
fixed charges
(1) 5:1 14:1 10:1 39:1 5,865:1
Basic and Diluted
net income
per share (2) 1.48 1.40 1.27 0.78
Distributions
paid per
share (2)(3)(4) 1.893 2.093 1.825 0.600
Page 25
(continued)
As of or for the years ended December 31,
(dollars in thousands, except per share data)
--------------------------------------------------
1997 1996 1995 1994 1993
========== ========== ========== ========== ==========
Distributions
declared per
share (2)(3)(4) 1.895 1.710 2.215 0.750
Basic
weighted
average
number
of shares
outstanding
(2) 23,568,831 22,976,789 20,230,886 19,502,091
Diluted
weighted
average
number
of shares
outstanding
(2) 23,572,715 22,977,837 20,230,963 19,502,091
[FN]
(1) Ratio of Earnings to Fixed Charges is calculated by dividing
earnings by fixed charges. For this purpose, earnings consist of net
income before interest expense. Fixed charges are comprised of
interest costs (including capitalized interest) and the amortization
of debt issuance costs.
(2) Due to the change in the capital structure caused by the
Consolidation (see note 1 to the consolidated financial statements),
per share information would not be meaningful for 1993 and therefore
has not been included.
(3) The 1994 amount represents distributions paid or declared, as the
case may be, after the Consolidation.
(4) 1996 distributions paid per share and 1995 distributions declared
per share include a special distribution of $0.23 per share.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------
GENERAL
- -------
Realty Income Corporation, a Maryland corporation ("Realty Income" or
the "Company") was organized to operate as an equity real estate
Page 26
investment trust ("REIT"). Realty Income is a fully integrated self-
administered real estate company with in-house acquisition, leasing,
legal, retail and real estate research, portfolio management and
capital markets expertise. As of December 31, 1997, the Company owned
a diversified portfolio of 826 retail properties located in 43 states
with over 6.3 million square feet of leasable space. Of the 826
properties in the portfolio, 819 are single-tenant properties with the
remainder being multi-tenant properties. As of December 31, 1997,
812, or over 99%, of the 819 single-tenant properties were net leased
with an average remaining lease term (excluding extension options) of
approximately 8.4 years.
The Company's primary business objective is to generate a consistent
and predictable level of funds from operations ("FFO") per share and
distributions to stockholders. Additionally, the Company generally
will seek to increase FFO per share and distributions to stockholders
through both active portfolio management and the acquisition of
additional properties. The Company also seeks to lower the ratio of
distributions to stockholders as a percentage of FFO in order to allow
internal cash flow to be used to fund additional acquisitions and for
other corporate purposes.
The Company's portfolio management focus includes: (i) contractual
rent increases on existing leases; (ii) rental increases at the
termination of existing leases when market conditions permit; and
(iii) the active management of the Company's property portfolio,
including selective sales of properties. The Company generally
pursues the acquisition of additional properties under long-term, net
lease agreements with initial contractual base rent which, at the time
of acquisition and as a percentage of acquisition costs, is in excess
of the Company's estimated cost of capital.
Realty Income adheres to a focused strategy of acquiring freestanding,
single-tenant, retail properties leased to regional and national
retail chains under long-term, net lease agreements. The Company
typically acquires retail store locations, which provides capital to
the operators for continued expansion and other corporate purposes.
Realty Income's acquisition and investment activities are concentrated
in highly specific target markets and focus on middle-market retailers
providing goods and services which satisfy basic consumer needs. The
Company's net lease agreements generally are for initial terms of 10
to 20 years, require the tenant to pay a minimum monthly rent and
property operating expenses (taxes, insurance and maintenance), and
provide for future rent increases (typically subject to ceilings)
based on increases in the consumer price index or additional rent
calculated as a percentage of the tenant's gross sales above a
specific level.
From 1970 and through December 31, 1997, Realty Income has acquired
and leased back to regional and national retail chains 797 properties
(including 32 properties that have been sold) and has collected over
98% of the original contractual rent obligation on these properties.
Page 27
Realty Income believes that the long-term ownership of an actively
managed, diversified portfolio of retail properties leased under long-
term, net lease agreements can produce consistent, predictable income
and the potential for long-term share price appreciation. Management
believes that the income generated under long-term leases, coupled
with the tenant's responsibility for property expenses under the net
lease structure, generally produces a more predictable income stream
than many other types of real estate portfolios.
Realty Income was organized in the State of Delaware on September 9,
1993 to facilitate the merger, which was effective on August 15, 1994
(the "Consolidation"), of ten private and 15 public real estate
limited partnerships (the "Partnerships") with and into Realty Income.
In May 1997, the Company was reincorporated as a Maryland corporation.
From the date of the Consolidation through August 17, 1995, the
Company's day-to-day affairs were managed by R.I.C. Advisor, Inc. (the
"Advisor") which provided advice and assistance regarding acquisitions
of properties by the Company and performed the day-to-day management
of the Company's properties and business. On August 17, 1995, the
Advisor was merged with and into Realty Income (the "Merger") and the
company became self-administered and self-managed.
Other Information
Thomas A. Lewis succeeded William E. Clark as Chief Executive Officer
of the Company in May 1997. Mr. Lewis has been an officer of the
Company since 1987 and has served as the Vice Chairman of the Board of
Directors since 1994. Mr. Clark has continued as Chairman of the
Board of Directors of the Company.
The Company's common stock is listed on the New York Stock Exchange
under the symbol "O" and its central index key ("CIK") number is
726728.
The Company anticipates that the year 2000 date issue will not
adversely affect its current software or computers and will not have a
material impact its consolidated financial position, results of
operations, or liquidity.
LIQUIDITY AND CAPITAL RESOURCES
===============================
Cash Reserves
Realty Income was organized for the purpose of operating as an equity
REIT which acquires and leases properties and distributes to
stockholders, in the form of monthly cash distributions, a substantial
portion of its net cash flow generated from leases on its retail
properties. The Company intends to retain an appropriate amount of
cash as working capital reserves. At December 31, 1997, the Company
had cash and cash equivalents totaling $2.1 million.
Page 28
Management believes that the Company's cash and cash equivalents on
hand, cash provided from operating activities and borrowing capacity
are sufficient to meet its liquidity needs for the foreseeable future,
except that the Company will require additional sources of capital to
fund property acquisitions.
Capital Funding
Realty Income has a $150 million, three-year revolving, unsecured
acquisition credit facility that expires in December 2000. The credit
facility currently bears interest at 0.85% over the London Interbank
Offered Rate ("LIBOR") and offers the Company other interest rate
options. As of March 16, 1998, $138.0 million of borrowing capacity
was available to the Company under the acquisition credit facility.
At that time, the outstanding balance was $12.0 million with an
effective interest rate of 6.6%. This credit facility has been and is
expected to be used to acquire additional retail properties leased to
national and regional retail chains under long term lease agreements.
Any additional borrowings will increase the Company's exposure to
interest rate risk.
Realty Income expects to meet its long-term capital needs for the
acquisition of properties through the issuance of public or private
debt or equity. In August 1997, the Company filed a universal shelf
registration statement with the Securities and Exchange Commission
covering up to $300 million in value of common stock, preferred stock
and/or debt securities. Approximately $91.9 million in value of
common stock and debt securities has been issued under the universal
shelf registration statement through March 4, 1998.
On February 23, 1998, Realty Income issued 751,174 shares of common
stock at a net price to the Company of $25.295 per share to a unit
investment trust. The net proceeds were used to repay borrowings of
$19.0 million under the acquisition credit facility.
On October 15, 1997, Realty Income issued 2,700,000 shares of common
stock at a price of $27.00 per share. The net proceeds were used to
repay borrowings of $62.6 million under the acquisition credit
facility and to acquire properties. These borrowings under the
acquisition credit facility were used to acquire properties during
June 1997 through September 1997.
On May 6, 1997, Realty Income issued $110 million of 7.75% notes due
May 2007 (the "Notes"). The Notes were sold at 99.929% of par for a
yield of 7.76%. After taking into effect the gain of $1.1 million
realized on the treasury interest rate lock agreement, which is
described in the next paragraph, the effective interest rate on the
Notes to the Company is 7.62%. The net proceeds from the issuance of
the Notes were used to repay $93.7 million of outstanding borrowings
under the Company's credit facility and to acquire properties.
Interest on the Notes is payable semiannually each May and November.
Page 29
Currently, there is no formal trading market for the Notes and the
Company has not listed and does not intend to list the Notes on any
securities exchange.
In December 1996, the Company entered into a treasury interest rate
lock agreement to hedge against the possibility of rising interest
rates. Under the terms of the interest rate lock agreement, the
Company was to receive or make a payment based on the differential
between a specified interest rate, 6.537%, and the actual 10-year
treasury interest rate on notional principal of $90 million, at the
end of six months. Based on the 10-year treasury interest rate at May
1, 1997 (the interest rate pricing date), the Company realized a $1.1
million gain on the agreement, which was received in June 1997. The
gain on the agreement is being amortized over 10 years (the life of
the Notes) as a yield adjustment to interest expense.
The Company received investment grade corporate credit ratings from
Duff & Phelps Rating Company, Moody's Investor Service, Inc., and
Standard & Poor's Rating Group in December 1996. Currently, Duff &
Phelps has assigned a rating of BBB, Moody's has assigned a rating of
Baa3, and Standard & Poor's has assigned a rating of BBB- to the
Company's senior debt. These ratings are subject to change based
upon, among other things, the Company's results of operations and
financial condition.
Property Acquisitions
During 1997, Realty Income acquired 96 retail properties located in 27
states for $139.2 million (which excludes the estimated unfunded
development costs of $2.9 million on properties under construction at
December 31, 1997) and selectively sold ten properties, increasing the
number of properties in its portfolio by 11.6% to 826 from 740 at
December 31, 1996. During 1997, the Company also invested $3.1
million in development properties acquired in 1996 and $53,000 in five
existing properties in its portfolio. The 96 properties acquired will
contain approximately 1.1 million leasable square feet and are 100%
leased under net leases, with an average initial lease term of 14.4
years. The weighted average annual unleveraged return on the cost of
the 96 properties (including the estimated unfunded development cost
of the properties under development) is estimated to be 10.4%,
computed as estimated contractual net operating income (which in the
case of a net leased property is equal to the base rent or, in the
case of properties under construction, the estimated base rent under
the lease) for the first year of each lease, divided by total
acquisition and estimated development costs. Since it is possible
that a tenant could default on the payment of contractual rent, no
assurance can be given that the actual return on the cost of the 96
properties acquired in 1997 will not differ from the foregoing
percentage.
Of the properties acquired during 1997, 88 were occupied as of
February 28, 1998 and the remaining properties were pre-leased and
Page 30
under construction pursuant to contracts under which the tenant has
agreed to develop the properties (with development costs funded by the
Company) and to begin paying rent when the premises open for business.
All of the properties acquired in 1997, including the properties under
development, are leased with initial terms of nine to 20 years.
The following table summarized Realty Income's 1997 acquisition
activity by quarter.
Approx.
1997 Acquisi- Properties Initial Lease Leasable Total
tion Activity Acquired Term (Years) Square Feet Invested (1)
============= ========== ============= =========== ============
1st quarter 11 14.0 237,000 $ 17,933,000
2nd quarter 26 14.5 353,000 39,003,000
3rd quarter 27 15.1 380,000 59,032,000
4th quarter 32 13.8 159,000 26,319,000
- -------------- ---------- ------------- ----------- ------------
Totals 96 14.4 1,129,000 $142,287,000
============== ========== ============= =========== ============
[FN]
(1) Includes the $3.1 million invested during 1997 in development
properties acquired in 1996.
Distributions
Cash distributions paid during 1997, 1996 and 1995 were $44.4 million,
$48.1 million and $36.7 million, respectively. The 1996 cash
distributions include a special distribution of $5.3 million paid in
January 1996.
During 1997, the Company paid 11 monthly distributions of $0.1575 per
share and increased the monthly distribution to $0.16 per share in
December 1997. The monthly distributions paid during 1997 totaled
$1.8925 per share. In December 1997, and January and February 1998,
the Company declared distributions of $0.16 per share which were paid
on January 15, 1998, February 17, 1998 and payable on March 16, 1998,
respectively.
During 1996, the Company paid 11 monthly distributions of $0.155 per
share and increased the monthly distribution to $0.1575 per share in
December 1996. The regular distributions paid during 1996 totaled
$1.8625 per share. In addition, the Company paid a special
distribution of $0.23 per share in January 1996. Total distributions
paid in 1996 were $2.0925 per share. For federal income tax purposes,
a portion of the special distribution, in the amount of approximately
$0.144 per share, was taxable as ordinary income in 1995 and the
remaining $0.086 per share was included in each stockholders 1996 Form
1099.
During 1995, the Company paid monthly distributions of $0.15 per share
from January through July and increased the monthly distribution to
Page 31
$0.155 per share in August 1995. Monthly distributions of $0.155 per
share were paid in August through December 1995. The monthly
distributions paid during 1995 totaled $1.825 per share.
Other Information
As a result of the Merger in August 1995, the Company assumed a
defined benefit pension plan (the "Plan") covering substantially all
of the employees of the Advisor. The board of directors of the
Advisor froze the Plan effective May 31, 1995 and no additional
employees were entitled to enter the Plan. The Plan was terminated on
January 2, 1996 and final disbursement of the Plan's assets occurred
on February 24, 1997.
FUNDS FROM OPERATIONS ("FFO")
FFO for 1997 increased by $4.63 million or 9.7% to $52.35 million
versus $47.72 million during 1996. FFO during 1995 was $40.4 million.
Realty Income defines FFO as net income before gain on sales of
properties, plus provision for impairment losses, plus depreciation
and amortization. In accordance with the recommendations of the
National Association of Real Estate Investment Trusts ("NAREIT"),
amortization of deferred financing costs are not added back to net
income to calculate FFO. Amortization of financing costs are included
in interest expense in the consolidated statements of income.
The following is a reconciliation of net income to FFO, and
information regarding distributions paid and diluted weighted average
number of shares outstanding for 1997, 1996 and 1995 (dollars in
thousands, except per share data):
1997 1996 1995
-------- -------- --------
Net income $ 34,770 $ 32,223 $ 25,600
Plus depreciation and amortization 18,596 16,422 14,849
Plus provision for impairment losses 165 579 --
Less depreciation of furniture, fixtures
and equipment and amortization of
organization costs (96) (51) (17)
Less gain on sales of properties (1,082) (1,455) (18)
-------- -------- --------
Total Funds From Operations $ 52,353 $ 47,718 $ 40,414
======== ======== ========
Regular Cash Distributions Paid $ 44,367 $ 42,794 $ 36,710
FFO in excess of Regular
Distributions $ 7,986 $ 4,924 $ 3,704
Special Cash Distributions Paid $ -- $ 5,285 $ --
Diluted weighted average
number of shares outstanding 23,572,715 22,977,837 20,230,963
Page 32
Management considers FFO to be an appropriate measure of the
performance of an equity REIT. FFO is used by financial analysts in
evaluating REITs and can be one measure of a REIT's ability to make
cash distribution payments. Presentation of this information provides
the reader with an additional measure to compare the performance of
different REITs, although it should be noted that not all REITs
calculate FFO the same way so comparisons with such REITs may not be
meaningful.
FFO is not necessarily indicative of cash flow available to fund cash
needs and should not be considered as an alternative to net income as
an indication of the Company's performance or to cash flows from
operating, investing, and financing activities as a measure of
liquidity or ability to make cash distributions or to pay debt
service.
RESULTS OF OPERATIONS
=====================
Comparison of 1997 to 1996
Rental revenue was $67.6 million for 1997 versus $56.8 million for
1996, an increase of $10.8 million. The increase in rental revenue
was primarily due to the acquisition of 96 properties during 1997 and
62 properties during 1996. These properties generated revenue of
$11.4 million in 1997 compared to $915,000 in 1996, an increase of
$10.5 million. At January 1, 1998, annualized contractual lease
payments on the properties acquired in 1996 and 1997 are approximately
$20.2 million (excluding estimated rent from nine properties under
development and any percentage rents).
Of the 826 properties in the portfolio as of December 31, 1997, 819
are single-tenant properties with the remaining properties being
multi-tenant properties. Of the 819 single-tenant properties, 812, or
over 99%, were net leased with an average remaining lease term
(excluding extension options) of approximately 8.4 years. At December
31, 1997, 812 of the Company's 819 single tenant properties had leases
which provide for increases in rents through: (i) base rent increases
tied to a consumer price index with adjustment ceilings; (ii) overage
rent based on a percentage of the tenants' gross sales or (iii) fixed
increases. Some leases contain more than one of these clauses.
Percentage rent, which is included in rental revenue, was $1.8 million
during 1997 and $1.7 million in 1996.
Same store rents generated on 667 properties owned during all of both
1997 and 1996 increased by $767,000 or 1.4%, to $55.74 million from
$54.97 million.
Page 33
The following tables represent Realty Income's rental revenue by
industry (dollars in thousands):
Annualized as For the Year Ended
of January 1, 1998 December 31, 1997
---------------------- ----------------------
Rental(1) Percentage Rental Percentage
Industry Revenue of Total Revenue of Total
- -------------------- ------- ---------- ------- ---------
Apparel Stores $ 1,928 2.5% $ 496 0.7%
Automotive Parts 6,280 8.2 6,142 9.1
Automotive Service 6,434 8.4 4,332 6.4
Book Stores 450 0.6 368 0.5
Child Care 24,473 31.9 24,284 35.9
Consumer Electronics 4,432 5.8 4,388 6.5
Convenience Stores 4,473 5.8 3,738 5.5
Home Furnishings 5,116 6.7 3,812 5.6
Office Supplies 2,215 2.9 1,123 1.7
Pet Supplies 253 0.3 134 0.2
Restaurants 13,314 17.3 13,416 19.8
Shoe Stores 332 0.4 107 0.2
Video Rental 2,286 3.0 373 0.6
Other 4,788 6.2 4,900 7.3
- -------------------- ------- ---------- --------- -------
Totals $76,774 100.0% $67,613 100.0%
==================== ======= ========== ========= ========
(1) Annualized rental revenue as of January 1, 1998 has been
calculated on the properties owned at January 1, 1998 by multiplying
the monthly contractual base rent by 12 and adding the 1997 historical
percentage rents, which totaled $1.8 million.
For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995
-------------------- --------------------
Rental Percentage Rental Percentage
Industry Revenue of Total Revenue of Total
- -------------------- ------- --------- ------- ---------
Apparel Stores $ -- --% $ -- --%
Automotive Parts 5,966 10.5 5,855 11.4
Automotive
Service 2,706 4.8 1,876 3.7
Book Stores -- -- -- --
Child Care 23,854 42.0 23,358 45.6
Consumer
Electronics 507 0.9 -- --
Convenience
Stores 2,647 4.6 1,254 2.4
Home Furnishings 2,496 4.4 1,471 2.9
Office Supplies -- -- -- --
(continued on next page)
Page 34
(continued)
Pet Supplies -- -- -- --
Restaurants 13,836 24.4 12,632 24.7
Shoe Stores -- -- -- --
Video Rental -- -- -- --
Other 4,765 8.4 4,739 9.3
- -------------------- ------- --------- ------- ---------
Totals $56,777 100.0% $51,185 100.0%
==================== ======= ========= ======= =========
At December 31, 1997, the Company had eight properties (one of which
is a multi-tenant property) that were not under lease as compared to
nine at December 31, 1996 and four at December 31, 1995. At December
31, 1997, 818, or over 99%, of the 826 properties in the portfolio
were under lease agreements with third party tenants.
Interest and other revenue during 1997 and 1996 totaled $284,000 and
$180,000, respectively, an increase of $104,000. The increase in 1997
was primarily due to interest earned on Note proceeds in excess of the
$93.7 million used to payoff the credit facility in May 1997. These
proceeds were invested in new properties during May and June 1997.
Depreciation and amortization was $18.6 million in 1997 versus $16.4
million in 1996. The increase in 1997 was primarily due to
depreciation of the properties acquired in 1996 and 1997.
General and administrative expenses increased by $256,000 to $5.44
million in 1997 versus $5.18 million in 1996. The increase in general
and administrative expenses was primarily due to an increase in
property acquisition expenses and employee costs. General and
administrative expenses as a percentage of revenue decreased to 8.0%
in 1997 as compared to 9.1% in 1996. During 1997, the Company
increased its number of employees to 47 from 35. The majority of the
new employees work primarily on new property acquisitions.
Property expenses are broken down into costs associated with non-net
leased multi-tenant properties, unleased single-tenant properties and
general portfolio expenses. Expenses related to the multi-tenant and
unleased single-tenant properties include, but are not limited to,
property taxes, maintenance, insurance, utilities, property
inspections, bad debt expense and legal fees. General portfolio costs
include, but are not limited to, insurance, legal, property
inspections and title search fees. At December 31, 1997, eight
properties were available for lease as compared to nine at December
31, 1996.
Property expenses were $1.79 million in 1997 and $1.64 million in
1996, an increase of $145,000. The increase in property expenses was
primarily attributable to costs of the environmental insurance
obtained in December 1996. In 1997, environmental insurance expense
totaled $85,000 and based upon the 826 properties in the portfolio at
December 31, 1997, the costs of environmental insurance is anticipated
Page 35
to be approximately $90,000 during 1998. The limit of the policy is
$10 million for each loss and $20 million in the aggregate, with a
$100,000 deductible. There is a sub-limit on properties with
underground storage tanks of $1 million per occurrence and $5 million
in the aggregate, with a deductible of $25,000.
Interest expense in 1997 increased by $5.9 million to $8.23 million,
as compared to $2.37 million in 1996. The following is a summary of
the five components of interest expense for 1997 and 1996 (dollars in
thousands):
1997 1996 Net Change
------- ------- ----------
Interest on outstanding
loans and notes $ 8,043 $ 2,137 $ 5,906
Amortization of the gain on the
treasury lock agreement (75) -- (75)
Credit facility commitment fees 145 156 (11)
Amortization of credit facility
origination costs and deferred
bond financing costs 281 224 57
Interest capitalized (168) (150) (18)
------- ------- ----------
Totals $ 8,226 $ 2,367 $ 5,859
======== ======= ==========
Interest on outstanding loans and notes was $5.9 million higher in
1997 than in 1996, due to an increase in the average outstanding
balances and a higher average interest rate. The higher average
interest rate was due to interest on the Notes issued in May 1997.
During 1997, the average outstanding balances and interest rate (after
taking into effect amortization of the gain on the treasury lock
agreement) on the Notes and credit facility were $108.4 million and
7.35% as compared to $30.7 million and 6.96% during 1996. During
1997, the credit facility's average interest rate was 6.82% and
average outstanding balance was $36.1 million.
The Company reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. In 1997, a $165,000 charge was taken to
reduce the net carrying value on three properties because they became
held for sale. One of these properties was sold in 1997 and another
in January 1998. In 1996, a $579,000 charge was taken to reduce the
net carrying value on four properties because they became held for
sale. Three of these properties have been sold.
During 1997, the Company sold ten properties (six restaurants, two
child care centers, one automotive parts store and one multi-tenant
location) for a total of $4.4 million and recorded a gain of $1.1
million. During 1996, the Company sold seven properties (five
restaurants and two multi-tenant locations) for $4.4 million and
recognized a gain of $1.5 million.
Page 36
In 1997, the Company had net income of $34.77 million versus $32.22
million in 1996. The $2.55 million increase in net income is
primarily due to the increase in rental revenue from properties
acquired in 1996 and 1997 of $10.5 million and an increase in same
store rents on 667 properties owned during both periods of $767,000,
which were partially offset by an increase in depreciation and
amortization, general and administrative, and interest expense
totaling $8.3 million.
Comparison of 1996 to 1995
Rental revenue was $56.8 million for 1996 versus $51.2 million for
1995, an increase of $5.6 million. The increase in rental revenue was
primarily due to the acquisition of 124 properties from December 1994
through December 1996. These properties generated revenue in 1996 and
1995 of $8.8 million and $3.8 million, respectively, an increase of
$5.0 million.
Of the 740 properties in the portfolio as of December 31, 1996, 732
are single-tenant properties with the remaining properties being
multi-tenant properties. Of the 732 single-tenant properties, 723, or
approximately 99%, had leases which provide for increases in rents
through: (i) base rent increases tied to a consumer price index with
adjustment ceilings; (ii) overage rent based on a percentage of the
tenants' gross sales or (iii) fixed increases. Some leases contain
more than one of these clauses. Percentage rent, which is included in
rental revenue, was $1.7 million during 1996 and $1.6 million in 1995.
Same store rents generated on 619 properties owned during all of both
1996 and 1995 increased by $871,000, or 1.9%, to $48.0 million from
$47.1 million.
At December 31, 1996, the Company had nine properties that were not
under lease as compared to four at December 31, 1995. At December 31,
1996, 731, or approximately 99%, of the 740 properties in the
portfolio were under lease agreements with third party tenants.
Interest and other revenue during 1996 and 1995 totaled $180,000 and
$370,000, respectively. The decrease of $190,000 was due to lower
average cash and cash equivalent balances in 1996.
Depreciation and amortization was $16.4 million in 1996 versus $14.8
million in 1995. The increase in 1996 was primarily due to
depreciation of properties acquired during 1995 and 1996 and
amortization of goodwill recorded in connection with the Merger of the
Advisor.
General and administrative expenses and advisor fees decreased by $1.7
million to $5.2 million in 1996 versus $6.9 million in 1995. General
and administrative expenses were $5.2 million in 1996 versus $3.2
million in 1995 and advisor fees of $3.7 million in 1995. The $2.0
million increase in general and administrative expenses was primarily
Page 37
due to the Merger of the Advisor. Subsequent to the Merger, the
Company commenced paying for management, accounting systems, office
facilities, professional and support personnel expenses (i.e. costs of
being self-administered). Prior to the Merger such costs were the
responsibility of the Advisor. General and administrative expenses
and advisor fees as a percentage of revenue decreased to 9.1% in 1996
as compared to 13.3% in 1995.
Property expenses were $1.6 million in 1996 and 1995. Property
expenses are broken down into costs associated with non-net leased
multi-tenant properties, unleased single-tenant properties and general
portfolio expenses. Expenses related to the multi-tenant and unleased
single-tenant properties include, but are not limited to, property
taxes, maintenance, insurance, utilities, property inspections, bad
debt expense and legal fees. General portfolio costs include, but are
not limited to, insurance, legal, property inspections and title
search fees. At December 31, 1996, nine properties were available for
lease as compared to four at December 31, 1995.
Interest expense in 1996 decreased by $275,000 to $2.37 million, as
compared to $2.64 million in 1995. The following is a summary of the
four components of interest expense for 1996 and 1995 (dollars in
thousands):
1996 1995 Net Change
------- ------- ----------
Interest on outstanding loans
and notes $ 2,137 $ 2,403 $ (266)
Credit facility commitment fees 156 127 29
Amortization of credit facility
origination costs and deferred
bond financing costs 224 329 (105)
Interest capitalized (150) (217) 67
------- ------- ----------
Totals $ 2,367 $ 2,642 $ (275)
======= ======= ==========
Interest on outstanding loans and notes during 1996 was $266,000 lower
than in 1995, due to a decrease in the average outstanding balances
and lower average interest rates on the credit facility and the notes
issued as part of the Consolidation. During 1996, the average
outstanding balances and interest rate on the notes and credit
facility were $30.7 million and 6.96% as compared to $31.3 million and
7.68% during 1995.
The Company reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. In 1996, a $579,000 charge was taken to
reduce the net carrying value on four properties because they became
held for sale. Three of these properties have been sold. No charge
was recorded for an impairment loss in 1995.
Page 38
During 1996, the Company sold seven properties (five restaurants and
two multi-tenant locations) for a total of $4.4 million and recorded a
gain of $1.5 million. During 1995, the Company sold three properties
(two child care centers and a multi-tenant location) for $617,000 and
recognized a gain of $18,000.
In 1996, the Company had net income of $32.2 million versus $25.6
million in 1995. The $6.6 million increase in net income is primarily
due to an increase in rental revenue from 124 properties acquired from
December 1994 through December 1996 of $5.0 million, an increase in
the net gain on sales of properties of $1.4 million and a net decrease
in advisor fees, general and administrative expenses of $1.7 million,
offset by an increase in depreciation and amortization expense of $1.6
million.
IMPACT OF INFLATION
===================
Tenant leases generally provide for limited increases in rent as a
result of increases in the tenant's sales volumes and/or increases in
the consumer price index. Management expects that inflation will
cause these lease provisions to result in increases in rent over time.
However, during times when inflation is greater than increases in rent
as provided for in the leases, rent increases may not keep up with the
rate of inflation.
Over 98% of the properties in the portfolio are leased to tenants
under net leases in which the tenant is responsible for property costs
and expenses. These features in the leases reduce the Company's
exposure to rising property expenses due to inflation.
Inflation and increased costs may have an adverse impact on the
tenants if increases in the tenant's operating expenses exceed
increases in revenue.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
===================================
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("Statement No. 130"). Statement No. 130
establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in a
full set of general purpose financial statements, and is effective for
periods beginning after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("Statement
No. 131"). Statement No. 131 establishes standards for the way that
Page 39
public business enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for periods beginning
after December 15, 1997.
Management believes that the adoption of the aforementioned statements
will not have a material effect on the manner and nature of
disclosures currently made by the Company.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Table of Contents Page
- ----------------- ----
A. Independent Auditors' Report...............................41
B. Consolidated Balance Sheets,
December 31, 1997 and 1996...............................42
C. Consolidated Statements of Income,
Years ended December 31, 1997, 1996 and 1995.............44
D. Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1997, 1996 and 1995.............45
E. Consolidated Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995.............47
F. Notes to Consolidated Financial Statements.................49
G. Consolidated Quarterly Financial Data
(unaudited) for 1997 and 1996............................59
H. Schedule III-Real Estate and Accumulated
Depreciation.............................................60
Schedules not Filed: All schedules, other than that indicated in the
Table of Contents, have been omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
Page 40
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Realty Income Corporation:
We have audited the consolidated financial statements of Realty Income
Corporation and subsidiaries as listed in the accompanying table of
contents. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule III
listed in the accompanying table of contents. These consolidated
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Realty Income Corporation and subsidiaries as of December 31, 1997
and 1996, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule III, when considered
in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
/s/KPMG PEAT MARWICK LLP
San Diego, California
January 23, 1998,
except as to note 6A to the
consolidated financial statements,
which is as of February 23, 1998
Page 41
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
===========================
December 31, 1997 and 1996
(dollars in thousands, except per share data)
1997 1996
========= =========
ASSETS
Real estate, at cost:
Land $ 214,342 $ 165,598
Buildings and improvements 485,455 398,942
--------- ---------
699,797 564,540
Less - accumulated depreciation
and amortization (152,206) (138,307)
--------- ---------
Net real estate 547,591 426,233
Cash and cash equivalents 2,123 1,559
Accounts receivable 2,888 1,905
Due from affiliates 348 383
Other assets 3,170 2,183
Goodwill, net 20,901 21,834
--------- ---------
TOTAL ASSETS $ 577,021 $ 454,097
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Distributions payable $ 4,112 $ 3,619
Accounts payable and accrued expenses 2,180 1,172
Other liabilities 4,814 5,065
Lines of credit payable 22,600 70,000
Notes payable 110,000 --
--------- ---------
TOTAL LIABILITIES 143,706 79,856
--------- ---------
Page 42
(continued)
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
===========================
December 31, 1997 and 1996
(dollars in thousands, except per share data)
1997 1996
========= =========
Commitments and contingencies
Stockholders' Equity
Preferred stock, par value $1.00 per
share, 20,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock, par value $1.00 per share,
100,000,000 shares authorized,
25,698,464 and 22,979,537 shares
issued and outstanding in 1997 and
1996, respectively 25,698 22,980
Paid in capital in excess of par value 582,450 516,004
Accumulated distributions in excess
of net income (174,833) (164,743)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 433,315 374,241
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 577,021 $ 454,097
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 43
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Income
=================================
Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands, except per share data)
1997 1996 1995
========== ========== ==========
REVENUE
Rental $ 67,613 $ 56,777 $ 51,185
Interest 192 109 276
Other 92 71 94
---------- ---------- ----------
67,897 56,957 51,555
---------- ---------- ----------
EXPENSES
Depreciation and
amortization 18,596 16,422 14,849
General and administrative 5,437 5,181 3,214
Advisor fees -- -- 3,661
Property 1,785 1,640 1,607
Interest 8,226 2,367 2,642
Provision for impairment
losses 165 579 --
---------- ---------- ----------
34,209 26,189 25,973
---------- ---------- ----------
Income from operations 33,688 30,768 25,582
Net gain on sales of
properties 1,082 1,455 18
---------- ---------- ----------
NET INCOME $ 34,770 $ 32,223 $ 25,600
========== ========== ==========
Basic and diluted
net income per share $ 1.48 $ 1.40 $ 1.27
========== ========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 44
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Stockholders' Equity
========================================================
Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands)
Accumu-
Paid in lated
Capital Distri-
in butions
Common Stock Excess in Excess
------------------- of Par of Net
Shares Amount Value Income Totals
========== ======= ======== ========= ========
Balance,
December
31, 1994 19,502,091 $19,502 $452,996 $(137,082) $335,416
Net income -- -- -- 25,600 25,600
Distributions
paid and
payable to
stockholders -- -- -- (46,192) (46,192)
Shares issued
in exchange
for advisor
shares 990,704 991 20,186 -- 21,177
Shares retired (57,547) (58) (1,172) -- (1,230)
Shares issued
in stock
offering, net
offering
costs of
$3,217 2,540,000 2,540 44,090 -- 46,630
Shares issued
in exchange
for limited
partnership
interests 989 1 19 -- 20
---------- ------- -------- --------- --------
Balance,
December
31, 1995 22,976,237 22,976 516,119 (157,674) 381,421
Page 45
(continued)
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Stockholders' Equity
========================================================
Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands)
Accumu-
Paid in lated
Capital Distri-
in butions
Common Stock Excess in Excess
------------------- of Par of Net
Shares Amount Value Income Totals
========== ======= ======== ========= ========
Net income -- -- -- 32,223 32,223
Distributions
paid and
payable to
stockholders -- -- -- (39,292) (39,292)
Shares issued 3,300 4 73 -- 77
Stock offering
costs -- -- (188) -- (188)
---------- ------- -------- --------- --------
Balance,
December
31, 1996 22,979,537 22,980 516,004 (164,743) 374,241
Net income -- -- -- 34,770 34,770
Distributions
paid and
payable to
stockholders -- -- -- (44,860) (44,860)
Shares issued
in stock
offering, net
offering
costs of
$4,193 2,700,000 2,700 66,007 -- 68,707
Shares issued 22,989 22 532 -- 554
Shares
forfeited (4,062) (4) (93) -- (97)
---------- ------- -------- --------- --------
Balance,
December
31, 1997 25,698,464 $25,698 $582,450 $(174,833) $433,315
========== ======= ======== ========= ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 46
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
=====================================
Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands)
1997 1996 1995
======== ======== ========
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 34,770 $ 32,223 $ 25,600
Adjustments to net income:
Depreciation and amortization 18,596 16,422 14,849
Provision for impairment losses 165 579 --
Net gain on sales of properties (1,082) (1,455) (18)
Changes in assets and liabilities:
Accounts receivable and
other assets (844) (646) (1)
Accounts payable, accrued expenses
and other liabilities 1,087 950 (86)
Due to advisor -- -- (32)
-------- -------- --------
Net cash provided by
operating activities 52,692 48,073 40,312
-------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds from sales of properties 4,432 4,405 617
Acquisition of and additions to
properties (140,389) (55,705) (65,890)
Payment of advisor merger costs -- -- (1,629)
Cash acquired from advisor merger -- -- 647
-------- -------- --------
Net cash used in
investing activities (135,957) (51,300) (66,255)
-------- -------- --------
Page 47
(continued)
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
=====================================
Years Ended December 31, 1997, 1996 and 1995
(dollars in thousands)
1997 1996 1995
======== ======== ========
CASH FLOWS FROM
FINANCING ACTIVITIES
Payments of distributions (44,367) (48,079) (36,710)
Proceeds from lines of credit 117,000 66,700 50,600
Payments of lines of credit (164,400) (2,700) (44,600)
Proceeds from notes issued,
net costs of $848 109,152 -- --
Payment of notes payable -- (12,597) --
Proceeds from stock offering,
net of offering costs 68,707 -- 46,630
Proceeds from other stock issuances 246 -- --
Stock offering costs -- (188) --
Payments to the defined benefit
pension plan (2,223) -- --
Increase in other assets (286) -- --
-------- -------- --------
Net cash provided by
financing activities 83,829 3,136 15,920
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents 564 (91) (10,023)
Cash and cash equivalents,
beginning of year 1,559 1,650 11,673
-------- -------- --------
Cash and cash equivalents,
end of year $ 2,123 $ 1,559 $ 1,650
======== ======== ========
For supplemental disclosures, see note 12.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 48
REALTY INCOME CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
==========================================
December 31, 1997, 1996 and 1995
1. Organization and Operation
Realty Income Corporation (the "Company") was organized in the State
of Delaware in September 1993 to facilitate the merger, which was
effected on August 15, 1994 (the "Consolidation"), of 10 private and
15 public real estate limited partnerships with and into the Company.
In August 1995, the Company became self-administered and self-managed
after acquiring R.I.C. Advisor, Inc. (the "Advisor"). In May 1997,
the Company reincorporated as a Maryland corporation pursuant to a
merger of the Company into a wholly-owned Maryland subsidiary and the
conversion of each outstanding share of common stock of the Company
into one share of common stock of the surviving corporation. The
Company invests in commercial retail real estate and has elected to be
taxed as a real estate investment trust ("REIT"). As of December 31,
1997, the Company owned 826 properties in 43 states.
2. Summary of Significant Accounting Policies and Procedures
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and partnerships more
than 50 percent owned (subsidiaries) after elimination of all material
intercompany balances and transactions.
Cash Equivalents - The Company considers all short-term, highly liquid
investments that are readily convertible to cash and have an original
maturity of three months or less at the time of purchase to be cash
equivalents.
Depreciation and Amortization - Depreciation of buildings and
improvements, and amortization of goodwill are computed using the
straight-line method over an estimated useful life of 25 years.
Leases - All leases are accounted for as operating leases. Under
this method, lease payments are recognized as revenue over the term of
the lease on a straight-line basis.
Federal Income Taxes - The Company has elected to be taxed as a REIT
under the Internal Revenue Code of 1986, as amended. Management
believes the Company has qualified and continues to qualify as a REIT
and therefore will be permitted to deduct distributions paid to its
stockholders, eliminating the federal taxation of income represented
by such distributions at the Company's level. Accordingly, no
provision has been made for federal income taxes in the accompanying
consolidated financial statements.
Page 49
2. Summary of Significant Accounting Policies (continued)
Distributions Paid and Payable - For the year ended December 31, 1997,
cash distributions of $1.8925 per share were paid. The 1997
distributions consisted of eleven monthly distributions of $0.1575 per
share and one monthly distribution of $0.16 per share. As of December
31, 1997, a distribution of $0.16 per share was declared and payable.
For the year ended December 31, 1996, cash distributions of $2.0925
per share were paid. The 1996 distributions consisted of a special
distribution of $0.23 per share, eleven monthly distributions of
$0.155 per share and one distribution of $0.1575 per share.
For the year ended December 31, 1995, cash distributions of $1.825 per
share were paid. The 1995 distributions consisted of seven monthly
distributions of $0.15 per share and five monthly distributions of
$0.155 per share. As of December 31, 1995, three distributions
totaling $0.54 per share were declared and payable.
The following presents the federal income tax characterization of
distributions paid or deemed to be paid to stockholders for the years
ended December 31:
1997 1996 1995
------ ------ ------
Ordinary Income $1.794 $1.691 $1.876
Return of Capital 0.099 0.257 0.093
------ ------ ------
Totals $1.893 $1.948 $1.969
====== ====== ======
For federal income tax purposes, a portion of the distributions
payable at December 31, 1995, in the amount of $0.144 per share, were
deemed to be paid in 1995. This amount is included in the $1.876 per
share taxable as ordinary income in 1995 and represents the remaining
portion of taxable earnings and profits which were assumed by the
Company in the merger with the Advisor.
Provision for Impairment Losses - The Company reviews long-lived
assets, including goodwill, for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be recoverable. Generally, a provision is made for impairment loss if
estimated future operating cash flows (undiscounted and without
interest charges) over a long-term holding period plus estimated
disposition proceeds (undiscounted) are less than the current book
value. If a property is held for sale, it is carried at the lower of
cost or estimated fair value, less costs to sell. For the years ended
December 31, 1997 and 1996, provisions for impairment losses of
Page 50
2. Summary of Significant Accounting Policies (continued)
$165,000 and $579,000, respectively, were charged to operations to
reduce the net carrying value of three properties held for sale in
1997 and four properties held for sale in 1996. There was no
provision for impairment losses in 1995.
Net Income Per Share - The Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128")
effective for the period ended December 31, 1997. SFAS No. 128
simplifies the standards for computing earnings per share and makes
them comparable to international earnings per share standards. All
prior period net income per share data presented were restated to
conform to SFAS No. 128.
Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during each
period. Diluted net income per share is computed by dividing the
amount of net income for the period by each share that would have been
outstanding assuming the issuance of common shares for all dilutive
potential common shares outstanding during the reporting period.
The following is a reconciliation of the denominator of the basic net
income per share computation to the denominator of the diluted net
income per share computation (net income was available to common
shareholders for all periods presented):
1997 1996 1995
---------- ---------- ----------
Weighted average shares used for
basic net income computation 23,568,831 22,976,789 20,230,886
Incremental shares from the
assumed conversion of stock
options 3,884 1,048 77
---------- ---------- ----------
Adjusted weighted average shares
used for diluted net income
computation 23,572,715 22,977,837 20,230,963
========== ========== ==========
Stock Option Plan - The Company accounts for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
Page 51
2. Summary of Significant Accounting Policies (continued)
option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
Derivative Financial Instrument - The Company had an interest rate
treasury lock agreement to hedge the effect of interest rate
fluctuations. This instrument met the requirement for hedge
accounting, including a high correlation to a specific transaction.
Accordingly, the amount received under the terms of the agreement is
recognized in income when interest expense related to the hedge item
is recognized.
Use of Estimates - The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
3. Credit Facility Available for Acquisitions
The Company has a $150 million, three-year, revolving, unsecured
acquisition credit facility that expires in December 2000. The credit
facility is from The Bank of New York, as agent, and several U.S. and
non-U.S. banks. In November 1997, the Company obtained a $10 million
unsecured line of credit with The Bank of New York, which was repaid
and canceled in January 1998. As of December 31, 1997 and 1996, the
outstanding balances on the credit facility and line of credit were
$22.6 million and $70.0 million, respectively, with an effective
interest rate of approximately 6.66% and 6.85%, respectively.
The credit facility currently bears interest at 0.85% over the London
Interbank Offered Rate ("LIBOR") and offers the Company other interest
rate options. A facility fee of 0.15%, per annum, accrues on the
total commitment of the credit facility.
The credit facility is subject to various leverage and interest
coverage ratio limitations. The Company is and has been in compliance
with these limitations.
In 1997, 1996 and 1995, interest of $168,000, $150,000 and $217,000,
respectively, was capitalized on properties under construction.
4. Notes Payable
On May 6, 1997, Realty Income issued $110 million of 7.75% unsecured
notes due May 2007 (the "Notes"). The Notes were sold at 99.929% of
par for a yield of 7.76%. After taking into effect the $1.1 million
Page 52
4. Notes Payable (continued)
gain realized on the treasury interest rate lock agreement (see note
5), the effective interest rate to the Company on the Notes is 7.62%.
The net proceeds from the issuance of the Notes were used to repay
$93.7 million of outstanding borrowings under the Company's credit
facility and to acquire properties. Interest on the Notes is payable
semiannually each May and November. Interest incurred on the Notes
for the year ended December 31, 1997 was $5.5 million. Currently,
there is no formal trading market for the Notes and the Company has
not and does not intend to list the Notes on any securities exchange.
On March 29, 1996, the Company redeemed, at par, the $12.6 million
principal amount of notes issued at the time of the Consolidation to
investors in the partnerships. Interest incurred on the notes for the
years ended December 31, 1996 and 1995 was $217,000 and $997,000,
respectively.
5. Derivative Financial Instrument
In December 1996, the Company entered into a treasury interest rate
lock agreement to hedge against rising interest rates applicable to
the Notes (see note 4). Under the terms of the interest rate lock
agreement, the Company was to receive or make a payment based on the
differential between a specified interest rate (6.537%) and the actual
10-year treasury interest rate on notional principal amount of $90
million, at the end of six months. Based on the 10-year treasury
interest rate at May 1, 1997 (the interest rate pricing date), the
Company realized a $1.1 million gain on the agreement, which was
received in June 1997. The gain on the agreement is being amortized
over 10 years (the life of the Notes) as a yield adjustment to
interest expense. The Company had only limited involvement with this
single derivative financial instrument and did not use it for trading
purposes.
6. Common Stock Offerings
A. In February 1998, the Company issued 751,174 shares of common
stock to a unit investment trust at a net price to the Company of
$25.295 per share. The net proceeds of $19.0 million were be used to
repay borrowings under the credit facility.
B. In October 1997, the Company issued 2.7 million shares of common
stock at a price of $27.00 per share. The net proceeds of $68.7
million were used to repay borrowings of $62.6 million under the
credit facility and to acquire properties.
C. In November 1995, the Company issued 2.54 million shares of common
stock at a price of $19.625 per share. Substantially all of the net
proceeds of $46.6 million were used to repay borrowings under the
credit facility.
Page 53
7. Operating Leases
A. General - At December 31, 1997, the Company owned 826 properties
in 43 states. Of the Company's properties, 819 are single-tenant and
the remainder are multi-tenant. At December 31, 1997, eight
properties were vacant and available for lease or sale.
Substantially all leases are net leases whereby the tenant pays
property taxes and assessments, maintains the interior and exterior of
the building, and carries insurance coverage for public liability,
property damage, fire, and extended coverage. The Company's net lease
agreements are generally for initial terms of 10 to 20 years, require
the tenant to pay a minimum monthly rent and property operating
expenses (taxes, insurance and maintenance), and provide for future
rent increases (typically subject to ceilings) based on increases in
the consumer price index or additional rent calculated as a percentage
of the tenant's gross sales above a specified level. Percentage rent
for 1997, 1996 and 1995 was $1.8 million, $1.7 million and $1.6
million, respectively.
At December 31, 1997, minimum annual rents to be received on the
operating leases are as follows (dollars in thousands):
Years Ending December 31,
=========================
1998 $ 72,661
1999 71,364
2000 69,823
2001 68,392
2002 63,470
Thereafter 368,055
--------
TOTAL $713,765
========
B. Major Tenants - The following schedule presents rental income,
including percentage rents, from tenants representing more than 10% of
the Company's total revenue for at least one of the years ended
December 31, 1997, 1996 or 1995 (dollars in thousands):
Tenants 1997 1996 1995
========================= ======= ======= =======
Children's World, Inc. $13,809 $13,460 $13,121
La Petite Academy, Inc. 9,311 9,339 9,189
Golden Corral Corporation 6,899 7,017 6,550
8. Property Acquisitions
During 1997, the Company acquired 96 retail properties located in 27
states for $142.3 million (excluding the estimated unfunded
development costs of $2.9 million on properties under construction at
Page 54
8. Property Acquisitions (continued)
December 31, 1997). The 96 properties are 100% leased under net
leases, with an average initial lease term of 14.4 years. During
1996, the Company acquired 62 retail properties located in 22 states
for $55.5 million, with an average initial lease term of 11.7 years.
9. Net Gain on Sales of Properties
In 1997, the Company sold ten properties (six restaurants, one
automotive parts store, one multi-tenant and two child care centers)
for a total of $4.4 million and recognized a gain of $1.1 million. In
1996, the Company sold seven properties (five restaurants and two
multi-tenant centers) for a total of $4.4 million and recognized a
gain of $1.5 million. In 1995, the Company sold three properties (one
multi-tenant and two childcare centers) for a total of $617,000 and
recognized a net gain of $18,000.
10. The Merger of R.I.C. Advisor, Inc.
On August 17, 1995, the Company merged with the Advisor and issued
990,704 shares of the Company's common stock valued at approximately
$21.2 million (the "Merger"). The Merger was accounted for using the
purchase method. Accordingly, the purchase price was allocated to
assets acquired based on their estimated fair values. This treatment
resulted in approximately $22.9 million of goodwill. Amortization of
goodwill for the years ended December 31, 1997, 1996 and 1995 was
$916,000, $916,000 and $340,000, respectively.
11. Fair Value of Financial Instruments
Management of the Company believes that the carrying values reflected
in the balance sheets at December 31, 1997 and 1996 reasonably
approximate the fair values for cash and cash equivalents, accounts
receivable, due from affiliates and all liabilities. In making such
assessments, the Company utilized estimates and quoted market prices.
See note 5 for a discussion of the derivative financial instrument
held at December 31, 1996.
Page 55
12. Supplemental Disclosure of Cash Flow Information
Interest paid during 1997, 1996 and 1995 was $6.9 million, $2.0
million and $2.2 million, respectively.
The following non-cash investing and financing activities are included
in the accompanying financial statements:
A. In 1997, the acquisition of three properties resulted in the
following (dollars in thousands):
Increases in:
Land $1,724
Building 227
Other liabilities 1,951
B. The Merger of the Advisor into the Company in August 1995
resulted in the following (dollars in thousands):
Increases in:
Other assets $ (1,143)
Goodwill (21,184)
Common stock retired after the merger (1,230)
Increases/(decrease) in:
Other liabilities 3,029
Due to advisor (2)
Common stock 991
Paid in capital in excess of par value 20,186
--------
Cash acquired from Merger $ 647
========
In 1995, other assets of $95,000 were reclassified to goodwill.
Common stock retired after the Merger includes par value of common
stock and paid in capital in excess of par value of $58,000 and
$1,172,000, respectively.
C. In 1996 and 1995, pursuant to the assumption of the defined
benefit pension plan by the Company (see note 14), the Company
recorded a due from affiliate and a liability (included in other
liabilities) of $73,000 and $493,000, respectively. This represents
the amount of the increase in the liability to the plan, of which the
Company is indemnified by the former shareholders of the Advisor.
13. Related Party Transactions
The Company paid the Advisor an advisory fee of $3.7 million for the
period from January 1, 1995 through August 17, 1995. On August 17,
1995, the Advisor was merged into the Company and the agreement was
terminated (see note 10).
Page 56
14. Employee Benefit Plan
A. As a result of the Merger, the Company assumed a defined
benefit pension plan (the "Plan") covering substantially all of its
employees. The board of directors of the Advisor froze the Plan
effective May 31, 1995 and no additional employees were entitled to
enter the Plan. The Plan was terminated on January 2, 1996 and final
disbursement of the Plan's assets occurred on February 24, 1997.
At December 31, 1996, the benefit obligation in excess of plan assets
of approximately $2.3 million is included in other liabilities in the
accompanying balance sheet. This amount was paid in February 1997.
In connection with the Merger, the Company assumed a benefit
obligation of $1.9 million. The Merger agreement provides for
indemnification by the former shareholders of the Advisor with respect
to increases in the benefit obligation. A receivable from the
Advisor's former shareholders has been recorded as of December 31,
1997 and 1996 for $348,000 and $383,000, respectively, and is included
as due from affiliates in the accompanying consolidated balance
sheets.
B. In August 1996, the Company initiated a 401(k) plan. Under
the 401(k) plan, employees may elect to make contributions to the
plan, and the Company matches 50% of such contributions up to 6% of
each participant's compensation.
15. Stock Incentive Plan
In September 1993, the board of directors of the Company approved a
stock incentive plan (the "Stock Plan") designed to attract and retain
directors, officers and employees of the Company by enabling such
individuals to participate in the ownership of the Company. The Stock
Plan authorizes the purchase of up to 500,000 shares of common stock
and provides for the award (subject to ownership limitations) of a
broad variety of stock-based compensation alternatives such as
nonqualified stock options, incentive stock options, restricted stock
and performance awards.
Stock options are granted with an exercise price equal to the
underlying stock's fair market value at the date of grant. Stock
options expire 10 years from the date they are granted and vest over
service periods of three, four and five years. At December 31, 1997,
1996 and 1995, options outstanding totaled 139,500, 73,000 and 30,000,
respectively. Prior to December 31, 1997, 189,700 stock options and
15,800 restricted shares of common stock had been granted under the
Stock Plan. Of the stock options granted, 10,489 had been exercised
and 39,711 had been canceled. At December 31, 1997, there were
294,500 additional shares available for grant under the Stock Plan.
The per share weighted-average fair value of stock options granted
during 1997 and 1996 was $2.29 on the date of grant using the Binomial
Page 57
15. Stock Incentive Plan (continued)
option-pricing model with the following weighted-average assumptions:
1997 - expected dividend yield 9.92%, risk-free interest rate of 6.5%,
volatility of 18.5% and an expected life of 10 years; 1996 - expected
dividend yield 9.71%, risk-free interest rate of 6.7%, volatility of
17.4% and an expected life of 10 years. No stock options were granted
during 1995.
The Company applies APB Opinion No. 25 in accounting for its Stock
Plan and, accordingly, no compensation cost has been recognized for
its stock options in the consolidated financial statements. Had the
Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net
income would have been reduced to the pro-forma amounts indicated
below:
Diluted
Net Income Net Income
(in thousands) Per Share
-------------- -----------
1997 as reported $ 34,770 $1.48
1997 pro forma $ 34,722 $1.47
1996 as reported $ 32,223 $1.40
1996 pro forma $ 32,206 $1.40
1995 as reported $ 25,600 $1.27
1995 pro forma $ 25,583 $1.26
16. Commitments and Contingencies
In the ordinary course of its business, the Company is a party to
various legal actions which the Company believes are routine in nature
and incidental to the operation of the business of the Company. The
Company believes that the outcome of the proceedings will not have a
material adverse effect upon its consolidated operations, financial
position or liquidity.
Page 58
REALTY INCOME CORPORATION
AND SUBSIDIARIES
CONSOLIDATED QUARTERLY FINANCIAL DATA
(dollars in thousands, except per share data)
(not covered by Independent Auditors' Report)
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
======= ======= ======= ======= =======
1997
====
Total revenue $15,480 $16,123 $16,843 $19,451 $67,897
Depreciation and
amortization
expense 4,464 4,484 4,706 4,942 18,596
Provision for
impairment
losses -- 70 70 25 165
Interest expense 1,312 2,009 2,450 2,455 8,226
Other expenses 1,744 1,694 1,747 2,037 7,222
Income from
operations 7,960 7,866 7,870 9,992 33,688
Net income 8,185 8,068 8,466 10,051 34,770
Basic and diluted
net income
per share 0.36 0.35 0.37 0.40 1.48
1996
====
Total revenue $13,778 $13,637 $13,840 $15,702 $56,957
Depreciation and
amortization
expense 4,074 4,049 4,052 4,247 16,422
Provision for
impairment
losses 323 -- -- 256 579
Interest expense 520 485 497 865 2,367
Other expenses 1,756 1,701 1,669 1,695 6,821
Income from
operations 7,105 7,402 7,622 8,639 30,768
Net income 7,850 7,615 7,890 8,868 32,223
Basic and diluted
net income
per share 0.34 0.33 0.34 0.39 1.40
Page 59
REALTY INCOME CORPORATION AND SUBSIDIARIES
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Apparel Stores
- --------------
Danbury CT 1,083,296 6,215,244 None None
Westbury NY 6,333,590 3,949,770 None None
Automotive Parts & Accessories
- ------------------------------
Phoenix AZ 231,000 513,057 None None
Phoenix AZ 71,750 159,359 None None
Phoenix AZ 222,950 495,178 None None
Tucson AZ 194,250 431,434 None None
Tucson AZ 178,297 396,005 None None
Yuma AZ 120,750 268,190 None None
Fullerton CA 47,325 66,522 None None
Grass Valley CA 325,000 384,955 None None
Jackson CA 300,000 390,849 None None
Sacramento CA 210,000 466,419 None None
Turlock CA 222,250 493,627 None None
Aurora CO 221,691 492,382 None None
Canon City CO 66,500 147,699 None None
Colorado Springs CO 280,193 622,317 None None
Colorado Springs CO 192,988 433,542 None None
Denver CO 141,400 314,056 None None
Denver CO 315,000 699,623 None None
Denver CO 283,500 629,666 None None
Littleton CO 252,925 561,759 None None
Lakeland FL 500,000 233,100 None None
Tampa FL 427,395 7,412 None None
Council Bluffs IA 194,355 431,668 None None
Boise ID 158,400 351,813 None None
Boise ID 190,080 422,172 None None
Coeur D'Alene ID 165,900 368,468 None None
Lewiston ID 138,950 308,612 None None
Moscow ID 117,250 260,417 None None
Nampa ID 183,743 408,101 None None
Twin Falls ID 190,080 422,172 None None
Kansas City KS 185,955 413,014 None None
Kansas City KS 222,000 455,881 None None
Page 60
REALTY INCOME CORPORATION AND SUBSIDIARIES
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Apparel Stores
- --------------
Danbury CT 1,083,296 6,215,244 7,298,540
Westbury NY 6,333,590 3,949,770 10,283,360
Automotive Parts & Accessories
- ------------------------------
Phoenix AZ 231,000 513,057 744,057
Phoenix AZ 71,750 159,359 231,109
Phoenix AZ 222,950 495,178 718,128
Tucson AZ 194,250 431,434 625,684
Tucson AZ 178,297 396,005 574,302
Yuma AZ 120,750 268,190 388,940
Fullerton CA 47,325 66,522 113,847
Grass Valley CA 325,000 384,955 709,955
Jackson CA 300,000 390,849 690,849
Sacramento CA 210,000 466,419 676,419
Turlock CA 222,250 493,627 715,877
Aurora CO 221,691 492,382 714,073
Canon City CO 66,500 147,699 214,199
Colorado Springs CO 280,193 622,317 902,510
Colorado Springs CO 192,988 433,542 626,530
Denver CO 141,400 314,056 455,456
Denver CO 315,000 699,623 1,014,623
Denver CO 283,500 629,666 913,166
Littleton CO 252,925 561,759 814,684
Lakeland FL 500,000 233,100 733,100
Tampa FL 427,395 7,412 434,807
Council Bluffs IA 194,355 431,668 626,023
Boise ID 158,400 351,813 510,213
Boise ID 190,080 422,172 612,252
Coeur D'Alene ID 165,900 368,468 534,368
Lewiston ID 138,950 308,612 447,562
Moscow ID 117,250 260,417 377,667
Nampa ID 183,743 408,101 591,844
Twin Falls ID 190,080 422,172 612,252
Kansas City KS 185,955 413,014 598,969
Kansas City KS 222,000 455,881 677,881
Page 61
REALTY INCOME CORPORATION AND SUBSIDIARIES
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Apparel Stores
- --------------
Danbury CT 72,210 09/30/97 300
Westbury NY 45,744 09/29/97 300
Automotive Parts & Accessories
- ------------------------------
Phoenix AZ 182,837 11/09/87 300
Phoenix AZ 56,790 11/19/87 300
Phoenix AZ 145,267 11/02/89 300
Tucson AZ 154,959 10/30/87 300
Tucson AZ 112,385 01/19/90 300
Yuma AZ 76,111 01/23/90 300
Fullerton CA 66,522 08/21/72 234
Grass Valley CA 128,743 05/20/88 300
Jackson CA 126,615 05/17/88 300
Sacramento CA 166,215 11/25/87 300
Turlock CA 174,526 12/30/87 300
Aurora CO 139,737 01/29/90 300
Canon City CO 52,635 11/12/87 300
Colorado Spring CO 176,611 01/23/90 300
Colorado Springs CO 83,099 05/20/93 300
Denver CO 111,918 11/18/87 300
Denver CO 237,548 05/16/88 300
Denver CO 213,795 05/27/88 300
Littleton CO 195,461 02/12/88 300
Lakeland FL 0 In Process 12/31/97 300
Tampa FL 0 In Process 12/05/97 300
Council Bluffs IA 146,568 05/19/88 300
Boise ID 119,454 05/06/88 300
Boise ID 143,343 05/06/88 300
Coeur D'Alene ID 133,379 09/21/87 300
Lewiston ID 111,713 09/16/87 300
Moscow ID 94,267 09/14/87 300
Nampa ID 138,567 05/06/88 300
Twin Falls ID 143,343 05/06/88 300
Kansas City KS 140,235 05/13/88 300
Kansas City KS 154,696 05/16/88 300
Page 62
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Automotive Parts & Accessories (continued)
- ------------------------------------------
Blue Springs MO 222,569 494,334 None None
Independence MO 210,643 467,845 None None
Kansas City MO 210,070 466,571 None None
Kansas City MO 168,350 373,910 None None
Kansas City MO 248,500 551,927 None None
Missoula MT 163,100 362,249 None None
Kearney NE 173,950 344,393 None None
Omaha NE 196,000 435,321 None None
Omaha NE 199,100 412,042 None None
Albuquerque NM 80,500 178,794 None None
Rio Rancho NM 211,577 469,923 None None
Sante Fe NM 70,000 155,473 None None
Las Vegas NV 161,000 357,585 None None
Reno NV 456,000 562,344 None None
Albany OR 152,250 338,153 None None
Beaverton OR 210,000 466,419 None None
Corvallis OR 152,250 338,153 None None
Eugene OR 194,880 432,837 None None
Oak Grove OR 180,250 400,336 None None
Portland OR 190,750 423,664 None None
Portland OR 147,000 326,493 None None
Portland OR 210,000 466,412 None None
Salem OR 136,500 303,170 None None
Tigard OR 164,500 365,361 None None
Amarillo TX 140,000 419,734 None None
Austin TX 185,454 411,899 None None
Dallas TX 191,267 424,811 None None
El Paso TX 66,150 146,922 None None
El Paso TX 56,350 125,156 None None
Garland TX 242,887 539,461 None None
Harlingen TX 134,599 298,948 None None
Houston TX 151,018 335,417 None None
Leon Valley TX 178,221 395,834 None None
Lubbock TX 42,000 93,284 None None
Lubbock TX 49,000 108,831 None None
Midland TX 45,500 101,058 None None
Odessa TX 50,750 112,718 None None
Pasadena TX 107,391 238,518 None None
Plano TX 187,564 417,158 700 None
San Antonio TX 245,164 544,518 None None
Page 63
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Automotive Parts & Accessories
- ------------------------------
Blue Springs MO 222,569 494,334 716,903
Independence MO 210,643 467,845 678,488
Kansas City MO 210,070 466,571 676,641
Kansas City MO 168,350 373,910 542,260
Kansas City MO 248,500 551,927 800,427
Missoula MT 163,100 362,249 525,349
Kearney NE 173,950 344,393 518,343
Omaha NE 196,000 435,321 631,321
Omaha NE 199,100 412,042 611,142
Albuquerque NM 80,500 178,794 259,294
Rio Rancho NM 211,577 469,923 681,500
Sante Fe NM 70,000 155,473 225,473
Las Vegas NV 161,000 357,585 518,585
Reno NV 456,000 562,344 1,018,344
Albany OR 152,250 338,153 490,403
Beaverton OR 210,000 466,419 676,419
Corvallis OR 152,250 338,153 490,403
Eugene OR 194,880 432,837 627,717
Oak Grove OR 180,250 400,336 580,586
Portland OR 190,750 423,664 614,414
Portland OR 147,000 326,493 473,493
Portland OR 210,000 466,412 676,412
Salem OR 136,500 303,170 439,670
Tigard OR 164,500 365,361 529,861
Amarillo TX 140,000 419,734 559,734
Austin TX 185,454 411,899 597,353
Dallas TX 191,267 424,811 616,078
El Paso TX 66,150 146,922 213,072
El Paso TX 56,350 125,156 181,506
Garland TX 242,887 539,461 782,348
Harlingen TX 134,599 298,948 433,547
Houston TX 151,018 335,417 486,435
Leon Valley TX 178,221 395,834 574,055
Lubbock TX 42,000 93,284 135,284
Lubbock TX 49,000 108,831 157,831
Midland TX 45,500 101,058 146,558
Odessa TX 50,750 112,718 163,468
Pasadena TX 107,391 238,518 345,909
Plano TX 187,564 417,858 605,422
San Antonio TX 245,164 544,518 789,682
Page 64
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Automotive Parts & Accessories (continued)
- ------------------------------------------
Blue Springs MO 148,532 07/31/89 300
Independence MO 140,572 07/31/89 300
Kansas City MO 158,419 05/13/88 300
Kansas City MO 126,957 05/26/88 300
Kansas City MO 179,292 10/25/88 300
Missoula MT 130,111 10/30/87 300
Kearney NE 93,917 05/01/90 300
Omaha NE 147,808 05/26/88 300
Omaha NE 137,987 05/27/88 300
Albuquerque NM 64,219 10/29/87 300
Rio Rancho NM 163,507 02/26/88 300
Sante Fe NM 55,842 10/29/87 300
Las Vegas NV 128,436 10/29/87 300
Reno NV 190,812 05/26/88 300
Albany OR 123,358 08/24/87 300
Beaverton OR 170,149 08/26/87 300
Corvallis OR 123,358 08/12/87 300
Eugene OR 150,604 02/10/88 300
Oak Grove OR 146,041 08/06/87 300
Portland OR 154,552 08/12/87 300
Portland OR 119,104 08/26/87 300
Portland OR 168,835 09/01/87 300
Salem OR 110,595 08/20/87 300
Tigard OR 133,284 08/26/87 300
Amarillo TX 137,505 09/12/88 300
Austin TX 115,753 02/06/90 300
Dallas TX 120,560 01/26/90 300
El Paso TX 52,770 10/27/87 300
El Paso TX 44,952 10/27/87 300
Garland TX 153,097 01/19/90 300
Harlingen TX 84,841 01/17/90 300
Houston TX 95,189 01/25/90 300
Leon Valley TX 112,337 01/17/90 300
Lubbock TX 33,504 10/26/87 300
Lubbock TX 39,090 10/29/87 300
Midland TX 36,296 10/27/87 300
Odessa TX 40,484 10/26/87 300
Pasadena TX 67,691 01/24/90 300
Plano TX 118,226 01/18/90 300
San Antonio TX 153,021 02/14/90 300
Page 65
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Automotive Parts & Accessories (continued)
- ------------------------------------------
Bountiful UT 183,750 408,115 None None
Provo UT 125,395 278,507 None None
Bellevue WA 185,500 411,997 None None
Bellingham WA 168,000 373,133 None None
Bothell WA 199,500 443,098 None None
Everett WA 367,500 816,227 None None
Hazel Dell WA 168,000 373,135 None None
Kennewick WA 161,350 358,365 None None
Kent WA 199,500 443,091 None None
Lacey WA 171,150 380,125 None None
Marysville WA 168,000 373,135 None None
Moses Lake WA 138,600 307,831 None None
Pasco WA 161,700 359,142 None None
Puyallup WA 173,250 384,795 None None
Redmond WA 196,000 435,317 None None
Renton WA 185,500 412,003 None None
Richland WA 161,700 359,142 None None
Seattle WA 162,400 360,697 None None
Silverdale WA 183,808 419,777 None None
Spanaway WA 189,000 419,777 None None
Spokane WA 66,150 146,921 None None
Tacoma WA 191,800 425,996 None None
Tacoma WA 196,000 435,324 None None
Tacoma WA 187,111 415,579 None None
Vancouver WA 180,250 400,343 None None
Walla Walla WA 170,100 377,793 None None
Wenatchee WA 148,400 329,602 None None
Woodinville WA 171,500 380,908 None None
Automotive Service
- ------------------
Flagstaff AZ 144,821 84,182 None None
Chula Vista CA 313,293 409,654 None None
Arvada CO 201,565 339,038 None None
Arvada CO 241,044 344,753 None None
Broomfield CO 154,930 503,626 None None
Denver CO 79,717 369,586 None None
Denver CO 341,726 432,986 None None
Thornton CO 276,084 415,464 None None
Hartford CT 248,540 482,460 None None
Page 66
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Automotive Parts & Accessories (continued)
- ------------------------------------------
Bountiful UT 183,750 408,115 591,865
Provo UT 125,395 278,507 403,902
Bellevue WA 185,500 411,997 597,497
Bellingham WA 168,000 373,133 541,133
Bothell WA 199,500 443,098 642,598
Everett WA 367,500 816,227 1,183,727
Hazel Dell WA 168,000 373,135 541,135
Kennewick WA 161,350 358,365 519,715
Kent WA 199,500 443,091 642,591
Lacey WA 171,150 380,125 551,275
Marysville WA 168,000 373,135 541,135
Moses Lake WA 138,600 307,831 446,431
Pasco WA 161,700 359,142 520,842
Puyallup WA 173,250 384,795 558,045
Redmond WA 196,000 435,317 631,317
Renton WA 185,500 412,003 597,503
Richland WA 161,700 359,142 520,842
Seattle WA 162,400 360,697 523,097
Silverdale WA 183,808 419,777 603,585
Spanaway WA 189,000 419,777 608,777
Spokane WA 66,150 146,921 213,071
Tacoma WA 191,800 425,996 617,796
Tacoma WA 196,000 435,324 631,324
Tacoma WA 187,111 415,579 602,690
Vancouver WA 180,250 400,343 580,593
Walla Walla WA 170,100 377,793 547,893
Wenatchee WA 148,400 329,602 478,002
Woodinville WA 171,500 380,908 552,408
Automotive Service
- ------------------
Flagstaff AZ 144,821 84,182 229,003
Chula Vista CA 313,293 409,654 722,947
Arvada CO 201,565 339,038 540,603
Arvada CO 241,044 344,753 585,797
Broomfield CO 154,930 503,626 658,556
Denver CO 79,717 369,586 449,303
Denver CO 341,726 432,986 774,712
Thornton CO 276,084 415,464 691,548
Hartford CT 248,540 482,460 731,000
Page 67
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Automotive Parts & Accessories (continued)
- ------------------------------------------
Bountiful UT 115,821 01/30/90 300
Provo UT 79,039 01/25/90 300
Bellevue WA 150,295 08/06/87 300
Bellingham WA 136,116 08/20/87 300
Bothell WA 161,642 08/20/87 300
Everett WA 290,874 11/17/87 300
Hazel Dell WA 122,395 05/23/88 300
Kennewick WA 130,731 08/26/87 300
Kent WA 161,638 08/06/87 300
Lacey WA 138,667 08/13/87 300
Marysville WA 136,120 08/20/87 300
Moses Lake WA 112,296 08/12/87 300
Pasco WA 131,014 08/18/87 300
Puyallup WA 139,291 09/15/87 300
Redmond WA 157,580 09/17/87 300
Renton WA 149,138 09/15/87 300
Richland WA 131,014 08/13/87 300
Seattle WA 131,582 08/20/87 300
Silverdale WA 151,952 09/16/87 300
Spanaway WA 153,132 08/25/87 300
Spokane WA 52,357 11/18/87 300
Tacoma WA 155,403 08/18/87 300
Tacoma WA 156,357 10/15/87 300
Tacoma WA 117,940 01/25/90 300
Vancouver WA 146,043 08/20/87 300
Walla Walla WA 137,817 08/06/87 300
Wenatchee WA 120,240 08/25/87 300
Woodinville WA 138,954 08/20/87 300
Automotive Service
- ------------------
Flagstaff AZ 0 In Process 08/29/97 300
Chula Vista CA 26,627 05/01/96 01/19/96 300
Arvada CO 18,647 08/28/96 04/09/96 300
Arvada CO 12,840 01/03/97 07/10/96 300
Broomfield CO 27,700 08/22/96 03/15/96 300
Denver CO 216,056 10/08/85 300
Denver CO 3,569 09/25/97 06/12/97 300
Thornton CO 15,769 12/31/96 10/31/96 300
Hartford CT 24,927 09/30/96 300
Page 68
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Automotive Service (continued)
- ------------------------------
Southington CT 225,882 672,508 None None
Ft. Lauderdale FL 254,090 4,421 None None
Jacksonville FL 76,585 355,066 None None
Lauderdale Lakes FL 65,987 305,931 None None
Seminole FL 68,000 315,266 None None
Sunrise FL 80,253 372,069 None None
Tampa FL 70,000 324,538 None None
Tampa FL 67,000 310,629 None None
Tampa FL 86,502 401,041 None None
Atlanta GA 55,840 258,889 None None
Atlanta GA 78,646 364,625 None None
Bogart GA 66,807 309,732 None None
Duluth GA 222,275 273,956 None None
Gainesville GA 53,589 248,452 None None
Marietta GA 60,900 293,461 None None
Marietta GA 69,561 346,024 None None
Riverdale GA 58,444 270,961 None None
Rome GA 56,454 261,733 None None
Anderson IN 232,170 385,790 None None
Indianapolis IN 231,384 428,307 None None
Olathe KS 217,995 367,055 None None
Louisville KY 56,054 259,881 None None
Newport KY 323,511 288,168 None None
Billerica MA 399,043 461,854 None None
Clinton MD 70,880 328,620 None None
Minneapolis MN 58,000 268,903 None None
Independence MO 297,641 233,152 None None
Concord NC 237,688 64,645 None None
Durham NC 55,074 255,336 None None
Durham NC 354,676 360,875 None None
Fayettville NC 224,326 256,992 None None
Garner NC 218,294 286,665 None None
Greensboro NC 287,474 315,828 None None
Pineville NC 254,460 355,299 None None
Raleigh NC 89,145 413,301 None None
Raleigh NC 398,694 263,388 None None
Cherry Hill NJ 1,074,640 1,032,304 None None
Akron OH 139,126 460,066 None None
Beaver Creek OH 205,000 492,538 None None
Centerville OH 305,000 420,448 None None
Page 69
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Automotive Service (continued)
- ------------------------------
Southington CT 225,882 672,508 898,390
Ft. Lauderdale FL 254,090 4,421 258,511
Jacksonville FL 76,585 355,066 431,651
Lauderdale Lakes FL 65,987 305,931 371,918
Seminole FL 68,000 315,266 383,266
Sunrise FL 80,253 372,069 452,322
Tampa FL 70,000 324,538 394,538
Tampa FL 67,000 310,629 377,629
Tampa FL 86,502 401,041 487,543
Atlanta GA 55,840 258,889 314,729
Atlanta GA 78,646 364,625 443,271
Bogart GA 66,807 309,732 376,539
Duluth GA 222,275 273,956 496,231
Gainesville GA 53,589 248,452 302,041
Marietta GA 60,900 293,461 354,361
Marietta GA 69,561 346,024 415,585
Riverdale GA 58,444 270,961 329,405
Rome GA 56,454 261,733 318,187
Anderson IN 232,170 385,790 617,960
Indianapolis IN 231,384 428,307 659,691
Olathe KS 217,995 367,055 585,050
Louisville KY 56,054 259,881 315,935
Newport KY 323,511 288,168 611,679
Billerica MA 399,043 461,854 860,897
Clinton MD 70,880 328,620 399,500
Minneapolis MN 58,000 268,903 326,903
Independence MO 297,641 233,152 530,793
Concord NC 237,688 64,645 302,333
Durham NC 55,074 255,336 310,410
Durham NC 354,676 360,875 715,551
Fayettville NC 224,326 256,992 481,318
Garner NC 218,294 286,665 504,959
Greensboro NC 287,474 315,828 603,302
Pineville NC 254,460 355,299 609,759
Raleigh NC 89,145 413,301 502,446
Raleigh NC 398,694 263,388 662,082
Cherry Hill NJ 1,074,640 1,032,304 2,106,944
Akron OH 139,126 460,066 599,192
Beaver Creek OH 205,000 492,538 697,538
Centerville OH 305,000 420,448 725,448
Page 70
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Automotive Service (continued)
- ------------------------------
Southington CT 14,470 06/06/97 300
Ft. Lauderdale FL 0 In Process 12/24/97 300
Jacksonville FL 203,413 12/23/85 300
Lauderdale Lakes FL 172,767 02/19/86 300
Seminole FL 180,611 12/23/85 300
Sunrise FL 211,445 02/14/86 300
Tampa FL 185,923 12/27/85 300
Tampa FL 177,955 12/27/85 300
Tampa FL 218,269 07/23/86 300
Atlanta GA 149,370 11/27/85 300
Atlanta GA 208,889 12/18/85 300
Bogart GA 177,443 12/20/85 300
Duluth GA 0 11/03/97 06/20/97 300
Gainesville GA 142,333 12/19/85 300
Marietta GA 168,118 12/26/85 300
Marietta GA 190,987 06/03/86 300
Riverdale GA 154,124 01/15/86 300
Rome GA 149,941 12/19/85 300
Anderson IN 639 12/19/97 300
Indianapolis IN 22,129 09/27/96 300
Olathe KS 9,173 04/22/97 11/11/96 300
Louisville KY 148,882 12/17/85 300
Newport KY 3,330 09/17/97 300
Billerica MA 13,004 04/02/97 300
Clinton MD 190,770 11/15/85 300
Minneapolis MN 154,051 12/18/85 300
Independence MO 9,715 12/20/96 300
Concord NC 0 In Process 11/05/97 300
Durham NC 148,230 11/13/85 300
Durham NC 4,173 08/29/97 03/31/97 300
Fayettville NC 423 12/03/97 300
Garner NC 0 11/18/97 06/20/97 300
Greensboro NC 6,790 06/09/97 01/31/97 300
Pineville NC 4,111 08/28/97 04/16/97 300
Raleigh NC 240,144 10/28/85 300
Raleigh NC 2,160 10/01/97 300
Cherry Hill NJ 98,069 08/02/95 01/26/95 300
Akron OH 5,333 09/18/97 300
Beaver Creek OH 15,596 02/13/97 09/09/96 300
Centerville OH 24,526 07/24/96 06/28/96 300
Page 71
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Automotive Service (continued)
- ------------------------------
Cincinnati OH 293,005 200,273 None None
Columbus OH 71,098 329,626 None None
Columbus OH 75,761 351,246 None None
Columbus OH 245,036 470,468 None None
Dayton OH 70,000 324,538 None None
Eastlake OH 321,347 459,774 None None
Fairfield OH 323,408 234,253 None None
Findlay OH 283,515 397,156 None None
Hamilton OH 252,608 413,279 None None
Huber Heights OH 282,000 449,381 None None
Miamisburg OH 63,996 296,701 None None
Milford OH 353,324 269,853 None None
Mt. Vernon OH 216,115 375,365 None None
Northwood OH 65,978 263,912 None None
Norwalk OH 200,205 365,961 None None
Sandusky OH 264,708 404,164 None None
Springboro OH 191,911 522,178 None None
Toledo OH 91,655 366,621 None None
Toledo OH 73,408 293,632 None None
Midwest City OK 106,312 90,123 None None
The Village OK 143,655 116,311 None None
Bethel Park PA 299,595 331,579 None None
Bethlehem PA 275,328 389,330 None None
Bethlehem PA 229,162 310,357 None None
Philadelphia PA 858,500 877,745 None None
Springfield Twp. PA 82,740 383,601 None None
York PA 249,436 347,479 None None
Charleston SC 217,250 293,791 None None
Columbia SC 267,622 53,568 None None
Columbia SC 343,785 294,701 None None
Greenville SC 221,946 314,818 None None
Brentwood TN 305,546 292,973 None None
Nashville TN 342,960 226,897 None None
Dallas TX 234,604 325,951 None None
Houston TX 285,000 369,389 None None
Lewisville TX 199,942 324,736 None None
San Antonio TX 198,828 437,422 None None
Richmond VA 149,780 399,415 None None
Roanoke VA 349,628 322,763 None None
Virginia Beach VA 287,675 382,092 None None
Page 72
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Automotive Service (continued)
- ------------------------------
Cincinnati OH 293,005 200,273 493,278
Columbus OH 71,098 329,626 400,724
Columbus OH 75,761 351,246 427,007
Columbus OH 245,036 470,468 715,504
Dayton OH 70,000 324,538 394,538
Eastlake OH 321,347 459,774 781,121
Fairfield OH 323,408 234,253 557,661
Findlay OH 283,515 397,156 680,671
Hamilton OH 252,608 413,279 665,887
Huber Heights OH 282,000 449,381 731,381
Miamisburg OH 63,996 296,701 360,697
Milford OH 353,324 269,853 623,177
Mt. Vernon OH 216,115 375,365 591,480
Northwood OH 65,978 263,912 329,890
Norwalk OH 200,205 365,961 566,166
Sandusky OH 264,708 404,164 668,872
Springboro OH 191,911 522,178 714,089
Toledo OH 91,655 366,621 458,276
Toledo OH 73,408 293,632 367,040
Midwest City OK 106,312 90,123 196,435
The Village OK 143,655 116,311 259,966
Bethel Park PA 299,595 331,579 631,174
Bethlehem PA 275,328 389,330 664,658
Bethlehem PA 229,162 310,357 539,519
Philadelphia PA 858,500 877,745 1,736,245
Springfield Twp. PA 82,740 383,601 466,341
York PA 249,436 347,479 596,915
Charleston SC 217,250 293,791 511,041
Columbia SC 267,622 53,568 321,190
Columbia SC 343,785 294,701 638,486
Greenville SC 221,946 314,818 536,764
Brentwood TN 305,546 292,973 598,519
Nashville TN 342,960 226,897 569,857
Dallas TX 234,604 325,951 560,555
Houston TX 285,000 369,389 654,389
Lewisville TX 199,942 324,736 524,678
San Antonio TX 198,828 437,422 636,250
Richmond VA 149,780 399,415 549,195
Roanoke VA 349,628 322,763 672,391
Virginia Beach VA 287,675 382,092 669,767
Page 73
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Automotive Service (continued)
- ------------------------------
Cincinnati OH 2,296 09/17/97 300
Columbus OH 192,696 10/02/85 300
Columbus OH 204,088 10/24/85 300
Columbus OH 38,422 12/22/95 300
Dayton OH 188,569 10/31/85 300
Eastlake OH 37,548 12/22/95 300
Fairfield OH 2,695 09/17/97 300
Findlay OH 658 12/24/97 300
Hamilton OH 8,951 03/31/97 10/04/96 300
Huber Heights OH 17,225 12/03/96 07/18/96 300
Miamisburg OH 173,448 10/08/85 300
Milford OH 3,106 09/18/97 300
Mt. Vernon OH 622 12/30/97 300
Northwood OH 198,997 09/12/86 300
Norwalk OH 607 12/19/97 300
Sandusky OH 670 12/19/97 300
Springboro OH 16,439 03/07/97 300
Toledo OH 276,442 09/12/86 300
Toledo OH 221,406 09/12/86 300
Midwest City OK 0 In Process 08/08/97 300
The Village OK 0 In Process 07/29/97 300
Bethel Park PA 549 12/19/97 300
Bethlehem PA 646 12/19/97 300
Bethlehem PA 514 12/24/97 300
Philadelphia PA 201,430 05/19/95 12/05/94 300
Springfield Twp. PA 216,630 02/28/86 300
York PA 576 12/30/97 300
Charleston SC 4,363 07/14/97 03/13/97 300
Columbia SC 0 In Process 11/05/97 300
Columbia SC 6,298 05/27/97 02/07/97 300
Greenville SC 2,601 09/05/97 03/31/97 300
Brentwood TN 0 In Process 05/28/97 300
Nashville TN 2,610 09/17/97 300
Dallas TX 17,927 08/09/96 02/19/96 300
Houston TX 3,041 08/08/97 08/08/97 300
Lewisville TX 17,860 08/02/96 02/14/96 300
San Antonio TX 40,097 09/15/95 300
Richmond VA 16,642 12/26/96 300
Roanoke VA 534 12/19/97 300
Virginia Beach VA 14,396 01/07/97 09/27/96 300
Page 74
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Automotive Service (continued)
- ------------------------------
Bremerton WA 261,172 373,080 None None
Milwaukee WI 173,005 499,244 None None
Milwaukee WI 152,509 475,480 None None
New Berlin WI 188,491 466,268 None None
Book Stores
- -----------
Tampa FL 998,250 3,697,927 None None
Child Care
- ----------
Birmingham AL 63,800 295,791 None None
Huntsville AL 28,600 197,165 None None
Mobile AL 78,400 237,671 None None
Mobile AL 63,000 292,084 None None
Chandler AZ 144,083 668,080 None None
Chandler AZ 291,720 647,923 None None
Chandler AZ 271,695 603,446 None None
Glendale AZ 115,000 285,172 None None
Mesa AZ 297,500 660,755 None None
Mesa AZ 276,770 590,417 None None
Peoria AZ 281,750 625,779 None None
Phoenix AZ 318,500 707,397 None None
Phoenix AZ 264,504 587,471 None None
Phoenix AZ 260,719 516,181 None None
Scottsdale AZ 291,993 648,530 None None
Tempe AZ 292,200 648,989 None None
Tempe AZ 294,000 638,977 None None
Tucson AZ 304,500 676,303 None None
Tucson AZ 283,500 546,878 None None
Calabasas CA 156,430 725,248 None None
Carmichael CA 131,035 607,507 None None
Chino CA 155,000 634,071 None None
Chula Vista CA 350,563 778,614 None None
Corona CA 144,856 671,585 None None
El Cajon CA 157,804 731,621 None None
Encinitas CA 320,000 710,729 None None
Escondido CA 276,286 613,638 None None
Folsom CA 281,563 625,363 None None
Mission Viejo CA 353,891 744,367 None None
Page 75
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Automotive Service (continued)
- ------------------------------
Bremerton WA 261,172 373,080 634,252
Milwaukee WI 173,005 499,244 672,249
Milwaukee WI 152,509 475,480 627,989
New Berlin WI 188,491 466,268 654,759
Book Stores
- -----------
Tampa FL 998,250 3,697,927 4,696,177
Child Care
- ----------
Birmingham AL 63,800 295,791 359,591
Huntsville AL 28,600 197,165 225,765
Mobile AL 78,400 237,671 316,071
Mobile AL 63,000 292,084 355,084
Chandler AZ 144,083 668,080 812,163
Chandler AZ 291,720 647,923 939,643
Chandler AZ 271,695 603,446 875,141
Glendale AZ 115,000 285,172 400,172
Mesa AZ 297,500 660,755 958,255
Mesa AZ 276,770 590,417 867,187
Peoria AZ 281,750 625,779 907,529
Phoenix AZ 318,500 707,397 1,025,897
Phoenix AZ 264,504 587,471 851,975
Phoenix AZ 260,719 516,181 776,900
Scottsdale AZ 291,993 648,530 940,523
Tempe AZ 292,200 648,989 941,189
Tempe AZ 294,000 638,977 932,977
Tucson AZ 304,500 676,303 980,803
Tucson AZ 283,500 546,878 830,378
Calabasas CA 156,430 725,248 881,678
Carmichael CA 131,035 607,507 738,542
Chino CA 155,000 634,071 789,071
Chula Vista CA 350,563 778,614 1,129,177
Corona CA 144,856 671,585 816,441
El Cajon CA 157,804 731,621 889,425
Encinitas CA 320,000 710,729 1,030,729
Escondido CA 276,286 613,638 889,924
Folsom CA 281,563 625,363 906,926
Mission Viejo CA 353,891 744,367 1,098,258
Page 76
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Automotive Service (continued)
- ------------------------------
Bremerton WA 16,396 03/19/97 07/24/96 300
Milwaukee WI 40,772 12/22/95 300
Milwaukee WI 24,566 09/27/96 300
New Berlin WI 38,079 12/22/95 300
Book Stores
- -----------
Tampa FL 117,001 03/11/97 300
Child Care
- ----------
Birmingham AL 193,248 10/31/84 300
Huntsville AL 197,165 06/15/82 180
Mobile AL 237,671 10/15/82 180
Mobile AL 181,404 04/25/85 300
Chandler AZ 349,889 12/17/86 300
Chandler AZ 229,028 12/11/87 300
Chandler AZ 213,401 12/14/87 300
Glendale AZ 264,572 02/08/84 180
Mesa AZ 216,958 09/29/88 300
Mesa AZ 193,865 09/29/88 300
Peoria AZ 215,982 03/30/88 300
Phoenix AZ 232,273 09/29/88 300
Phoenix AZ 158,578 06/29/90 300
Phoenix AZ 130,764 12/26/90 300
Scottsdale AZ 229,291 12/14/87 300
Tempe AZ 223,993 03/10/88 300
Tempe AZ 174,113 09/27/90 300
Tucson AZ 222,064 09/28/88 300
Tucson AZ 179,567 09/29/88 300
Calabasas CA 424,348 09/26/85 300
Carmichael CA 328,149 08/22/86 300
Chino CA 602,337 10/06/83 180
Chula Vista CA 279,658 10/30/87 300
Corona CA 432,880 12/19/84 300
El Cajon CA 419,133 12/19/85 300
Encinitas CA 251,283 12/29/87 300
Escondido CA 216,954 12/31/87 300
Folsom CA 225,976 10/23/87 300
Mission Viejo CA 154,359 06/24/93 300
Page 77
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Moreno Valley CA 304,489 676,214 None None
Oceanside CA 145,568 674,889 None None
Palmdale CA 249,490 554,125 None None
Rancho Cordova CA 276,328 613,733 None None
Rancho Cucamonga CA 471,733 1,047,739 None None
Roseville CA 297,343 660,412 None None
Sacramento CA 290,734 645,731 None None
Santee CA 248,418 551,748 None None
Simi Valley CA 208,585 967,055 None None
Valencia CA 301,295 669,185 None None
Walnut CA 217,365 1,007,753 None None
Aurora CO 141,811 657,497 None None
Aurora CO 287,000 637,440 None None
Aurora CO 301,455 655,609 None None
Broomfield CO 107,000 403,080 None None
Broomfield CO 155,306 344,941 None None
Colorado Springs CO 58,400 271,217 None None
Colorado Springs CO 92,570 241,413 None None
Colorado Springs CO 115,542 535,700 None None
Englewood CO 131,216 608,372 None None
Englewood CO 158,651 735,571 None None
Fort Collins CO 55,200 256,356 None None
Fort Collins CO 117,105 542,950 None None
Fort Collins CO 137,734 638,594 None None
Greeley CO 58,400 270,755 None None
Littleton CO 161,617 358,956 None None
Littleton CO 287,000 637,435 None None
Littleton CO 299,250 664,642 None None
Longmont CO 115,592 535,931 None None
Louisville CO 58,089 269,313 None None
Parker CO 153,551 341,043 None None
Westminster CO 306,387 695,737 None None
Bradenton FL 160,060 355,501 None None
Clearwater FL 42,223 269,380 None None
Jacksonville FL 38,500 228,481 None None
Jacksonville FL 48,000 243,060 None None
Jacksonville FL 184,800 410,447 None None
Jupiter FL 78,000 360,088 None None
Margate FL 66,686 309,183 None None
Melbourne FL 256,439 549,345 None None
Page 78
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Moreno Valley CA 304,489 676,214 980,703
Oceanside CA 145,568 674,889 820,457
Palmdale CA 249,490 554,125 803,615
Rancho Cordova CA 276,328 613,733 890,061
Rancho Cucamonga CA 471,733 1,047,739 1,519,472
Roseville CA 297,343 660,412 957,755
Sacramento CA 290,734 645,731 936,465
Santee CA 248,418 551,748 800,166
Simi Valley CA 208,585 967,055 1,175,640
Valencia CA 301,295 669,185 970,480
Walnut CA 217,365 1,007,753 1,225,118
Aurora CO 141,811 657,497 799,308
Aurora CO 287,000 637,440 924,440
Aurora CO 301,455 655,609 957,064
Broomfield CO 107,000 403,080 510,080
Broomfield CO 155,306 344,941 500,247
Colorado Springs CO 58,400 271,217 329,617
Colorado Springs CO 92,570 241,413 333,983
Colorado Springs CO 115,542 535,700 651,242
Englewood CO 131,216 608,372 739,588
Englewood CO 158,651 735,571 894,222
Fort Collins CO 55,200 256,356 311,556
Fort Collins CO 117,105 542,950 660,055
Fort Collins CO 137,734 638,594 776,328
Greeley CO 58,400 270,755 329,155
Littleton CO 161,617 358,956 520,573
Littleton CO 287,000 637,435 924,435
Littleton CO 299,250 664,642 963,892
Longmont CO 115,592 535,931 651,523
Louisville CO 58,089 269,313 327,402
Parker CO 153,551 341,043 494,594
Westminster CO 306,387 695,737 1,002,124
Bradenton FL 160,060 355,501 515,561
Clearwater FL 42,223 269,380 311,603
Jacksonville FL 38,500 228,481 266,981
Jacksonville FL 48,000 243,060 291,060
Jacksonville FL 184,800 410,447 595,247
Jupiter FL 78,000 360,088 438,088
Margate FL 66,686 309,183 375,869
Melbourne FL 256,439 549,345 805,784
Page 79
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Moreno Valley CA 258,116 02/11/87 300
Oceanside CA 386,632 12/23/85 300
Palmdale CA 181,946 09/14/88 300
Rancho Cordova CA 191,244 03/22/89 300
Rancho Cucamonga CA 370,436 12/30/87 300
Roseville CA 238,630 10/21/87 300
Sacramento CA 231,929 10/05/87 300
Santee CA 202,829 07/23/87 300
Simi Valley CA 554,013 12/20/85 300
Valencia CA 225,342 06/23/88 300
Walnut CA 544,346 08/22/86 300
Aurora CO 368,615 03/25/86 300
Aurora CO 225,370 12/31/87 300
Aurora CO 241,628 09/27/89 300
Broomfield CO 403,080 01/12/83 180
Broomfield CO 119,054 03/15/88 300
Colorado Springs CO 271,217 12/22/82 180
Colorado Springs CO 232,004 08/31/83 180
Colorado Springs CO 282,492 12/04/86 300
Englewood CO 320,815 12/05/86 300
Englewood CO 385,235 12/29/86 300
Fort Collins CO 256,356 12/22/82 180
Fort Collins CO 304,395 03/25/86 300
Fort Collins CO 358,017 03/25/86 300
Greeley CO 175,757 11/21/84 300
Littleton CO 126,908 12/10/87 300
Littleton CO 209,301 09/29/88 300
Littleton CO 218,235 09/29/88 300
Longmont CO 300,461 03/25/86 300
Louisville CO 180,450 06/22/84 300
Parker CO 123,230 10/19/87 300
Westminster CO 232,355 09/27/89 300
Bradenton FL 120,707 05/05/88 300
Clearwater FL 269,380 12/22/81 180
Jacksonville FL 228,481 12/22/81 180
Jacksonville FL 243,060 12/22/81 180
Jacksonville FL 127,898 03/30/89 300
Jupiter FL 211,932 09/11/85 300
Margate FL 161,927 12/16/86 300
Melbourne FL 115,594 04/16/93 300
Page 80
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Niceville FL 73,696 341,688 None None
Orlando FL 68,001 313,922 None None
Orlando FL 159,177 353,538 None None
Orlando FL 245,249 544,704 None None
Orlando FL 190,050 422,107 None None
Oviedo FL 166,409 369,598 None None
Panama City FL 69,500 244,314 None None
Pensacola FL 147,000 326,492 None None
Royal Palm Beach FL 194,193 431,309 None None
Spring Hill FL 146,939 326,356 None None
St. Augustine FL 44,800 213,040 None None
Sunrise FL 69,400 246,671 None None
Sunrise FL 245,000 533,280 None None
Tallahassee FL 66,000 232,010 None None
Tampa FL 53,385 199,846 None None
Douglasville GA 54,000 250,356 None None
Dunwoody GA 318,500 707,399 None None
Ellenwood GA 119,678 275,414 None None
Fayetteville GA 148,400 329,601 None None
Lawrenceville GA 141,449 314,161 None None
Lilburn GA 116,350 539,488 None None
Lithia Springs GA 187,444 363,358 None None
Lithonia GA 239,715 524,459 None None
Marietta GA 231,000 513,061 None None
Marietta GA 273,000 619,076 None None
Marietta GA 148,620 330,090 None None
Marietta GA 292,250 649,095 None None
Marietta GA 295,750 596,299 None None
Marietta GA 301,000 668,529 None None
Martinez GA 141,153 313,504 None None
Smyrna GA 274,750 610,229 None None
Stockbridge GA 168,700 374,688 None None
Stone Mountain GA 65,000 301,357 None None
Stone Mountain GA 316,750 703,512 None None
Valdosta GA 73,561 341,059 None None
Cedar Rapids IA 194,950 427,085 None None
Iowa City IA 186,900 408,910 None None
Johnston IA 186,996 347,278 None None
Addison IL 125,780 583,146 None None
Algonquin IL 241,500 509,629 None None
Page 81
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Niceville FL 73,696 341,688 415,384
Orlando FL 68,001 313,922 381,923
Orlando FL 159,177 353,538 512,715
Orlando FL 245,249 544,704 789,953
Orlando FL 190,050 422,107 612,157
Oviedo FL 166,409 369,598 536,007
Panama City FL 69,500 244,314 313,814
Pensacola FL 147,000 326,492 473,492
Royal Palm Beach FL 194,193 431,309 625,502
Spring Hill FL 146,939 326,356 473,295
St. Augustine FL 44,800 213,040 257,840
Sunrise FL 69,400 246,671 316,071
Sunrise FL 245,000 533,280 778,280
Tallahassee FL 66,000 232,010 298,010
Tampa FL 53,385 199,846 253,231
Douglasville GA 54,000 250,356 304,356
Dunwoody GA 318,500 707,399 1,025,899
Ellenwood GA 119,678 275,414 395,092
Fayetteville GA 148,400 329,601 478,001
Lawrenceville GA 141,449 314,161 455,610
Lilburn GA 116,350 539,488 655,838
Lithia Springs GA 187,444 363,358 550,802
Lithonia GA 239,715 524,459 764,174
Marietta GA 231,000 513,061 744,061
Marietta GA 273,000 619,076 892,076
Marietta GA 148,620 330,090 478,710
Marietta GA 292,250 649,095 941,345
Marietta GA 295,750 596,299 892,049
Marietta GA 301,000 668,529 969,529
Martinez GA 141,153 313,504 454,657
Smyrna GA 274,750 610,229 884,979
Stockbridge GA 168,700 374,688 543,388
Stone Mountain GA 65,000 301,357 366,357
Stone Mountain GA 316,750 703,512 1,020,262
Valdosta GA 73,561 341,059 414,620
Cedar Rapids IA 194,950 427,085 622,035
Iowa City IA 186,900 408,910 595,810
Johnston IA 186,996 347,278 534,274
Addison IL 125,780 583,146 708,926
Algonquin IL 241,500 509,629 751,129
Page 82
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Niceville FL 180,176 12/03/86 300
Orlando FL 184,760 09/04/85 300
Orlando FL 129,963 07/02/87 300
Orlando FL 192,581 12/10/87 300
Orlando FL 131,531 03/30/89 300
Oviedo FL 131,704 11/20/87 300
Panama City FL 244,314 06/15/82 180
Pensacola FL 101,737 03/28/89 300
Royal Palm Beach FL 139,211 11/15/88 300
Spring Hill FL 116,294 11/24/87 300
St. Augustine FL 213,040 12/22/81 180
Sunrise FL 246,671 06/15/82 180
Sunrise FL 168,101 05/25/89 300
Tallahassee FL 232,010 06/15/82 180
Tampa FL 199,846 12/22/81 180
Douglasville GA 163,579 10/23/84 300
Dunwoody GA 228,323 11/16/88 300
Ellenwood GA 88,893 11/16/88 300
Fayetteville GA 102,707 03/29/89 300
Lawrenceville GA 104,911 07/07/88 300
Lilburn GA 282,542 12/23/86 300
Lithia Springs GA 110,194 12/28/89 300
Lithonia GA 152,857 08/20/91 300
Marietta GA 177,079 03/18/88 300
Marietta GA 211,933 04/26/88 300
Marietta GA 108,448 09/16/88 300
Marietta GA 207,693 12/02/88 300
Marietta GA 190,800 12/30/88 300
Marietta GA 213,910 12/30/88 300
Martinez GA 110,838 12/31/87 300
Smyrna GA 196,960 11/15/88 300
Stockbridge GA 116,755 03/28/89 300
Stone Mountain GA 179,999 06/19/85 300
Stone Mountain GA 227,068 11/16/88 300
Valdosta GA 179,841 12/03/86 300
Cedar Rapids IA 105,923 09/24/92 300
Iowa City IA 103,511 09/24/92 300
Johnston IA 80,307 08/19/91 300
Addison IL 326,932 03/25/86 300
Algonquin IL 139,613 07/10/90 300
Page 83
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Aurora IL 165,679 398,739 None None
Bartlett IL 120,824 560,166 None None
Bolingbrook IL 60,000 409,024 None None
Carol Stream IL 122,831 586,416 None None
Elk Grove Vlg IL 126,860 588,175 None None
Elk Grove Vlg IL 214,845 477,180 None None
Glendale Heights IL 318,500 707,399 None None
Hoffman Estates IL 318,500 707,399 None None
Hoffman Estates IL 211,082 468,818 None None
Lockport IL 189,477 442,018 None None
O'Fallon IL 141,250 313,722 None None
Orland Park IL 218,499 485,295 None None
Palatine IL 121,911 565,233 None None
Roselle IL 297,541 561,036 None None
Schaumburg IL 218,798 485,956 None None
Vernon Hills IL 132,523 614,430 None None
Westmont IL 124,742 578,330 None None
Carmel IN 217,565 430,742 None None
Fishers IN 212,118 419,959 None None
Highland IN 220,460 436,476 None None
Indianapolis IN 245,000 544,153 None None
Noblesville IN 60,000 278,175 None None
Zionsville IN 127,568 319,770 None None
Lenexa KS 318,500 707,399 None None
Olathe KS 304,500 676,308 None None
Overland Park KS 305,691 707,397 None None
Shawnee KS 315,000 699,629 None None
Topeka KS 58,000 268,903 None None
Wichita KS 108,569 401,828 None None
Wichita KS 209,890 415,549 None None
Lexington KY 210,427 420,883 None None
Acton MA 315,533 700,813 None None
Marlborough MA 352,765 776,487 None None
Westborough MA 359,412 773,877 None None
Ellicott City MD 219,368 630,839 None None
Olney MD 342,500 760,701 None None
Waldorf MD 130,430 604,702 None None
Waldorf MD 237,207 526,844 None None
Canton MI 55,000 378,848 None None
Apple Valley MN 113,523 526,319 None None
Page 84
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Aurora IL 165,679 398,739 564,418
Bartlett IL 120,824 560,166 680,990
Bolingbrook IL 60,000 409,024 469,024
Carol Stream IL 122,831 586,416 709,247
Elk Grove Vlg IL 126,860 588,175 715,035
Elk Grove Vlg IL 214,845 477,180 692,025
Glendale Heights IL 318,500 707,399 1,025,899
Hoffman Estates IL 318,500 707,399 1,025,899
Hoffman Estates IL 211,082 468,818 679,900
Lockport IL 189,477 442,018 631,495
O'Fallon IL 141,250 313,722 454,972
Orland Park IL 218,499 485,295 703,794
Palatine IL 121,911 565,233 687,144
Roselle IL 297,541 561,036 858,577
Schaumburg IL 218,798 485,956 704,754
Vernon Hills IL 132,523 614,430 746,953
Westmont IL 124,742 578,330 703,072
Carmel IN 217,565 430,742 648,307
Fishers IN 212,118 419,959 632,077
Highland IN 220,460 436,476 656,936
Indianapolis IN 245,000 544,153 789,153
Noblesville IN 60,000 278,175 338,175
Zionsville IN 127,568 319,770 447,338
Lenexa KS 318,500 707,399 1,025,899
Olathe KS 304,500 676,308 980,808
Overland Park KS 305,691 707,397 1,013,088
Shawnee KS 315,000 699,629 1,014,629
Topeka KS 58,000 268,903 326,903
Wichita KS 108,569 401,828 510,397
Wichita KS 209,890 415,549 625,439
Lexington KY 210,427 420,883 631,310
Acton MA 315,533 700,813 1,016,346
Marlborough MA 352,765 776,487 1,129,252
Westborough MA 359,412 773,877 1,133,289
Ellicott City MD 219,368 630,839 850,207
Olney MD 342,500 760,701 1,103,201
Waldorf MD 130,430 604,702 735,132
Waldorf MD 237,207 526,844 764,051
Canton MI 55,000 378,848 433,848
Apple Valley MN 113,523 526,319 639,842
Page 85
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Aurora IL 127,584 12/21/88 300
Bartlett IL 314,048 03/25/86 300
Bolingbrook IL 409,024 10/18/82 180
Carol Stream IL 328,765 03/25/86 300
Elk Grove Vlg IL 329,752 03/26/86 300
Elk Grove Vlg IL 163,358 04/08/88 300
Glendale Heights IL 228,323 11/16/88 300
Hoffman Estates IL 220,430 03/31/89 300
Hoffman Estates IL 134,349 12/08/89 300
Lockport IL 158,751 10/29/87 300
O'Fallon IL 112,670 10/30/87 300
Orland Park IL 174,295 10/28/87 300
Palatine IL 316,888 03/25/86 300
Roselle IL 179,517 12/30/88 300
Schaumburg IL 171,810 12/17/87 300
Vernon Hills IL 344,469 03/25/86 300
Westmont IL 324,231 03/25/86 300
Carmel IN 109,121 12/27/90 300
Fishers IN 106,389 12/27/90 300
Highland IN 110,572 12/26/90 300
Indianapolis IN 146,885 06/29/90 300
Noblesville IN 172,765 04/30/85 300
Zionsville IN 114,842 10/28/87 300
Lenexa KS 220,430 03/31/89 300
Olathe KS 222,065 09/28/88 300
Overland Park KS 232,273 09/28/88 300
Shawnee KS 227,767 10/27/88 300
Topeka KS 167,007 04/16/85 300
Wichita KS 192,353 12/16/86 300
Wichita KS 105,272 12/26/90 300
Lexington KY 116,624 08/20/91 300
Acton MA 230,112 09/30/88 300
Marlborough MA 250,621 11/04/88 300
Westborough MA 249,776 11/01/88 300
Ellicott City MD 201,849 12/19/88 300
Olney MD 268,950 12/18/87 300
Waldorf MD 397,601 09/26/84 300
Waldorf MD 186,266 12/31/87 300
Canton MI 378,848 10/06/82 180
Apple Valley MN 295,073 03/26/86 300
Page 86
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Bloomington MN 124,113 575,416 None None
Brooklyn Park MN 118,111 547,586 None None
Brooklyn Park MN 112,823 523,073 None None
Eagan MN 112,127 519,844 None None
Eden Prairie MN 124,286 576,243 None None
Maple Grove MN 111,691 517,822 None None
Maple Grove MN 313,250 660,149 None None
Minnetonka MN 146,847 680,842 None None
Plymouth MN 134,221 622,350 None None
W. Bloomington MN 40,000 468,484 None None
White Bear Lake MN 260,750 579,133 None None
White Bear Lake MN 242,165 537,855 None None
Florissant MO 181,300 402,672 None None
Florissant MO 318,500 707,399 None None
Gladstone MO 294,000 652,987 None None
Lee's Summit MO 239,627 532,220 None None
Liberty MO 65,400 303,211 None None
Manchester MO 287,000 637,435 None None
St. Charles MO 259,000 575,246 None None
Pearl MS 121,801 270,525 None None
Cary NC 75,200 262,973 None None
Chapel Hill NC 77,000 356,992 None None
Charlotte NC 27,551 247,000 None None
Charlotte NC 134,582 268,222 None None
Concord NC 32,441 190,859 None None
Durham NC 220,728 429,380 None None
Durham NC 238,000 471,201 None None
Hendersonville NC 32,748 186,152 None None
Kernersville NC 162,216 316,299 None None
Morrisville NC 175,700 390,234 None None
Bellevue NE 60,568 280,819 None None
Omaha NE 60,500 280,491 None None
Omaha NE 53,000 245,720 None None
Omaha NE 142,867 317,315 None None
Londonderry NH 335,467 745,082 None None
Clementon NJ 279,851 554,060 None None
Henderson NV 82,000 380,173 None None
Las Vegas NV 201,250 446,983 None None
Sparks NV 244,752 543,604 None None
Beavercreek OH 179,552 398,786 None None
Page 87
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Bloomington MN 124,113 575,416 699,529
Brooklyn Park MN 118,111 547,586 665,697
Brooklyn Park MN 112,823 523,073 635,896
Eagan MN 112,127 519,844 631,971
Eden Prairie MN 124,286 576,243 700,529
Maple Grove MN 111,691 517,822 629,513
Maple Grove MN 313,250 660,149 973,399
Minnetonka MN 146,847 680,842 827,689
Plymouth MN 134,221 622,350 756,571
W. Bloomington MN 40,000 468,484 508,484
White Bear Lake MN 260,750 579,133 839,883
White Bear Lake MN 242,165 537,855 780,020
Florissant MO 181,300 402,672 583,972
Florissant MO 318,500 707,399 1,025,899
Gladstone MO 294,000 652,987 946,987
Lee's Summit MO 239,627 532,220 771,847
Liberty MO 65,400 303,211 368,611
Manchester MO 287,000 637,435 924,435
St. Charles MO 259,000 575,246 834,246
Pearl MS 121,801 270,525 392,326
Cary NC 75,200 262,973 338,173
Chapel Hill NC 77,000 356,992 433,992
Charlotte NC 27,551 247,000 274,551
Charlotte NC 134,582 268,222 402,804
Concord NC 32,441 190,859 223,300
Durham NC 220,728 429,380 650,108
Durham NC 238,000 471,201 709,201
Hendersonville NC 32,748 186,152 218,900
Kernersville NC 162,216 316,299 478,515
Morrisville NC 175,700 390,234 565,934
Bellevue NE 60,568 280,819 341,387
Omaha NE 60,500 280,491 340,991
Omaha NE 53,000 245,720 298,720
Omaha NE 142,867 317,315 460,182
Londonderry NH 335,467 745,082 1,080,549
Clementon NJ 279,851 554,060 833,911
Henderson NV 82,000 380,173 462,173
Las Vegas NV 201,250 446,983 648,233
Sparks NV 244,752 543,604 788,356
Beavercreek OH 179,552 398,786 578,338
Page 88
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Bloomington MN 322,598 03/27/86 300
Brooklyn Park MN 306,995 03/26/86 300
Brooklyn Park MN 293,253 03/27/86 300
Eagan MN 291,442 03/31/86 300
Eden Prairie MN 323,062 03/27/86 300
Maple Grove MN 290,309 03/26/86 300
Maple Grove MN 181,778 07/11/90 300
Minnetonka MN 359,030 12/12/86 300
Plymouth MN 328,183 12/12/86 300
W. Bloomington MN 468,484 06/18/82 180
White Bear Lake MN 204,755 12/23/87 300
White Bear Lake MN 142,206 08/30/90 300
Florissant MO 125,475 03/29/89 300
Florissant MO 220,430 03/30/89 300
Gladstone MO 214,408 09/29/88 300
Lee's Summit MO 155,745 09/27/89 300
Liberty MO 181,105 06/18/85 300
Manchester MO 225,369 12/22/87 300
St. Charles MO 203,382 12/23/87 300
Pearl MS 87,484 11/15/88 300
Cary NC 245,077 01/25/84 180
Chapel Hill NC 221,716 04/17/85 300
Charlotte NC 247,000 12/23/81 180
Charlotte NC 86,570 11/16/88 300
Concord NC 190,859 12/23/81 180
Durham NC 134,759 12/29/89 300
Durham NC 108,964 08/20/91 300
Hendersonville NC 186,152 12/23/81 180
Kernersville NC 101,374 12/14/89 300
Morrisville NC 121,599 03/29/89 300
Bellevue NE 147,071 12/16/86 300
Omaha NE 186,771 08/01/84 300
Omaha NE 161,441 10/11/84 300
Omaha NE 112,185 12/09/87 300
Londonderry NH 221,801 08/18/89 300
Clementon NJ 126,597 09/09/91 300
Henderson NV 236,112 04/17/85 300
Las Vegas NV 120,655 06/29/90 300
Sparks NV 190,669 01/29/88 300
Beavercreek OH 147,721 06/30/87 300
Page 89
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Centerville OH 174,519 387,613 None None
Cincinnati OH 165,910 368,486 None None
Dublin OH 84,000 389,446 None None
Englewood OH 74,000 343,083 None None
Forest Park OH 170,778 379,305 None None
Gahanna OH 86,000 398,718 None None
Huber Heights OH 245,000 544,153 None None
Loveland OH 206,136 457,829 None None
Maineville OH 173,105 384,469 None None
Pickerington OH 87,580 406,055 None None
Westerville OH 82,000 380,173 None None
Westerville OH 294,350 646,557 None None
Broken Arrow OK 78,705 220,434 None None
Midwest City OK 67,800 314,338 None None
Oklahoma City OK 50,800 214,474 None None
Oklahoma City OK 79,000 366,261 None None
Yukon OK 61,000 282,812 None None
Beaverton OR 135,148 626,647 None None
Beaverton OR 115,232 534,301 None None
Charleston SC 125,593 278,946 None None
Charleston SC 140,700 312,498 None None
Columbia SC 58,160 269,643 None None
Elgin SC 160,831 313,600 None None
Goose Creek SC 61,635 192,905 None None
Ladson SC 31,543 177,457 None None
Lexington SC 55,869 274,742 None None
Mt. Pleasant SC 40,700 180,400 None None
Summerville SC 44,400 174,500 None None
Sumter SC 56,010 268,903 None None
Memphis TN 238,263 504,897 None None
Memphis TN 238,000 528,608 None None
Memphis TN 221,501 491,962 None None
Nashville TN 274,298 609,223 None None
Allen TX 177,637 394,537 None None
Arlington TX 82,109 380,678 None None
Arlington TX 70,000 324,538 None None
Arlington TX 238,000 528,604 None None
Arlington TX 241,500 550,559 None None
Arlington TX 195,650 387,355 None None
Austin TX 103,600 230,532 None None
Page 90
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Centerville OH 174,519 387,613 562,132
Cincinnati OH 165,910 368,486 534,396
Dublin OH 84,000 389,446 473,446
Englewood OH 74,000 343,083 417,083
Forest Park OH 170,778 379,305 550,083
Gahanna OH 86,000 398,718 484,718
Huber Heights OH 245,000 544,153 789,153
Loveland OH 206,136 457,829 663,965
Maineville OH 173,105 384,469 557,574
Pickerington OH 87,580 406,055 493,635
Westerville OH 82,000 380,173 462,173
Westerville OH 294,350 646,557 940,907
Broken Arrow OK 78,705 220,434 299,139
Midwest City OK 67,800 314,338 382,138
Oklahoma City OK 50,800 214,474 265,274
Oklahoma City OK 79,000 366,261 445,261
Yukon OK 61,000 282,812 343,812
Beaverton OR 135,148 626,647 761,795
Beaverton OR 115,232 534,301 649,533
Charleston SC 125,593 278,946 404,539
Charleston SC 140,700 312,498 453,198
Columbia SC 58,160 269,643 327,803
Elgin SC 160,831 313,600 474,431
Goose Creek SC 61,635 192,905 254,540
Ladson SC 31,543 177,457 209,000
Lexington SC 55,869 274,742 330,611
Mt. Pleasant SC 40,700 180,400 221,100
Summerville SC 44,400 174,500 218,900
Sumter SC 56,010 268,903 324,913
Memphis TN 238,263 504,897 743,160
Memphis TN 238,000 528,608 766,608
Memphis TN 221,501 491,962 713,463
Nashville TN 274,298 609,223 883,521
Allen TX 177,637 394,537 572,174
Arlington TX 82,109 380,678 462,787
Arlington TX 70,000 324,538 394,538
Arlington TX 238,000 528,604 766,604
Arlington TX 241,500 550,559 792,059
Arlington TX 195,650 387,355 583,005
Austin TX 103,600 230,532 334,132
Page 91
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Centerville OH 142,491 07/23/87 300
Cincinnati OH 138,575 04/29/87 300
Dublin OH 227,664 10/08/85 300
Englewood OH 199,343 10/23/85 300
Forest Park OH 138,377 09/28/87 300
Gahanna OH 230,045 11/26/85 300
Huber Heights OH 142,365 09/27/90 300
Loveland OH 173,464 03/20/87 300
Maineville OH 145,669 03/06/87 300
Pickerington OH 214,116 12/11/86 300
Westerville OH 222,243 10/08/85 300
Westerville OH 175,406 09/26/90 300
Broken Arrow OK 220,434 01/27/83 180
Midwest City OK 186,476 08/14/85 300
Oklahoma City OK 214,474 06/15/82 180
Oklahoma City OK 239,107 11/14/84 300
Yukon OK 174,450 05/02/85 300
Beaverton OR 328,188 12/17/86 300
Beaverton OR 279,825 12/22/86 300
Charleston SC 94,713 05/26/88 300
Charleston SC 97,377 03/28/89 300
Columbia SC 176,030 11/14/84 300
Elgin SC 100,509 12/14/89 300
Goose Creek SC 192,905 12/22/81 180
Ladson SC 177,457 12/22/81 180
Lexington SC 179,358 11/13/84 300
Mt. Pleasant SC 180,400 12/22/81 180
Summerville SC 174,500 12/22/81 180
Sumter SC 160,616 06/18/85 300
Memphis TN 165,781 09/29/88 300
Memphis TN 173,568 09/30/88 300
Memphis TN 130,073 08/31/90 300
Nashville TN 189,837 03/30/89 300
Allen TX 127,336 11/21/88 300
Arlington TX 246,924 12/13/84 300
Arlington TX 200,187 05/08/85 300
Arlington TX 173,566 09/26/88 300
Arlington TX 227,520 09/22/89 300
Arlington TX 95,988 02/07/91 300
Austin TX 230,532 10/29/82 180
Page 92
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Austin TX 88,872 222,684 None None
Austin TX 134,383 623,103 None None
Austin TX 188,144 417,872 None None
Austin TX 236,733 528,608 None None
Austin TX 191,636 425,629 None None
Austin TX 224,878 499,461 None None
Austin TX 238,000 528,604 None None
Austin TX 217,878 483,913 None None
Bedford TX 241,500 550,559 None None
Carrollton TX 277,850 617,113 None None
Cedar Park TX 168,857 375,036 None None
Colleyville TX 68,000 315,266 None None
Converse TX 217,000 481,963 None None
Coppell TX 139,224 645,551 None None
Coppell TX 208,641 463,398 None None
Desoto TX 86,000 398,715 None None
Duncanville TX 93,000 431,172 None None
Euless TX 234,111 519,962 None None
Flower Mound TX 202,773 442,846 None None
Fort Worth TX 85,518 396,495 None None
Fort Worth TX 238,000 528,608 None None
Fort Worth TX 210,007 444,460 None None
Fort Worth TX 216,160 427,962 None None
Garland TX 211,050 468,749 None None
Grand Prairie TX 167,164 371,275 None None
Houston TX 58,000 268,901 None None
Houston TX 60,000 278,175 None None
Houston TX 102,000 472,898 None None
Houston TX 139,125 308,997 None None
Houston TX 139,125 308,997 None None
Houston TX 141,296 313,824 None None
Houston TX 219,100 486,631 None None
Houston TX 219,100 486,628 None None
Houston TX 149,109 323,314 None None
Irving TX 38,853 296,034 None None
Lewisville TX 79,000 366,264 None None
Lewisville TX 192,777 428,121 None None
Lewisville TX 192,218 426,922 None None
Mansfield TX 181,375 402,838 None None
Mesquite TX 85,000 394,079 None None
Page 93
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Austin TX 88,872 222,684 311,556
Austin TX 134,383 623,103 757,486
Austin TX 188,144 417,872 606,016
Austin TX 236,733 528,608 765,341
Austin TX 191,636 425,629 617,265
Austin TX 224,878 499,461 724,339
Austin TX 238,000 528,604 766,604
Austin TX 217,878 483,913 701,791
Bedford TX 241,500 550,559 792,059
Carrollton TX 277,850 617,113 894,963
Cedar Park TX 168,857 375,036 543,893
Colleyville TX 68,000 315,266 383,266
Converse TX 217,000 481,963 698,963
Coppell TX 139,224 645,551 784,775
Coppell TX 208,641 463,398 672,039
Desoto TX 86,000 398,715 484,715
Duncanville TX 93,000 431,172 524,172
Euless TX 234,111 519,962 754,073
Flower Mound TX 202,773 442,846 645,619
Fort Worth TX 85,518 396,495 482,013
Fort Worth TX 238,000 528,608 766,608
Fort Worth TX 210,007 444,460 654,467
Fort Worth TX 216,160 427,962 644,122
Garland TX 211,050 468,749 679,799
Grand Prairie TX 167,164 371,275 538,439
Houston TX 58,000 268,901 326,901
Houston TX 60,000 278,175 338,175
Houston TX 102,000 472,898 574,898
Houston TX 139,125 308,997 448,122
Houston TX 139,125 308,997 448,122
Houston TX 141,296 313,824 455,120
Houston TX 219,100 486,631 705,731
Houston TX 219,100 486,628 705,728
Houston TX 149,109 323,314 472,423
Irving TX 38,853 296,034 334,887
Lewisville TX 79,000 366,264 445,264
Lewisville TX 192,777 428,121 620,898
Lewisville TX 192,218 426,922 619,140
Mansfield TX 181,375 402,838 584,213
Mesquite TX 85,000 394,079 479,079
Page 94
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Austin TX 222,684 01/12/83 180
Austin TX 326,334 12/23/86 300
Austin TX 141,884 05/11/88 300
Austin TX 173,568 09/27/88 300
Austin TX 136,188 12/22/88 300
Austin TX 158,421 01/03/89 300
Austin TX 163,244 04/06/89 300
Austin TX 146,747 06/22/89 300
Bedford TX 227,520 09/22/89 300
Carrollton TX 218,184 12/11/87 300
Cedar Park TX 121,042 11/21/88 300
Colleyville TX 194,468 05/01/85 300
Converse TX 158,252 09/28/88 300
Coppell TX 338,089 12/17/86 300
Coppell TX 163,837 12/11/87 300
Desoto TX 260,488 10/24/84 300
Duncanville TX 265,962 05/08/85 300
Euless TX 194,074 05/08/87 300
Flower Mound TX 166,537 04/20/87 300
Fort Worth TX 209,075 12/03/86 300
Fort Worth TX 173,568 09/26/88 300
Fort Worth TX 127,552 02/01/90 300
Fort Worth TX 106,051 02/07/91 300
Garland TX 134,330 12/12/89 300
Grand Prairie TX 118,796 12/13/88 300
Houston TX 176,672 10/11/84 300
Houston TX 171,589 05/01/85 300
Houston TX 291,700 05/01/85 300
Houston TX 115,331 05/22/87 300
Houston TX 115,331 05/22/87 300
Houston TX 115,366 07/24/87 300
Houston TX 159,786 09/30/88 300
Houston TX 157,067 11/16/88 300
Houston TX 114,032 06/26/89 300
Irving TX 164,757 04/23/86 300
Lewisville TX 218,768 06/26/85 300
Lewisville TX 164,362 01/07/87 300
Lewisville TX 136,603 12/29/88 300
Mansfield TX 115,443 12/20/89 300
Mesquite TX 257,461 10/24/84 300
Page 95
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Mesquite TX 139,466 326,525 None None
Missouri City TX 221,025 437,593 None None
N Richland Hills TX 238,000 528,608 None None
Pasadena TX 60,000 278,173 None None
Plano TX 261,912 581,658 None None
Plano TX 250,514 556,399 None None
Plano TX 259,000 575,246 None None
Round Rock TX 80,525 373,347 None None
Round Rock TX 186,380 413,957 None None
San Antonio TX 130,833 606,595 None None
San Antonio TX 102,512 475,289 None None
San Antonio TX 81,530 378,007 None None
San Antonio TX 139,125 308,997 None None
San Antonio TX 181,412 402,923 None None
San Antonio TX 162,161 360,166 None None
San Antonio TX 234,500 520,831 None None
San Antonio TX 217,000 481,967 None None
San Antonio TX 182,868 406,155 None None
San Antonio TX 220,500 447,108 None None
Southlake TX 228,279 511,750 None None
Sugarland TX 193,800 430,436 None None
Texas City TX 48,000 222,918 None None
The Woodlands TX 193,801 430,441 None None
Watauga TX 165,914 368,502 None None
Layton UT 136,574 269,009 None None
Sandy UT 168,089 373,330 None None
Centreville VA 371,000 824,003 None None
Chesapeake VA 190,050 422,107 None None
Glen Allen VA 74,643 346,060 None None
Portsmouth VA 171,575 381,072 None None
Richmond VA 71,001 327,771 None None
Richmond VA 269,500 598,567 None None
Virginia Beach VA 69,080 320,270 None None
Virginia Beach VA 124,988 579,496 None None
Woodbridge VA 358,050 795,239 None None
Everett WA 120,000 540,363 None None
Federal Way WA 150,785 699,100 None None
Federal Way WA 261,943 581,782 None None
Kent WA 128,300 539,141 None None
Kent WA 140,763 678,809 None None
Page 96
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Mesquite TX 139,466 326,525 465,991
Missouri City TX 221,025 437,593 658,618
N Richland Hills TX 238,000 528,608 766,608
Pasadena TX 60,000 278,173 338,173
Plano TX 261,912 581,658 843,570
Plano TX 250,514 556,399 806,913
Plano TX 259,000 575,246 834,246
Round Rock TX 80,525 373,347 453,872
Round Rock TX 186,380 413,957 600,337
San Antonio TX 130,833 606,595 737,428
San Antonio TX 102,512 475,289 577,801
San Antonio TX 81,530 378,007 459,537
San Antonio TX 139,125 308,997 448,122
San Antonio TX 181,412 402,923 584,335
San Antonio TX 162,161 360,166 522,327
San Antonio TX 234,500 520,831 755,331
San Antonio TX 217,000 481,967 698,967
San Antonio TX 182,868 406,155 589,023
San Antonio TX 220,500 447,108 667,608
Southlake TX 228,279 511,750 740,029
Sugarland TX 193,800 430,436 624,236
Texas City TX 48,000 222,918 270,918
The Woodlands TX 193,801 430,441 624,242
Watauga TX 165,914 368,502 534,416
Layton UT 136,574 269,009 405,583
Sandy UT 168,089 373,330 541,419
Centreville VA 371,000 824,003 1,195,003
Chesapeake VA 190,050 422,107 612,157
Glen Allen VA 74,643 346,060 420,703
Portsmouth VA 171,575 381,072 552,647
Richmond VA 71,001 327,771 398,772
Richmond VA 269,500 598,567 868,067
Virginia Beach VA 69,080 320,270 389,350
Virginia Beach VA 124,988 579,496 704,484
Woodbridge VA 358,050 795,239 1,153,289
Everett WA 120,000 540,363 660,363
Federal Way WA 150,785 699,100 849,885
Federal Way WA 261,943 581,782 843,725
Kent WA 128,300 539,141 667,441
Kent WA 140,763 678,809 819,572
Page 97
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Mesquite TX 104,483 10/08/92 300
Missouri City TX 110,856 12/13/90 300
N Richland Hills TX 173,568 09/26/88 300
Pasadena TX 181,737 10/23/84 300
Plano TX 223,665 01/06/87 300
Plano TX 196,717 12/10/87 300
Plano TX 188,882 09/27/88 300
Round Rock TX 195,531 12/16/86 300
Round Rock TX 127,838 04/19/89 300
San Antonio TX 340,078 03/24/86 300
San Antonio TX 250,626 12/03/86 300
San Antonio TX 199,327 12/11/86 300
San Antonio TX 115,331 05/22/87 300
San Antonio TX 148,118 07/07/87 300
San Antonio TX 132,402 07/07/87 300
San Antonio TX 184,142 12/29/87 300
San Antonio TX 156,908 10/14/88 300
San Antonio TX 129,957 12/06/88 300
San Antonio TX 139,323 03/30/89 300
Southlake TX 128,075 03/10/93 300
Sugarland TX 158,234 07/31/87 300
Texas City TX 222,918 06/15/82 180
The Woodlands TX 157,024 08/11/87 300
Watauga TX 135,464 07/07/87 300
Layton UT 85,255 02/01/90 300
Sandy UT 104,914 02/01/90 300
Centreville VA 243,004 09/29/89 300
Chesapeake VA 131,531 03/28/89 300
Glen Allen VA 231,872 06/20/84 300
Portsmouth VA 121,932 12/21/88 300
Richmond VA 192,912 09/04/85 300
Richmond VA 186,516 03/28/89 300
Virginia Beach VA 209,083 11/15/84 300
Virginia Beach VA 324,886 03/25/86 300
Woodbridge VA 261,117 09/29/88 300
Everett WA 540,363 11/22/82 180
Federal Way WA 366,136 12/17/86 300
Federal Way WA 187,771 11/21/88 300
Kent WA 524,123 06/03/83 180
Kent WA 355,509 12/17/86 300
Page 98
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Child Care (continued)
- ----------------------
Kirkland WA 301,000 668,534 None None
Puyallup WA 195,552 434,327 None None
Redmond WA 279,830 621,512 None None
Renton WA 111,183 515,490 None None
Appleton WI 196,000 424,038 None None
Brookfield WI 233,100 461,500 None None
Waukesha WI 215,950 427,546 None None
Cheyenne WY 59,856 277,506 None None
Consumer Electronics
- --------------------
Oxford AL 323,085 406,655 None None
Tuscaloosa AL 204,790 585,115 None None
Thousand Oaks CA 2,703,726 6,125,829 None None
Bradenton FL 174,948 240,928 None None
MaryEsther FL 149,696 363,263 None None
Melbourne FL 269,697 522,414 None None
Merritt Island FL 309,652 482,459 None None
Ocala FL 339,690 543,504 None None
Pensacola FL 419,842 1,899,287 None None
Tallahassee FL 319,807 502,697 None None
Titusville FL 176,459 579,793 None None
Venice FL 259,686 362,562 None None
Rome GA 254,902 486,812 None None
Smyrna GA 1,094,058 3,091,322 None None
Council Bluffs IA 255,217 117,792 None None
Des Moines IA 188,520 367,614 None None
Peoria IL 193,868 387,737 None None
Rockford IL 159,587 618,398 None None
Springfield IL 219,859 630,595 None None
Anderson IN 180,628 653,038 None None
Muncie IN 148,901 645,235 None None
Richmond IN 93,999 193,753 None None
Topeka KS 974,960 3,472,226 None None
Columbus MS 144,908 463,707 None None
Greenville MS 144,588 433,764 None None
Gulfport MS 299,464 502,326 None None
Hattiesburg MS 198,659 457,379 None None
Jackson MS 405,360 656,296 None None
Meridian MS 181,156 515,598 None None
Page 99
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Child Care (continued)
- ----------------------
Kirkland WA 301,000 668,534 969,534
Puyallup WA 195,552 434,327 629,879
Redmond WA 279,830 621,512 901,342
Renton WA 111,183 515,490 626,673
Appleton WI 196,000 424,038 620,038
Brookfield WI 233,100 461,500 694,600
Waukesha WI 215,950 427,546 643,496
Cheyenne WY 59,856 277,506 337,362
Consumer Electronics
- --------------------
Oxford AL 323,085 406,655 729,740
Tuscaloosa AL 204,790 585,115 789,905
Thousand Oaks CA 2,703,726 6,125,829 8,829,555
Bradenton FL 174,948 240,928 415,876
MaryEsther FL 149,696 363,263 512,959
Melbourne FL 269,697 522,414 792,111
Merritt Island FL 309,652 482,459 792,111
Ocala FL 339,690 543,504 883,194
Pensacola FL 419,842 1,899,287 2,319,129
Tallahassee FL 319,807 502,697 822,504
Titusville FL 176,459 579,793 756,252
Venice FL 259,686 362,562 622,248
Rome GA 254,902 486,812 741,714
Smyrna GA 1,094,058 3,091,322 4,185,380
Council Bluffs IA 255,217 117,792 373,009
Des Moines IA 188,520 367,614 556,134
Peoria IL 193,868 387,737 581,605
Rockford IL 159,587 618,398 777,985
Springfield IL 219,859 630,595 850,454
Anderson IN 180,628 653,038 833,666
Muncie IN 148,901 645,235 794,136
Richmond IN 93,999 193,753 287,752
Topeka KS 974,960 3,472,226 4,447,186
Columbus MS 144,908 463,707 608,615
Greenville MS 144,588 433,764 578,352
Gulfport MS 299,464 502,326 801,790
Hattiesburg MS 198,659 457,379 656,038
Jackson MS 405,360 656,296 1,061,656
Meridian MS 181,156 515,598 696,754
Page 100
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Child Care (continued)
- ----------------------
Kirkland WA 230,738 03/31/88 300
Puyallup WA 138,970 12/06/88 300
Redmond WA 228,476 07/27/87 300
Renton WA 289,001 03/24/86 300
Appleton WI 117,516 07/10/90 300
Brookfield WI 116,911 12/13/90 300
Waukesha WI 108,311 12/13/90 300
Cheyenne WY 180,139 11/20/84 300
Consumer Electronics
- --------------------
Oxford AL 18,300 11/26/96 300
Tuscaloosa AL 26,330 11/26/96 300
Thousand Oaks CA 316,499 09/27/96 300
Bradenton FL 10,842 11/26/96 300
MaryEsther FL 16,347 11/26/96 300
Melbourne FL 23,509 11/26/96 300
Merritt Island FL 21,711 11/26/96 300
Ocala FL 24,458 11/26/96 300
Pensacola FL 85,468 11/26/96 300
Tallahassee FL 22,621 11/26/96 300
Titusville FL 26,091 11/26/96 300
Venice FL 16,315 11/26/96 300
Rome GA 21,907 11/26/96 300
Smyrna GA 66,804 06/09/97 300
Council Bluffs IA 5,301 11/26/96 300
Des Moines IA 16,543 11/26/96 300
Peoria IL 17,448 11/26/96 300
Rockford IL 27,828 11/26/96 300
Springfield IL 28,377 11/26/96 300
Anderson IN 29,387 11/26/96 300
Muncie IN 29,036 11/26/96 300
Richmond IN 8,719 11/26/96 300
Topeka KS 144,673 12/27/96 300
Columbus MS 20,867 11/26/96 300
Greenville MS 19,519 11/26/96 300
Gulfport MS 22,605 11/26/96 300
Hattiesburg MS 20,582 11/26/96 300
Jackson MS 29,533 11/26/96 300
Meridian MS 23,202 11/26/96 300
Page 101
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Consumer Electronics (continued)
- --------------------------------
Tupelo MS 121,697 637,691 None None
Vicksburg MS 494,532 174,541 None None
Lakewood NY 144,859 526,301 None None
Defiance OH 97,978 601,863 None None
Kettering OH 229,246 488,393 None None
Bristol TN 344,365 468,719 None None
Clarksville TN 290,775 395,870 None None
Vienna WV 324,797 526,670 None None
Convenience Stores
- ------------------
Fullerton CA 29,170 41,003 None 11,934
Manchester CT 118,262 305,510 None None
Vernon CT 179,646 319,372 None None
Westbrook CT 98,247 373,340 None None
Dunwoody GA 545,462 724,254 None None
Lithonia GA 386,784 776,436 None None
Mabelton GA 491,069 355,957 None None
Norcross GA 384,162 651,273 None None
Stone Mountain GA 529,383 532,429 None None
Godfrey IL 374,586 733,190 None None
Granite City IL 362,287 737,255 None None
Madison IL 173,812 625,030 None None
New Albany IN 181,459 289,353 None None
New Albany IN 262,465 331,796 None None
Berea KY 252,077 360,815 None None
Elizabethtown KY 286,106 286,106 None None
Henderson KY 225,000 515,000 None None
Lebanon KY 158,052 316,105 None None
Louisville KY 198,926 368,014 None None
Louisville KY 216,849 605,697 None None
Mt. Washington KY 327,245 479,593 None None
Owensboro KY 360,000 590,000 None None
Seekonk MA 298,354 268,518 None None
Flint MI 194,492 476,504 None None
Cary NC 450,000 825,000 None None
Greenville NC 330,000 515,000 None None
Greenville NC 225,000 405,000 None None
Jacksonville NC 150,000 530,000 None None
Kinston NC 550,000 1,056,921 None None
Page 102
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Consumer Electronics (continued)
- -------------------------------
Tupelo MS 121,697 637,691 759,388
Vicksburg MS 494,532 174,541 669,073
Lakewood NY 144,859 526,301 671,160
Defiance OH 97,978 601,863 699,841
Kettering OH 229,246 488,393 717,639
Bristol TN 344,365 468,719 813,084
Clarksville TN 290,775 395,870 686,645
Vienna WV 324,797 526,670 851,467
Convenience Stores
- ------------------
Fullerton CA 29,170 52,937 82,107
Manchester CT 118,262 305,510 423,772
Vernon CT 179,646 319,372 499,018
Westbrook CT 98,247 373,340 471,587
Dunwoody GA 545,462 724,254 1,269,716
Lithonia GA 386,784 776,436 1,163,220
Mabelton GA 491,069 355,957 847,026
Norcross GA 384,162 651,273 1,035,435
Stone Mountain GA 529,383 532,429 1,061,812
Godfrey IL 374,586 733,190 1,107,776
Granite City IL 362,287 737,255 1,099,542
Madison IL 173,812 625,030 798,842
New Albany IN 181,459 289,353 470,812
New Albany IN 262,465 331,796 594,261
Berea KY 252,077 360,815 612,892
Elizabethtown KY 286,106 286,106 572,212
Henderson KY 225,000 515,000 740,000
Lebanon KY 158,052 316,105 474,157
Louisville KY 198,926 368,014 566,940
Louisville KY 216,849 605,697 822,546
Mt. Washington KY 327,245 479,593 806,838
Owensboro KY 360,000 590,000 950,000
Seekonk MA 298,354 268,518 566,872
Flint MI 194,492 476,504 670,996
Cary NC 450,000 825,000 1,275,000
Greenville NC 330,000 515,000 845,000
Greenville NC 225,000 405,000 630,000
Jacksonville NC 150,000 530,000 680,000
Kinston NC 550,000 1,056,921 1,606,921
Page 103
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Consumer Electronics (continued)
- --------------------------------
Tupelo MS 28,696 11/26/96 300
Vicksburg MS 7,854 11/26/96 300
Lakewood NY 23,684 11/26/96 300
Defiance OH 27,084 11/26/96 300
Kettering OH 21,978 11/26/96 300
Bristol TN 21,092 11/26/96 300
Clarksville TN 17,814 11/26/96 300
Vienna WV 23,700 11/26/96 300
Convenience Stores
- ------------------
Fullerton CA 46,970 11/08/72 234
Manchester CT 34,115 03/03/95 300
Vernon CT 35,663 03/09/95 300
Westbrook CT 41,690 03/09/95 300
Dunwoody GA 15,617 06/27/97 300
Lithonia GA 16,761 06/27/97 300
Mabelton GA 7,661 06/27/97 300
Norcross GA 14,046 06/27/97 300
Stone Mountain GA 11,470 06/27/97 300
Godfrey IL 15,816 06/27/97 300
Granite City IL 15,906 06/27/97 300
Madison IL 13,495 06/27/97 300
New Albany IN 32,311 03/03/95 300
New Albany IN 37,051 03/06/95 300
Berea KY 40,291 03/08/95 300
Elizabethtown KY 31,949 03/03/95 300
Henderson KY 48,925 08/25/95 300
Lebanon KY 35,298 03/03/95 300
Louisville KY 41,095 03/03/95 300
Louisville KY 37,218 06/18/96 11/17/95 300
Mt. Washington KY 21,613 10/28/96 05/31/96 300
Owensboro KY 56,050 08/25/95 300
Seekonk MA 29,985 03/03/95 300
Flint MI 38,915 12/21/95 300
Cary NC 78,375 08/25/95 300
Greenville NC 48,925 08/25/95 300
Greenville NC 38,475 08/25/95 300
Jacksonville NC 50,350 08/25/95 300
Kinston NC 8,750 10/24/97 300
Page 104
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Convenience Stores (continued)
- ------------------------------
Kingston NY 257,763 456,042 None None
Atwater OH 118,555 266,748 None None
Columbus OH 147,296 304,411 None None
Columbus OH 273,085 471,693 None None
Cuyahoga Falls OH 297,982 357,579 None None
Galion OH 138,981 327,597 None None
Groveport OH 277,198 445,497 None None
Perrysburg OH 211,678 390,680 None None
Streetsboro OH 402,988 420,351 None None
Tipp City OH 355,009 398,294 None None
Triffin OH 117,017 273,040 None None
Wadsworth OH 266,507 153,823 None None
Tulsa OK 126,545 508,266 None None
Columbia SC 150,000 450,000 None None
John's Isle SC 170,000 350,000 None None
Lexington SC 255,000 545,000 None None
Myrtle Beach SC 140,000 590,000 None None
N. Charleston SC 400,000 650,000 None None
Summerville SC 115,000 515,000 None None
La Vergne TN 340,000 650,000 None None
Shelbyville TN 200,000 465,000 None None
Midlothian VA 325,000 302,516 None None
Stafford VA 271,865 601,997 None None
Warrenton VA 515,971 649,125 None None
Home Furnishings & Accessories
- ------------------------------
Cathedral City CA 1,006,923 2,293,077 None None
Concord CA 4,162,500 3,037,500 None None
Danbury CT 630,171 3,619,609 None None
Winter Park FL 2,404,598 3,382,402 None None
Ridgeland MS 281,867 769,890 None None
Omaha NE 1,956,296 3,948,105 None None
Henderson NV 1,268,655 3,108,726 None None
Memphis TN 804,262 1,432,520 None None
Arlington TX 475,069 1,374,167 None None
Cedar Park TX 253,591 827,237 None None
Houston TX 867,767 687,042 None None
Plano TX 565,000 5,835,000 None None
Spring TX 1,794,872 1,808,661 None None
Webster TX 283,604 537,985 None None
Page 105
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Convenience Stores (continued)
- ------------------------------
Kingston NY 257,763 456,042 713,805
Atwater OH 118,555 266,748 385,303
Columbus OH 147,296 304,411 451,707
Columbus OH 273,085 471,693 744,778
Cuyahoga Falls OH 297,982 357,579 655,561
Galion OH 138,981 327,597 466,578
Groveport OH 277,198 445,497 722,695
Perrysburg OH 211,678 390,680 602,358
Streetsboro OH 402,988 420,351 823,339
Tipp City OH 355,009 398,294 753,303
Triffin OH 117,017 273,040 390,057
Wadsworth OH 266,507 153,823 420,330
Tulsa OK 126,545 508,266 634,811
Columbia SC 150,000 450,000 600,000
John's Isle SC 170,000 350,000 520,000
Lexington SC 255,000 545,000 800,000
Myrtle Beach SC 140,000 590,000 730,000
N. Charleston SC 400,000 650,000 1,050,000
Summerville SC 115,000 515,000 630,000
La Vergne TN 340,000 650,000 990,000
Shelbyville TN 200,000 465,000 665,000
Midlothian VA 325,000 302,516 627,516
Stafford VA 271,865 601,997 873,862
Warrenton VA 515,971 649,125 1,165,096
Home Furnishings & Accessories
- ------------------------------
Cathedral City CA 1,006,923 2,293,077 3,300,000
Concord CA 4,162,500 3,037,500 7,200,000
Danbury CT 630,171 3,619,609 4,249,780
Winter Park FL 2,404,598 3,382,402 5,787,000
Ridgeland MS 281,867 769,890 1,051,757
Omaha NE 1,956,296 3,948,105 5,904,401
Henderson NV 1,268,655 3,108,726 4,377,381
Memphis TN 804,262 1,432,520 2,236,782
Arlington TX 475,069 1,374,167 1,849,236
Cedar Park TX 253,591 827,237 1,080,828
Houston TX 867,767 687,042 1,554,809
Plano TX 565,000 5,835,000 6,400,000
Spring TX 1,794,872 1,808,661 3,603,533
Webster TX 283,604 537,985 821,589
Page 106
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Convenience Stores (continued)
- ------------------------------
Kingston NY 49,405 04/06/95 300
Atwater OH 29,787 03/03/95 300
Columbus OH 33,993 03/03/95 300
Columbus OH 38,522 12/21/95 300
Cuyahoga Falls OH 39,930 03/03/95 300
Galion OH 36,582 03/06/95 300
Groveport OH 36,382 12/21/95 300
Perrysburg OH 16,629 01/10/96 09/01/95 300
Streetsboro OH 0 01/27/97 09/03/96 300
Tipp City OH 0 01/31/97 06/27/96 300
Triffin OH 30,489 03/07/95 300
Wadsworth OH 6,560 11/26/96 07/01/96 300
Tulsa OK 10,967 06/27/97 300
Columbia SC 42,750 08/25/95 300
John's Isle SC 33,250 08/25/95 300
Lexington SC 51,775 08/25/95 300
Myrtle Beach SC 56,050 08/25/95 300
N. Charleston SC 61,750 08/25/95 300
Summerville SC 48,925 08/25/95 300
La Vergne TN 61,750 08/25/95 300
Shelbyville TN 44,175 08/25/95 300
Midlothian VA 4,500 08/21/97 300
Stafford VA 25,083 12/20/96 300
Warrenton VA 27,047 12/20/96 300
Home Furnishings & Accessories
- ------------------------------
Cathedral City CA 240,773 05/26/95 300
Concord CA 318,938 05/31/95 300
Danbury CT 42,006 09/30/97 300
Winter Park FL 355,152 05/31/95 300
Ridgeland MS 16,589 06/27/97 300
Omaha NE 111,717 04/04/97 300
Henderson NV 36,077 09/26/97 300
Memphis TN 30,891 06/30/97 300
Arlington TX 43,399 03/26/97 300
Cedar Park TX 26,125 03/10/97 300
Houston TX 21,651 03/07/97 300
Plano TX 612,675 05/26/95 300
Spring TX 20,940 09/29/97 300
Webster TX 11,597 06/12/97 300
Page 107
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Office Supplies
- ---------------
Lakewood CA 1,398,387 3,098,787 None None
Riverside CA 1,410,177 1,659,833 None None
Hutchinson KS 269,964 1,704,244 None None
Salina KS 240,423 1,830,037 None None
Helena MT 564,241 1,503,084 None None
Westbury NY 3,808,076 2,376,122 None None
New Philadelphia OH 726,636 1,650,638 None None
Pet Supplies
- ------------
Dickson City PA 659,790 1,880,368 None None
Restaurants
- -----------
Siloam Springs AR 190,000 352,741 None None
Douglas AZ 75,000 347,719 None None
Glendale AZ 624,761 895,976 None None
Tucson AZ 107,393 497,904 None None
Chino CA 26,729 51,555 None None
Diamond Bar CA 76,117 183,052 None 15,000
Fullerton CA 36,296 51,020 None 14,628
Hemet CA 106,164 199,179 None None
Rancho Cucamonga CA 230,733 481,225 None None
Rancho Cucamonga CA 95,192 441,334 None None
Red Bluff CA 136,740 633,984 None None
Riverside CA 90,000 170,394 None None
Riverside CA 155,795 534,679 35,000 21,560
San Dimas CA 240,562 445,521 None None
San Ramon CA 406,000 1,126,930 None None
Boulder CO 426,675 822,676 18,000 None
Colorado Springs CO 152,000 704,736 None None
Colorado Springs CO 313,250 695,730 None None
Montrose CO 217,595 483,284 None None
Security CO 150,000 695,463 None None
Sterling CO 95,320 441,928 None None
Westminster CO 338,940 1,571,401 20,000 13,440
Casselberry FL 403,900 897,075 None None
Green Cove Sprgs FL 86,240 399,828 None None
Jacksonville FL 150,210 693,446 None None
Jacksonville FL 143,299 664,373 None None
Page 108
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Office Supplies
- ---------------
Lakewood CA 1,398,387 3,098,787 4,497,174
Riverside CA 1,410,177 1,659,833 3,070,010
Hutchinson KS 269,964 1,704,244 1,974,208
Salina KS 240,423 1,830,037 2,070,460
Helena MT 564,241 1,503,084 2,067,325
Westbury NY 3,808,076 2,376,122 6,184,198
New Philadelphia OH 726,636 1,650,638 2,377,274
Pet Supplies
- ------------
Dickson City PA 659,790 1,880,368 2,540,158
Restaurants
- -----------
Siloam Springs AR 190,000 352,741 542,741
Douglas AZ 75,000 347,719 422,719
Glendale AZ 624,761 895,976 1,520,737
Tucson AZ 107,393 497,904 605,297
Chino CA 26,729 51,555 78,284
Diamond Bar CA 76,117 198,052 274,169
Fullerton CA 36,296 65,648 101,944
Hemet CA 106,164 199,179 305,343
Rancho Cucamonga CA 230,733 481,225 711,958
Rancho Cucamonga CA 95,192 441,334 536,526
Red Bluff CA 136,740 633,984 770,724
Riverside CA 90,000 170,394 260,394
Riverside CA 155,795 591,239 747,034
San Dimas CA 240,562 445,521 686,083
San Ramon CA 406,000 1,126,930 1,532,930
Boulder CO 426,675 840,676 1,267,351
Colorado Springs CO 152,000 704,736 856,736
Colorado Springs CO 313,250 695,730 1,008,980
Montrose CO 217,595 483,284 700,879
Security CO 150,000 695,463 845,463
Sterling CO 95,320 441,928 537,248
Westminster CO 338,940 1,604,841 1,943,781
Casselberry FL 403,900 897,075 1,300,975
Green Cove Sprgs FL 86,240 399,828 486,068
Jacksonville FL 150,210 693,446 843,656
Jacksonville FL 143,299 664,373 807,672
Page 109
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Office Supplies
- ---------------
Lakewood CA 118,717 01/29/97 300
Riverside CA 19,289 09/17/97 300
Hutchinson KS 36,828 06/25/97 300
Salina KS 39,546 06/25/97 300
Helena MT 32,423 06/09/97 300
Westbury NY 27,503 09/29/97 300
New Philadelphia OH 41,151 05/30/97 300
Pet Supplies
- ------------
Dickson City PA 40,504 06/20/97 300
Restaurants
- -----------
Siloam Springs AR 64,212 03/06/96 300
Douglas AZ 82,043 12/13/95 300
Glendale AZ 72,258 12/22/95 300
Tucson AZ 0 04/13/95 None
Chino CA 0 12/22/94 None
Diamond Bar CA 0 09/29/95 06/05/95 None
Fullerton CA 0 07/06/95 None
Hemet CA 97,051 12/27/94 300
Rancho Cucamonga CA 0 04/13/95 None
Rancho Cucamonga CA 120,149 12/23/94 300
Red Bluff CA 225,792 10/01/81 300
Riverside CA 781,969 01/05/84 180
Riverside CA 1,076,803 06/28/84 300
San Dimas CA 386,859 01/17/86 300
San Ramon CA 842,009 12/18/84 300
Boulder CO 427,598 08/28/85 300
Colorado Springs CO 549,821 05/16/84 300
Colorado Springs CO 563,098 05/08/84 300
Montrose CO 1,187,723 05/20/83 180
Security CO 1,262,104 12/10/82 180
Sterling CO 621,582 05/29/84 300
Westminster CO 469,132 11/06/84 300
Casselberry FL 332,034 12/18/86 300
Green Cove Sprgs FL 170,867 12/17/87 300
Jacksonville FL 285,019 12/27/84 300
Jacksonville FL 257,867 12/19/84 300
Page 110
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Restaurants (continued)
- -----------------------
Orlando FL 230,000 1,066,339 None None
Orlando FL 209,800 972,679 None None
Orlando FL 339,500 746,333 None None
Garden City GA 197,225 438,043 None None
Hinesville GA 89,220 413,644 None None
Hinesville GA 172,611 383,376 None None
Lithonia GA 89,220 413,647 None None
Savannah GA 143,993 345,548 None None
Savannah GA 165,409 367,379 None None
Statesboro GA 201,250 446,983 None None
Stone Mountain GA 215,940 1,001,188 None None
Ankeny IA 100,000 349,218 None None
Boone IA 76,000 386,170 None None
Boise ID 190,894 423,981 None None
Boise ID 161,352 334,041 None None
Nampa ID 74,156 343,821 None None
Rexburg ID 90,760 420,787 None None
Alton IL 225,785 419,315 None None
Dixon IL 230,090 511,036 None None
Salem IL 213,815 474,892 None None
Anderson IN 197,523 438,707 None None
Bedford IN 311,815 692,543 None None
Decatur IN 181,020 385,618 None None
Goshen IN 115,000 533,165 None None
Muncie IN 136,400 632,380 8,000 3,334
Muncie IN 67,156 149,157 None None
New Castle IN 246,192 320,572 None None
Shelbyville IN 128,820 597,263 None None
South Bend IN 133,200 617,545 None 19,211
Westfield IN 213,341 477,300 None None
Derby KS 96,060 445,359 None None
El Dorado KS 87,400 405,206 None None
Great Bend KS 95,800 444,154 None None
Wichita KS 98,000 454,350 None None
Lexington KY 122,200 490,200 None None
Alexandria LA 143,000 662,985 None 15,000
Jennings LA 107,120 496,636 None None
La Plata MD 120,140 557,000 None None
Albion MI 143,280 694,578 None 12,341
Flint MI 827,853 0 None None
Page 111
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Restaurants (continued)
- -----------------------
Orlando FL 230,000 1,066,339 1,296,339
Orlando FL 209,800 972,679 1,182,479
Orlando FL 339,500 746,333 1,085,833
Garden City GA 197,225 438,043 635,268
Hinesville GA 89,220 413,644 502,864
Hinesville GA 172,611 383,376 555,987
Lithonia GA 89,220 413,647 502,867
Savannah GA 143,993 345,548 489,541
Savannah GA 165,409 367,379 532,788
Statesboro GA 201,250 446,983 648,233
Stone Mountain GA 215,940 1,001,188 1,217,128
Ankeny IA 100,000 349,218 449,218
Boone IA 76,000 386,170 462,170
Boise ID 190,894 423,981 614,875
Boise ID 161,352 334,041 495,393
Nampa ID 74,156 343,821 417,977
Rexburg ID 90,760 420,787 511,547
Alton IL 225,785 419,315 645,100
Dixon IL 230,090 511,036 741,126
Salem IL 213,815 474,892 688,707
Anderson IN 197,523 438,707 636,230
Bedford IN 311,815 692,543 1,004,358
Decatur IN 181,020 385,618 566,638
Goshen IN 115,000 533,165 648,165
Muncie IN 136,400 653,714 790,114
Muncie IN 67,156 149,157 216,313
New Castle IN 246,192 320,572 566,764
Shelbyville IN 128,820 597,263 726,083
South Bend IN 133,200 636,756 769,956
Westfield IN 213,341 477,300 690,641
Derby KS 96,060 445,359 541,419
El Dorado KS 87,400 405,206 492,606
Great Bend KS 95,800 444,154 539,954
Wichita KS 98,000 454,350 552,350
Lexington KY 122,200 490,200 612,400
Alexandria LA 143,000 677,985 820,985
Jennings LA 107,120 496,636 603,756
La Plata MD 120,140 557,000 677,140
Albion MI 143,280 706,919 850,199
Flint MI 827,853 0 827,853
Page 112
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Restaurants (continued)
- -----------------------
Orlando FL 266,775 12/20/84 300
Orlando FL 266,571 01/04/85 300
Orlando FL 532,577 10/30/86 300
Garden City GA 337,277 07/28/83 180
Hinesville GA 362,064 12/27/83 180
Hinesville GA 242,780 11/25/85 300
Lithonia GA 136,511 10/18/88 300
Savannah GA 180,661 12/28/87 300
Savannah GA 170,569 10/30/87 300
Statesboro GA 254,586 07/15/87 300
Stone Mountain GA 146,103 03/31/87 300
Ankeny IA 312,801 12/18/86 300
Boone IA 258,770 10/29/85 300
Boise ID 226,966 04/10/86 300
Boise ID 286,452 12/26/84 300
Nampa ID 288,564 10/17/85 300
Rexburg ID 321,080 12/03/85 300
Alton IL 166,656 11/12/87 300
Dixon IL 167,393 12/16/87 300
Salem IL 194,971 12/30/87 300
Anderson IN 269,707 12/18/84 300
Bedford IN 333,219 12/28/84 300
Decatur IN 227,220 12/03/85 300
Goshen IN 242,440 12/26/84 300
Muncie IN 171,624 07/30/87 300
Muncie IN 217,192 07/30/87 300
New Castle IN 171,624 07/30/87 300
Shelbyville IN 181,709 07/30/87 300
South Bend IN 184,298 07/31/89 300
Westfield IN 81,116 12/22/95 03/16/95 300
Derby KS 292,485 09/04/85 300
El Dorado KS 255,654 12/27/84 300
Great Bend KS 325,833 07/28/83 180
Wichita KS 217,343 05/11/87 300
Lexington KY 347,571 12/20/84 300
Alexandria LA 106,876 06/02/95 02/24/95 300
Jennings LA 75,184 12/21/95 05/31/95 300
La Plata MD 229,873 12/24/87 300
Albion MI 293,180 12/19/86 300
Flint MI 176,823 01/02/87 300
Page 113
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Restaurants (continued)
- -----------------------
Sturgis MI 210,560 467,659 None None
Albert Lea MN 213,150 473,412 None None
Red Wing MN 248,325 551,541 None None
Roseville MN 281,600 1,305,560 None None
Belton MO 89,328 418,187 None None
Blue Springs MO 111,440 516,665 None None
Carthage MO 85,020 394,175 None None
Chillicothe MO 81,080 375,908 None None
Fulton MO 210,199 466,861 None None
Hannibal MO 266,011 590,822 None None
Hazelwood MO 157,117 725,327 None 12,930
Jackson MO 210,199 466,860 None None
Mt. Vernon MO 160,000 282,519 None None
Nevada MO 222,552 494,296 None None
Ozark MO 140,000 292,414 None None
Sedalia MO 269,798 599,232 None None
St. Charles MO 175,413 809,790 None 10,000
St. Charles MO 695,121 1,001,878 None None
St. Joseph MO 107,648 496,958 None None
Sullivan MO 85,500 396,400 None None
Clinton MS 100,000 337,371 None None
Southaven MS 263,900 582,303 None None
Fayetteville NC 116,240 538,919 None None
Wilkesboro NC 183,050 406,562 None None
Omaha NE 629,592 1,051,244 None None
Amherst NY 935,355 896,819 None None
Fulton NY 294,009 653,006 None None
Watertown NY 139,199 645,355 None None
Akron OH 723,347 17 None None
Ashland OH 120,740 559,801 None None
Celina OH 207,060 459,841 None None
Lebanon OH 210,134 466,717 None None
Stow OH 317,546 712,455 None None
Troy OH 130,540 605,238 None None
Wash. Courthouse OH 123,120 570,836 None None
Wilmington OH 119,320 553,217 None None
Broken Arrow OK 245,000 368,901 None None
Norman OK 734,335 0 None None
Oklahoma City OK 759,826 0 None None
Owasso OK 247,450 549,597 None None
Page 114
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Restaurants (continued)
- -----------------------
Sturgis MI 210,560 467,659 678,219
Albert Lea MN 213,150 473,412 686,562
Red Wing MN 248,325 551,541 799,866
Roseville MN 281,600 1,305,560 1,587,160
Belton MO 89,328 418,187 507,515
Blue Springs MO 111,440 516,665 628,105
Carthage MO 85,020 394,175 479,195
Chillicothe MO 81,080 375,908 456,988
Fulton MO 210,199 466,861 677,060
Hannibal MO 266,011 590,822 856,833
Hazelwood MO 157,117 738,257 895,374
Jackson MO 210,199 466,860 677,059
Mt. Vernon MO 160,000 282,519 442,519
Nevada MO 222,552 494,296 716,848
Ozark MO 140,000 292,414 432,414
Sedalia MO 269,798 599,232 869,030
St. Charles MO 175,413 819,790 995,203
St. Charles MO 695,121 1,001,878 1,696,999
St. Joseph MO 107,648 496,958 604,606
Sullivan MO 85,500 396,400 481,900
Clinton MS 100,000 337,371 437,371
Southaven MS 263,900 582,303 846,203
Fayetteville NC 116,240 538,919 655,159
Wilkesboro NC 183,050 406,562 589,612
Omaha NE 629,592 1,051,244 1,680,836
Amherst NY 935,355 896,819 1,832,174
Fulton NY 294,009 653,006 947,015
Watertown NY 139,199 645,355 784,554
Akron OH 723,347 17 723,364
Ashland OH 120,740 559,801 680,541
Celina OH 207,060 459,841 666,901
Lebanon OH 210,134 466,717 676,851
Stow OH 317,546 712,455 1,030,001
Troy OH 130,540 605,238 735,778
Wash. Courthouse OH 123,120 570,836 693,956
Wilmington OH 119,320 553,217 672,537
Broken Arrow OK 245,000 368,901 613,901
Norman OK 734,335 0 734,335
Oklahoma City OK 759,826 0 759,826
Owasso OK 247,450 549,597 797,047
Page 115
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Restaurants (continued)
- -----------------------
Sturgis MI 171,570 07/31/87 300
Albert Lea MN 251,059 12/31/87 300
Red Wing MN 319,162 12/05/86 300
Roseville MN 298,960 12/19/86 300
Belton MO 289,734 12/31/86 300
Blue Springs MO 194,315 12/28/87 300
Carthage MO 184,529 12/30/87 300
Chillicothe MO 255,830 12/18/84 300
Fulton MO 214,444 08/17/87 300
Hannibal MO 180,101 08/17/87 300
Hazelwood MO 197,719 12/01/87 300
Jackson MO 104,300 06/30/95 03/17/95 300
Mt. Vernon MO 192,582 12/01/87 300
Nevada MO 204,521 07/31/87 300
Ozark MO 226,205 12/28/87 300
Sedalia MO 241,118 12/17/85 300
St. Charles MO 262,305 11/25/85 300
St. Charles MO 266,775 12/18/84 300
St. Joseph MO 234,598 08/01/84 300
Sullivan MO 307,948 12/30/86 300
Clinton MS 287,030 10/08/85 300
Southaven MS 350,740 03/20/86 300
Fayetteville NC 248,661 12/18/85 300
Wilkesboro NC 250,043 12/10/85 300
Omaha NE 326,899 01/24/84 180
Amherst NY 199,842 07/30/87 300
Fulton NY 344,884 09/06/85 300
Watertown NY 279,746 08/01/84 300
Akron OH 256,662 12/29/87 300
Ashland OH 284,991 08/04/83 180
Celina OH 253,087 09/03/87 300
Lebanon OH 236,830 12/16/87 300
Stow OH 223,845 08/27/87 300
Troy OH 225,299 07/16/87 300
Wash. Courthouse OH 151,656 12/17/87 300
Wilmington OH 156,723 12/23/87 300
Broken Arrow OK 161,535 12/17/87 300
Norman OK 168,724 12/01/87 300
Oklahoma City OK 256,731 12/28/84 300
Owasso OK 170,154 12/01/87 300
Page 116
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Restaurants (continued)
- -----------------------
Ponca City OK 234,990 521,923 None None
Corvallis OR 172,788 383,766 None None
Hermiston OR 85,560 396,675 None None
Lake Oswego OR 175,899 815,509 None None
Milwaukie OR 179,174 830,689 None None
Salem OR 198,540 440,964 None None
Connellsville PA 264,670 587,843 None None
Waynesburg PA 222,285 493,704 None None
Pierre SD 251,790 559,232 None None
Memphis TN 405,274 1,060,680 None None
Nashville TN 484,975 1,192,627 20,000 31,098
Athens TX 245,245 544,700 None None
Bedford TX 919,303 98,231 None None
Beeville TX 250,490 556,349 None None
Brownwood TX 288,225 640,160 None None
Crockett TX 90,780 420,880 None None
Dallas TX 242,025 479,170 None None
Dallas TX 742,507 0 None None
El Campo TX 98,060 454,631 None None
Ennis TX 173,250 384,793 None None
Fort Worth TX 223,195 492,067 None None
Ft. Worth TX 423,281 382,059 None None
Gainesville TX 89,220 413,644 None None
Hillsboro TX 75,992 352,316 None None
Houston TX 194,994 386,056 None None
Houston TX 184,175 364,636 None None
Killeen TX 262,500 583,014 None 14,398
League City TX 126,822 588,000 None None
Lufkin TX 105,904 490,998 None None
Mesquite TX 134,940 625,612 None None
Mesquite TX 729,596 120,820 None None
Mexia TX 93,620 434,046 None None
New Braunfels TX 185,500 411,997 None None
Orange TX 93,560 433,768 None None
Plainview TX 125,000 350,767 None None
Port Lavaca TX 244,759 543,619 None None
Porter TX 227,067 333,031 None None
Rowlett TX 126,933 585,986 None None
Sealy TX 197,871 391,754 None None
Stafford TX 214,024 423,732 None None
Page 117
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Restaurants (continued)
- -----------------------
Ponca City OK 234,990 521,923 756,913
Corvallis OR 172,788 383,766 556,554
Hermiston OR 85,560 396,675 482,235
Lake Oswego OR 175,899 815,509 991,408
Milwaukie OR 179,174 830,689 1,009,863
Salem OR 198,540 440,964 639,504
Connellsville PA 264,670 587,843 852,513
Waynesburg PA 222,285 493,704 715,989
Pierre SD 251,790 559,232 811,022
Memphis TN 405,274 1,060,680 1,465,954
Nashville TN 484,975 1,243,725 1,728,700
Athens TX 245,245 544,700 789,945
Bedford TX 919,303 98,231 1,017,534
Beeville TX 250,490 556,349 806,839
Brownwood TX 288,225 640,160 928,385
Crockett TX 90,780 420,880 511,660
Dallas TX 242,025 479,170 721,195
Dallas TX 742,507 0 742,507
El Campo TX 98,060 454,631 552,691
Ennis TX 173,250 384,793 558,043
Fort Worth TX 223,195 492,067 715,262
Ft. Worth TX 423,281 382,059 805,340
Gainesville TX 89,220 413,644 502,864
Hillsboro TX 75,992 352,316 428,308
Houston TX 194,994 386,056 581,050
Houston TX 184,175 364,636 548,811
Killeen TX 262,500 597,412 859,912
League City TX 126,822 588,000 714,822
Lufkin TX 105,904 490,998 596,902
Mesquite TX 134,940 625,612 760,552
Mesquite TX 729,596 120,820 850,416
Mexia TX 93,620 434,046 527,666
New Braunfels TX 185,500 411,997 597,497
Orange TX 93,560 433,768 527,328
Plainview TX 125,000 350,767 475,767
Port Lavaca TX 244,759 543,619 788,378
Porter TX 227,067 333,031 560,098
Rowlett TX 126,933 585,986 712,919
Sealy TX 197,871 391,754 589,625
Stafford TX 214,024 423,732 637,756
Page 118
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Restaurants (continued)
- -----------------------
Ponca City OK 311,184 12/31/85 300
Corvallis OR 481,225 04/03/81 180
Hermiston OR 445,521 03/12/81 180
Lake Oswego OR 249,357 12/29/89 300
Milwaukie OR 615,237 11/18/85 300
Salem OR 528,895 08/15/86 300
Connellsville PA 180,067 12/31/86 300
Waynesburg PA 128,132 03/12/90 300
Pierre SD 397,527 03/06/86 300
Memphis TN 477,195 08/28/85 300
Nashville TN 377,774 09/30/86 300
Athens TX 263,602 03/10/87 300
Bedford TX 372,803 09/30/86 300
Beeville TX 1,750 11/20/97 300
Brownwood TX 1,400 11/20/97 300
Crockett TX 1,450 11/20/97 300
Dallas TX 608 12/12/97 300
Dallas TX 284,518 01/17/86 300
El Campo TX 51,085 06/23/75 300
Ennis TX 252,833 12/20/85 300
Fort Worth TX 259,682 02/03/88 300
Ft. Worth TX 135,277 04/20/89 300
Gainesville TX 135,546 12/22/87 300
Hillsboro TX 122,171 12/22/87 300
Houston TX 129,890 12/22/87 300
Houston TX 129,334 11/14/89 300
Killeen TX 143,958 05/17/88 300
League City TX 108,748 10/07/88 300
Lufkin TX 147,729 03/25/88 300
Mesquite TX 51,480 03/30/88 300
Mesquite TX 122,063 01/07/87 300
Mexia TX 134,486 12/21/89 300
New Braunfels TX 258,498 12/03/86 300
Orange TX 149,458 07/24/87 300
Plainview TX 135,683 12/22/87 300
Port Lavaca TX 132,227 05/23/89 300
Porter TX 219,619 05/29/87 300
Rowlett TX 156,098 03/26/87 300
Sealy TX 119,484 10/29/87 300
Stafford TX 113,449 06/25/91 300
Page 119
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Restaurants (continued)
- -----------------------
Temple TX 302,505 291,414 None None
Vidor TX 90,618 420,124 None None
Waxahachie TX 326,935 726,137 None None
Cedar City UT 130,000 296,544 None None
Orem UT 516,129 1,004,608 None None
Sandy UT 635,945 884,792 None None
Norfolk VA 251,207 575,250 None 12,983
Virginia Beach VA 314,790 699,161 None None
Auburn WA 301,595 669,852 None None
Marysville WA 276,273 613,613 None None
Oak Harbor WA 275,940 612,874 None None
Redmond WA 610,334 1,262,103 None None
Tacoma WA 198,857 921,947 None None
Tacoma WA 255,000 718,614 None None
Grafton WI 149,778 332,664 None None
Monroe WI 193,130 428,947 None None
Portage WI 199,605 443,328 None None
Shawano WI 205,730 456,932 None None
Sturgeon Bay WI 214,865 477,221 None None
Oak Hill WV 85,860 398,069 None None
Laramie WY 210,000 466,417 None None
Riverton WY 216,685 481,267 None None
Sheridan WY 117,160 543,184 None None
Shoe Stores
- -----------
Houston TX 1,096,376 2,300,622 None None
Video Rental
- ------------
Birmingham AL 392,795 864,933 None None
Tampa FL 401,874 933,678 None None
Brunswick GA 290,369 788,633 None None
Norcross GA 431,284 723,347 None None
Topeka KS 285,802 966,207 None None
Forest Park OH 328,187 921,232 None None
Franklin OH 337,572 774,654 None None
Tulsa OK 318,441 1,004,399 None None
Columbia TN 466,469 716,358 None None
Hendersonville TN 333,677 938,517 None None
Page 120
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Restaurants (continued)
- -----------------------
Temple TX 302,505 291,414 593,919
Vidor TX 90,618 420,124 510,742
Waxahachie TX 326,935 726,137 1,053,072
Cedar City UT 130,000 296,544 426,544
Orem UT 516,129 1,004,608 1,520,737
Sandy UT 635,945 884,792 1,520,737
Norfolk VA 251,207 588,233 839,440
Virginia Beach VA 314,790 699,161 1,013,951
Auburn WA 301,595 669,852 971,447
Marysville WA 276,273 613,613 889,886
Oak Harbor WA 275,940 612,874 888,814
Redmond WA 610,334 1,262,103 1,872,437
Tacoma WA 198,857 921,947 1,120,804
Tacoma WA 255,000 718,614 973,614
Grafton WI 149,778 332,664 482,442
Monroe WI 193,130 428,947 622,077
Portage WI 199,605 443,328 642,933
Shawano WI 205,730 456,932 662,662
Sturgeon Bay WI 214,865 477,221 692,086
Oak Hill WV 85,860 398,069 483,929
Laramie WY 210,000 466,417 676,417
Riverton WY 216,685 481,267 697,952
Sheridan WY 117,160 543,184 660,344
Shoe Stores
- -----------
Houston TX 1,096,376 2,300,622 3,396,998
Video Rental
- ------------
Birmingham AL 392,795 864,933 1,257,728
Tampa FL 401,874 933,678 1,335,552
Brunswick GA 290,369 788,633 1,079,002
Norcross GA 431,284 723,347 1,154,631
Topeka KS 285,802 966,207 1,252,009
Forest Park OH 328,187 921,232 1,249,419
Franklin OH 337,572 774,654 1,112,226
Tulsa OK 318,441 1,004,399 1,322,840
Columbia TN 466,469 716,358 1,182,827
Hendersonville TN 333,677 938,517 1,272,194
Page 121
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Restaurants (continued)
- -----------------------
Temple TX 125,561 06/26/91 300
Vidor TX 43,937 02/10/95 300
Waxahachie TX 91,403 06/25/91 300
Cedar City UT 86,332 06/25/91 300
Orem UT 38,299 02/09/95 300
Sandy UT 92,753 06/25/91 300
Norfolk VA 100,324 06/26/91 300
Virginia Beach VA 33,513 02/09/95 300
Auburn WA 200,621 11/27/85 300
Marysville WA 170,562 09/25/78 300
Oak Harbor WA 56,384 11/08/72 234
Redmond WA 183,910 04/15/77 300
Tacoma WA 159,237 12/09/76 300
Tacoma WA 1,058,040 12/08/83 180
Grafton WI 382,974 12/13/85 300
Monroe WI 408,136 09/13/85 300
Portage WI 292,092 07/07/86 300
Shawano WI 355,208 03/18/86 300
Sturgeon Bay WI 352,495 04/28/86 300
Oak Hill WV 247,052 08/08/86 300
Laramie WY 348,593 08/18/86 300
Riverton WY 136,047 12/28/87 300
Sheridan WY 211,231 10/15/87 300
Shoe Stores
- -----------
Houston TX 26,745 09/05/97 300
Video Rental
- ------------
Birmingham AL 10,029 09/30/97 300
Tampa FL 1,547 12/23/97 300
Brunswick GA 1,306 12/31/97 300
Norcross GA 5,973 10/01/97 300
Topeka KS 1,604 12/19/97 300
Forest Park OH 4,580 11/14/97 300
Franklin OH 1,286 12/30/97 300
Tulsa OK 11,660 09/26/97 300
Columbia TN 8,306 09/26/97 300
Hendersonville TN 1,557 12/10/97 300
Page 122
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
----------------------- ----------------
Buildings,
Improvements
and
Description Acquisition Carrying
(Note 1) Land Fees Improvements Costs
- ------------------- --------- ----------- ------------ -----
Video Rental (continued)
- ------------------------
Jackson TN 381,076 857,261 None None
Murfreesboro TN 406,056 885,984 None None
Smyrna TN 302,372 836,180 None None
Austin TX 407,910 885,003 None None
Beaumont TX 293,919 832,019 None None
Lubbock TX 266,805 857,312 None None
Woodway TX 372,487 835,198 None None
Hampton VA 373,481 835,978 None None
Other Properties
- ----------------
Mesa AZ 271,754 1,259,910 27,961 None
Phoenix AZ 322,708 1,496,143 197,440 10,462
Chino CA 53,271 102,748 None None
Escondido CA 332,500 904,690 164,176 61,140
Fresno CA 428,900 3,434,562 None None
Paramount CA 86,400 278,827 None None
San Diego CA 3,745,000 8,885,351 None None
San Diego CA 2,485,160 8,697,822 None None
San Diego CA 5,797,411 15,473,497 None None
Humble TX 106,000 545,518 None None
Chesapeake VA 144,014 649,869 None 11,754
Other None 398,370 None 28,079
----------- ----------- ------- -------
214,342,224 484,634,653 491,277 329,292
=========== =========== ======= =======
See accompanying Independent Auditors' Report
Page 123
Gross Amount at Which Carried
at Close of Period (Notes 2, 3 and 5)
Buildings,
Improvements
and
Description Acquisition
(Note 1) Land Fees Total
- ------------------- ------------ ------------ ------------
Video Rental (continued)
- ------------------------
Jackson TN 381,076 857,261 1,238,337
Murfreesboro TN 406,056 885,984 1,292,040
Smyrna TN 302,372 836,180 1,138,552
Austin TX 407,910 885,003 1,292,913
Beaumont TX 293,919 832,019 1,125,938
Lubbock TX 266,805 857,312 1,124,117
Woodway TX 372,487 835,198 1,207,685
Hampton VA 373,481 835,978 1,209,459
Other Properties
- ----------------
Mesa AZ 271,754 1,287,871 1,559,625
Phoenix AZ 322,708 1,704,045 2,026,753
Chino CA 53,271 102,748 156,019
Escondido CA 332,500 1,130,006 1,462,506
Fresno CA 428,900 3,434,562 3,863,462
Paramount CA 86,400 278,827 365,227
San Diego CA 3,745,000 8,885,351 12,630,351
San Diego CA 2,485,160 8,697,822 11,182,982
San Diego CA 5,797,411 15,473,497 21,270,908
Humble TX 106,000 545,518 651,518
Chesapeake VA 144,014 661,623 805,637
Other None 426,449 426,449
------------ ------------ ------------
214,342,224 485,455,222 699,797,446
============ ============ ============
Page 124
Life on
which
in latest
Income
Accumulated Statement
Description Depreciation Date of Date is Computed
(Note 1) (Note 4) Construction Acquired (in Months)
- ------------------- ------------ ------------ -------- -----------
Video Rental (continued)
- ------------------------
Jackson TN 9,948 09/26/97 300
Murfreesboro TN 10,283 09/26/97 300
Smyrna TN 9,701 09/02/97 300
Austin TX 1,466 12/01/97 300
Beaumont TX 9,659 09/05/97 300
Lubbock TX 12,792 08/29/97 300
Woodway TX 1,385 12/16/97 300
Hampton VA 1,385 12/19/97 300
Other Properties
- ----------------
Mesa AZ 695,875 06/30/86 300
Phoenix AZ 840,900 06/30/86 300
Chino CA 101,811 01/07/75 300
Escondido CA 406,731 01/11/84 300
Fresno CA 3,434,562 10/29/82 180
Paramount CA 262,994 11/22/83 180
San Diego CA 4,807,435 03/25/86 300
San Diego CA 3,204,038 09/19/86 300
San Diego CA 5,269,070 08/05/87 300
Humble TX 408,806 03/25/86 300
Chesapeake VA 353,714 12/22/86 300
Other 274,364
-----------
152,206,136
===========
Page 125
REALTY INCOME CORPORATION AND SUBSIDIARIES
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
Note 1. Eight hundred twenty three of the properties are single unit
retail outlets. The Trade Center, Silverton Business Center and
Empire Business Center properties are multi-tenant commercial
properties.
All properties were acquired on an all cash basis
except one; no encumbrances were outstanding for the periods
presented.
Note 2. The aggregate cost for federal income tax purposes is
$636,613,875.
Note 3. Reconciliation of total real estate carrying value for the
three years ended December 31, 1997 are as follows:
1997 1996 1995
----------- ----------- -----------
Balance at Beginning of Period 564,539,993 515,425,548 450,703,481
Additions During Period:
Acquisitions 142,286,618 55,667,447 65,392,559
Equipment 0 58,000 0
Improvements, Etc. 16,683 37,303 447,720
Other (Leasing Costs) 36,266 0 50,126
----------- ---------- ----------
Total Additions 142,339,567 55,762,750 65,890,405
----------- ---------- ----------
Deductions During Period:
Cost of Real Estate Sold 6,917,114 6,054,238 1,162,098
Cost of Equipment Sold 0 0 0
Other (Fully Amortized Commissions) 0 15,067 6,240
Other (Provision
for Impairment Losses) 165,000 579,000 0
----------- ---------- ----------
Total Deductions 7,082,114 6,648,305 1,168,338
----------- ---------- ----------
Balance at Close of Period 699,797,446 564,539,993 515,425,548
=========== ========== ==========
Note 4. Reconciliation of accumulated depreciation for the three
years ended December 31, 1997 are as follows:
Balance at Beginning of Period 138,307,408 126,062,055 112,168,982
Additions During Period -
Provision for Depreciation 17,465,979 15,364,936 14,462,491
Page 126
Deductions During Period:
Accumulated Depreciation of
Real Estate Sold 3,567,251 3,104,516 563,178
Other (Fully Amortized Commissions) 0 15,067 6,240
----------- ----------- -----------
Balance at Close of Period 152,206,136 138,307,408 126,062,055
=========== =========== ===========
Note 5. In 1997, a provision for impairment loss was made on two
vacant properties in Riverside, CA and Irving, TX and a Golden Corral
in McMinnville, OR which was sold in 1997. In 1996, a provision for
impairment loss was made on the Automall in Phoenix, AZ; the Automall
in Glendale, AZ; the Stone Meadow Center in Spring, TX and the Long
John Silvers in Lexington, SC.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- ---------------------------------------------------------
The corporation has had no disagreements with its independent
auditors' on accountancy or financial disclosure.
PART III
========
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information set forth under the captions Director Nominees and
Officers Of The Company and Compaliance With Federal Securities
Laws in the definitive proxy statement for the Annual Meeting of
Shareholders presently scheduled to be held on May 5, 1998,
to be filed pursuant to Regulation 14A.
ITEM 11: EXECUTIVE COMPENSATION
- --------------------------------
The information set forth under the caption Executive Compensation in
the definitive proxy statement for the Annual Meeting of Shareholders
presently scheduled to be held on May 5, 1998, to be filed pursuant to
Regulation 14A.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- -------------------------------------------------------------
The information set forth under the caption Security Ownership Of
Certain Beneficial Owners And Management in the definitive proxy
Page 127
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (continued)
- -------------------------------------------------------------
statement for the Annual Meeting of Shareholders presently scheduled
to be held on May 5, 1998, to be filed pursuant to Regulation 14A.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Not applicable.
PART IV
=======
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
- ----------------------------------------------------------------
A. The following documents are filed as part of this report.
1. Financial Statements (see Item 8)
a. Independent Auditors' Report
b. Consolidated Balance Sheets,
December 31, 1997 and 1996
c. Consolidated Statements of Income,
Years ended December 31, 1997, 1996 and 1995
d. Consolidated Statements of
Stockholders' Equity,
Years ended December 31, 1997, 1996 and 1995
e. Consolidated Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995
f. Notes to Consolidated Financial Statements
g. Consolidated Quarterly Financial Data
(unaudited) for 1997 and 1996
2. Financial Statement Schedule (see Item 8)
Schedule III - Real Estate and Accumulated Depreciation
Schedules not Filed: All schedules, other than those
indicated in the Table of Contents, have been omitted as the
required information is inapplicable or the information is
presented in the financial statements or related notes.
Page 128
3. Exhibits
2.1 Agreement and Plan of Merger dated as of May 15, 1997
between Realty Income Corporation, a Delaware
corporation, and Realty Income Maryland, Inc., a
Maryland corporation (incorporated by reference to
the Company's Form 8-B12B dated July 29, 1997
("Form 8-B") and incorporated herein by reference)
3.1 Articles of Incorporation of the Company (filed)
as Appendix B to the Company's Proxy Statement
dated March 28, 1997 ("1997 Proxy Statement")
and incorporated herein by reference)
3.2 Bylaws of the Company (filed as Appendix C to the
Company's 1997 Proxy Statement and incorporated
herein by reference)
4.1 Pricing Committee Resolutions and Form of 7.75%
Notes due 2007 (filed as Exhibit 4.2 to the Company's
Form 8-K dated May 5, 1997 and incorporated herein by
reference)
4.2 Indenture dated as of May 6, 1997 between the Company
and The Bank of New York (filed as Exhibit 4.1 to the
Company's Form 8-K dated May 5, 1997 and incorporated
herein by reference)
4.3 First Supplemental Indenture dated as of May 28, 1997,
between the Company and The Bank of New York (filed as
Exhibit 4.3 to the Company's Form 8-B and incorporated
herein by reference)
10.1 Revolving Credit Agreement (filed as Exhibit
99.2 to the Company's Form 8-K dated
December 16, 1994 and incorporated herein by
reference)
10.2 First Amendment to the Revolving Credit
Agreement (filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein
by reference)
10.3 Second Amendment to the Revolving Credit
Agreement (filed as Exhibit 99.2 to the
Company's Form 8-K dated December 19, 1995
and incorporated herein by reference)
Page 129
10.4 Third Amendment to the Revolving Credit
Agreement(filed as Exhibit 10.4 to the
Company's Form 10-K dated December 31, 1996
and incorporated herein by reference)
10.5 Fourth Amendment to the Revolving Credit
Agreement(filed as Exhibit 10.5 to the
Company's Form 10-Q dated March 31, 1997
and incorporated herein by reference)
10.6 Amended and Restated Revolving Credit Agreement,
dated as of November 29, 1994 and restated as of
December 30, 1997, filed herein
10.7 1994 Stock Option and Incentive Plan (filed as Exhibit
4.1 to the Company's Registration Statement on Form S-8
(registration number 33-95708) and incorporated herein
by reference)
10.8 First Amendment to the 1994 Stock Option and Incentive
Plan, dated June 12, 1997 (filed as Exhibit 10.9 to the
Company's Form 8-B and incorporated herein by reference)
10.9 Second Amendment to the 1994 Stock Option and Incentive
Plan, dated December 16, 1997, filed herein
10.10 Management Incentive Plan, filed herein
10.11 Form of Nonqualified Stock Option Agreement for
Independent Directors, filed herein
10.12 Form of Indemnification Agreement entered into between
the Company and the executive officers of the Company
(filed as Exhibit 10.1 to the Company's Form 8-K dated
November 21, 1997 and incorporated herein by reference)
10.13 Form of Indemnification Agreement entered into between
the Company and each director on the board of directors
of the Company (filed as Exhibit 10.2 to the Company's
Form 8-K dated November 21, 1997 and incorporated herein
by reference)
10.14 Form of Employment Agreement between the Company and its
Executive Officers (incorporated by reference to the
Company's Form 8-B12B dated July 29, 1997 and
incorporated herein by reference)
21.1 Subsidiaries of the Company as of January 1, 1998, filed
herein
24.1 Consent of KPMG Peat Marwick LLP, filed herein
Page 130
27 Financial Data Schedule (electronically filed with the
Securities and Exchange Commission only)
B. Two reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this report.
A report on Form 8-K was dated and filed on October 15, 1997 reporting
the issuance of 2,700,000 shares of common stock at a price of $27.00
per share on October 15, 1997.
A report on Form 8-K was dated and filed on November 21, 1997
reporting; (i) an indemnification agreement between the Registrant and
each executive officer of the Registrant and (ii) an indemnification
agreement between the Registrant and each director of the board of
directors of the Registrant.
A report on Form 8-K filed on February 24, 1998 reporting the issuance
of 751,174 shares of common stock on February 23, 1998.
Page 131
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REALTY INCOME CORPORATION
By: /s/THOMAS A. LEWIS
------------------------------------
Thomas A. Lewis
Vice Chairman of the Board of Directors and
Chief Executive Officer
Date: March 20, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
By: /s/WILLIAM E. CLARK
------------------------------------
William E. Clark
Chairman of the Board of Directors
Date: March 20, 1998
By: /s/THOMAS A. LEWIS
------------------------------------
Thomas A. Lewis
Vice Chairman of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
Date: March 20, 1998
Page 132
SIGNATURES (continued)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
By: /s/DONALD R. CAMERON
------------------------------------
Donald R. Cameron
Director
Date: March 13, 1998
By: /s/ROGER P. KUPPINGER
------------------------------------
Roger P. Kuppinger
Director
Date: March 17, 1998
By: /s/MICHAEL D. MCKEE
------------------------------------
Michael D. McKee
Director
Date: March 12, 1998
By: /s/WILLARD H. SMITH JR
------------------------------------
Willard H. Smith Jr
Director
Date: March 20, 1998
By: /s/RICHARD J. VANDERHOFF
------------------------------------
Richard J. VanDerhoff
Director, President and Chief Operating Officer
Date: March 20, 1998
Page 133
SIGNATURES (continued)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
By: /s/GARY MALINO
------------------------------------
Gary Malino
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: March 20, 1998
By: /s/GREGORY J. FAHEY
------------------------------------
Gregory J. Fahey
Associate Vice President, Controller
Date: March 20, 1998
EXHIBIT INDEX
=============
Each Exhibit has
Sequentially
Exhibit No. Description Numbered Pages
- ----------- ----------- ----------------
10.6 Amended and Restated Revolving Credit
Agreement dated as of November 29, 1994
and restated as of December 30, 1997
10.9 Second Amendment to the 1994 Stock Option
and Incentive Plan, dated December 16, 1997
10.10 Form of Management Incentive Plan
10.11 Form of Nonqualified Stock Option Agreement
for Independent Directors
21.1 Subsidiaries of the Company as of
January 1, 1998
24.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
Page 134