UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

 

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2003

 

Commission File Number 1-13374

 

REALTY INCOME CORPORATION

(Exact name of registrant as specified in its charter)

 

 

220 West Crest Street, Escondido, California  92025

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (760)741-2111

 

Securities registered pursuant to Section 12 (b) of the Act:

 

 

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  ý   No  o

 

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.  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  ý  No  o

 

At June 30, 2003, the aggregate market value of the Registrant’s shares of common stock, $1.00 par value, held by non-affiliates of the Registrant was $1.2 billion, at the New York Stock Exchange (“NYSE”) closing price of $38.08.

 

 

At February 16, 2004, the number of shares of common stock outstanding was 38,006,034, the number of Class B preferred shares outstanding was 2,745,700, the number of Class C preferred shares outstanding was 1,380,000 and the number of Monthly Income Senior Notes, due 2008, outstanding was 4,000,000.

 

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 11, 2004, 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 Statements

 

This annual report on Form 10-K, including documents incorporated by reference, contains 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.  Forward-looking statements are subject to risks, uncertainties, and assumptions about Realty Income Corporation, including, among other things:

 

•                  Our anticipated growth strategies;

•                  Our intention to acquire additional properties and the timing of these acquisitions;

•                  Our intention to sell properties and the timing of these property sales;

•                  Our intention to re-lease vacant properties;

•                  Anticipated trends in our business, including trends in the market for long-term net-leases of freestanding, single-tenant retail properties;

•                  Future expenditures for development projects; and

•                  Profitability of our subsidiary, Crest Net Lease, Inc.

 

Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements.  In particular, some of the factors that could cause actual results to differ materially are:

 

•                  Our continued qualification as a real estate investment trust;

•                  General business and economic conditions;

•                  Competition;

•                  Fluctuating interest rates;

•                  Access to debt and equity capital markets;

•                  Other risks inherent in the real estate business including tenant defaults, potential liability relating to environmental matters and illiquidity of real estate investments;

•                  Changes in the tax laws of the United States of America; and

•                  Acts of terrorism and war.

 

Additional factors that may cause risks and uncertainties include those discussed in the sections entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this annual report.

 

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that this annual report was filed with the Securities and Exchange Commission.  We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.  In light of these risks and uncertainties, the forward-looking events discussed in this annual report might not occur.

 

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REALTY INCOME CORPORATION

Index to Form 10-K

 

		Page
PART I
Item 1:	Business	4
	The Company	4
	Recent Developments	5
	Distribution Policy	8
	Business Philosophy and Strategy	9
	Properties	14
	Other Items	20
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	23
Item 6:	Selected Financial Data	24
Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
	General	25
	Liquidity and Capital Resources	25
	Results of Operations	30
	Funds from Operations (FFO) Available to Common Stockholders	36
	FFO Generated by Crest Net	37
	Impact of Inflation	37
	Impact of Accounting Pronouncements	38
Item 7A:	Quantitative and Qualitative Disclosures about Market Risk	38
Item 8:	Financial Statements and Supplementary Data	39
Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	59
Item 9A.	Controls and Procedures	59
PART III
Item 10:	Directors and Executive Officers of the Registrant	59
Item 11:	Executive Compensation	59
Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	59
Item 13:	Certain Relationships and Related Transactions	60
PART IV
Item 14:	Principal Accountant Fees and Services	60
Item 15:	Exhibits, Financial Statement Schedules and Reports on Form 8-K	60
SIGNATURES		64

 

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PART I

 

Item 1:                                      Business

THE COMPANY

 

Realty Income Corporation, The Monthly Dividend Company ^®, is a Maryland corporation organized to operate as an equity real estate investment trust, commonly referred to as a REIT.  Our primary business objective is to generate dependable monthly cash distributions from a consistent and predictable level of funds from operations, or FFO, per share.  Over the past 35 years, Realty Income and its predecessors have been acquiring and owning freestanding retail properties that generate rental revenue under long-term (primarily 15- to 20-year) lease agreements.  The monthly distributions are supported by the cash flow from our portfolio of retail properties leased to regional and national retail chains.

 

We are 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.  We seek to increase distributions to stockholders and FFO per share through both active portfolio management and the acquisition of additional properties.  Our portfolio management focus includes:

 

•                  Contractual rent increases on existing leases;

•                  Rent increases at the termination of existing leases when market conditions permit; and

•                  The active management of our property portfolio, including re-leasing of vacant properties and selective sales of properties.

 

Our acquisition of additional properties adheres to a focused strategy of primarily acquiring properties that are:

 

•                  Freestanding, single-tenant, retail locations;

•                  Leased to regional and national retail chains; and

•                  Leased under long-term, net-lease agreements.

 

At December 31, 2003, we owned a diversified portfolio:

 

•                  Of 1,404 retail properties;

•                  With an occupancy rate of 98.1%, or 1,378 properties occupied of the 1,404 properties in the portfolio;

•                  Leased to 85 different retail chains doing business in 28 separate retail industries;

•                  Located in 48 states;

•                  With over 11.3 million square feet of leasable space; and

•                  With an average leasable retail space of 8,100 square feet.

 

Of the 1,404 properties in the portfolio, 1,399, or 99.6%, are single-tenant, retail properties and the remaining five are multi-tenant properties.  At December 31, 2003, 1,374, or 98.2%, of the 1,399 single-tenant properties were leased with a weighted average remaining lease term (excluding extension options) of approximately 11.8 years.

 

In addition to our real estate portfolio, at December 31, 2003, our wholly-owned subsidiary Crest Net Lease, Inc. owned 37 properties totaling $53.3 million.  These properties are held for sale.

 

We typically acquire retail store properties under long-term leases with retail chain store operators. These transactions provide capital to the operators for continued expansion and other corporate purposes.  Our acquisition and investment activities are concentrated in well-defined target markets and generally focus on middle-market retailers providing goods and services that satisfy basic consumer needs.

 

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Our net-lease agreements generally:

 

•                  Are for initial terms of 15 to 20 years;

•                  Require the tenant to pay minimum monthly rents 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, fixed increases, or additional rent calculated as a percentage of the tenants’ gross sales above a specified level.

 

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.  Each of the partnerships was formed between 1970 and 1989 for the purpose of acquiring and managing long-term, net-leased properties.

 

The six senior officers of Realty Income owned 1.1% of our outstanding common stock with a market value of $18.2 million at February 16, 2004.  The directors and six senior officers of Realty Income, as a group, owned 2.7% of our outstanding common stock with a market value of $44.1 million at February 16, 2004.

 

Realty Income’s common stock is listed on The New York Stock Exchange (“NYSE”) under the ticker symbol “O.”  Our central index key number is 726728 and cusip number is 756109-104.

 

Realty Income’s Class B cumulative redeemable preferred stock is listed on the NYSE under the ticker symbol “OprB” and its cusip number is 756109-302.

 

Realty Income’s Class C cumulative redeemable preferred stock is listed on the NYSE under the ticker symbol “OprC” and its cusip number is 756109-500.

 

Realty Income’s 8.25% Monthly Income Senior Notes, due 2008 are listed on the NYSE under the ticker symbol “OUI.”  The cusip number of these notes is 756109-203.

 

Realty Income had 58 employees as of February 16, 2004.

 

We maintain an Internet website at www.realtyincome.com. On our website we make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file these reports with the Securities and Exchange Commission.

 

 

RECENT DEVELOPMENTS

 

The Acquisition of 86 National Tire and Battery Properties.

 

In November 2003, Realty Income and Crest Net provided an aggregate of $135.7 million in sale leaseback financing to TBC Corporation by acquiring 86 National Tire and Battery (“NTB”) retail tire store locations.  Of the $135.7 million, $109.3 million in properties was acquired by Realty Income and $26.4 million in properties was acquired by Crest Net.  These locations were acquired under 20-year, net lease agreements.  Each store has an average of 10,500 leasable square feet on an average lot size of 1.2 acres and was purchased for an average cost of $1.6 million.  The properties are generally in desirable retail locations near major retail centers, located on high traffic thoroughfares. In addition, the properties acquired are primarily existing, seasoned, retail tire store locations with profitable operating histories.

 

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Credit Ratings Upgrades.

 

In November 2003, our credit ratings were upgraded by Standard and Poor’s Ratings Group.  Our senior unsecured debt rating was raised to BBB from BBB- and our preferred stock rating was raised to BBB- from BB+, with a stable outlook.

 

In February 2003, our credit ratings were upgraded by Moody’s Investors Service.  Our senior unsecured debt rating was raised to Baa2 from Baa3- and our preferred stock rating was raised to Baa3- from Ba1, with a stable outlook.

 

Issuance of 12-Year, 5-1/2% Senior Unsecured Notes.

 

In November 2003, we issued $150 million of 12-year, 5-1/2% senior unsecured notes due in 2015.  The price to the investor for the notes was 99.508% of the principal amount for an effective yield of 5.56%. These securities have been rated BBB by Fitch Ratings, Baa2 by Moody’s Investors Service and BBB by Standard & Poor’s Ratings Group.  The net proceeds from the sale of the notes were used to fund the NTB portfolio acquisition for $135.7 million and to repay borrowings under our $250 million unsecured acquisition credit facility.

 

The Acquisition of 114 Pantry Convenience Store Properties.

 

In October 2003, Realty Income and Crest Net acquired a portfolio of 114 convenience store properties from The Pantry, Inc. for $94.5 million. Of the $94.5 million, $69.5 million in properties was acquired by Realty Income and $25 million was acquired by Crest Net.  The properties were purchased subject to 20-year, net-lease agreements. The stores are, on average, approximately 2,700 leasable square feet and have an average 14-year operating history.

 

Issuance of Common Stock.

 

In October 2003, we issued 2,875,000 shares of common stock at a price to the public of $40.59 per share.  The net proceeds from this offering were approximately $110.8 million and were used to repay borrowings under our $250 million unsecured acquisition credit facility.

 

Issuance of 10-Year, 5-3/8% Senior Unsecured Notes.

 

In March 2003, we issued $100 million of 10-year, 5-3/8% senior unsecured notes due in 2013.  The price to the investor for the notes was 99.509% of the principal amount for an effective yield of 5.439%. These securities are rated BBB by Fitch Ratings, Baa2 by Moody’s Investors Service and BBB by Standard & Poor’s Ratings Group.  The net proceeds from the sale of the notes were used to repay borrowings under our $250 million unsecured acquisition credit facility.

 

Acquisitions during 2003.

 

Realty Income and Crest Net Aggregate Acquisitions.

 

Realty Income and Crest Net invested $371.6 million in aggregate in 302 new properties and properties under development in 2003.  These 302 properties are located in 25 states and are 100% leased with an initial average lease term of 19.9 years.

 

Realty Income.

 

Realty Income invested $284.0 million during 2003 in 242 new properties and properties under development with an initial weighted average contractual lease rate of 9.8%.  These 242 properties are located in 20 states and are 100% leased with an initial average lease term of 19.9 years and will contain approximately 1.5 million leasable square feet.

 

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Of the $284.0 million Realty Income invested in real estate during 2003, $13.1 million was invested in properties under development during 2003 that were acquired before 2003.  Estimated unfunded development costs on Realty Income and Crest Net properties under development at December 31, 2003 totaled $8.3 million.  At December 31, 2003, eight new properties acquired during 2003 were leased and under development, pursuant to contracts under which the tenants agreed to develop the properties (with development costs funded by Realty Income or Crest Net) with rent scheduled to begin at various times during first nine months of 2004.

 

The initial weighted average contractual lease rate is computed as estimated contractual net operating income (in a net-leased property this is equal to the base rent or, in the case of properties under development, the estimated base rent under the lease) for the first year of each lease, divided by the estimated total costs.  Since it is possible that a tenant could default on the payment of contractual rent, we cannot assure you that the actual return on the funds invested will remain at the percentages listed above.

 

The 242 new properties acquired by Realty Income are net-leased to 15 different retail chains in 10 industries: automotive collision service, automotive service, automotive tire service, convenience store, equipment rental service, grocery store, home improvement, restaurant, sporting goods and travel plaza.  During 2003, we added two new industries to our portfolio, they are equipment rental service and travel plaza.  We also segregated the automotive tire service industry from the automotive parts industry.  This segregation was made because the two industries have different economic characteristics.

 

Crest Net.

 

Crest Net invested $87.6 million during 2003 in 60 new retail properties and properties under development.

 

Investments in Existing Properties.

 

In 2003, we capitalized costs of $656,000 on existing properties in our portfolio, consisting of $392,000 for re-leasing costs and $264,000 for building improvements.

 

Net Income Available to Common Stockholders.

 

Net income available to common stockholders was $76.7 million in 2003 versus $69.0 million in 2002, an increase of $7.7 million.  On a diluted per common share basis, net income was $2.15 per share in 2003 as compared to $2.03 per share in 2002.

 

The calculation to determine net income available to common stockholders includes gains and losses from the sale of investment properties.  The amount of gains and losses varies from period to period based on the timing of property sales and can significantly impact net income available to common stockholders.

 

The gain recognized from the sales of investment properties during 2003 was $6.5 million as compared to $6.3 million during 2002.

 

Funds from Operations (FFO).

 

In 2003, our FFO increased by $10.3 million, or 11.0%, to $104.0 million versus $93.7 million in 2002.  See our discussion of FFO in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this annual report, which includes a reconciliation of net income available to common stockholders to FFO.

 

In 2003, Crest Net generated $4.6 million in FFO for Realty Income.  The future contribution, if any, to our FFO by Crest Net will depend on the timing and the number of property acquisitions and sales it achieves, if any, in a given year.

 

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Crest Net Property Sales.

 

During 2003 Crest Net sold 27 properties from its inventory for $45.2 million, which resulted in a gain of $6.2 million.

 

Crest Net’s Property Inventory.

 

Crest Net’s property inventory at December 31, 2003 and December 31, 2002 totaled $53.3 million and $4.6 million, respectively, and is included in real estate held for sale, net, on our consolidated balance sheets.

 

The financial statements of Crest Net are consolidated into Realty Income’s financial statements.  All material intercompany transactions have been eliminated in consolidation.

 

Sales of Investment Properties by Realty Income.

 

During 2003, we sold 35 properties and exchanged excess land parcels from three properties for an aggregate of $23.1 million, which resulted in a gain of $6.5 million. The 35 properties sold consisted of 19 child care facilities, nine restaurants, three home improvement stores, two auto service location, one consumer electronics store and one other property.  The land exchanges were on three convenience store locations.  These gains are included in discontinued operations.  The net proceeds from the sale of these properties were used to repay outstanding indebtedness on our credit facility and to invest in new properties.

 

Increases in Monthly Distributions to Common Stockholders.

 

We continue our 34-year policy of paying distributions monthly.  Monthly distributions per share were increased by $0.00125 on four separate occasions.  In April 2003 the monthly distribution increase per share was to $0.19625, in July 2003 to $0.1975, in October 2003 to $0.19875 and in January 2004 to $0.20.  The increase in January 2004 was our 25^th consecutive quarterly increase and the 27^th increase in the amount of our dividend since our listing on the NYSE in 1994.  In 2003, we paid 12 monthly cash distributions per share; three in the amount of $0.195, three in the amount of $0.19625, three in the amount of $0.1975, and three in the amount of $0.19875, totaling $2.3625 per share.  In December 2003, January 2004 and February 2004, we declared distributions of $0.20 per share, which were paid on January 15, 2004, February 17, 2004 and will be paid on March 15, 2004, respectively.

 

The monthly distribution of $0.20 per share represents a current annualized distribution of $2.40 per share, and an annualized distribution yield of approximately 5.6% based on the last reported sale price of our common stock on the NYSE of $42.85 on February 13, 2004.  Although we expect to continue our policy of paying monthly distributions, we cannot guarantee that we will maintain the current level of distributions, that we will continue our pattern of increasing distributions per share, or what the actual distribution yield will be in any future period.

 

DISTRIBUTION POLICY

 

Distributions are paid to our common stockholders and Class C preferred stockholders on a monthly basis and are paid to our Class B preferred stockholders on a quarterly basis if, as and when declared by our Board of Directors.  The Class B preferred stockholders receive cumulative distributions at a rate of 9.375% per annum on the $25 per share liquidation preference (equivalent to $2.34375 per annum per share).  The Class C preferred stockholders receive cumulative distributions at a rate of 9.5% per annum on the $25 per share liquidation preference (equivalent to $2.375 per annum per share).

 

In order to maintain our tax status as a REIT for federal income tax purposes, we generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gains) and we are subject to income tax to the extent we distribute less than 100% of our REIT taxable income (including net capital gains).  In 2003, our distributions totaled approximately 108.1% of our estimated REIT taxable income.

 

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Our estimated REIT taxable income reflects non-cash deductions for depreciation and amortization.  We intend to continue to make distributions to our stockholders that are sufficient to meet this distribution requirement and that will reduce our exposure to income taxes.  Our 2003 distributions to common stockholders were 80.6% of our funds from operations available to common stockholders.

 

Future distributions will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, FFO, cash flow from operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, our debt service requirements and any other factors the Board of Directors may deem relevant.  In addition, our credit facility contains financial covenants that could limit the amount of distributions payable by us in the event of a deterioration in our results of operations or financial condition, and which prohibit the payment of distributions on the common or preferred stock in the event that we fail to pay when due (subject to any applicable grace period) any principal or interest on borrowings under our credit facility.

 

Distributions of our current and accumulated earnings and profits for federal income tax purposes, generally will be taxable to stockholders as ordinary income, except to the extent that we recognize capital gains and declare a capital gains dividend or such amounts constitute “qualified dividend income” subject to a reduced rate of tax.  The maximum tax rate of non-corporate taxpayers for “qualified dividend income” has generally been reduced from 38.6% to 15% (for taxable years beginning after December 31, 2002).  In general, dividends payable by REITs are not eligible for the reduced tax rate on corporate dividends, except to the extent the REIT’s dividends are attributable to dividends received from taxable corporations (such as our taxable REIT subsidiary, Crest Net), to income that was subject to tax at the corporate/REIT level (for example, if we distribute taxable income that we retained and paid tax on in the prior taxable year) or, as discussed above, dividends properly designated by us as “capital gain dividends.”  Distributions in excess of earnings and profits generally will be treated as a non-taxable reduction in the stockholders’ basis in the stock.  Distributions above that basis, generally will be taxable as a capital gain.  Approximately 6.4% of the distributions, made or deemed to have been made in 2003, to our common stockholders were classified as a return of capital for federal income tax purposes.  We are unable to predict the portion of future distributions that may be classified as a return of capital.

 

 

BUSINESS PHILOSOPHY AND STRATEGY

 

Investment Philosophy.

 

We believe that the long-term ownership of an actively managed, diversified portfolio of retail properties, under long-term, net-lease agreements, produces consistent, predictable income.  Under a net-lease agreement, the tenant agrees to pay monthly rent and property operating expenses (taxes, maintenance and insurance) plus, typically, future rent increases (generally subject to ceilings) based on increases in the consumer price index, fixed increases or additional rent calculated as a percentage of the tenants’ gross sales above a specified level.  We believe that long-term leases, coupled with the tenant’s responsibility for property expenses, generally produce a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income.

 

Investment Strategy.

 

In identifying new properties for acquisition, our focus is on providing expansion capital to retail chains by acquiring, then leasing back, their retail store locations.  We categorize retail tenants as: 1) venture market, 2) middle market, and 3) upper market.  Venture companies 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 typically have 50 to 500 retail outlets, operations in more than one geographic region, have been successful through one or more economic cycles, and have a proven, replicable concept.  The upper market retail chains typically consist of companies with 500 or more stores, operating nationally, in a proven, mature retail concept.  Upper market retail chains generally have strong operating histories and access to several sources of capital.

 

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Realty Income primarily focuses on acquiring properties leased to middle market retail chains that we believe are attractive for investment because:

 

•                  They generally have overcome many of the operational and managerial obstacles that can adversely affect venture retailers;

•                  They typically require capital to fund expansion but have more limited financing options;

•                  They generally have provided us with attractive risk-adjusted returns over time since their financial strength has, in many cases, tended to improve as their businesses have matured;

•                  Their relatively large size allows them to spread corporate expenses across a greater number of stores; and

•                  Middle market retailers typically have the critical mass to survive if a number of locations are closed due to underperformance.

 

We also focus on and have selectively made investments in properties of upper market retail chains.  We believe upper market retail chains can be attractive for investment because:

 

•                  They typically are of a higher credit quality;

•                  They usually are larger brand name, public and private retailers;

•                  They utilize a larger building ranging in size from 10,000 to 50,000 square feet; and

•                  They are able to grow because access to capital facilitates larger transaction sizes.

 

While our investment strategy focuses primarily on acquiring properties leased to middle and upper market retail chains, we also selectively seek investment opportunities with venture market retail chains.  Periodically, venture market opportunities arise where we feel that the real estate used by the tenant is high quality and can be purchased at favorable prices.  To meet our stringent investment standards, however, venture retail companies must have a well-defined retailing concept and strong financial prospects.  These opportunities are examined on a case by case basis and we are highly selective in making investments in this area.

 

Historically, our investment focus has been on retail industries that have a service component because we believe the lease revenue from these types of businesses is more stable.  Because of this investment focus, for the quarter ended December 31, 2003, approximately 77% of our rental revenue rent was derived from retailers with a service component in their business.  Furthermore, we believe these service-oriented businesses would be difficult to duplicate over the Internet and that our properties continue to perform well relative to competition from Internet businesses.

 

Credit Strategy.

 

We generally provide sale-leaseback financing to less than investment grade retail chains.  From 1970 through December 31, 2003, we have acquired and leased back to regional and national retail chains 1,508 properties (including 151 properties that have been sold) and have collected approximately 98% of the original contractual rent obligations on those properties.  We believe that within this market we can achieve an attractive risk-adjusted return on the financing we provide to retailers.

 

We believe the principal financial obligations of most retailers typically include their bank and other debt, payment obligations to suppliers and real estate lease obligations.  Because we own the land and building in which a tenant conducts its retail business, we believe the risk of default on a retailers’ lease obligations is less than the retailers’ unsecured general obligations.  It has been our experience that since retailers must retain their profitable retail locations in order to survive, in the event of reorganization; they are less likely to reject a lease for a profitable location, because this would terminate their right to use the property.  Thus, as the property owner, we believe we will fare better than unsecured creditors of the same retailer in the event of reorganization.  If a property is rejected by the tenant during reorganization, we own the property and can either lease it to a new tenant or sell the property.  In addition, we believe 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 considering whether to sell locations that are weaker performers.

 

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In order to qualify for inclusion in our portfolio, new property acquisitions must meet stringent investment and credit requirements.  The properties must generate attractive current yields and the tenant must meet our credit profile.  We have established a three-part analysis that examines each potential investment based on:

 

•                  Industry, company, market conditions and credit profile;

•                  Location profitability, if profitability data is available; and

•                  Overall real estate characteristics, including value and comparative rental rates.

 

The standard profile of companies whose properties have been approved for acquisition, generally are those with 50 or more retail stores that are located in highly visible areas, with easy access to major thoroughfares and attractive demographics.

 

Acquisition Strategy.

 

We seek to invest in industries in which several, well-organized, regional and national chains are capturing market share through service, quality control, economies of scale, mass media advertising and the selection of prime retail locations.  We execute our 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.  We undertake thorough research and analysis to identify appropriate industries, tenants and property locations for investment.  Our research expertise is instrumental to uncovering net-lease opportunities in markets where our real estate financing program adds value.  In selecting real estate for potential investment, we generally seek to acquire properties that have the following characteristics:

 

•                  Freestanding, commercially-zoned property with a single tenant;

•                  Properties that are important retail locations for regional and national 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; and

•                  Properties that can be purchased with the simultaneous execution or assumption of long-term, net-lease agreements, offering both current income and the potential for rent increases.

 

Portfolio Management Strategy.

 

The active management of the property portfolio is an essential component of our long-term strategy.  We continually monitor our portfolio for changes that could affect the performance of the industries, tenants and locations in which we have invested.  The portfolio is regularly analyzed with a view toward optimizing its returns and enhancing its credit quality.  Our executives review industry research, tenant research, property due diligence and significant portfolio management activities.  This monitoring typically includes regular review and analysis of:

 

•                  The performance of various retail industries;

•                  The operation, management, business planning and financial condition of the tenants; and

•                  The health of the individual markets in which we own properties, from both an economic and real estate viewpoint.

 

We have an active portfolio management program that incorporates the sale of assets when we believe the reinvestment of the sales proceeds will generate higher returns, enhance the credit quality of our real estate portfolio, or extend our average remaining lease term.  At December 31, 2003, we classified real estate with a carrying amount of $60.1 million as held for sale, which includes $53.3 million in properties owned by Crest Net.  Additionally, we anticipate selling properties from our portfolio that have not yet been specifically identified.  We anticipate we will receive between $15 million and $35 million in proceeds from the sale of investment properties during the next 12 months and we intend to invest these proceeds into new property acquisitions.  However, we cannot guarantee that we will sell properties during the next 12 months.

 

11

 

Conservative Capital Structure.

 

We believe our stockholders are best served by a conservative capital structure.  Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios.  At February 13, 2004, our total outstanding credit facility borrowings and outstanding notes were $493.0 million or approximately 22.2% of our total market capitalization of $2.22 billion.  We define our total market capitalization at February 13, 2004 as the sum of:

 

•                  Shares of our common stock outstanding of 38,006,034 multiplied by the last reported sales price of our common stock on the NYSE of $42.85 per share, or $1.63 billion;

•                  Liquidation value of the Class B preferred stock of $68.6 million;

•                  Liquidation value of the Class C preferred stock of $34.5 million;

•                  Outstanding borrowings of $13.0 million on our credit facility; and

•                  Outstanding notes of $480.0 million.

 

We have a $250 million revolving, unsecured credit facility that expires in October 2005.  At February 16, 2004, the outstanding balance on the acquisition credit facility was $13.0 million, with an effective interest rate of approximately 2.0%.  A commitment fee of 0.2% per annum accrues on the total $250 million credit commitment of 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 credit facility has also been used to provide capital to subsidiaries for the purpose of funding the acquisition of properties.

 

We use our credit facility for the short-term financing of new property acquisitions.  When outstanding borrowings under the credit facility reach a certain level (generally in the range of $100 million to $150 million) and capital is available on acceptable terms, we generally seek to refinance those borrowings with the net proceeds of long-term or permanent financing, which may include the issuance of common stock, preferred stock, convertible preferred stock, debt securities or convertible debt securities.  We cannot assure you, however, that we will be able to obtain any such refinancing or that market conditions prevailing at the time of refinancing will enable us to issue equity or debt securities upon acceptable terms.

 

Historically, we have met our long-term capital needs through the issuance of common stock, preferred stock and long-term unsecured notes.  Over the long-term, we believe that the majority of our future securities issuances should be in the form of common stock.  However, we may issue additional preferred stock or debt securities from time to time.  We may issue common stock when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties.  In addition, we may issue common stock to permanently finance properties that were financed by our credit facility or debt securities.  However, we cannot assure you that we will have access to the capital markets at terms that are acceptable to us.

 

We currently are assigned investment grade corporate credit ratings on our senior unsecured notes from Fitch Ratings, Moody’s Investors Service and Standard & Poor’s Ratings Group.  Currently, Fitch has assigned a rating of BBB, Moody’s has assigned a rating of Baa2 and Standard & Poor’s has assigned a rating of BBB to our senior notes.  These ratings could change based upon, among other things, our results of operations and financial condition.

 

We also have received credit ratings from the same rating agencies on our preferred stock.  Fitch Ratings has assigned a rating of BBB-, Moody’s Investors Service has assigned a rating of Baa3 and Standard & Poor’s Ratings Group has assigned a rating of BBB-.  These ratings could change based upon, among other things, our results of operations and financial condition.

 

We have no mortgage debt on any of our properties.

 

12

 

No Off-Balance Sheet Arrangements or Unconsolidated Investments.

 

Realty Income and its subsidiaries have no unconsolidated or off-balance sheet investments in “variable interest entities” or off-balance sheet financing, nor do we engage in trading activities involving energy or commodity contracts or other derivative instruments.

 

As we have no joint ventures, off-balance sheet entities, or mandatorily redeemable preferred stock, our financial position or results of operations are currently not affected by Financial Accounting Standard Board Interpretation No. 46, Consolidation of Variable Interest Entities and Statement of Financial Accounting Standard No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.

 

Competitive Strategy.

 

We believe that to successfully pursue our investment philosophy and strategy, we must seek to maintain the following competitive advantages:

 

•                  Size and Type of Investment Properties:  We believe smaller ($500,000 to $10,000,000) net-leased retail 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, we believe these types of properties have not experienced significant institutional ownership interest or the corresponding yield reduction experienced by larger income-producing properties.  We believe 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, is an effective investment strategy.  The tenants of our freestanding retail properties generally provide goods and services that satisfy basic consumer needs.  In order to grow and expand, they generally need capital.  Since the acquisition of real estate is typically the single largest capital expenditure of many of these retailers, our method of purchasing the property and then leasing it back, under a net-lease arrangement, allows the retail chain to free up capital.

 

•                  Investment in New Retail Industries:  Though we specialize in single-tenant properties, we will seek to further diversify our portfolio among a variety of retail industries.  We believe diversification will allow us to invest in retail industries that currently are growing and have characteristics we find attractive.  These characteristics include, but are not limited to, retail industries that are dominated by local store operators where regional and national chain store operators can increase market share and dominance by consolidating local operators and streamlining their operations, as well as capitalizing on major demographic shifts in a population base.

 

•                  Diversification:  Diversification of the portfolio by retail industry type, tenant and geographic location is key to our objective of providing predictable investment results for our stockholders. Further diversification of our portfolio is an objective of ours.  At December 31, 2003, our retail property portfolio consisted of 1,404 properties located in 48 states, leased to 85 retail chains doing business in 28 industry segments.  Each of the 28 industry segments represented in our property portfolio individually accounted for less than 16.5% of our rental revenue for the quarter ended December 31, 2003.

 

•                  Management Specialization:  We believe that our management’s specialization in single-tenant retail properties, operated under net-lease agreements, is important to meeting our objectives.  We plan 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.

 

•                  Technology:  We intend to stay at the forefront of technology in our efforts to efficiently and economically carry out our operations.  We maintain sophisticated information systems that allow us to analyze our portfolio’s performance and actively manage our investments.  We believe that technology and information-based systems will play an increasingly important role in our competitiveness as an investment manager and source of capital to a variety of industries and tenants.

 

13

 

PROPERTIES

 

At December 31, 2003, we owned a diversified portfolio:

 

•                  Of 1,404 retail properties;

•                  With an occupancy rate of 98.1%, or 1,378 properties occupied of the 1,404 properties in the portfolio;

•                  Leased to 85 different retail chains doing business in 28 separate retail industries;

•                  Located in 48 states;

•                  With over 11.3 million square feet of leasable space; and

•                  With an average leasable retail space of 8,100 square feet.

 

In addition to our real estate portfolio at December 31, 2003, our subsidiary, Crest Net had invested $53.3 million in a portfolio of 37 retail properties located in 13 states.  These properties are held for sale.

 

At December 31, 2003, 1,374, or 97.9%, of our 1,404 retail properties were owned under net-lease agreements.  Net leases typically require the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance.  In addition, tenants are typically responsible for future rent increases (generally subject to ceilings) based on increases in the consumer price index, fixed increases or additional rent calculated as a percentage of the tenants’ gross sales above a specified level.

 

Our net-leased retail properties primarily are leased to regional and national retail chain store operators.  Most buildings are single-story structures 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 and proximity to a sufficient population base to constitute a suitable market or trade area for the retailer’s business.

 

14

 

The following table sets forth certain information regarding our properties classified according to the business of the respective tenants, expressed as a percentage of our total rental revenue:

 

		Percentage of Rental Revenue(1)
		For the
		Quarter
		ended		For the Years Ended
Industries (28)		Dec 31, 2003		Dec 31, 2003		Dec 31, 2002		Dec 31, 2001		Dec 31, 2000		Dec 31, 1999		Dec 31, 1998		Dec 31, 1997
Apparel stores		2.0	%	2.1	%	2.3	%	2.4	%	2.4	%	3.8	%	4.1	%	0.7	%
Automotive collision services		0.6		0.3		—		—		—		—		—		—
Automotive parts		4.6		4.5		4.9		5.7		6.0		6.3		6.1		7.3
Automotive service		7.9		8.3		7.0		5.7		5.8		6.6		7.5		6.4
Automotive tire services		4.5		3.1		2.7		2.6		2.3		2.3		1.7		1.8
Book stores		0.5		0.4		0.4		0.4		0.5		0.5		0.6		0.5
Business services		0.1		0.1		0.1		0.1		0.1		0.1			*	—
Child care		16.3		17.8		20.8		23.9		24.7		25.3		29.2		35.9
Consumer electronics		2.8		3.0		3.3		4.0		4.9		4.4		5.4		6.5
Convenience stores		15.9		13.3		9.1		8.4		8.4		7.2		6.1		5.5
Crafts and novelties		0.6		0.6		0.4		0.4		0.4		0.4			*	—
Drug stores		0.2		0.2		0.2		0.2		0.2		0.2		0.1		—
Entertainment		2.4		2.6		2.3		1.8		2.0		1.2		—		—
Equipment rental services		0.3		0.2		—		—		—		—		—		—
General merchandise		0.5		0.5		0.5		0.6		0.6		0.6			*	—
Grocery stores		0.8		0.4		0.5		0.6		0.6		0.5			*	—
Health and fitness		3.8		3.8		3.8		3.6		2.4		0.6		0.1		—
Home furnishings		4.6		4.9		5.4		6.0		5.8		6.5		7.8		5.6
Home improvement		1.0		1.1		1.2		1.3		2.0		3.6			*	—
Office supplies		1.8		1.9		2.1		2.2		2.3		2.6		3.0		1.7
Pet supplies and services		1.7		1.7		1.7		1.6		1.5		1.1		0.6		0.2
Private education		1.1		1.2		1.3		1.5		1.4		1.2		0.9		—
Restaurants		11.0		11.8		13.5		12.2		12.3		13.3		16.2		19.8
Shoe stores		0.8		0.9		0.8		0.7		0.8		1.1		0.8		0.2
Sporting goods		3.6		3.8		4.1		0.9		—		—		—		—
Theaters		3.7		4.1		3.9		4.3		2.7		0.6		—		—
Travel plazas		0.3		0.3		—		—		—		—		—		—
Video rental		3.0		3.3		3.3		3.7		3.9		4.3		3.8		0.6
Other		3.6		3.8		4.4		5.2		6.0		5.7		6.0		7.3
Totals		100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

 

* Less than 0.1%

 

(1)                        Includes rental revenue for all properties owned by Realty Income at the end of each period presented (including revenue from properties reclassified to discontinued operations) and excludes properties owned by our subsidiary, Crest Net.

 

15

 

The following table sets forth certain information regarding the properties owned by Realty Income at December 31, 2003, classified according to the retail business types and the level of services they provide (dollars in thousands):

 

Industry		Number of Properties (1)		Rental Revenue for the Quarter Ended Dec. 31, 2003 (2)			Percentage of Rental Revenue
Tenants Providing Services
Automotive collision services		9		$	258		0.6	%
Automotive service		190		3,195			7.9
Child care		297		6,590			16.3
Entertainment		9		965			2.4
Equipment rental services		2		133			0.3
Health and fitness		10		1,526			3.8
Private education		5		462			1.1
Theaters		11		1,507			3.7
Other		6		1,465			3.6
		539		16,101			39.7
Tenants Selling Goods and Services
Automotive parts (with installation)		30		583			1.5
Automotive tire services		104		1,824			4.5
Business services		1		32			0.1
Convenience stores		263		6,426			15.9
Home improvement		1		47			0.1
Pet supplies and services		6		430			1.1
Restaurants		207		4,438			11.0
Travel plazas		1		134			0.3
Video rental		34		1,223			3.0
		647		15,137			37.5
Tenants Selling Goods
Apparel stores		5		806			2.0
Automotive parts		73		1,255			3.1
Book stores		2		182			0.5
Consumer electronics		34		1,134			2.8
Crafts and novelties		4		243			0.6
Drug stores		1		61			0.2
General merchandise		11		183			0.5
Grocery stores		6		340			0.8
Home furnishings		38		1,857			4.6
Home improvement		14		354			0.9
Office supplies		9		716			1.8
Pet supplies		4		258			0.6
Shoe stores		5		332			0.8
Sporting goods		12		1,456			3.6
		218		9,177			22.8
TOTALS		1,404		$	40,415		100.0	%

 

(1)                        Excludes properties owned by our subsidiary, Crest Net.

 

(2)                        Includes rental revenue for all properties owned by Realty Income at December 31, 2003 (including revenue from properties reclassified to discontinued operations of $74) and excludes revenue of $1,266 from properties owned by our subsidiary, Crest Net.

 

16

 

Of the 1,404 properties in the portfolio at December 31, 2003, 1,399 were single-tenant properties with the remaining properties being multi-tenant properties.  At December 31, 2003, 1,374 of the 1,399 single-tenant properties, or 98.2%, were net leased with a weighted average remaining lease term (excluding extension options) of approximately 11.8 years.

 

The following table sets forth certain information regarding the timing of the lease term expirations (excluding extension options) on our 1,374 net-leased, single-tenant retail properties at December 31, 2003 (dollars in thousands):

 

Years		Number of Leases Expiring(1)		Rental Revenue for the Quarter Ended Dec. 31, 2003 (2)			Percentage of Rental Revenue
2004		124		$	2,727		7.0	%
2005		75		1,447			3.7
2006		91		2,132			5.5
2007		120		2,235			5.7
2008		97		2,169			5.6
2009		39		851			2.2
2010		38		903			2.3
2011		38		1,539			3.9
2012		47		1,565			4.0
2013		76		3,458			8.8
2014		37		1,651			4.2
2015		39		1,154			3.0
2016		14		382			1.0
2017		20		1,484			3.8
2018		22		591			1.5
2019		50		2,297			5.9
2020		10		916			2.3
2021		95		3,618			9.3
2022		96		2,582			6.6
2023		232		4,295			11.0
2024		2		97			0.2
2026		2		93			0.2
2028		2		54			0.1
2033		3		324			0.8
2034		2		208			0.5
2037		3		337			0.9
Totals		1,374		$	39,109		100.0	%

 

(1)  Excludes properties owned by our subsidiary, Crest Net.  The lease expirations for properties under construction are based on the estimated date of completion of those properties.

 

(2)  Includes rental revenue of $74 from properties reclassified to discontinued operations and excludes revenue of $1,306 from four multi-tenant properties and from 26 vacant and unleased properties at December 31, 2003 and revenue of $1,266 from properties owned by our subsidiary, Crest Net.

 

17

 

The following table sets forth certain state-by-state information regarding Realty Income’s property portfolio owned as of December 31, 2003 (dollars in thousands):

 

State		Number of Properties (1)		Percent Leased		Approximate Leasable Square Feet (1)		Rental Revenue for the Quarter Ended Dec 31, 2003 (2)			Percentage of Rental Revenue
Alabama		14		100	%	137,600		$	346		0.8	%
Alaska		2		100		128,500		251			0.6
Arizona		31		97		211,600		890			2.2
Arkansas		8		100		48,800		238			0.6
California		61		100		1,057,100		3,837			9.5
Colorado		44		95		311,700		1,003			2.5
Connecticut		16		100		245,600		925			2.3
Delaware		16		100		29,100		338			0.8
Florida		90		99		1,159,300		4,171			10.3
Georgia		100		98		625,500		2,294			5.7
Idaho		11		100		52,000		204			0.5
Illinois		45		96		364,000		1,158			2.9
Indiana		27		96		150,100		524			1.3
Iowa		9		100		57,600		152			0.4
Kansas		22		91		201,300		528			1.3
Kentucky		13		100		43,600		274			0.7
Louisiana		7		100		47,100		190			0.5
Maryland		24		100		207,600		957			2.4
Massachusetts		37		100		203,100		874			2.2
Michigan		13		100		81,600		324			0.8
Minnesota		20		95		235,400		513			1.3
Mississippi		21		90		174,000		413			1.0
Missouri		34		97		235,400		692			1.7
Montana		2		100		30,000		80			0.2
Nebraska		10		100		91,200		315			0.8
Nevada		10		100		100,700		435			1.1
New Hampshire		9		100		55,200		195			0.5
New Jersey		25		100		132,100		1,012			2.5
New Mexico		5		100		46,000		129			0.3
New York		24		100		265,600		1,398			3.4
North Carolina		41		100		221,100		1,158			2.9
North Dakota		1		100		22,000		17				*
Ohio		76		99		510,000		1,789			4.4
Oklahoma		17		100		94,300		357			0.9
Oregon		19		100		267,100		629			1.5
Pennsylvania		58		100		356,000		1,535			3.8
Rhode Island		1		100		3,500		29			0.1
South Carolina		46		98		136,900		980			2.4
South Dakota		1		100		6,500		24			0.1
Tennessee		98		99		462,400		1,876			4.6
Texas		173		97		1,634,100		4,064			10.1
Utah		7		86		43,300		109			0.3
Vermont		1		100		2,500		22			0.1
Virginia		55		100		412,600		1,966			4.8
Washington		38		100		250,900		735			1.8
West Virginia		2		100		16,800		40			0.1
Wisconsin		16		88		162,300		346			0.8
Wyoming		4		100		20,100		79			0.2
Totals/Average		1,404		98	%	11,350,800		$	40,415		100.0	%

 

* Less than 0.1%

 

(1)                        Excludes properties owned by our subsidiary, Crest Net.

(2)                        Includes rental revenue for all properties owned by Realty Income at December 31, 2003 (including revenue from properties reclassified to discontinued operations of $74) and excludes revenue of $1,266 from properties owned by Crest Net.

 

18

 

Description of Leasing Structure.

 

At December 31, 2003, 1,374 or 97.9% of our 1,404 properties were net leased.  In most cases, the leases:

•                  Are for initial terms of 15 to 20 years;

•                  Require the tenants to pay minimum monthly rents 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, fixed increases, or additional rent based upon the tenants’ gross sales above a specified level.  Where leases provide for rent increases based on increases in the consumer price index, generally these increases become part of the new permanent base rent.  Where leases provide for percentage rent, this additional rent is typically payable only if the tenants’ gross sales, for a given period (usually one year), exceed a specified level and is then typically calculated as a percentage of only the amount of gross sales in excess of that level.

 

Matters Pertaining to Certain Properties and Tenants.

 

Of the 26 properties available for lease or sale at December 31, 2003; all but one are single-tenant properties.  Seventeen of the properties had been previously leased to child care operators, five to restaurant operators, one to a home improvement operator, one to an automotive service operator, one to a grocery store operator and one to a shoe store operator.  At December 31, 2003, 19 of our properties under lease were unoccupied and available for sublease by the tenants, all of which were current with their rent and other obligations.

 

For 2003, our largest tenant was Children’s World Learning Centers operates child care facilities and it accounted for 8.2% of our rental revenue and operates child care facilities.  However, as a result of acquisitions during 2003, The Pantry, Inc., an operator of convenience stores, was our largest tenant at December 31, 2003 based on annualized rental revenue.  At December 31, 2003, The Pantry, Inc. accounted for 7.8% of our annualized rental revenue and Children’s World accounted for 7.3% of our annualized rental revenue.  Annualized rental revenue is calculated by multiplying the monthly contractual base rent for each of the properties by 12 and adding the previous 12 month’s historic percentage rent, excluding properties owned by Crest Net.

 

In general, a downturn in the industries represented by these tenants, whether nationwide or limited to specific sectors of the United States, could adversely affect tenants in these industries, which in turn could have a material adverse affect on our financial position, results of operations, ability to make distributions to stockholders and our ability to make debt service payments.  In addition, a substantial number of our properties are leased to middle-market retail chains that generally have more limited financial and other resources than certain upper-market retail chains, and therefore they are more likely to be adversely affected by a downturn in their respective business or in the regional or national economy in general.

 

Our tenants in the child care, convenience store and restaurant industries accounted for approximately 17.8%, 13.3% and 11.8%, respectively, of our rental revenue for the year 2003.  Based on annualized rental revenue at December 31, 2003, tenants in the child care, convenience store and restaurant industries accounted for approximately 15.3%, 15.9% and 10.5%, respectively.  Individually, each of the other industries in our property portfolio accounted for less than 10% of our rental revenue or annualized rental revenue.

 

A downturn in any of these industries, whether nationwide or limited to specific sectors of the United States, could adversely affect tenants in these industries, which in turn could have a material adverse affect on our financial position, results of operations, ability to make distributions to stockholders and our ability to make debt service payments.

 

19

 

Certain Properties Under Development.

 

Of the 242 properties Realty Income acquired in 2003 and the 60 properties acquired by Crest Net in 2003, all but four were occupied at February 16, 2004.  The four properties were leased and under construction, pursuant to a contract under which the tenant has agreed to develop the properties (with development costs funded by us or Crest Net), with rent commencing when the premises open for business.  In the case of development properties, we either enter into an agreement with a retail chain where the retailer retains a contractor to construct the improvements and we fund the costs of that development, or we fund a developer who constructs the improvements.  In either case, there is an executed lease at the time of the land purchase and there is a requirement to complete the construction in a timely basis, generally within eight months after we purchase the land.  The tenant or developer generally is required to pay construction cost overruns to the extent that they exceed the construction budget by more than a predetermined amount.  We also enter into a lease with the tenant at the time we purchase the land, which generally requires the tenant to begin paying base rent when the store opens for business.  The base rent is calculated as a percentage of our acquisition cost for the property, including construction costs and capitalized interest.  In 2003, Realty Income acquired eight development properties and Crest Net acquired two development properties, six of which have been completed, were operating and generating rent as of February 16, 2004.  Both Realty Income and Crest Net will continue to pursue development opportunities under similar arrangements.

 

OTHER ITEMS

 

Competition for Acquisition of Real Estate.

 

We face competition in the acquisition, operation and sale of property.  We expect competition from:

•                  Businesses;

•                  Individuals;

•                  Fiduciary accounts and plans; and

•                  Other entities engaged in real estate investment and financing.

 

Some of these competitors are larger than we are and have greater financial resources.  This competition may result in a higher cost for properties we wish to purchase.

 

The tenants leasing our properties can face significant competition from other operators.  This competition may adversely impact:

 

•                  That portion, if any, of the rental stream to be paid to us based on a tenant’s revenues; and

•                  The tenants’ results of operations or financial condition.

 

Environmental Liabilities.

 

Investments in real property can create a potential for environmental liability.  An owner of property can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property.  We can face such liability regardless of:

 

•                  Our knowledge of the contamination;

•                  The timing of the contamination;

•                  The cause of the contamination; or

•                  The party responsible for the contamination of the property.

 

There may be environmental problems associated with our properties, of which we are unaware.  In that regard, a number of our properties are leased to operators of convenience stores that sell petroleum-based fuels, as well as oil change and tune-up facilities.  These facilities, or other of our properties, use, or may have used in the past, underground lifts or underground tanks for the storage of petroleum-based or waste products, which could create a potential for release of hazardous substances.

 

20

 

The presence of hazardous substances on a property may adversely affect our ability to sell that property and we may incur substantial remediation costs.  Although our leases generally require our tenants to operate in compliance with all applicable federal, state and local laws, ordinances and regulations and to indemnify us against any environmental liabilities arising from the tenants’ activities on the property, we could nevertheless be subject to strict liability by virtue of our ownership interest.  There also can be no assurance that our tenants would satisfy their indemnification obligations under the leases.  The discovery of environmental liabilities attached to our properties could have a material adverse effect on our results of operations, financial condition or our ability to make distributions to stockholders.

 

We have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to hazardous substances, toxic substances or petroleum products in connection with any of our present properties.  Nevertheless, if environmental contamination should exist, we could be subject to strict liability by virtue of our ownership interest.

 

Since December 1996, we have maintained an environmental insurance policy on our property portfolio. The limit on our current policy is $10 million per occurrence and $50 million in the aggregate, subject to a $25,000 self insurance retention per occurrence for properties with underground storage tanks and a $100,000 self insurance retention per occurrence for all other properties.  It is possible that our insurance will be insufficient to address any particular environmental situation and that we could be unable to continue to obtain insurance for environmental matters, at a reasonable cost or at all, in the future.

 

Taxation of the Company.

 

Commencing with our taxable year ended December 31, 1994, we believe that we are organized and have operated, and we intend to continue to operate, so as to qualify as a “REIT” under Sections 856 through 860 of the Code.  However, we cannot assure you that we have been organized or have operated in a manner that has satisfied the requirements for qualification as a REIT, or that we will continue to be organized or operate in a manner that will allow us to continue to qualify as a REIT.

 

Qualification as a REIT involves the satisfaction of numerous requirements under highly technical and complex Code provisions, for which there are only limited judicial and administrative interpretations, and the determination of various factual matters and circumstances not entirely within our control.

 

For example, in order to qualify as a REIT, at least 95% of our gross income in each year must be derived from qualifying sources, and we must pay distributions to stockholders aggregating annually at least 90% of our REIT taxable income (as defined in the Code and determined without regard to the dividends paid deduction and by excluding net capital gains).

 

In the future, it is possible that legislation, new regulations, administrative interpretations or court decisions will change the tax laws with respect to qualification as a REIT, or the federal income tax consequences of such qualification.

 

If we were to fail to qualify as a REIT in any taxable year:

 

•                  We would be required to pay federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates;

•                  We would not be allowed a deduction in computing our taxable income for amounts distributed to our stockholders;

•                  We could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost;

•                  We would no longer be required to make distributions to stockholders; and

•                  This treatment would substantially reduce amounts available for investment or distribution to stockholders because of the additional tax liability for the years involved.

 

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Even if we qualify for and maintain our REIT status, we are subject to certain federal, state and local taxes on our income and property.  For example, if we have net income from a prohibited transaction, that income will be subject to a 100% tax.  Our subsidiary Crest Net is subject to federal and state taxes at the applicable tax rates on its income and property.

 

Effect of Distribution Requirements.

 

To maintain our status as a REIT for federal income tax purposes, we generally are required to distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and by excluding net capital gains each year.  We also are subject to tax at regular corporate rates to the extent that we distribute less than 100% of our REIT taxable income (including net capital gains) each year.

 

In addition, we are subject to a 4% nondeductible excise tax to the extent that we fail to distribute during any calendar year at least the sum of 85% of our ordinary income for that calendar year, 95% of our capital gain net income for the calendar year, and any amount of that income that was not distributed in prior years.

 

We intend to continue to make distributions to our stockholders to comply with the distribution requirements 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 to arrive at taxable income, along with the effect of required debt amortization payments, could require us 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.

 

Our future growth will depend in large part upon our ability to raise additional capital.  If we were to raise additional capital through the issuance of equity securities, we could dilute the interests of holders of our common stock. Likewise, our Board of Directors is authorized to cause us to issue preferred stock of any class or series (with dividend, voting and other rights as determined by the Board of Directors).  Accordingly, the Board of Directors may authorize the issuance of preferred stock with voting, dividend and other similar rights that could dilute, or otherwise adversely affect, the interests of holders of our common stock.

 

Real Estate Ownership Risks.

 

We are subject to all of the general risks associated with the ownership of real estate.  In particular, we face the risk that rental revenue from the properties may be insufficient to cover all corporate operating expenses, debt service payments on indebtedness we incur and distributions on our stock.  Additional real estate ownership 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;

•                  Inability to collect rents from tenants due to financial hardship, including bankruptcy;

•                  Changes in tax, real estate, zoning and environmental laws that may have an adverse impact upon the value of real estate;

•                  Uninsured property liability;

•                  Property damage or casualty losses;

•                  Unexpected expenditures for capital improvements or to bring properties into compliance with applicable federal, state and local laws;

•                  Acts of terrorism and war; and

•                  Acts of God and other factors beyond the control of our management.

 

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Dependence on Key Personnel.

 

We depend on the efforts of our executive officers and key employees.  The loss of the services of our executive officers and key employees could have a material adverse effect on our operations.

 

Item 2:                                      Properties

 

Information pertaining to our properties can be found under Item 1.

 

Item 3:                                      Legal Proceedings

 

We are subject to certain claims and lawsuits in the ordinary course of business, the outcome of which cannot be determined at this time.  In the opinion of management, any liability we might incur upon the resolution of these claims and lawsuits will not, in the aggregate, have a material adverse effect on our consolidated financial statements taken as a whole.

 

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.

 

PART II

 

Item 5:                                      Market For Registrant’s Common Equity And Related Stockholder Matters

 

A.  Our common stock is traded on the NYSE under the ticker symbol “O.”  The following table shows the high and low sales prices per share for our common stock as reported by the NYSE composite tape, and distributions declared per share of common stock by us for the periods indicated.

 

		Price Per Share of Common Stock						Distributions Declared(1)
		High			Low
2003
First quarter		$	36.95		$	32.87		$	0.58625
Second quarter		39.40			35.62			0.59000
Third quarter		40.80			37.50			0.59375
Fourth quarter		40.98			39.16			0.59750
Total								$	2.3675
2002
First quarter		$	33.21		$	29.05		$	0.57125
Second quarter		36.99			32.10			0.57500
Third quarter		37.10			26.90			0.57875
Fourth quarter		36.15			30.60			0.58250
Total								$	2.30750

 

(1) Common stock distributions currently are declared monthly by us based on financial results for the prior months.  At December 31, 2003 a distribution of $0.20 per common share had been declared and was paid in January 2004.

 

B.  There were approximately 11,300 registered holders of record of our common stock as of February 1, 2004.  We estimate that our total number of shareholders is approximately 58,000 when we include both registered and beneficial holders of our common stock.

 

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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)		2003			2002			2001			2000			1999
Total assets (book value)		$	1,360,257		$	1,080,230		$	1,003,708		$	934,766		$	905,404
Cash and cash equivalents		4,837			8,921			2,467			3,815			773
Lines of credit and notes payable		506,400			339,700			315,300			404,000			349,200
Total liabilities		532,491			357,775			331,915			419,197			370,573
Total stockholders’ equity		827,766			722,455			671,793			515,569			534,831
Net cash provided by operating activities		73,957			124,807			90,035			56,590			72,154
Net change in cash and cash equivalents		(4,084		)	6,454			(1,348		)	3,042			(1,760		)
Total revenue		156,114			137,722			120,123			111,674			97,863
Income from operations		79,209			70,372			52,635			42,872			40,011
Gain on sales of investment properties		—			340			10,478			6,712			1,301
Income from continuing operations		79,209			70,712			63,113			49,584			41,312
Income from discontinued operations		7,226			7,955			4,445			5,204			5,284
Extraordinary item		—			—			—			—			(355		)
Net income		86,435			78,667			67,558			54,788			46,241
Preferred stock dividends		(9,713		)	(9,713		)	(9,712		)	(9,712		)	(5,229		)
Net income available to common stockholders		76,722			68,954			57,846			45,076			41,012
Distributions paid to common stockholders		83,842			78,042			64,871			58,262			55,925
Ratio of earnings to fixed charges (1)		4.1 times			4.3 times			3.5 times			2.6 times			2.7 times
Ratio of earnings to combined fixed charges and preferred stock dividends (1)		3.0 times			3.0 times			2.6 times			2.0 times			2.3 times
Basic net income per common share		2.16			2.03			1.98			1.69			1.53
Diluted net income per common share		2.15			2.03			1.98			1.69			1.53
Distributions paid per common share		2.3625			2.3025			2.2425			2.1825			2.085
Distributions declared per common share		2.3675			2.3075			2.2475			2.1875			2.095
Basic weighted average number of common shares outstanding		35,564,141			33,933,749			29,225,359			26,684,598			26,822,285
Diluted weighted average number of common shares outstanding		35,611,314			33,988,157			29,281,120			26,700,806			26,826,090

 

(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.

 

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Item 7:                                       Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

GENERAL

 

Realty Income Corporation, The Monthly Dividend Company ®, is a Maryland corporation organized to operate as an equity real estate investment trust, commonly referred to as a REIT.  Our primary business objective is to generate dependable monthly distributions from a consistent and predictable level of funds from operations, or FFO per share.  Over the past 35 years, Realty Income and its predecessors have been acquiring and owning freestanding retail properties that generate rental revenue under long-term (primarily 15 to 20 year) lease agreements.  The monthly distributions are supported by the cash flow from 1,404 retail properties leased to regional and national retail chains.

 

We also seek to increase distributions to stockholders and FFO per share through both active portfolio management and the acquisition of additional properties.  At December 31, 2003, we owned a diversified portfolio:

 

•                  Of 1,404 retail properties;

•                  With an occupancy rate of 98.1%, or 1,378, properties occupied of the 1,404 properties in the portfolio;

•                  Leased to 85 different retail chains doing business in 28 separate retail industries;

•                  Located in 48 states;

•                  With over 11.3 million square feet of leasable space; and

•                  With an average leasable retail space of 8,100 square feet.

 

Of the 1,404 properties in the portfolio, 1,399, or 99.6%, are single-tenant retail properties and the remaining five are multi-tenant properties.  As of December 31, 2003, 1,374, or 98.2%, of the 1,399 single-tenant properties were leased with a weighted average remaining lease term (excluding extension options) of approximately 11.8 years.

 

In addition to our real estate portfolio, at December 31, 2003, our wholly-owned subsidiary, Crest Net Lease, Inc. had invested $53.3 million in a portfolio of 37 retail properties located in 13 states.  These properties are held for sale.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash Reserves.

 

Realty Income is organized to operate as an equity REIT that 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.  We intend to retain an appropriate amount of cash as working capital.  At December 31, 2003, we had cash and cash equivalents totaling $4.8 million.

 

We believe that our cash and cash equivalents on hand, cash provided from operating activities and borrowing capacity is sufficient to meet our liquidity needs for the foreseeable future. We intend, however, to use additional sources of capital to fund property acquisitions and to repay our credit facility.

 

$250 Million Bank Credit Facility.

 

We have a $250 million revolving, unsecured credit facility that expires in October 2005.  Realty Income’s current investment grade credit ratings provide for financing under the $250 million credit facility at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 90 basis points with a facility fee of 20 basis points, for all-in drawn pricing of 110 basis points over LIBOR.  At February 16, 2004, we had a

 

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borrowing capacity of $237.0 million available on our credit facility and an outstanding balance of $13.0 million at an effective interest rate of 2.0%.

 

The credit facility is expected to be used to acquire additional retail properties and for other corporate purposes.  Any additional borrowings will increase our exposure to interest rate risk.

 

We have no mortgage debt on any of our properties.

 

Universal Shelf Registration of $500 million.

 

In December 2002, we filed a universal shelf registration statement with the SEC registering the issuance of up to $500 million in aggregate value of common stock, preferred stock and debt securities.  This registration statement was declared effective by the SEC in January 2003.  At February 16, 2004, $133.3 million remained available for issuance under our universal shelf registration statement.

 

Issuances of Common Stock in 2003.

 

In October 2003, we issued 2,875,000 shares of common stock at a price of $40.59 per share.  The net proceeds of $110.8 million were used to repay borrowings under our $250 million acquisition credit facility.

 

Conservative Capital Structure.

 

We believe that our stockholders are best served by a conservative capital structure.  Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest and fixed charge coverage ratios. At February 13, 2004, our total outstanding credit facility borrowings and outstanding notes were $493.0 million or approximately 22.2% of our total market capitalization of $2.22 billion.  We define our total market capitalization at February 13, 2004 as the sum of:

 

•                  Shares of our common stock outstanding of 38,006,034 multiplied by the last reported sales price of our common stock on the NYSE of $42.85 per share, or $1.63 billion;

•                  Liquidation value of the Class B preferred stock of $68.6 million;

•                  Liquidation value of the Class C preferred stock of $34.5 million;

•                  Outstanding borrowings of $13.0 million on our credit facility; and

•                  Outstanding notes of $480.0 million.

 

Historically, we have met our long-term capital needs through the issuance of common stock, preferred stock and long-term unsecured notes.  Over the long term, we believe that the majority of our future securities issuances should be in the form of common stock, however, we may issue additional preferred stock or debt securities from time to time.  We may issue common stock when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties.  In addition, we may issue common stock to permanently finance properties that were financed by our credit facility or debt securities.  However, we cannot assure you that we will have access to the capital markets at terms that are acceptable to us.

 

Credit Agency Ratings.

 

We are currently assigned investment grade corporate credit ratings, on our senior unsecured notes, from Fitch Ratings, Moody’s Investor Service, Inc. and Standard & Poor’s Rating Group.  Currently, Fitch Ratings has assigned a rating of BBB, Moody’s has assigned a rating of Baa2 and Standard & Poor’s has assigned a rating of BBB to our senior notes.  All of these ratings have been assigned a “stable” outlook.

 

We also have received credit ratings from the same rating agencies on our preferred stock.  Fitch Ratings has assigned a rating of BBB-, Moody’s Investor Service, Inc. has assigned a rating of Baa3 and Standard & Poor’s Rating Group has assigned a rating of BBB-.  All of these ratings have been assigned a “stable” outlook.

 

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During 2003, our credit ratings were upgraded by both Moody’s and Standard & Poor’s for our unsecured notes and our preferred stock.

 

The credit ratings assigned to us could change based upon, among other things, our results of operations and financial condition.

 

Notes Outstanding.

 

In November 2003, we issued $150 million of 5-1/2%, 12-year, senior unsecured notes due 2015 (the “2015 Notes”).  The 2015 Notes were sold at 99.508% of par.  The proceeds from this offering were used to repay borrowings under our unsecured acquisition credit facility.  Interest on the 2015 Notes is paid semiannually.

 

In March 2003, we issued $100 million of 5-3/8%, 10-year, senior unsecured notes due 2013 (the “2013 Notes”).  The 2013 Notes were sold at 99.509% of par.  The proceeds from this offering were used to repay borrowings under our unsecured acquisition credit facility.  Interest on the 2013 Notes is paid semiannually.

 

In January 1999, we issued $20 million of 8% senior notes due 2009 (the “2009 Notes”).  Interest on the 2009 Notes is payable semiannually.

 

In October 1998, we issued $100 million of 8-1/4% Monthly Income Senior Notes due 2008 (the “2008 Notes”).  Interest on the 2008 Notes is payable monthly.

 

In May 1997, we issued $110 million of 7-3/4% senior notes due 2007 (the “2007 Notes”).  Interest on the 2007 Notes is payable semiannually.

 

All of these notes contain various covenants, including: (i) a limitation on incurrence of any debt which would cause the our debt to total assets ratio to exceed 60%; (ii) a limitation on incurrence of any secured debt which would cause our secured debt to total assets ratio to exceed 40%; (iii) a limitation on incurrence of any debt which would cause our debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of total unencumbered assets not less than 150% of our outstanding unsecured debt.  We have been in compliance with these covenants since each of the notes were issued.  As of February 16, 2004, our credit facility balance was $13.0 million and our notes outstanding totaled $480 million.

 

The following table summaries the maturity of each of our debt obligations as of December 31, 2003.

 

Table of Obligations

(as of December 31, 2003, in millions)

 

Year of Maturity		Credit Facility			Notes			Other (1)			Totals
2004		$	—		$	—		$	8.3		$	8.3
2005		26.4			—			—			26.4
2007		—			110.0			—			110.0
2008		—			100.0			—			100.0
2009		—			20.0			—			20.0
2013		—			100.0			—			100.0
2015		—			150.0			—			150.0
Totals		$	26.4		$	480.0		$	8.3		$	514.7

 

(1) Other consists of estimated unfunded development costs on properties under development at December 31, 2003.

 

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Preferred Stock Outstanding.

 

In May 1999, we issued 2,760,000 shares of 9-3/8% Class B cumulative redeemable preferred stock (the “Class B Preferred”), of which 2,745,700 shares were outstanding during 2003 and 2002.  Beginning May 25, 2004, the Class B Preferred shares are redeemable at our option for $25.00 per share.  Dividends on the Class B Preferred are paid quarterly in arrears.

 

In July 1999, we issued 1,380,000 shares of 9-1/2% Class C cumulative redeemable preferred stock (the “Class C Preferred”), all of which were outstanding during 2003 and 2002.  Beginning July 30, 2004, the Class C Preferred shares are redeemable at our option for $25.00 per share.  Dividends on the Class C Preferred are paid monthly in arrears.

 

No Off-Balance Sheet Arrangements or Unconsolidated Investment.

 

Realty Income and its subsidiaries have no unconsolidated or off-balance sheet investments in “variable interest entities” or off-balance sheet financing, nor do we engage in trading activities involving energy or commodity contracts or other derivative instruments.

 

As we have no joint ventures, off-balance sheet entities, or mandatorily redeemable preferred stock, our financial position or results of operations are currently not effected by Financial Accounting Standard Board Interpretation No. 46, Consolidation of Variable Interest Entities and Statement of Financial Accounting Standard No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.

 

Acquisitions During 2003.

 

Realty Income and Crest Net.

 

Realty Income and Crest Net invested $371.6 million in aggregate in 302 new properties and properties under development in 2003.  These 302 properties are located in 25 states and are 100% leased with an initial average lease length of 19.9 years.

 

Realty Income.

 

Realty Income invested $284.0 million in 242 new properties and properties under development with an initial weighted average contractual lease rate of 9.8% in 2003.  These 242 properties are located in 20 states and are 100% leased with an initial average lease length of 19.9 years and will contain approximately 1.5 million leasable square feet.

 

Included in the investments of real estate by Realty Income in 2003 is $13.1 million invested in properties acquired before 2003 that were under development.  Estimated unfunded development costs on Realty Income and Crest Net properties under development at December 31, 2003 totaled $8.3 million.  At December 31, 2003, eight new properties acquired during 2003 were leased and under development, pursuant to contracts under which the tenants agreed to develop the properties (with development costs funded by Realty Income or Crest Net), with rent scheduled to begin at various times during the first nine months of 2004.

 

The initial weighted average contractual lease rate on our investments is computed as estimated contractual net operating income (in a net-leased property this is equal to the base rent or, in the case of properties under development, the estimated base rent under the lease) for the first year of each lease, divided by the estimated total costs.  Since it is possible that a tenant could default on the payment of contractual rent, we cannot assure you that the actual return on the funds invested will remain at the percentages listed above.

 

The 242 new properties acquired by Realty Income are net-leased to 15 different retail chains in ten industries: automotive collision service, automotive service, automotive tire service, convenience store, equipment rental service, grocery store, home improvement, restaurant, sporting goods and travel plaza.  During 2003, we added two new industries (equipment rental service and travel plaza) to our portfolio.  We also segregated the

 

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automotive tire service industry from the automotive parts industry.  This segregation was made to reflect the different economic characteristics of the two industries.

 

Crest Net.

 

Crest Net invested $87.6 million during 2003 in 60 new retail properties and properties under development.

 

Investments in Existing Properties.

 

In 2003, we capitalized costs of $656,000 on existing properties in our portfolio, consisting of $392,000 for re-leasing costs and $264,000 for building improvements

 

Sales of Investment Properties.

 

During 2003, we sold 35 properties and exchanged excess land parcels from three properties for an aggregate of $23.1 million, which resulted in a gain of $6.5 million. The 35 properties sold consisted of 19 child care facilities, nine restaurants, three home improvement stores, two auto services location, one consumer electronics store and one other property.  The land exchanges were on three convenience store locations.  These gains are included in discontinued operations.  The net proceeds from the sale of these properties were or will be used to repay outstanding indebtedness on our credit facility and to invest in new properties.

 

Crest Net Property Sales.

 

During 2003, Crest Net our wholly-owned subsidiary sold 27 properties from its inventory for $45.2 million, which resulted in a gain of $6.2 million.

 

Crest Net’s Property Inventory.

 

Crest Net’s property inventory at December 31, 2003 and December 31, 2002 totaled $53.3 million and $4.6 million, respectively, and is included in real estate held for sale, net, on our consolidated balance sheets.

 

The financial statements of Crest Net are consolidated into Realty Income’s financial statements.  All material intercompany transactions have been eliminated in consolidation.

 

Increase in Monthly Distributions to Common Stockholders.

 

We continue our 34-year policy of paying distributions monthly.  Monthly distributions per share were increased by $0.00125 in April 2003 to $0.19625, in July 2003 to $0.1975; in October 2003 to $0.19875 and in January 2004 to $0.20.  The increase in January 2004 was our 25^th consecutive quarterly increase and 27^th increase since our listing in 1994 on the New York Stock Exchange.  In December 2003, January 2004 and February 2004, we declared distributions of $0.20 per share, which were paid on January 15, 2004, February 17, 2004 and payable on March 15, 2004, respectively.

 

The monthly distribution of $0.20 per common share represents a current annualized distribution of $2.40 per share and an annualized distribution yield of approximately 5.9%, based on a closing price on February 13, 2004 of $42.85.  Although we expect to continue our policy of paying monthly distributions, we cannot guarantee that we will maintain the current level of distributions, that we will continue our pattern of increasing distributions per share, or what the actual distribution yield will be for any future period.

 

Credit Ratings Upgrades.

 

In November 2003, our credit ratings were upgraded by Standard & Poor’s Ratings Group.  Our senior unsecured debt rating was raised to BBB from BBB- and our preferred stock rating was raised to BBB- from BB+, with a stable outlook.

 

In February 2003, our credit ratings were upgraded by Moody’s Investors Service.  Our senior unsecured debt rating was raised to Baa2 from Baa3 and our preferred stock rating was raised to Baa3 from Ba1, with a stable

 

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outlook.

 

Stock and Senior Debt Purchase Program.

 

In January 2000, our Board of Directors authorized the purchase of up to $10 million of our outstanding common and preferred shares and senior debt securities.  From time to time since January 2000, we concluded that our share price justified purchasing shares since this provided an attractive return on our investment capital.  We have purchased an aggregate of $6.7 million of our securities in 2000 and 2001.  We did not purchase any of our securities in 2002 or 2003, but may do so from time to time in the future.

 

RESULTS OF OPERATIONS

 

Critical Accounting Policies.

 

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.  Our consolidated financial statements are the basis for our discussion and analysis of financial condition and results of operations.  Completing our consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported values and disclosures in the consolidated financial statements.  We believe that we have made these estimates and assumptions in an appropriate manner in a way that accurately reflects our financial condition.  We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors to ensure that they are reasonable for reporting purposes.  However, actual results may differ from these estimates and assumptions.

 

In order to prepare our consolidated financial statements according to the rules and guidelines set forth by generally accepted accounting principles, many subjective judgments must be made with regard to critical accounting polices.  One of these judgments is our estimate for useful lives in determining depreciation expense for our properties.  Depreciation of buildings and improvements is computed using the straight—line method over an estimated useful life of 25 years.  If we use a shorter or longer estimated useful life it could have a material impact on our results of operations.  We believe that 25 years is an appropriate estimate of useful life.  No depreciation has been recorded on Crest Net’s properties because they are held for sale.

 

Another significant judgment that must be made is the impairment losses taken on our properties when events or change in circumstances indicate that the carrying amount of the asset may not be recoverable.  Generally, a provision is made for impairment loss if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value.  Impairment losses are measured as the amount by which the current book value of the asset exceeds the fair value of the asset.  If a property is held for sale, it is carried at the lower of carrying cost or estimated fair value, less cost to sell.  The carrying value of our real estate is the largest component of our consolidated balance sheet.  If events should occur that required us to reduce the carrying value of our real estate by recording provisions for impairment losses, it could have a material impact on our results of operations.

 

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The following is a comparison of our results of operations for the years ended December 31, 2003, 2002 and 2001.

 

Rental Revenue.

 

Rental revenue was $149.3 million for 2003 versus $133.9 million for 2002, an increase of $15.4 million, or 11.5%.  Rental revenue was $115.9 million in 2001.  The increase in rental revenue in 2003 compared to 2002 is attributable to:

 

•                  The 242 retail properties acquired in 2003 by Realty Income, which generated revenue of $7.6 million;

•                  The 108 retail properties acquired in 2002 by Realty Income, which generated revenue of $13.5 million in 2003 compared to $6.4 million in 2002, an increase of $7.1 million;

•                  Same store rents generated on 1,003 leased properties owned in all of both 2003 and 2002 increased by $1.1 million, or 0.9%, to $122.2 million from $121.1 million.

•                  Properties owned by Crest Net, which generated revenue of $1.7 million in 2003 compared to $1.4 million in 2002, an increase of $0.3 million;

•                  Development properties acquired before 2002 that started paying rent in 2002, properties that were vacant during part of 2003 or 2002 and lease termination settlements generated revenue of $4.5 million in 2003 as compared to $4.6 million in 2002, a decrease of $0.1 million; and

•                  A decrease in straight-line rent of $421,000 in 2003 as compared to 2002.

 

We anticipate that our rental revenue from the 242 properties acquired in 2003 will increase significantly in 2004 since the majority of these properties were acquired in the fourth quarter.

 

Of the 1,404 properties in the portfolio at December 31, 2003, 1,399, or 99.6%, are single-tenant properties and the remaining properties are multi-tenant properties.  Of the 1,399 single-tenant properties, 1,374, or 98.2%, were net leased with a weighted average remaining lease term (excluding extension options) of approximately 11.8 years at December 31, 2003.  Of our 1,374 leased single-tenant properties, 1,301, or 94.7%, were under leases that provide for increases in rents through:

 

•                  Base rent increases tied to a consumer price index with adjustment ceilings;

•                  Overage rent based on a percentage of the tenants’ gross sales;

•                  Fixed increases; or

•                  A combination of two or more of the above rent provisions.

 

Percentage rent, which is included in rental revenue, was $1.2 million in 2003, $1.5 million in 2002 and $1.6 million in 2001.  Percentage rent in 2003 was less than 1% of rental revenue and we anticipate percentage rent to be less than 1% of rental revenue in 2004.

 

Our portfolio of retail real estate leased primarily under net leases to regional and national chains continues to perform well and provides dependable lease revenue supporting the payment of monthly dividends to our stockholders. At December 31, 2003, our portfolio of 1,404 retail properties was 98.1% leased with 26 properties available for lease.  Transactions to lease or sell 12 of the 26 properties available for lease or sale at December 31, 2003 were underway or completed as of February 10, 2004.  We anticipate these transactions to be completed during the next six months, although we cannot guarantee that all of these properties can be sold or leased within this period.  It has been our experience that approximately 1% to 3% of our property portfolio will be unleased at any given time, however, we cannot assure you that the number of properties available for lease will not exceed these levels.

 

Gain on Sales of Real Estate Acquired for Resale by Crest Net.

 

In 2003, Crest Net sold 27 properties for $45.2 million, which resulted in a gain of $6.2 million.  In 2002, Crest Net sold 23 properties for $27.3 million, which resulted in a gain of $3.5 million.  In 2001, Crest Net sold nine properties for $28.9 million, which resulted in a gain of $3.4 million.  All gains on sales of real estate acquired for resale are reported before income taxes.

 

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At December 31, 2003, Crest Net had invested $53.3 million in 37 properties, which are held for sale.  Our goal is for Crest Net to carry an average inventory of $20 to $25 million in real estate.  Crest Net’s level of inventory increased substantially during the second half of 2003.  Crest Net generates an earnings spread on the difference between the lease payments it receives on the properties held in inventory and the cost of capital used to acquire properties.  It is our belief that at this level of inventory, earnings will more than cover the ongoing expenses of Crest Net.

 

Interest Expense.

 

Interest expense was $3.4 million higher in 2003 than in 2002 primarily due to higher average outstanding balances.  The following is a summary of the five components of our interest expense (dollars in thousands):

 

		2003			2002			2001
Interest on credit facilities and notes		$	24,962		$	21,221		$	24,479
Amortization of settlements on treasury lock agreements		756			756			756
Credit facility commitment fees		507			514			513
Amortization of credit facility origination costs and deferred bond financing costs		1,446			1,556			1,103
Interest capitalized		(697		)	(511		)	(385		)
Interest expense		$	26,974		$	23,536		$	26,466

 

Credit facilities and notes outstanding (dollars in thousands):		2003			2002			2001
Average outstanding balances		$	389,517		$	326,107		$	326,050
Average interest rates		6.41		%	6.51		%	7.51		%

 

Interest on outstanding credit facilities and notes increased by $3.7 million in 2003 as compared to 2002 primarily due to higher average outstanding balances.  In 2002, unamortized fees of $406,000 relating to our previous credit facilities, which were canceled in October 2002, were charged to interest expense.

 

At February 16, 2004, the weighted average interest rate on our:

 

•                  Credit facility borrowings of $13.0 million was 2.0%;

•                  Notes payable of $480 million was 6.7%; and

•                  Combined outstanding credit facility and notes of $493.0 million was 6.5%.

 

Interest Coverage Ratio.

 

Our interest coverage ratio for 2003 was 5.3 times, for 2002 it was 5.5 times and for 2001 it was 4.4 times.  Interest coverage ratio is calculated as: the interest coverage amount (as calculated below) divided by interest expense.  We consider interest coverage ratio to be an appropriate supplemental measure of a company’s ability to meet its interest expense.  Our calculation of interest coverage ratio may be different from the calculation used by other companies and, therefore, comparability may be limited.  This information should not be considered as an alternative to any GAAP liquidity measures. 

 

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The following is a reconciliation of net cash provided by operating activities to our interest coverage amount (dollars in thousands):

 

		2003			2002			2001
Net cash provided by operating activities		$	73,957		$	124,807		$	90,035
Interest expense		26,974			23,536			26,466
Income taxes		2,703			1,743			1,792
Investments in real estate acquired for resale		87,384			6,724			24,535
Proceeds from sales of real estate acquired for resale		(45,226		)	(27,287		)	(28,912		)
Gain on sales of real estate acquired for resale		6,217			3,495			3,374
Amortization of deferred stock compensation		(951		)	(606		)	(301		)
Changes in assets and liabilities:
Accounts receivable and other assets		(1,751		)	(202		)	(1,125		)
Accounts payable, accrued expenses and other liabilities		(5,194		)	(2,025		)	49
Interest coverage amount		$	144,113		$	130,185		$	115,913
Divided by interest expense		$	26,974		$	23,536		$	26,466
Interest coverage ratio		5.3			5.5			4.4

 

Fixed Charge Coverage Ratio.

 

Our fixed charge coverage ratio for 2003 and 2002 was 3.9 times and for 2001 was 3.2 times.  Fixed charge coverage ratio is calculated in exactly the same manner as interest coverage ratio, except that preferred stock dividends are also added to the denominator.  We consider fixed charge coverage ratio to be an appropriate supplemental measure of a company’s ability to make its interest and preferred stock dividend payments.  Our calculation of the fixed charge coverage ratio may be different from the calculation used by other companies and, therefore, comparability may be limited.  This information should not be considered as an alternative to any GAAP liquidity measures.

 

Interest coverage amount divided by interest expense plus preferred stock dividends (dollars in thousands):

 

		2003			2002			2001
Interest coverage amount		$	144,113		$	130,196		$	115,913
Divided by interest expense plus preferred stock dividends		$	36,687		$	33,249		$	36,178
Fixed charge coverage ratio		3.9			3.9			3.2

 

Depreciation and Amortization.

 

Depreciation and amortization was $33.5 million in 2003 versus $30.1 million in 2002 and $27.7 million in 2001.  The increase in depreciation and amortization was due to the acquisition of properties in 2003, 2002 and 2001, which was partially offset by property sales in these years.  Included in 2001, is $924,000 of amortization expense related to goodwill.

 

General and Administrative Expenses.

 

General and administrative expenses increased by $1.7 million to $11.2 million in 2003 versus $9.5 million in 2002. General and administrative expenses in 2001 were $7.8 million.  In 2003, general and administrative expenses as a percentage of total revenue increased to 7.2% as compared to 6.9% in 2002 and 6.5% in 2001.  Included in general and administrative expenses are $566,000, $410,000 and $496,000 of expenses attributable to Crest Net in 2003, 2002 and 2001, respectively.  General and administrative expenses, excluding expenses attributable to Crest Net, increased primarily due to increases in corporate insurance, payroll and staffing costs.

 

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As our property portfolio has grown and continues to grow, we have and anticipate that we will continue to increase the level of our staffing.  We expect general and administrative expenses to continue to increase due to costs attributable to payroll, staffing costs and corporate governance.  We anticipate that our rental revenue will increase at a faster rate in 2004 than our general and administrative expenses.

 

We had 58 employees at February 16, 2004 compared to 56 at March 1, 2003, 53 at March 1, 2002 and 49 at March 1, 2001.

 

Property Expenses.

 

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, 2003, 26 properties were available for lease, as compared to 27 at December 31, 2002 and 20 at December 31, 2001.

 

Property expenses were $2.6 million in 2003, $2.5 million in 2002 and $2.3 million in 2001.  The $100,000 increase in property expenses in 2003 is primarily attributable to an increase in costs associated with vacant properties.

 

Income Taxes.

 

Income taxes increased $1.0 million to $2.7 million in 2003 as compared to $1.7 million in 2002.  The increase in 2003 is due to an increase in Crest Net income taxes.  Crest Net taxes were higher in 2003 as compared to 2002 because Crest Net’s taxable net income was higher.

 

The following is a summary of our income taxes (dollars in thousands):

 

		2003			2002			2001
Realty Income’s state and local income taxes		$	501		$	496		$	392
Crest Net’s income taxes		2,202			1,247			1,400
Income taxes		$	2,703		$	1,743		$	1,792

 

Gain on Sales of Investment Properties by Realty Income.

 

In 2003, we sold or exchanged 35 properties for a total of $23.1 million and recognized a gain of $6.5 million.  This gain is included in discontinued operations.  In 2002, we sold or exchanged 35 properties for a total of $20.2 million and recognized a gain of $6.3 million.  Of this gain, $6.0 million is included in discontinued operations.  In 2001, we sold or exchanged 35 properties for a total of $39.5 million and recognized a gain of $10.5 million.

 

We have an active portfolio management program that incorporates the sale of assets when we believe the reinvestment of the sale proceeds will generate higher returns, enhance the credit quality of our real estate portfolio or extend our average remaining lease term.  At December 31, 2003, we classified real estate with a carrying amount of $60.1 million as held for sale, which includes $53.3 million in properties owned by Crest Net.  Additionally, we anticipate selling investment properties from our portfolio that have not yet been specifically identified.  We anticipate we will receive between $15 million and $35 million in proceeds from the sale of investment properties during the next 12 months and we intend to invest these proceeds into new property acquisitions.  However, we cannot guarantee that we will sell properties during the next 12 months.

 

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Discontinued Operations.

 

The operations of seven properties listed as held for sale at December 31, 2003, plus properties sold in 2002 and 2003 have been classified as discontinued operations.

 

The following is a summary of our discontinued operations for 2003, 2002 and 2001 (dollars in thousands):

 

		2003			2002			2001
Rental and other revenue		$	2,196		$	4,795		$	6,147
Gain on sales of investment properties		6,484			5,957			—
Depreciation and amortization		(449		)	(1,114		)	(1,397		)
Property expenses		(435		)	(363		)	(235		)
Provisions for impairment		(570		)	(1,320		)	(70		)
Income from discontinued operations		$	7,226		$	7,955		$	4,445

 

Provisions for Impairment.

 

Provisions for impairment of $570,000 were taken in 2003 as compared to $1.3 million in 2002.  These impairment losses are included in discontinued operations.  Provisions for impairment of $1.5 million were taken in 2001, of which $70,000 is included in discontinued operations.

 

Preferred stock dividends.

 

We paid preferred stock dividends of $9.7 million in each of 2003, 2002 and 2001.

 

Net income available to common stockholders.

 

Net income available to common stockholders in 2003 increased by $7.7 million, or 11.2%, to $76.7 million as compared to $69.0 million in 2002.  Net income available to common stockholders in 2001 was $57.8 million.

 

Net income available to common stockholders includes gains and losses from the sale of investment properties.  The amount of gains and losses varies from period to period, based on the timing of property sales, and can significantly impact net income available to common stockholders.

 

The gain recognized from the sales of investment properties during 2003 was $6.5 million as compared to $6.3 million during 2002 and $10.5 million in 2001.

 

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FUNDS FROM OPERATIONS (FFO)

AVAILABLE TO COMMON STOCKHOLDERS

 

FFO for 2003 increased by $10.3 million, or 11.0%, to $104.0 million as compared to $93.7 million in 2002.  The following is a reconciliation of net income available to common stockholders (which we believe is the most comparable Generally Accepted Accounting Principles (“GAAP”) measure) to FFO, information regarding distributions paid and the diluted weighted average number of shares outstanding for 2003 and 2002 (dollars in thousands):

 

		2003			2002			2001
Net income available to common stockholders		$	76,722		$	68,954		$	57,846
Depreciation and amortization:
Continuing operations		33,465			30,113			27,728
Discontinued operations		449			1,114			1,397
Depreciation of furniture, fixtures and equipment		(114		)	(136		)	(115		)
Gain on sales of investment properties:
Continuing operations		—			(340		)	(10,478		)
Discontinued operations		(6,484		)	(5,957		)	—
Total funds from operations		$	104,038		$	93,748		$	76,378
Distributions paid to common stockholders		$	83,842		$	78,042		$	64,871
FFO in excess of distributions to common stockholders		$	20,196		$	15,706		$	11,507
Diluted weighted average number of shares outstanding		35,611,314			33,988,157			29,281,120

 

We define FFO, a non-GAAP measure, consistent with the National Association of Real Estate Investment Trust’s definition, as net income available to common stockholders, plus depreciation and amortization of assets uniquely significant to the real estate industry, reduced by gains and increased by losses on (i) sales of investment property and (ii) extraordinary items.

 

We consider FFO to be an appropriate supplemental measure of a REIT’s operating performance as it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation.  The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time.  Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative.  The use of FFO is recommended by the REIT industry as a supplemental performance measure.  In addition, FFO is used as a measure of our compliance with the financial covenants of our credit facility.

 

Presentation of this information is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO the same way, so comparisons with other REITs may not be meaningful.  Furthermore, 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 Realty Income’s performance.  In addition, FFO should not be considered as an alternative to reviewing our cash flows from operating, investing and financing activities as a measure of liquidity, of our ability to make cash distributions or of our ability to pay interest payments.

 

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Other Non-Cash Items and Capitalized Expenditures.

 

The following information includes non-cash items and capitalized expenditures on existing properties in our portfolio.  These items are not utilized in the adjustments to net income available to common stockholders to arrive at funds from operations.  Analysts and investors often request this supplemental information.

 

For the Years Ended (dollars in thousands)		2003			2002			2001
Provision for impairment losses		$	570		$	1,320		$	1,450
Amortization of settlements on treasury lock agreements		756			756			756
Amortization of deferred note financing costs(1)		725			579			579
Amortization of stock compensation		951			606			301
Straight line rent(2)		275			(146		)	(12		)
Capitalized leasing costs and commissions		(392		)	(377		)	(401		)
Capitalized building improvements		(264		)	(642		)	(547		)

 

(1) Amortization of deferred note financing costs includes the amortization of costs incurred and capitalized when our notes were issued in May 1997, October 1998, January 1999, March 2003 and November 2003.  These costs are being amortized over the lives of these notes.  No costs associated with our credit facility agreements or annual fees paid to credit rating agencies have been included.

 

(2) Negative amounts represent that our straight-line rent was more than our actual cash rent collected by the amounts indicated.  Positive amounts represent that our straight-line rent was less than our actual cash rent collected by the amounts indicated.

 

FFO GENERATED BY CREST NET

 

Crest Net generated $4.6 million in FFO for Realty Income in 2003, $2.7 million in 2002 and $2.4 million in 2001.  As a result of the increase in Crest Net’s inventory, we anticipate that Crest Net’s contributions to our FFO in the early quarters of 2004 may be more significant compared to the same quarters in 2003.  The future contribution, if any, to our FFO by Crest Net will depend on the timing and the number of property acquisitions and sales it achieves, if any, in a given period.  The following is a calculation of Crest Net’s FFO contribution to Realty Income for 2003 and 2002 (dollars in thousands):

 

		2003			2002			2001
Gains from the sales of real estate acquired for resale		$	6,217		$	3,495		$	3,374
Rent and other revenue		1,724			1,422			1,816
Interest expense		(561		)	(395		)	(869		)
General and administrative expenses		(566		)	(410		)	(496		)
Property expenses		(24		)	(117		)	—
Income taxes		(2,202		)	(1,247		)	(1,400		)
Funds from operations contributed by Crest Net		$	4,588		$	2,748		$	2,425

 

IMPACT OF INFLATION

 

Tenant leases generally provide for limited increases in rent as a result of increases in the tenants’ sales volumes, increases in the consumer price index, and/or fixed increases.  We expect that inflation will cause these lease provisions to result in rent increases over time.  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.

 

Approximately 97.9%, or 1,374, of the 1,404 properties in the portfolio are leased to tenants under net leases

 

37

 

where the tenant is responsible for property costs and expenses.  Net leases tend to reduce our exposure to rising property expenses due to inflation.  Inflation and increased costs may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue.

 

IMPACT OF ACCOUNTING PRONOUNCEMENTS

 

In January 2003, the FASB issued FIN No. 46 (revised December 2003), Consolidation of Certain Variable Interest Entities.  FIN No.  46R requires consolidation of a variable interest entity by an enterprise that holds a controlling financial interest.  The impact of adopting FIN No. 46R is not expected to have a material effect on our financial position or results of operations.

 

Item 7A:                             Quantitative and Qualitative Disclosures about Market Risk

 

We are exposed to interest rate changes primarily as a result of our credit facility and long-term notes used to maintain liquidity and expand our real estate investment portfolio and operations.  Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flow and to lower our overall borrowing costs.  To achieve these objectives we issue long-term notes, primarily at fixed rates, and may selectively enter into derivative financial instruments, such as interest rate lock agreements, interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument.  We were not a party to any derivative financial instruments at December 31, 2003.  We do not enter into any transactions for speculative or trading purposes.

 

Our interest rate risk is monitored using a variety of techniques.  The following table presents the principal amounts, weighted average interest rates, fair values and other terms required by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes (dollars in table in millions):

 

		Expected Maturity Data
		2005			2007			2008			Thereafter			Total			Fair Value(5)
Fixed rate debt		—			$	110.0	(2)	$	100.0	(3)	$	270.0	(4)	$	480.0		$	498.7
Average interest rate					7.8		%	8.3		%	5.6		%	6.7		%
Variable rate debt		$	26.4	(1)	—			—			—			$	26.4		$	26.4
Average interest rate		2.0		%										2.0		%

 

(1) The credit facility expires in October 2005.  The credit facility balance as of February 16, 2004 was $13.0 million.

(2) $110 million matures in May 2007.

(3) $100 million matures in October 2008.

(4) $20 million matures in January 2009, $100 million matures in March 2013 and $150 million matures in November 2015.

(5) We base the fair value of the fixed rate debt at December 31, 2003 on the closing market price or indicative price per each note.  The fair value of the variable rate debt approximates its carrying value because its terms are similar to those available in the market place.

 

The table incorporates only those exposures that exist as of December 31, 2003; it does not consider those exposures or positions that could arise after that date.  As a result, our ultimate realized gain or loss, with respect to interest rate fluctuations, would depend on the exposures that arise during the period, our hedging strategies at the time, and interest rates.

 

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Item 8:                                      Financial Statements and Supplementary Data

 

Table of Contents

 

		Page
A.	Independent Auditors’ Report	40
B.	Consolidated Balance Sheets, December 31, 2003 and 2002	41
C.	Consolidated Statements of Income,  Years ended December 31, 2003, 2002 and 2001	42
D.	Consolidated Statements of Stockholders’ Equity, Years ended December 31, 2003, 2002 and 2001	43
E.	Consolidated Statements of Cash Flows,  Years ended December 31, 2003, 2002 and 2001	44
F.	Notes to Consolidated Financial Statements	45
G.	Consolidated Quarterly Financial Data  (unaudited) for 2003 and 2002	58
H.	Schedule III Real Estate and Accumulated Depreciation	F1

 

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.

 

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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 as 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 auditing standards generally accepted in the United States of America.  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, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.  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 LLP
San Diego, California
January 23, 2004

 

40

 

REALTY INCOME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

 

December 31, 2003 and 2002

(dollars in thousands, except per share data)

 

		2003			2002
ASSETS
Real estate, at cost:
Land		$	557,288		$	467,488
Buildings and improvements		975,894			818,412
		1,533,182			1,285,900
Less accumulated depreciation and amortization		(272,647		)	(254,250		)
Net real estate held for investment		1,260,535			1,031,650
Real estate held for sale, net		60,110			6,528
Net real estate		1,320,645			1,038,178
Cash and cash equivalents		4,837			8,921
Accounts receivable		3,950			4,408
Goodwill, net		17,206			17,206
Other assets		13,619			11,517
Total assets		$	1,360,257		$	1,080,230
LIABILITIES AND STOCKHOLDERS’ EQUITY
Distributions payable		$	7,582		$	6,801
Accounts payable and accrued expenses		11,479			5,047
Other liabilities		7,030			6,227
Lines of credit payable		26,400			109,700
Notes payable		480,000			230,000
Total liabilities		532,491			357,775
Commitments and contingencies
Stockholders’ equity:
Preferred stock and paid in capital, par value $1.00 per share, 20,000,000 shares authorized, 4,125,700 shares issued and outstanding		99,368			99,368
Common stock and paid in capital, par value $1.00 per share, 100,000,000 shares authorized, 37,909,086 and 34,874,827 shares issued and outstanding in 2003 and 2002, respectively		969,030			855,818
Distributions in excess of net income		(240,632		)	(232,731		)
Total stockholders’ equity		827,766			722,455
Total liabilities and stockholders’ equity		$	1,360,257		$	1,080,230

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

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REALTY INCOME CORPORATION AND SUBSIDIARIES

Consolidated Statements Of Income

 

Years Ended December 31, 2003, 2002 and 2001

(dollars in thousands, except per share data)

 

		2003			2002			2001
REVENUE
Rental		$	149,279		$	133,891		$	115,927
Gain on sales of real estate acquired for resale		6,217			3,495			3,374
Other		618			336			822
		156,114			137,722			120,123
EXPENSES
Interest		26,974			23,536			26,466
Depreciation and amortization		33,465			30,113			27,727
General and administrative		11,182			9,454			7,840
Property		2,581			2,504			2,283
Income taxes		2,703			1,743			1,792
Provision for impairment losses		—			—			1,380
		76,905			67,350			67,488
Income from operations		79,209			70,372			52,635
Gain on sales of investment properties		—			340			10,478
Income from continuing operations		79,209			70,712			63,113
Income from discontinued operations		7,226			7,955			4,445
Net income		86,435			78,667			67,558
Preferred stock dividends		(9,713		)	(9,713		)	(9,712		)
Net income available to common stockholders		$	76,722		$	68,954		$	57,846
Income from continuing operations per common share:
Basic		$	1.95		$	1.80		$	1.83
Diluted		$	1.95		$	1.79		$	1.82
Net income available to common stockholders per common share:
Basic		$	2.16		$	2.03		$	1.98
Diluted		$	2.15		$	2.03		$	1.98

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

42

 

REALTY INCOME CORPORATION AND SUBSIDIARIES

Consolidated Statements Of Stockholders’ Equity

 

Years Ended December 31, 2003, 2002 and 2001

(dollars in thousands)

 

						Preferred			Common
		Shares of				stock and			stock and			Distributions
		Preferred Stock		Common Stock		paid in capital			paid in capital			in excess of net income			Total
Balance, December 31, 2000		4,125,700		26,563,519		$	99,368		$	630,932		$	(214,731	)	$	515,569
Net income		—		—		—			—			67,558			67,558
Distributions paid and payable		—		—		—			—			(75,907		)	(75,907		)
Shares issued in stock offerings, net of offering costs of $9,044		—		5,900,000		—			157,041			—			157,041
Shares purchased		—		(6,800	)	—			(169		)	—			(169		)
Shares issued		—		380,527		—			9,340			—			9,340
Shares forfeited		—		(8,135	)	—			(202		)	—			(202		)
Deferred stock compensation, net of forfeitures and amortization		—		—		—			(1,437		)	—			(1,437		)
Balance, December 31, 2001		4,125,700		32,829,111		99,368			795,505			(223,080		)	671,793
Net income		—		—		—			—			78,667			78,667
Distributions paid and payable		—		—		—			—			(88,318		)	(88,318		)
Shares issued in stock offerings, net of offering costs of $2,957		—		1,823,150		—			57,079			—			57,079
Shares issued		—		222,828		—			5,927			—			5,927
Shares forfeited		—		(262	)	—			(7		)	—			(7		)
Deferred stock compensation, net of forfeitures and amortization		—		—		—			(2,686		)	—			(2,686		)
Balance, December 31, 2002		4,125,700		34,874,827		99,368			855,818			(232,731		)	722,455
Net income		—		—		—			—			86,435			86,435
Distributions paid and payable		—		—		—			—			(94,336		)	(94,336		)
Shares issued in stock offerings, net of offering costs of $5,854		—		2,875,000		—			110,842			—			110,842
Shares issued		—		159,929		—			4,767			—			4,767
Shares forfeited		—		(670	)	—			(22		)	—			(22		)
Deferred stock compensation, net of forfeitures and amortization		—		—		—			(2,375		)	—			(2,375		)
Balance, December 31, 2003		4,125,700		37,909,086		$	99,368		$	969,030		$	(240,632	)	$	827,766

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

43

 

REALTY INCOME CORPORATION AND SUBSIDIARIES

Consolidated Statements Of Cash Flows

 

Years Ended December 31, 2003, 2002 and 2001

(dollars in thousands)

 

		2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	86,435		$	78,667		$	67,558
Adjustments to net income:
Depreciation and amortization		33,465			30,113			27,727
Provision for impairment losses		—			—			1,380
Income from discontinued operations		(7,226		)	(7,955		)	(4,445		)
Cash from discontinued operations		1,762			4,432			5,913
Investments in real estate acquired for resale		(87,384		)	(6,724		)	(24,535		)
Proceeds from sales of real estate acquired for resale		45,226			27,287			28,912
Gain on sales of real estate acquired for resale		(6,217		)	(3,495		)	(3,374		)
Gain on sales of investment properties		—			(340		)	(10,478		)
Amortization of deferred stock compensation		951			595			301
Changes in assets and liabilities:
Accounts receivable and other assets		1,751			202			1,125
Accounts payable, accrued expenses and other liabilities		5,194			2,025			(49		)
Net cash provided by operating activities		73,957			124,807			90,035
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment properties:
From continuing operations		—			1,198			39,543
From discontinued operations		20,773			18,530			—
Acquisition of and additions to investment properties		(280,587		)	(134,427		)	(132,291		)
Net cash used in investing activities		(259,814		)	(114,699		)	(92,748		)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from lines of credit		360,600			332,700			196,300
Payments under lines of credit		(443,900		)	(308,300		)	(285,000		)
Proceeds from common stock offerings, net		110,842			57,079			157,041
Proceeds from note offerings, net		246,367			—			—
Distributions to common stockholders		(83,842		)	(78,042		)	(64,871		)
Distributions to preferred stockholders		(9,713		)	(9,713		)	(9,712		)
Proceeds from other stock issuances		1,419			2,622			7,776
Shares purchased		—			—			(169		)
Net cash provided by (used in) financing activities		181,773			(3,654		)	1,365
Net increase (decrease) in cash and cash equivalents		(4,084		)	6,454			(1,348		)
Cash and cash equivalents, beginning of year		8,921			2,467			3,815
Cash and cash equivalents, end of year		$	4,837		$	8,921		$	2,467

 

For supplemental disclosures, see note 13.

 

The accompanying notes to consolidated financial statements are an integral part of these statements

 

44

 

REALTY INCOME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements

 

December 31, 2003, 2002 and 2001

 

1.                            Organization and Operation

 

Realty Income Corporation (“Realty Income,” the “Company,” “we” or “our”) is organized as a Maryland corporation.  We invest in commercial retail real estate and have elected to be taxed as a real estate investment trust (“REIT”).  At December 31, 2003, we owned 1,404 properties in 48 states containing over 11.3 million leasable square feet, plus an additional 37 properties owned by our wholly-owned subsidiary, Crest Net Lease, Inc. (“Crest Net”).  Crest Net was created to buy, own and sell properties, primarily to individual investors, many of whom are involved in tax-deferred exchanges, under Section 1031 of the Internal Revenue Code of 1986, as amended (“the Code”).

 

2.                            Summary of Significant Accounting Policies and Procedures

 

Federal Income Taxes.  We have elected to be taxed as a REIT under the Code.  We believe we have qualified and continue to qualify as a REIT.  As a REIT, we will be permitted to deduct distributions paid to our stockholders and generally will not be required to pay federal corporate income taxes on such income.  Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements, except for federal income taxes of Crest Net, which totaled $1.8 million, $1.0 million and $1.2 million in 2003, 2002 and 2001, respectively, and which are included in income taxes.

 

Earnings and profits which determine the taxability of distributions to stockholders, differ from net income reported for financial reporting purposes due to differences in the estimated useful lives and methods used to compute depreciation and the carrying value (basis) on the investments in properties for tax purposes, among other things.

 

The following reconciles our net income available to common stockholders to taxable income for the year ended December 31, 2003 (dollars in thousands) (unaudited):

 

Net income available to common stockholders		$	76,722
Tax loss on the sale of real estate less than book gain		(11,104		)
Elimination of net revenue and expenses from Crest Net		(2,366		)
Dividends received from Crest Net		3,100
Preferred dividends not deductible for tax		9,713
Depreciation and amortization timing differences		9,532
Impairment losses		570
Other adjustments		389
Estimated taxable net income		$	86,556

 

45

 

Net Income Per Common Share.  Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period.  Diluted net income per common share is computed by dividing the amount of net income available to common stockholders for the period by the number of common shares that would have been outstanding assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period.

 

The following is a reconciliation of the denominator of the basic net income per common share computation to the denominator of the diluted net income per common share computation, for the years ended December 31:

 

		2003		2002		2001
Weighted average shares used for basic net income per share computation		35,564,141		33,933,749		29,225,359
Incremental shares from the assumed exercise of stock options		47,173		54,408		55,761
Adjusted weighted average shares used for diluted net income per share computation		35,611,314		33,988,157		29,281,120

 

In 2003, 2002 and 2001, no stock options were anti-dilutive.

 

Discontinued Operations.  In accordance with Financial Accounting Standards Board (“FASB”) Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the operations of seven properties listed as held for sale at December 31, 2003, plus properties sold during 2003 and 2002 were reported as discontinued operations, and their respective 2002 and 2001 results of operations were reclassified to discontinued operations.

 

The following is a summary of our discontinued operations for the years ended December 31, 2003, 2002 and 2001 (dollars in thousands):

 

		2003			2002			2001
Rental and other revenue		$	2,196		$	4,795		$	6,147
Gain on sales of investment properties		6,484			5,957			—
Depreciation and amortization		(449		)	(1,114		)	(1,397		)
Property expenses		(435		)	(363		)	(235		)
Provisions for impairment		(570		)	(1,320		)	(70		)
Income from discontinued operations		$	7,226		$	7,955		$	4,445
Income from discontinued operations per common share Basic and diluted		$	0.20		$	0.23		$	0.15

 

Leases.  All leases are accounted for as operating leases.  Under this method, lease payments that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term.  Any rental revenue contingent upon a tenant’s sales is recognized only after the tenants exceed their sales breakpoint.  Rental increases based upon changes in the consumer price indexes are recognized only after the changes in the indexes have occurred, and then applied according to the lease agreements.

 

Principles of Consolidation.  The accompanying consolidated financial statements include the accounts of Realty Income, Crest Net and other entities for which we make operational and financial decisions (control), after elimination of all material intercompany balances and transactions.

 

46

 

Cash Equivalents.  We consider all short-term, highly liquid investments to be cash equivalents, which are readily convertible to cash and have an original maturity of three months or less at the time of purchase.

 

Gain on Sales of Properties.  We recognize gains or losses on sales of properties in accordance with Statement No. 66, Accounting for Sales of Real Estate.

 

Depreciation and Amortization.  Depreciation of buildings and improvements are computed using the straight-line method over an estimated useful life of 25 years.  Amortization of goodwill in 2001 and prior periods was computed using the straight-line method over 25 years.

 

Maintenance and Repairs.  Expenditures for maintenance and repairs are expensed as incurred.  Replacements and betterments are capitalized.

 

Provisions for Impairment.  We review long-lived assets, 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 if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value.  Impairment loss is measured as the amount by which the current book value of the asset exceeds the fair value of the asset.  If a property is held for sale, it is carried at the lower of cost or estimated fair value, less cost to sell.  Provisions for impairment of $570,000, $1.3 million and $1.5 million were recorded in 2003, 2002 and 2001, respectively, are included in discontinued operations, except for $1.4 million of the 2001 provision.

 

Stock Option Plan.  Prior to 2002 we accounted for our stock option plan in accordance with the provisions of APB Opinion No. 25, Accounting for Stock Issues to Employees and related interpretations. No stock option-based compensation cost was reflected in 2001 net income, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2002, we adopted the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, and beginning in 2002 started expensing the costs for all stock option awards granted, modified, or settled after January 1, 2002. Stock option awards under the plan vest over periods ranging from one to five years.  Therefore, the cost related to stock option-based compensation included in the determination of net income available to common stockholders is less than that which would have been recognized if the fair value based method had been applied to all stock option awards since the original effective date of Statement No. 123.

 

The following table illustrates the effect on net income available to common stockholders and earnings per share if the fair based method had been applied to all outstanding and unvested awards in each period (dollars in thousands, except per share amounts).

 

		2003			2002			2001
Net income available to common stockholders, as reported		$	76,722		$	68,954		$	57,846
Add: Stock option-based compensation expense included in reported net income		11			12			—
Deduct: Total stock option-based compensation expense determined under fair value method for all awards, net of related tax effects		(27		)	(106		)	(216		)
Pro forma net income available to common stockholders		$	76,706		$	68,860		$	57,630
Earnings per common share:
As reported – basic		$	2.16		$	2.03		$	1.98
As reported – diluted		2.15			2.03			1.98
Pro forma – basic		2.16			2.03			1.97
Pro forma – diluted		2.15			2.03			1.97

 

47

 

Goodwill.  In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets.  This statement changed the accounting for goodwill from an amortization method to an impairment-only approach. Under Statement No. 142, goodwill will be tested for impairment annually as well as when events or circumstances occur that indicate that our goodwill might be impaired. We adopted the provisions of Statement No. 142 on January 1, 2002 and ceased amortizing our goodwill, which totaled $17.2 million. During the second quarter of 2002, we completed the transitional impairment testing of our goodwill and found that our goodwill was not impaired. We did not have any new goodwill or record an impairment on our existing goodwill during 2003 or 2002.  Amortization of goodwill for 2001 was $924,000.  We do not have any intangible assets as contemplated under Statement No. 142 or unamortized negative goodwill.

 

The following table reconciles reported net income available to common stockholders to adjusted net income available to common stockholders.  It excludes the effect of goodwill amortization expense that is no longer amortized under Statement No. 142 (dollars in thousands, except per share data):

 

		2001
Net income available to common stockholders, as reported		$	57,846
Goodwill amortization		924
Adjusted net income available to common stockholders		$	58,770
Basic and diluted earnings per common share
Net income available to common stockholders, as reported		$	1.98
Goodwill amortization		0.03
Adjusted net income available to common stockholders		$	2.01

 

Use of Estimates.  The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States 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.

 

Reclassifications.  Certain of the 2002 and 2001 balances have been reclassified to conform to the 2003 presentation.

 

3.                            Retail Properties Acquired

 

We acquire land, buildings and improvements that is used by retail operators.  Generally, we do not acquire properties with in-place operating leases, nor other forms of intangible assets.

 

A.  During 2003, Realty Income and Crest Net invested $371.6 million in aggregate in 302 new retail properties and properties under development.  These 302 properties are located in 25 states, will contain approximately 1.9 million leasable square feet and are 100% leased, with an average initial lease term of 19.9 years.

 

During 2002, Realty Income and Crest Net invested $139.4 million in aggregate in 111 new retail properties and properties under development.  These 111 properties are located in 24 states, contain approximately 733,000 leasable square feet and are 100% leased, with an average initial lease term of 19.8 years.

 

B.  During 2003, Realty Income invested $284.0 million in 242 new retail properties and properties under development, with an initial weighted average contractual lease rate of 9.8%.  These 242 properties are located

 

48

 

in 20 states, will contain approximately 1.5 million leasable square feet and are 100% leased, with an average initial lease term of 19.9 years.

 

During 2002, Realty Income invested $133.3 million in 108 new retail properties and properties under development, with an initial weighted average contractual lease rate of 10.4%.  These 108 properties are located in 24 states, contain approximately 719,800 leasable square feet and are 100% leased, with an average initial lease term of 19.8 years.

 

C.  During 2003, Crest Net invested $87.6 million in 60 new retail properties and properties under development.

 

During 2002, Crest Net invested $6.1 million in three new retail properties and properties under development.

 

D.  Crest Net’s property inventory at December 31, 2003 and December 31, 2002 totaled $53.3 million and $4.6 million, respectively, and is included in real estate held for sale, net, on our consolidated balance sheets.

 

4.                            Credit Facilities

 

In October 2002, we entered into a $250 million credit facility to replace the existing $200 million acquisition credit facility and $25 million credit facility, each of which was scheduled to expire in 2003.  Unamortized fees of $406,000 relating to the canceled credit facilities were charged to interest expense in 2002.

 

The borrowing rate on the $250 million credit facility was reduced compared to the previous credit facilities. As of December 31, 2003, Realty Income’s investment grade credit ratings provide for borrowing at LIBOR (London Interbank Offered Rate) plus 90 basis points, with a facility fee of 20 basis points on the total of the facility amount, for all-in drawn pricing of 110 basis points over LIBOR as compared to an all-in pricing of 145 basis points on our previous credit facilities.  The term of our current facility extends through October 2005.

 

The average borrowing rate on our credit facilities during 2003 was 2.2%, compared to 3.0% in 2002 and 6.4% in 2001.  Our current credit facility is, and previous credit facilities were, subject to various leverage and interest coverage ratio limitations.  The Company is and has been in compliance with these covenants.

 

In 2003, 2002 and 2001, interest of $697,000, $511,000 and $385,000, respectively, was capitalized with respect to properties under development.

 

5.                            Notes Payable

 

In November 2003, we issued $150 million of 5-1/2% senior unsecured notes due 2015 (the “2015 Notes”).  The notes were sold at 99.508% of par.  The net proceeds from this offering were used to acquire new retail properties and to repay borrowings under our unsecured acquisition credit facility.  Interest on the 2015 Notes is paid semiannually.

 

In March 2003, we issued $100 million of 5-3/8% senior unsecured notes due 2013 (the “2013 Notes”).  The notes were sold at 99.509% of par.  The net proceeds from this offering were used to repay borrowings under our unsecured acquisition credit facility.  Interest on the 2013 Notes is paid semiannually.

 

In January 1999, we issued $20 million of 8% senior unsecured notes due 2009 (the “2009 Notes”).  Interest on the 2009 Notes is payable semiannually.

 

In October 1998, we issued $100 million of 8-1/4% Monthly Income Senior Notes due 2008 (the “2008 Notes”).  In May 1998, we entered into a treasury interest rate lock agreement associated with the 2008 Notes. 

 

49

 

In settlement of the agreement, we made a payment of $8.7 million in 1998.  The payment on the agreement is being amortized over 10 years (the life of the 2008 Notes) as a yield adjustment to interest expense.  After taking into effect the results of a treasury interest rate lock agreement, the effective rate to us on the 2008 Notes is 9.12%.  Interest on the 2008 Notes is payable monthly. The 2008 Notes are unsecured.

 

In May 1997, we issued $110 million of 7-3/4% senior unsecured notes due 2007 (the “2007 Notes”).  In December 1996, we entered into a treasury interest rate lock agreement associated with the 2007 Notes.  In settlement of the agreement, we received $1.1 million in 1997.  The payment received on the agreement is being amortized over 10 years (the life of the 2007 Notes) as a yield adjustment to interest expense.  After taking into effect the results of a treasury interest rate lock agreement, the effective interest rate to us on the 2007 Notes is 7.62%.  Interest on the 2007 Notes is payable semiannually.

 

Interest incurred on the 2015 Notes, 2013 Notes, 2009 Notes, 2008 Notes and 2007 Notes collectively for each of the years ended December 31, 2003, 2002 and 2001 was $23.6 million, $18.4 million and $18.4 million, respectfully.

 

6.                            Common Stock Offerings

 

A.                         In October 2003, we issued 2,875,000 shares of common stock at a price of $40.59 per share.  The net proceeds of $110.8 million were used to repay a portion of our acquisition credit facility.

 

B.                           In July 2002, we issued 1,550,000 shares of common stock at a price of $33.40 per share.  The net proceeds of $48.9 million were used to repay a portion of our acquisition credit facility.

 

C.                           In February 2002, we issued 273,150 shares of common stock to a unit investment trust at a net price to us of $30.26 per share, based on a 5% discount to the market price at the time of issuance of $31.85 per share.  The net proceeds of $8.2 million were used to repay a portion of our acquisition credit facility.

 

D.                          In October 2001, we issued 2,600,000 shares of common stock at a price of $28.50 per share.  In November 2001, 350,000 additional shares were issued when the underwriters exercised their over-allotment option.  The net proceeds of $79.5 million were used to repay borrowings under our acquisition credit facility and for other general corporate purposes.

 

E.                            In May 2001, we issued 2,850,000 shares of common stock at a price of $27.80 per share.  We issued an additional 100,000 shares in May 2001 when the underwriters exercised their over-allotment option.  The net proceeds of $77.5 million were used to repay borrowings under our acquisition credit facility and for other general corporate purposes.

 

50

 

7.                            Distributions Paid and Payable

 

A.                         We pay monthly cash distributions to our common stockholders.  The following is a summary of monthly distributions paid per common share for the years ended December 31:

 

Month		2003			2002			2001
January		$	0.19500		$	0.19000		$	0.18500
February		0.19500			0.19000			0.18500
March		0.19500			0.19000			0.18500
April		0.19625			0.19125			0.18625
May		0.19625			0.19125			0.18625
June		0.19625			0.19125			0.18625
July		0.19750			0.19250			0.18750
August		0.19750			0.19250			0.18750
September		0.19750			0.19250			0.18750
October		0.19875			0.19375			0.18875
November		0.19875			0.19375			0.18875
December		0.19875			0.19375			0.18875
Total		$	2.36250		$	2.30250		$	2.24250

 

The following presents the federal income tax characterization of distributions paid or deemed to be paid to common stockholders for the years ended December 31:

 

		2003			2002			2001
Ordinary income		$	2.21058		$	2.16843		$	1.94838
Return of capital		0.15192			0.13407			0.29412
Capital gain		—			—			—
Totals		$	2.36250		$	2.30250		$	2.24250

 

At December 31, 2003, a distribution of $0.20 per common share was payable and was paid in January 2004.

At December 31, 2002, a distribution of $0.195 per common share was payable and was paid in January 2003.

 

B.                           In May 1999, we issued 2,760,000 shares of 9 3/8% Class B cumulative redeemable preferred stock (the “Class B Preferred”), of which 2,745,700 shares are outstanding.  Beginning May 25, 2004, the Class B Preferred shares are redeemable at our option for $25.00 per share.  Dividends on the Class B Preferred are paid quarterly in arrears.  For each of the years ended December 31, 2003, 2002 and 2001, dividends of $6.4 million were paid on our Class B Preferred.

 

The following presents the federal income tax characterization of dividends paid or deemed to be paid to Class B Preferred stockholders for the years ended December 31:

 

		2003			2002			2001
Ordinary income		$	2.34375		$	2.34372		$	2.34360
Capital gain		—			—			—

 

C.                           In July 1999, we issued 1,380,000 shares of 9 1/2% Class C cumulative redeemable preferred stock (the “Class C Preferred”), all of which are outstanding.  Beginning July 30, 2004, the Class C Preferred shares are redeemable at our option for $25.00 per share.  Dividends on the Class C Preferred are paid monthly in arrears.  For each of the years ended December 31, 2003, 2002 and 2001, dividends of $3.3 million were paid on our Class C Preferred.

 

51

 

The following presents the federal income tax characterization of dividends paid or deemed to be paid to Class C Preferred stockholders for the years ended December 31:

 

		2003			2002			2001
Ordinary income		$	2.37500		$	2.37497		$	2.37480
Capital gain		—			—			—

 

8.                            Operating Leases

 

A.                         At December 31, 2003, we owned 1,404 properties in 48 states, excluding 37 properties owned by Crest Net.  Of these 1,404 properties, 1,399 are single-tenant and the remainder are multi-tenant.  At December 31, 2003, 26 properties were vacant and available for lease or sale.

 

Substantially all leases are net leases where the tenant pays property taxes and assessments, maintains the interior and exterior of the building and leased premises, and carries insurance coverage for public liability, property damage, fire and extended coverage.

 

Percentage rent for 2003, 2002 and 2001 was $1.2 million, $1.6 million and $1.7 million, respectively, including amounts recorded to discontinued operations.

 

At December 31, 2003, minimum annual rents to be received on the operating leases are as follows (dollars in thousands):

 

For the years ending December 31,
2004		$	160,137
2005		149,818
2006		143,278
2007		135,716
2008		127,134
Thereafter		1,210,313
TOTAL		$	1,926,396

 

B.                           Major Tenants – The following schedule presents rental revenue, including percentage rents, from tenants representing more than 10% of our total revenue for the years ended December 31, 2003, 2002 or 2001 (dollars in thousands):

 

Tenants		2003		2002			2001
Children’s World Learning Centers, Inc. (1)		—		$	13,530		$	13,596

 

(1) Rental revenue from Children’s World Learning Centers, Inc. represented less than 10% of our total revenue for 2003.

 

9.                            Gain on Sales of Real Estate Acquired for Resale by Crest Net

 

In 2003, Crest Net sold 27 properties for $45.2 million, which resulted in a gain of $6.2 million, before income taxes.

 

In 2002, Crest Net sold 23 properties for $27.3 million, which resulted in a gain of $3.5 million, before income taxes.

 

52

 

In 2001, Crest Net sold nine properties for $28.9 million, which resulted in a gain of $3.4 million, before income taxes.

 

10.                     Gain on Sales of Investment Properties by Realty Income

 

During 2003, we sold or exchanged 35 investment properties and exchanged three excess land parcels (from three properties) for $23.1 million, which resulted in a gain of $6.5 million.  This gain on sales of investment properties is included in discontinued operations.  Included in the 35 properties was one property leased by one of our tenants that we exchanged for another property owned by that tenant (see note 13B).

 

In 2002, we sold or exchanged 35 properties for $20.2 million and recognized a gain of $6.3 million.  Of this gain, $6.0 million is included in discontinued operations.  Included in the 35 properties was one property leased by one of our tenants that we exchanged for another property owned by that tenant (see note 13B).

 

In 2001, we sold 35 properties for $39.5 million and recognized a gain of $10.5 million.

 

11.                     Purchases of Realty Income Securities

 

In January 2000, our Board of Directors authorized the purchase of up to $10 million of our outstanding common stock, preferred stock and senior debt securities.  We purchased an aggregate of $6.7 million of our securities in 2000 and 2001. No securities were purchased in 2003 or 2002.

 

12.                     Fair Value of Financial Instruments

 

We believe that the carrying values reflected in the consolidated balance sheets at December 31, 2003 and 2002 reasonably approximate the fair values for cash and cash equivalents, accounts receivable, and all liabilities, due to their short-term nature, except for lines of credit payable and notes payable.  In making these assessments, we used estimates.  The fair value of the lines of credit payable approximates its carrying value because its terms are similar to those available in the market place.  The fair value of the notes payable at December 31, 2003 and 2002 is estimated to be $498.7 million and $250.6 million, respectively, based upon the closing market price per note or indicative price per each note at December 31, 2003 and 2002, respectively.

 

13.                     Supplemental Disclosures of Cash Flow Information

 

Interest paid in 2003, 2002 and 2001 was $32.5 million, $21.4 million and $25.3 million, respectively.

 

Income taxes paid by Realty Income and Crest Net in 2003, 2002 and 2001 were $0.8 million, $1.7 million, and $1.8 million, respectively.

 

The following non-cash investing and financing activities are included in the accompanying consolidated financial statements (dollars in thousands):

 

A.  Additions to properties resulted in the following:

 

		2003			2001
Buildings		$	1,741		$	421
Real estate held for sale, net		289			183
Other liabilities		2,030			604

 

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B.  In 2003, we exchanged excess land parcels from three different properties leased by one of our tenants for land (with improvements) owned by that same tenant.  In 2003, we also exchanged one property leased by one of our tenants for another property owned by that tenant.  In 2002, we exchanged one property leased by one of our tenants for another property owned by that tenant.  The gain on exchange is included in discontinued operations. These transactions resulted in the following:

 

		2003			2002
Land		$	—		$	(23	)
Buildings		—			22
Accumulated depreciation		64			3
Gain on sale		(64		)	(2		)

 

C.  In 2001, acquisition of the 5% of Crest Net common stock not previously owned by Realty Income resulted in the following:

 

Accounts receivable		$	(450	)
Accounts payable and accrued expenses		(450		)

 

D.  Restricted stock grants resulted in the following:

 

		2003			2002			2001
Common stock and paid in capital		$	3,315		$	3,305		$	1,564
Deferred stock compensation		(3,315		)	(3,305		)	(1,564		)

 

14.                     Employee Benefit Plan

 

We have a 401(k) plan covering substantially all of our employees.  Under our 401(k) plan, employees may elect to make contributions to the plan up to a maximum of 15% of their compensation, subject to limits under the IRS Code.  We match 50% of our employee’s contributions, up to 3% of the employee’s compensation.  Our aggregate matching contributions each year has been immaterial to our results of operations.

 

15.                     Stock Incentive Plan

 

In 2003, our Board of Directors adopted and our stockholders approved the 2003 Incentive Award Plan of Realty Income Corporation to enable us to attract and retain the services of directors, employees and consultants considered essential to our long-term success by offering them an opportunity to own stock in Realty Income and/or rights which will reflect our growth, development and financial success.  Under the terms of this plan, the aggregate number of shares of our common stock subject to options, stock purchase rights, stock appreciation rights and other awards will be no more than 1,714,000 shares.  The maximum number of shares which may be subject to options, stock purchase rights, stock appreciation rights and other awards granted under the plan to any individual in any calendar year may not exceed 800,000 shares.  This plan has a term of 10 years from the date it was adopted by our Board of Directors.  In 2003, there were no grants made under this plan.

 

In 1993, our Board of Directors approved a stock incentive plan (the “Stock Plan”) designed to attract and retain directors, officers and employees of the Company by enabling those individuals to participate in the ownership of the Company.  The Stock Plan authorizes the issuance in each calendar year of up to 3% of the total shares outstanding at the end of such year.  The Stock Plan provides for grants of up to 1,950,308 shares.  The Stock Plan 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.

 

54

 

In 2003, 2002 and 2001, the Company issued 94,866 shares, 110,572 shares and 61,500 shares of restricted stock, respectively, which vest over periods ranging from five years to ten years.  The weighted average fair market values of the restricted stock issued in 2003, 2002 and 2001 were $35.14, $29.89 and $25.43, respectively.

 

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 ten years from the date they are granted and vest over service periods of one, three, four and five years.

 

The following table summarizes our stock option activity for the years 2003, 2002 and 2001:

 

		2003					2002						2001
		Number of Shares		Weighted Average Exercise Price			Number of Shares			Weighted Average Exercise Price			Number  of Shares		Weighted Average Exercise Price
Outstanding, beginning of year		190,240		$	24.02		275,063			$	23.16		618,186		$	23.77
Options granted		—		—			36,184			29.40			—		—
Options exercised		(65,063	)	21.93			(112,256		)	23.36			(319,027	)	24.38
Options canceled		(1,299	)	29.40			(8,751		)	27.90			(24,096	)	22.50
Outstanding, end of year		123,878		25.05			190,240			24.02			275,063		23.16
Options exercisable, end of year		103,662					160,397						229,875
Weighted average fair value of each option granted during the year		—					$	2.60					—

 

At December 31, 2003, the options outstanding under the Stock Plan had exercise prices ranging from $20.00 to $29.40, with a weighted average price of $25.05, and expiration dates ranging from August 2004 to December 2011 with a weighted average remaining term of 5.3 years.  At December 31, 2003, the options exercisable under the Stock Plan had exercise prices ranging from $20.00 to $29.40 with a weighted average price of $24.28.

 

The fair value of each stock option grant was estimated at the date of grant using the binomial option-pricing model with the following assumptions:

 

		2002
Expected dividend yield		9.76	%
Risk-free interest rate		5.09	%
Volatility		18.18	%
Expected life of options		10 years

 

55

 

16.                     Stockholder Rights Plan

 

In 1998, our Board of Directors adopted a Stockholder Rights Plan (the “Rights Plan”) that will expire in July 2008.  The Rights Plan assigns one right (a “Right”) to purchase one one-hundredth (1/100th) of a share of our Class A Junior Participating Preferred Stock, par value $1.00 per share, for each share of common stock owned on or issued after July 1, 1998.  Currently, the Rights are not exercisable and do not trade separately from our common stock.

 

Under specified circumstances, stockholders will be able to exercise their Rights if a person or group acquires 15% of our common stock or makes a tender offer to acquire 15% or more of our common stock.  In these circumstances, stockholders other than the acquirer would be able to exercise the Rights to purchase our common stock or, in some situations, the acquirer’s stock at a 50% discount.

 

17.                     Segment Information

 

We evaluate performance and make resource allocation decisions on an industry by industry basis.  For financial reporting purposes, we have grouped our tenants into 14 reportable industry segments, including properties owned by Crest Net that are grouped together.  All of the properties are incorporated into one of the applicable segments.  Because almost all of our leases require the tenant to pay operating expenses, revenue is the only component of segment profit and loss we measure.

 

The following tables set forth certain information regarding the properties owned by us, classified according to the business of the respective tenants as of December 31, 2003 (dollars in thousands):

 

		Revenue
For the years ended December 31,		2003			2002			2001
Segment rental revenue:
Automotive parts		$	6,682		$	6,614		$	6,732
Automotive service		12,269			9,558			6,905
Automotive tire services		4,591			3,704			3,105
Child care		26,088			26,458			26,194
Consumer electronics		4,481			4,420			4,582
Convenience stores		19,728			12,457			10,137
Crest Net Lease		1,697			1,416			1,807
Entertainment		3,869			3,196			2,180
Health and fitness		5,638			5,389			4,308
Home furnishings		7,288			6,962			6,812
Restaurants		17,394			17,017			12,601
Sporting goods		5,665			5,593			1,116
Theaters		6,015			5,340			5,209
Video rental		4,806			4,568			4,465
Other non-reportable segments(1)		23,068			21,199			19,774
Reconciling items:
Gain on sales of real estate acquired for resale		6,217			3,495			3,374
Interest and other		618			336			822
Total revenue		$	156,114		$	137,722		$	120,123

 

(1)  Includes 15 retail industry segments.

 

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		Assets
As of December 31,		2003			2002
Segment net real estate:
Automotive parts		$	42,698		$	44,512
Automotive service		95,339			87,948
Automotive tire services		136,536			28,319
Child care		121,374			133,612
Consumer electronics		32,897			34,323
Convenience stores		234,507			124,394
Crest Net Lease		53,304			4,626
Entertainment		38,680			38,850
Health and fitness		56,415			51,202
Home furnishings		59,349			61,201
Restaurants		117,222			122,721
Sporting goods		50,930			49,165
Theaters		52,796			53,755
Video rental		35,425			36,572
Other non-reportable segments(1)		193,173			166,978
Total net real estate		1,320,645			1,038,178
Non-real estate assets		39,612			42,052
Total assets		$	1,360,257		$	1,080,230

 

(1)  Includes 15 retail industry segments.

 

18.                     Commitments and Contingencies

 

In the ordinary course of our business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business.  We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated statements taken as a whole.

 

We have committed to pay estimated unfunded development costs of $8.3 million on properties under development at December 31, 2003.

 

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REALTY INCOME CORPORATION AND SUBSIDIARIES

Consolidated Quarterly Financial Data

 

(dollars in thousands, except per share data)

(not covered by Independent Auditors’ Report)

 

		First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Year
2003
Total revenue		$	35,212		$	36,207		$	37,467		$	47,229		$	156,114
Interest expense		5,964			6,618			6,660			7,732			26,974
Depreciation and amortization expense		7,911			8,169			8,238			9,147			33,465
Other expenses		3,537			3,546			3,544			5,838			16,466
Income from operations		17,800			17,874			19,025			24,512			79,209
Income from discontinued operations		234			2,716			1,304			2,972			7,226
Net income		18,034			20,590			20,329			27,484			86,435
Net income available to common stockholders		15,606			18,162			17,901			25,056			76,722
Basic net income per common share		0.45			0.52			0.51			0.67			2.16
Diluted net income per common share		0.45			0.52			0.51			0.67			2.15
Dividends paid per common share		0.58500			0.58875			0.59250			0.59625			2.36250
2002
Total revenue		$	32,352		$	33,456		$	35,262		$	36,652		$	137,722
Interest expense		5,605			5,803			5,919			6,209			23,536
Depreciation and amortization expense		7,163			7,321			7,717			7,912			30,113
Other expenses		3,274			3,470			3,583			3,374			13,701
Income from operations		16,310			16,862			18,043			19,157			70,372
Income from discontinued operations		1,656			1,583			3,766			950			7,955
Net income		18,294			18,445			21,820			20,107			78,667
Net income available to common stockholders		15,866			16,017			19,392			17,679			68,954
Basic and diluted net income per common share(1)		0.48			0.48			0.56			0.51			2.03
Dividends paid per common share		0.57000			0.57375			0.57750			0.58125			2.30250

 

(1)  Net income per share is computed independently for each quarter and the full year based on the respective weighted average shares outstanding.  Therefore, the sum of the quarterly net income per common share amounts may not equal the annual amount reported.

 

58

 

Item 9:                                      Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

 

We have had no disagreements with our independent auditors on accountancy or financial disclosure, nor have we changed accountants in the two most recent fiscal years.

 

Item 9A:                             Controls and Procedures

 

Evaluation of Disclosure Controls and Procedure.  We maintain disclosure controls and procedures (as defined in Securities Exchange Act 1934 Rules 13a-14(c) and 15d-14(c)) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Within 90 days prior to the date of this annual report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

 

Changes in Internal Controls.  There have not been any significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.  There were no significant deficiencies or material weaknesses, and therefore no corrective actions were taken.

 

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 “Compliance With Federal Securities Laws” in the definitive proxy statement for the Annual Meeting of Stockholders presently scheduled to be held on May 11, 2004, 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 Stockholders presently scheduled to be held on May 11, 2004, to be filed pursuant to Regulation 14A.

 

Item 12:                                 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the definitive proxy statement for the Annual Meeting of Stockholders presently scheduled to be held on May 11, 2004, to be filed pursuant to Regulation 14A.

 

59

 

Item 13:                               Certain Relationships and Related Transactions

 

The information set forth under the caption “Certain Transactions” in the definitive proxy statement for the Annual Meeting of Stockholders presently scheduled to be held on May 11, 2004, to be filed pursuant to Regulation 14A.

 

PART IV

 

Item 14 –  Principal Accountant Fees and Services

 

The information set forth under the caption “Principal Accountant Fees and Services” in the definitive proxy statement for the Annual Meeting of Stockholders presently scheduled to be held on May 11, 2004, to be filed pursuant to Regulation 14A.

 

Item 15:                               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, 2003 and 2002
	c.	Consolidated Statements of Income, Years ended December 31, 2003, 2002 and 2001
	d.	Consolidated Statements of Stockholders’ Equity, Years ended December 31, 2003, 2002 and 2001
	e.	Consolidated Statements of Cash Flows, Years ended December 31, 2003, 2001 and 2001
	f.	Notes to Consolidated Financial Statements
	g.	Consolidated Quarterly Financial Data, (unaudited) for 2003 and 2002

 

2.                               Financial Statement Schedule.  Reference is made to page F-1 of this report for 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.

 

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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).
3.3		Articles Supplementary of the Class A Junior Participating Preferred Stock of Realty Income Corporation (filed as an exhibit to Realty Income’s registration statement on Form 8-A, dated June 26, 1998, and incorporated herein by reference).
3.4		Articles Supplementary to the Articles of Incorporation of Realty Income Corporation classifying and designating the Class B Preferred Stock (filed as exhibit 4.1 to the Company’s Form 8-K dated May 24, 1999 and incorporated herein by reference).
3.5		Articles Supplementary to the Articles of Incorporation of Realty Income Corporation classifying and designating the Class C Preferred Stock (filed as exhibit 4.1 to the Company’s Form 8-K dated July 29, 1999 and incorporated herein by reference).
3.6		Amendment to the Bylaws of the Company (filed as exhibit 3.6 to the Company’s Form 10-Q for the period ended June 30, 2003 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).
4.4		Rights Agreement, dated as of June 25, 1998, between Realty Income Corporation and The Bank of New York (filed as an exhibit to the Company’s registration statement on Form 8-A, dated June 26, 1998, and incorporated herein by reference).
4.5		Pricing Committee Resolutions (filed as exhibit 4.2 the Company’s Form 8-K, dated October 27, 1998 and incorporated herein by reference).
4.6		Form of 8.25% Notes due 2008 (filed as exhibit 4.3 to Company’s Form 8-K, dated October 27, 1998 and incorporated herein by reference).

 

61

 

4.7		Indenture dated as of October 28, 1998 between Realty Income and The Bank of New York (filed as exhibit 4.1 to the Company’s Form 8-K, dated October 27, 1998 and incorporated herein by reference).
4.8		Pricing Committee Resolutions and Form of 8% Notes due 2009 (filed as exhibit 4.2 to Realty Income’s Form 8-K, dated January 21, 1999 and incorporated herein by reference).
4.9		Form of 5-3/8% Senior Notes due 2013 (filed as exhibit 4.2 to the Company’s Form 8-K, dated March 5, 2003 and incorporated herein by reference).
4.10		Officer’s Certificate pursuant to sections 201, 301 and 303 of the Indenture dated October 28, 1998 between the Company and The Bank of New York, as Trustee, establishing a series of securities entitled 5-3/8% Senior Notes due 2013 (filed as exhibit 4.3 to Realty Income’s Form 8-K, dated March 5, 2003 and incorporated herein by reference).
4.11		Form of 5-1/2% Senior Notes due 2015 (filed as exhibit 4.2 to the Company’s Form 8-K, dated November 19, 2003 and incorporated herein by reference).
4.12		Officer’s Certificate pursuant to sections 201, 301 and 303 of the Indenture dated October 28, 1998 between the Company and The Bank of New York, as Trustee, establishing a series of securities entitled 5-1/2% Senior Notes due 2015 (filed as exhibit 4.3 to the Company’s Form 8-K, dated November 19, 2003 and incorporated herein by reference).
10.1		$250 million Credit Agreement dated October 28, 2002 (filed as exhibit 10.1 to the Company’s Form 10-Q dated September 30, 2002 and incorporated herein by reference).
10.2		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).
10.3		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).
10.4		Second Amendment to the 1994 Stock Option and Incentive Plan, dated December 16, 1997, (filed as Exhibit 10.9 to the Company’s Form 10-K dated December 31, 1997 and incorporated herein by reference).
10.5		Management Incentive Plan, (filed as Exhibit 10.10 to the Company’s Form 10-K dated December 31, 1997 and incorporated herein by reference).
10.6		Form of Nonqualified Stock Option Agreement for Independent Directors, (filed as Exhibit 10.11 to the Company’s Form 10-K dated December 31, 1997 and incorporated herein by reference).
10.7		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).

 

62

 

10.8		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).
10.9		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).
10.10		First amendment dated July 16, 2003 to the $250 million Credit Agreement dated October 28, 2002 Company (filed as exhibit 10.1 to the Company’s Form 10-Q for the period ended June 30, 2003 and incorporated herein by reference).
10.11		2003 Stock Incentive Award Plan of Realty Income Corporation (filed as Appendix A to the Company’s 2003 Proxy Statement and incorporated herein by reference).
*10.12		First Amendment to the 2003 Stock Incentive Award Plan of Realty Income Corporation.
*10.13		Second Amendment to the 2003 Stock Incentive Award Plan of Realty Income Corporation.
*12.1		Statement re computation of ratios.
*21.1		Subsidiaries of the Company as of January 1, 2004.
*23.1		Independent Auditors’ Consent.
*31.1		Section 302 Certifications as filed by the Chief Executive Officer pursuant to SEC release No. 33-8212 and 34-47551.
*31.2		Section 302 Certifications as filed by the Chief Financial Officer pursuant to SEC release No. 33-8212 and 34-47551.
*32		Section 906 Certifications as furnished by the Chief Executive Officer and the Chief Financial Officer pursuant to SEC release No. 33-8212 and 34-47551.

 

* Filed herewith.

 

B.                           The Registrant filed two reports on Form 8-K during the last quarter of the period covered by this report.

 

The Form 8-K dated October 16, 2003, filed on October 22, 2003, reported that the Company entered into a purchase agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated, as the representative of the underwriters, pursuant to which the Company agreed to issue and sell 2,500,000 shares of the Company’s common stock.

 

The Form 8-K dated November 19, 2003, filed on November 24, 2003, reported that the Company entered into a purchase agreement with Banc of America Securities LLC and Citigroup Global Markets Inc., as the representatives of the underwriters, pursuant to which the Company agreed to issue and sell $150,000,000 aggregate principal amount of 5.50% senior notes of the Company due November 15, 2015.

 

63

 

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,
	Chief Executive Officer
Date: February 17, 2004

 

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: February 17, 2004
By:	/s/THOMAS A. LEWIS
	Thomas A. Lewis
	Vice Chairman of the Board of Directors,
	Chief Executive Officer
	(Principal Executive Officer)
Date: February 17, 2004
By:	/s/DONALD R. CAMERON
	Donald R. Cameron
	Director
Date: February 17, 2004
By:	/s/ROGER P. KUPPINGER
	Roger P. Kuppinger
	Director
Date: February 17, 2004
By:	/s/MICHAEL D. MCKEE
	Michael D. McKee
	Director
Date: February 17, 2004

 

64

 

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.                                                                                                                                                        
60;                                                                                                                                                                                                                                                                   

 

By:	/s/WILLARD H. SMITH JR
	Willard H. Smith Jr
	Director
Date: February 17, 2004
By:	/s/KATHLEEN R. ALLEN, Ph.D.
	Kathleen R. Allen, Ph.D.
	Director
Date: February 17, 2004
By:	/s/PAUL M. MEURER
	Paul M. Meurer
	Executive Vice President, Chief Financial Officer and Treasurer
	(Principal Financial Officer)
Date: February 17, 2004
By:	/s/GREGORY J. FAHEY
	Gregory J. Fahey
	Vice President, Controller
	(Principal Accounting Officer)
Date: February 17, 2004

 

65

 

 

REALTY INCOME CORPORATION AND SUBSIDIARIES

SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Apparel Stores
Mesa		AZ		619,035		867,013				None		43,447		619,035		910,460		1,529,495		177,927				02/11/99		300
Danbury		CT		1,083,296		6,217,688				40,544		6		1,083,296		6,258,238		7,341,534		1,570,460				09/30/97		300
Manchester		CT		771,660		3,653,539				None		None		771,660		3,653,539		4,425,199		846,194				03/26/98		300
Manchester		CT		1,250,464		5,917,037				None		None		1,250,464		5,917,037		7,167,501		1,370,487				03/26/98		300
Staten Island		NY		4,202,093		3,385,021				None		898		4,202,093		3,385,919		7,588,012		784,063				03/26/98		300
Automotive Collision Services
Highlands Ranch		CO		583,289		1,354,617				None		None		583,289		1,354,617		1,937,906		66		In process		08/11/03		300
Parker		CO		678,768		1,730,460				None		None		678,768		1,730,460		2,409,228		85		In process		07/03/03		300
Thornton		CO		693,323		258,425				None		None		693,323		258,425		951,748		34		In process		10/15/03		300
Cumming		GA		661,624		1,821,494				None		None		661,624		1,821,494		2,483,118		16,533		09/18/03		12/31/02		300
Douglasville		GA		679,868		1,934,482				None		None		679,868		1,934,482		2,614,350		23,305		08/11/03		12/30/02		300
Morrow		GA		725,948		1,846,315				None		None		725,948		1,846,315		2,572,263		27,629		In process		08/30/02		300
Peachtree City		GA		1,190,380		688,309				None		None		1,190,380		688,309		1,878,689		27,283		12/16/02		09/19/02		300
Ham Lake		MN		192,610		512,667				None		None		192,610		512,667		705,277		34		In process		10/31/03		300
Bartlett		TN		648,526		363,683				None		None		648,526		363,683		1,012,209		36		In process		10/27/03		300
Automotive Parts
Millbrook		AL		108,000		518,741				None		65		108,000		518,806		626,806		102,741		12/10/98		01/21/99		300
Montgomery		AL		254,465		502,350				None		None		254,465		502,350		756,815		111,352				06/30/98		300
Blytheville		AR		137,913		509,447				6,000		None		137,913		515,447		653,360		115,626				06/30/98		300
Osceola		AR		88,759		520,047				None		None		88,759		520,047		608,806		115,276				06/30/98		300
Wynne		AR		70,000		547,576				26,595		None		70,000		574,171		644,171		111,317		11/10/98		02/24/99		300
Phoenix		AZ		231,000		513,057				None		None		231,000		513,057		744,057		316,409				11/09/87		300
Phoenix		AZ		71,750		159,359				None		None		71,750		159,359		231,109		98,278				11/19/87		300
Phoenix		AZ		222,950		495,178				None		None		222,950		495,178		718,128		270,898				11/02/89		300
Tucson		AZ		194,250		431,434				None		None		194,250		431,434		625,684		267,423				10/30/87		300
Grass Valley		CA		325,000		384,955				None		None		325,000		384,955		709,955		228,999				05/20/88		300
Jackson		CA		300,000		390,849				None		None		300,000		390,849		690,849		230,011				05/17/88		300
Sacramento		CA		210,000		466,419				None		None		210,000		466,419		676,419		287,646				11/25/87		300
Turlock		CA		222,250		493,627				None		None		222,250		493,627		715,877		302,879				12/30/87		300
Canon City		CO		66,500		147,699				None		None		66,500		147,699		214,199		91,088				11/12/87		300
Denver		CO		141,400		314,056				None		None		141,400		314,056		455,456		193,681				11/18/87		300
Denver		CO		315,000		699,623				None		None		315,000		699,623		1,014,623		418,360				05/16/88		300
Denver		CO		283,500		629,666				None		None		283,500		629,666		913,166		376,527				05/27/88		300
Littleton		CO		252,925		561,758				None		None		252,925		561,758		814,683		341,171				02/12/88		300
Smyrna		DE		232,273		472,855				None		None		232,273		472,855		705,128		101,665				08/07/98		300
Council Bluffs		IA		194,355		431,668				None		6		194,355		431,674		626,029		258,130				05/19/88		300
Boise		ID		158,400		351,812				None		None		158,400		351,812		510,212		210,377				05/06/88		300
Automotive Parts
Boise		ID		190,080		422,172				None		None		190,080		422,172		612,252		252,450				05/06/88		300

 

F 1

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Coeur D’Alene		ID		165,900		368,468				None		None		165,900		368,468		534,368		229,552				09/21/87		300
Lewiston		ID		138,950		308,612				None		None		138,950		308,612		447,562		192,262				09/16/87		300
Moscow		ID		117,250		260,417				None		None		117,250		260,417		377,667		162,237				09/14/87		300
Nampa		ID		183,743		408,101				None		119		183,743		408,220		591,963		244,060				05/06/88		300
Twin Falls		ID		190,080		422,172				None		None		190,080		422,172		612,252		252,450				05/06/88		300
Brazil		IN		183,952		453,831				None		None		183,952		453,831		637,783		86,979				03/31/99		300
Princeton		IN		134,209		560,113				None		None		134,209		560,113		694,322		107,349				03/31/99		300
Vincennes		IN		185,312		489,779				None		None		185,312		489,779		675,091		93,869				03/31/99		300
Kansas City		KS		185,955		413,014				None		None		185,955		413,014		598,969		246,975				05/13/88		300
Kansas City		KS		222,000		455,881				None		None		222,000		455,881		677,881		272,551				05/16/88		300
Alma		MI		155,000		600,282				None		None		155,000		600,282		755,282		110,991		04/29/99		02/10/99		300
Lansing		MI		265,000		574,931				None		None		265,000		574,931		839,931		112,144		04/30/99		12/03/98		300
Sturgis		MI		109,558		550,274				None		None		109,558		550,274		659,832		110,949				12/30/98		300
Blue Springs		MO		222,569		494,333				None		None		222,569		494,333		716,902		274,278				07/31/89		300
Independence		MO		210,643		467,844				None		None		210,643		467,844		678,487		259,580				07/31/89		300
Kansas City		MO		210,070		466,571				None		None		210,070		466,571		676,641		279,000				05/13/88		300
Kansas City		MO		168,350		373,910				None		None		168,350		373,910		542,260		223,590				05/26/88		300
Batesville		MS		190,124		485,670				None		None		190,124		485,670		675,794		106,038				07/27/98		300
Horn Lake		MS		142,702		514,779				None		None		142,702		514,779		657,481		114,108				06/30/98		300
Jackson		MS		248,483		572,522				None		None		248,483		572,522		821,005		94,478				11/16/99		300
Richland		MS		243,565		558,645				None		None		243,565		558,645		802,210		90,329				12/21/99		300
Missoula		MT		163,100		362,249				None		None		163,100		362,249		525,349		224,540				10/30/87		300
Kearney		NE		173,950		344,393				None		None		173,950		344,393		518,343		180,620				05/01/90		300
Omaha		NE		196,000		435,321				None		None		196,000		435,321		631,321		260,313				05/26/88		300
Omaha		NE		199,100		412,042				None		6		199,100		412,048		611,148		245,227				05/27/88		300
Albuquerque		NM		80,500		178,794				None		None		80,500		178,794		259,294		110,826				10/29/87		300
Rio Rancho		NM		211,577		469,923				None		None		211,577		469,923		681,500		285,396				02/26/88		300
Sante Fe		NM		70,000		155,473				None		None		70,000		155,473		225,473		96,370				10/29/87		300
Las Vegas		NV		161,000		357,585				None		None		161,000		357,585		518,585		221,649				10/29/87		300
Reno		NV		456,000.00		562,344.00				None		None		456,000		562,344		1,018,344		336,194				05/26/88		300
Canton		OH		396,560		597,553				None		None		396,560		597,553		994,113		128,475				08/14/98		300
Hamilton		OH		183,000		515,727				None		None		183,000		515,727		698,727		97,248		04/07/99		12/03/98		300
Hubbard		OH		147,043		481,217				None		None		147,043		481,217		628,260		106,669				06/30/98		300
Albany		OR		152,250		338,153				None		3		152,250		338,156		490,406		211,731				08/24/87		300
Beaverton		OR		210,000		466,419				None		3		210,000		466,422		676,422		292,043				08/26/87		300
Oak Grove		OR		180,250		400,336				None		3		180,250		400,339		580,589		250,666				08/06/87		300
Portland		OR		190,750		423,664				None		3		190,750		423,667		614,417		265,273				08/12/87		300
Portland		OR		147,000		326,493				None		3		147,000		326,496		473,496		204,430				08/26/87		300
Portland		OR		210,000		466,412				None		3		210,000		466,415		676,415		290,572				09/01/87		300
Automotive Parts
Salem		OR		136,500		303,170				None		3		136,500		303,173		439,673		189,826				08/20/87		300
Butler		PA		339,929		633,078				5,684		None		339,929		638,762		978,691		139,144				08/07/98		300
Dover		PA		265,112		593,341				None		None		265,112		593,341		858,453		131,523				06/30/98		300

 

F 2

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Enola		PA		220,228		546,026				None		None		220,228		546,026		766,254		111,942				11/10/98		300
Hanover		PA		132,500		719,511				None		None		132,500		719,511		852,011		126,074		07/26/99		05/13/99		300
Harrisburg		PA		327,781		608,291				None		None		327,781		608,291		936,072		134,836				06/30/98		300
Harrisburg		PA		283,417		352,473				None		None		283,417		352,473		635,890		74,611				09/30/98		300
Lancaster		PA		199,899		774,838				10,913		None		199,899		785,751		985,650		168,107				08/14/98		300
New Castle		PA		180,009		525,774				3,860		None		180,009		529,634		709,643		118,604				06/30/98		300
Reading		PA		379,000		658,722				None		None		379,000		658,722		1,037,722		119,813		06/09/99		12/04/98		300
Columbia		TN		273,120		431,716				None		None		273,120		431,716		704,836		78,427				06/30/99		300
Memphis		TN		197,708		507,647				None		None		197,708		507,647		705,355		107,455				09/30/98		300
Amarillo		TX		140,000		419,734				None		None		140,000		419,734		559,734		245,592				09/12/88		300
El Paso		TX		66,150		146,922				None		None		66,150		146,922		213,072		91,069				10/27/87		300
El Paso		TX		56,350		125,156				None		None		56,350		125,156		181,506		77,578				10/27/87		300
Lubbock		TX		42,000		93,284				None		None		42,000		93,284		135,284		57,821				10/26/87		300
Lubbock		TX		49,000		108,831				None		None		49,000		108,831		157,831		67,459				10/29/87		300
Midland		TX		45,500		101,058				None		4		45,500		101,062		146,562		62,640				10/27/87		300
Odessa		TX		50,750		112,718				None		250		50,750		112,968		163,718		69,917				10/26/87		300
Bellevue		WA		185,500		411,997				None		108		185,500		412,105		597,605		257,988				08/06/87		300
Bellingham		WA		168,000		373,133				None		None		168,000		373,133		541,133		233,632				08/20/87		300
Bothell		WA		199,500		443,098				None		108		199,500		443,206		642,706		277,462				08/20/87		300
Hazel Dell		WA		168,000		373,135				None		None		168,000		373,135		541,135		220,511				05/23/88		300
Kennewick		WA		161,350		358,365				None		None		161,350		358,365		519,715		224,386				08/26/87		300
Kent		WA		199,500		443,091				None		None		199,500		443,091		642,591		277,435				08/06/87		300
Lacey		WA		171,150		380,125				None		None		171,150		380,125		551,275		238,010				08/13/87		300
Marysville		WA		168,000		373,135				None		None		168,000		373,135		541,135		233,634				08/20/87		300
Moses Lake		WA		138,600		307,831				None		None		138,600		307,831		446,431		192,744				08/12/87		300
Pasco		WA		161,700		359,142				None		None		161,700		359,142		520,842		224,872				08/18/87		300
Puyallup		WA		173,250		384,795				None		108		173,250		384,903		558,153		239,746				09/15/87		300
Redmond		WA		196,000		435,317				None		108		196,000		435,425		631,425		271,221				09/17/87		300
Renton		WA		185,500		412,003				None		108		185,500		412,111		597,611		256,695				09/15/87		300
Richland		WA		161,700		359,142				None		None		161,700		359,142		520,842		224,872				08/13/87		300
Seattle		WA		162,400		360,697				None		108		162,400		360,805		523,205		225,868				08/20/87		300
Silverdale		WA		183,808		419,777				None		None		183,808		419,777		603,585		261,517				09/16/87		300
Spanaway		WA		189,000		419,777				None		None		189,000		419,777		608,777		262,838				08/25/87		300
Spokane		WA		66,150		146,921				None		None		66,150		146,921		213,071		90,608				11/18/87		300
Tacoma		WA		191,800		425,996				None		108		191,800		426,104		617,904		266,754				08/18/87		300
Tacoma		WA		196,000		435,324				None		None		196,000		435,324		631,324		269,835				10/15/87		300
Vancouver		WA		180,250		400,343				None		None		180,250		400,343		580,593		250,669				08/20/87		300
Automotive Parts
Walla Walla		WA		170,100		377,793				None		None		170,100		377,793		547,893		236,550				08/06/87		300
Wenatchee		WA		148,400		329,602				None		None		148,400		329,602		478,002		206,377				08/25/87		300
Automotive Service
Flagstaff		AZ		144,821		417,485				None		None		144,821		417,485		562,306		89,344		04/11/02		08/29/97		300

 

F 3

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Mesa		AZ		210,620		475,072				None		None		210,620		475,072		685,692		30,876				05/14/02		300
Phoenix		AZ		189,341		546,984				None		None		189,341		546,984		736,325		35,554				05/14/02		300
Phoenix		AZ		384,608		279,824				None		None		384,608		279,824		664,432		18,187				05/14/02		300
Sierra Vista		AZ		175,114		345,508				None		None		175,114		345,508		520,622		22,456				05/14/02		300
Tucson		AZ		226,596		437,972				None		None		226,596		437,972		664,568		28,466				05/14/02		300
Bakersfield		CA		65,165		206,927				None		None		65,165		206,927		272,092		13,448				05/14/02		300
Chula Vista		CA		313,293		409,654				None		16		313,293		409,670		722,963		124,948		05/01/96		01/19/96		300
Culver City		CA		580,446		158,876				None		None		580,446		158,876		739,322		10,325				05/14/02		300
Dublin		CA		415,620		1,153,928				None		None		415,620		1,153,928		1,569,548		75,003				05/14/02		300
Folsom		CA		471,813		325,610				None		None		471,813		325,610		797,423		21,162				05/14/02		300
Indio		CA		264,956		265,509				None		None		264,956		265,509		530,465		17,256				05/14/02		300
Oxnard		CA		186,980		198,236				None		None		186,980		198,236		385,216		12,883				05/14/02		300
Santa Cruz		CA		374,612		801,826				None		None		374,612		801,826		1,176,438		52,117				05/14/02		300
Simi Valley		CA		213,920		161,012				None		None		213,920		161,012		374,932		10,464				05/14/02		300
Vacaville		CA		358,067		284,931				None		None		358,067		284,931		642,998		18,518				05/14/02		300
Broomfield		CO		154,930		503,626				None		450		154,930		504,076		659,006		148,660		08/22/96		03/15/96		300
Denver		CO		79,717		369,587				None		None		79,717		369,587		449,304		288,306				10/08/85		300
Thornton		CO		276,084		415,464				None		205		276,084		415,669		691,753		115,521		12/31/96		10/31/96		300
Hartford		CT		248,540		482,460				None		None		248,540		482,460		731,000		140,717				09/30/96		300
Southington		CT		225,882		672,910				None		None		225,882		672,910		898,792		175,967				06/06/97		300
Vernon		CT		81,529		300,518				None		None		81,529		300,518		382,047		18,532				06/27/02		300
Carol City		FL		163,239		262,726				None		None		163,239		262,726		425,965		16,201				06/27/02		300
Jacksonville		FL		76,585		355,066				None		124		76,585		355,190		431,775		273,867				12/23/85		300
Lauderdale Lakes		FL		65,987		305,931				None		None		65,987		305,931		371,918		233,836				02/19/86		300
Orange City		FL		99,613		139,008				None		None		99,613		139,008		238,621		9,033				05/14/02		300
Seminole		FL		68,000		315,266				None		None		68,000		315,266		383,266		243,160				12/23/85		300
Sunrise		FL		80,253		372,070				None		None		80,253		372,070		452,323		285,107				02/14/86		300
Tampa		FL		70,000		324,538				None		None		70,000		324,538		394,538		250,312				12/27/85		300
Tampa		FL		67,000		310,629				None		None		67,000		310,629		377,629		239,584				12/27/85		300
Tampa		FL		86,502		401,041				None		None		86,502		401,041		487,543		299,501				07/23/86		300
Atlanta		GA		55,840		258,889				None		93		55,840		258,982		314,822		200,576				11/27/85		300
Atlanta		GA		78,646		364,625				None		93		78,646		364,718		443,364		281,234				12/18/85		300
Bogart		GA		66,807		309,733				None		None		66,807		309,733		376,540		238,893				12/20/85		300
Douglasville		GA		214,771		129,519				None		None		214,771		129,519		344,290		8,417				05/14/02		300
Duluth		GA		222,275		316,925				None		151		222,275		317,076		539,351		76,000		10/24/97		06/20/97		300
Automotive Service
Duluth		GA		290,842		110,056				None		None		290,842		110,056		400,898		7,151				05/14/02		300
Gainesville		GA		53,589		248,452				None		None		53,589		248,452		302,041		191,627				12/19/85		300
Kennesaw		GA		266,865		139,425				None		None		266,865		139,425		406,290		9,060				05/14/02		300
Marietta		GA		60,900		293,461				None		93		60,900		293,554		354,454		226,345				12/26/85		300
Marietta		GA		69,561		346,024				None		None		69,561		346,024		415,585		260,320				06/03/86		300
Norcross		GA		244,124		151,831				None		None		244,124		151,831		395,955		9,867				05/14/02		300
Riverdale		GA		58,444		270,961				None		None		58,444		270,961		329,405		208,049				01/15/86		300

 

F 4

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Rome		GA		56,454		261,733				None		None		56,454		261,733		318,187		201,871				12/19/85		300
Snellville		GA		253,316		132,124				None		None		253,316		132,124		385,440		8,586				05/14/02		300
Arlington Hts		IL		441,437		215,983				None		None		441,437		215,983		657,420		14,037				05/14/02		300
Chicago		IL		329,076		255,294				None		None		329,076		255,294		584,370		16,592				05/14/02		300
Round Lake Beach		IL		472,132		236,585				None		None		472,132		236,585		708,717		15,376				05/14/02		300
Westchester		IL		421,239		184,812				None		None		421,239		184,812		606,051		12,011				05/14/02		300
Anderson		IN		232,170		385,661				None		None		232,170		385,661		617,831		93,206				12/19/97		300
Indianapolis		IN		231,384		428,307				None		None		231,384		428,307		659,691		124,923				09/27/96		300
Michigan City		IN		392,638		297,650				None		None		392,638		297,650		690,288		19,346				05/14/02		300
Warsaw		IN		140,893		228,116				None		None		140,893		228,116		369,009		14,826				05/14/02		300
Olathe		KS		217,995		367,055				None		None		217,995		367,055		585,050		97,266		04/22/97		11/11/96		300
Louisville		KY		56,054		259,881				None		None		56,054		259,881		315,935		200,443				12/17/85		300
Newport		KY		323,511		289,017				None		None		323,511		289,017		612,528		72,681				09/17/97		300
Billerica		MA		399,043		462,240				None		None		399,043		462,240		861,283		123,936				04/02/97		300
East Falmouth		MA		191,302		340,539				None		None		191,302		340,539		531,841		22,134				05/14/02		300
East Wareham		MA		149,680		278,669				None		None		149,680		278,669		428,349		18,111				05/14/02		300
Fairhaven		MA		138,957		289,294				None		None		138,957		289,294		428,251		18,802				05/14/02		300
Gardner		MA		138,990		289,361				None		None		138,990		289,361		428,351		18,806				05/14/02		300
Hyannis		MA		180,653		458,522				None		None		180,653		458,522		639,175		28,276				06/27/02		300
Lenox		MA		287,769		535,273				None		None		287,769		535,273		823,042		102,583				03/31/99		300
Newburyport		MA		274,698		466,449				None		None		274,698		466,449		741,147		28,764				06/27/02		300
North Reading		MA		180,546		351,161				None		None		180,546		351,161		531,707		22,823				05/14/02		300
Orleans		MA		138,212		394,065				None		None		138,212		394,065		532,277		25,612				05/14/02		300
Aberdeen		MD		223,617		225,605				None		None		223,617		225,605		449,222		13,912				06/27/02		300
Capital Heights		MD		547,173		219,979				None		None		547,173		219,979		767,152		14,295				05/14/02		300
Clinton		MD		70,880		328,620				None		None		70,880		328,620		399,500		255,220				11/15/85		300
Lexington Park		MD		111,396		335,288				None		None		111,396		335,288		446,684		21,790				05/14/02		300
Kalamazoo		MI		391,745		296,975				None		None		391,745		296,975		688,720		19,302				05/14/02		300
Portage		MI		402,409		286,441				None		None		402,409		286,441		688,850		18,617				05/14/02		300
Southfield		MI		275,952		350,765				None		None		275,952		350,765		626,717		22,798				05/14/02		300
Troy		MI		214,893		199,299				None		None		214,893		199,299		414,192		12,953				05/14/02		300
Minneapolis		MN		58,000		268,903				None		182		58,000		269,085		327,085		207,438				12/18/85		300
St. Cloud		MN		203,338		258,626				None		None		203,338		258,626		461,964		15,949				06/27/02		300
Automotive Service
Independence		MO		297,641		233,152				None		None		297,641		233,152		530,793		65,671				12/20/96		300
Asheville		NC		441,746		242,565				None		None		441,746		242,565		684,311		15,765				05/14/02		300
Charlotte		NC		508,100		457,295				None		None		508,100		457,295		965,395		11,432				05/27/03		300
Concord		NC		237,688		357,976				None		5,517		237,688		363,493		601,181		79,592				11/05/97		300
Durham		NC		55,074		255,336				None		None		55,074		255,336		310,410		198,306				11/13/85		300
Durham		NC		354,676		361,203				None		253		354,676		361,456		716,132		90,905		08/29/97		03/31/97		300
Fayetteville		NC		224,326		257,733				None		None		224,326		257,733		482,059		62,268				12/03/97		300
Greensboro		NC		286,068		244,606				None		None		286,068		244,606		530,674		15,891				05/14/02		300
Matthews		NC		295,580		338,472				10,000		16,251		295,580		364,723		660,303		72,307		08/28/98		02/27/98		300

 

F 5

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Pineville		NC		254,460		355,630				None		151		254,460		355,781		610,241		89,489		08/28/97		04/16/97		300
Raleigh		NC		89,145		413,301				None		None		89,145		413,301		502,446		321,630				10/28/85		300
Raleigh		NC		218,294		319,334				3,905		1,044		218,294		324,283		542,577		77,416		08/01/02		06/20/97		300
Raleigh		NC		398,694		263,621				None		None		398,694		263,621		662,315		65,431				10/01/97		300
Salisbury		NC		235,614		150,592				None		None		235,614		150,592		386,206		9,786				05/14/02		300
Lincoln		NE		337,138		316,958				None		None		337,138		316,958		654,096		20,599				05/14/02		300
Edison		NJ		448,936		238,773				None		None		448,936		238,773		687,709		15,517				05/14/02		300
Glassboro		NJ		182,013		312,480				None		None		182,013		312,480		494,493		19,270				06/27/02		300
Hamilton Square		NJ		422,477		291,555				None		None		422,477		291,555		714,032		18,948				05/14/02		300
Hamilton Township		NJ		265,238		298,167				None		None		265,238		298,167		563,405		19,378				05/14/02		300
Randolph		NJ		452,629		390,163				None		None		452,629		390,163		842,792		25,358				05/14/02		300
Westfield		NJ		705,337		288,720				None		None		705,337		288,720		994,057		18,762				05/14/02		300
Woodbury		NJ		212,788		320,283				None		None		212,788		320,283		533,071		20,815				05/14/02		300
Las Vegas		NV		326,879		359,101				None		None		326,879		359,101		685,980		23,340				05/14/02		300
Las Vegas		NV		316,441		369,768				None		None		316,441		369,768		686,209		24,033				05/14/02		300
Las Vegas		NV		252,169		562,715				None		None		252,169		562,715		814,884		36,575				05/14/02		300
Sparks		NV		326,813		306,311				None		None		326,813		306,311		633,124		19,908				05/14/02		300
Albion		NY		170,589		317,424				None		None		170,589		317,424		488,013		60,831				03/31/99		300
Dansville		NY		181,664		337,991				None		None		181,664		337,991		519,655		64,773				03/31/99		300
East Amherst		NY		260,708		484,788				None		None		260,708		484,788		745,496		92,910				03/31/99		300
East Syracuse		NY		250,609		466,264				None		None		250,609		466,264		716,873		89,356				03/31/99		300
Johnson City		NY		242,863		451,877				None		None		242,863		451,877		694,740		86,598				03/31/99		300
Wellsville		NY		161,331		300,231				None		None		161,331		300,231		461,562		57,536				03/31/99		300
West Amherst		NY		268,692		499,619				None		None		268,692		499,619		768,311		95,752				03/31/99		300
Akron		OH		139,126		460,334				None		None		139,126		460,334		599,460		115,812				09/18/97		300
Beavercreek		OH		205,000		492,538				None		None		205,000		492,538		697,538		133,805		02/13/97		09/09/96		300
Canal Winchester		OH		443,751		825,491				None		None		443,751		825,491		1,269,242		32,689				08/21/02		300
Centerville		OH		305,000		420,448				None		None		305,000		420,448		725,448		125,434		07/24/96		06/28/96		300
Cincinnati		OH		211,185		392,210				None		None		211,185		392,210		603,395		1,961				11/03/03		300
Cinncinati		OH		293,005		201,340				None		None		293,005		201,340		494,345		50,600				09/17/97		300
Cleveland		OH		215,111		216,517				None		None		215,111		216,517		431,628		13,352				06/27/02		300
Automotive Service
Columbus		OH		71,098		329,627				None		168		71,098		329,795		400,893		257,144				10/02/85		300
Columbus		OH		75,761		351,247				None		168		75,761		351,415		427,176		273,349				10/24/85		300
Columbus		OH		245,036		470,468				None		None		245,036		470,468		715,504		151,334				12/22/95		300
Columbus		OH		432,110		386,553				None		None		432,110		386,553		818,663		9,663				05/27/03		300
Columbus		OH		466,696		548,133				None		None		466,696		548,133		1,014,829		13,702				05/27/03		300
Dayton		OH		70,000		324,538				None		107		70,000		324,645		394,645		252,560				10/31/85		300
Dublin		OH		437,887		428,046				None		None		437,887		428,046		865,933		10,700				05/27/03		300
Eastlake		OH		321,347		459,774				None		None		321,347		459,774		781,121		147,894				12/22/95		300
Fairfield		OH		323,408		235,024				None		None		323,408		235,024		558,432		59,090				09/17/97		300
Findlay		OH		283,515		397,004				None		None		283,515		397,004		680,519		95,948				12/24/97		300
Hamilton		OH		252,608		413,279				None		None		252,608		413,279		665,887		108,138		03/31/97		10/04/96		300

 

F 6

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Huber Heights		OH		282,000		449,381				None		None		282,000		449,381		731,381		125,077		12/03/96		07/18/96		300
Mason		OH		310,990		405,373				None		None		310,990		405,373		716,363		10,133				05/27/03		300
Miamisburg		OH		63,996		296,701				None		None		63,996		296,701		360,697		231,449				10/08/85		300
Milford		OH		353,324		269,997				None		None		353,324		269,997		623,321		67,908				09/18/97		300
Mt. Vernon		OH		216,115		375,357				None		None		216,115		375,357		591,472		90,712				12/30/97		300
Northwood		OH		65,978		263,912				None		None		65,978		263,912		329,890		263,912				09/12/86		180
Norwalk		OH		200,205		366,000				None		None		200,205		366,000		566,205		88,449				12/19/97		300
S. Euclid		OH		337,593		451,944				None		None		337,593		451,944		789,537		11,299				05/27/03		300
Sandusky		OH		264,708		404,011				None		None		264,708		404,011		668,719		97,641				12/19/97		300
Solon		OH		794,305		222,797				None		None		794,305		222,797		1,017,102		5,570				05/27/03		300
Springboro		OH		191,911		522,902				None		None		191,911		522,902		714,813		141,896				03/07/97		300
Toledo		OH		91,655		366,621				None		None		91,655		366,621		458,276		366,621				09/12/86		180
Toledo		OH		73,408		293,632				None		None		73,408		293,632		367,040		293,632				09/12/86		180
West Chester		OH		446,449		768,641				None		None		446,449		768,641		1,215,090		67		06/27/03		03/11/03		300
Midwest City		OK		106,312		333,551				None		None		106,312		333,551		439,863		71,795		08/06/98		08/08/97		300
The Village		OK		143,655		295,422				None		None		143,655		295,422		439,077		67,470		03/06/98		07/29/97		300
Portland		OR		251,499		345,952				None		None		251,499		345,952		597,451		17,296				09/26/02		300
Salem		OR		337,711		253,855				None		None		337,711		253,855		591,566		16,499				05/14/02		300
Bethel Park		PA		299,595		331,264				None		None		299,595		331,264		630,859		80,066				12/19/97		300
Bethlehem		PA		275,328		389,067				None		None		275,328		389,067		664,395		94,033				12/19/97		300
Bethlehem		PA		229,162		310,526				None		None		229,162		310,526		539,688		75,040				12/24/97		300
Connellsville		PA		264,670		587,843				None		1,489		264,670		589,332		854,002		368,263				08/17/87		300
Harrisburg		PA		131,529		220,317				None		None		131,529		220,317		351,846		14,317				05/14/02		300
Philadelphia		PA		858,500		877,744				None		None		858,500		877,744		1,736,244		386,974		05/19/95		12/05/94		300
Pittsburgh		PA		378,715		685,374				None		None		378,715		685,374		1,064,089		32,338		08/22/02		01/17/02		300
Pittsburgh		PA		219,938		408,466				None		None		219,938		408,466		628,404		2,042				11/03/03		300
Springfield Twp.		PA		82,740		383,601				None		None		82,740		383,601		466,341		293,202				02/28/86		300
Warminster		PA		323,847		216,999				None		None		323,847		216,999		540,846		14,101				05/14/02		300
York		PA		249,436		347,424				None		None		249,436		347,424		596,860		83,963				12/30/97		300
Automotive Service
Charleston		SC		217,250		294,079				None		151		217,250		294,230		511,480		74,971		07/14/97		03/13/97		300
Columbia		SC		343,785		295,001				None		25,302		343,785		320,303		664,088		78,394		05/27/97		02/07/97		300
Columbia		SC		267,622		298,594				None		None		267,622		298,594		566,216		68,227		03/31/98		11/05/97		300
Greenville		SC		221,946		315,163				None		314		221,946		315,477		537,423		78,299		09/05/97		03/31/97		300
Lexington		SC		241,534		342,182				None		302		241,534		342,484		584,018		64,666				09/24/98		300
North Charleston		SC		174,980		341,466				None		15,319		174,980		356,785		531,765		74,985		08/06/98		03/12/98		300
Brentwood		TN		305,546		505,728				None		None		305,546		505,728		811,274		120,524		03/13/98		05/28/97		300
Hendersonville		TN		175,764		327,096				None		None		175,764		327,096		502,860		12,539				01/21/03		300
Hermitage		TN		204,296		172,695				None		None		204,296		172,695		376,991		11,223				05/14/02		300
Madison		TN		175,769		327,068				None		None		175,769		327,068		502,837		12,538				01/21/03		300
Memphis		TN		108,094		217,079				None		None		108,094		217,079		325,173		14,107				05/14/02		300
Memphis		TN		214,110		193,591				None		None		214,110		193,591		407,701		12,580				05/14/02		300
Memphis		TN		215,017		216,794				None		None		215,017		216,794		431,811		13,369				06/27/02		300

 

F 7

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Murfreesboro		TN		150,411		215,528				None		None		150,411		215,528		365,939		14,007				05/14/02		300
Nashville		TN		342,960		227,440				None		None		342,960		227,440		570,400		57,189				09/17/97		300
Carrollton		TX		174,284		98,623				None		None		174,284		98,623		272,907		6,409				05/14/02		300
Carrolton		TX		177,041		199,088				None		None		177,041		199,088		376,129		12,939				05/14/02		300
Dallas		TX		234,604		325,951				None		None		234,604		325,951		560,555		96,156		08/09/96		02/19/96		300
Fort Worth		TX		83,530		111,960				None		None		83,530		111,960		195,490		7,275				05/14/02		300
Houston		TX		285,000		369,697				None		None		285,000		369,697		654,697		91,769		08/08/97		08/08/97		300
Houston		TX		195,000		424,651				6,405		4,077		195,000		435,133		630,133		77,352		02/01/02		06/12/98		300
Humble		TX		257,169		325,652				None		None		257,169		325,652		582,821		21,165				05/14/02		300
Lake Jackson		TX		197,170		256,376				None		None		197,170		256,376		453,546		16,662				05/14/02		300
Lewisville		TX		199,942		324,736				None		None		199,942		324,736		524,678		95,797		08/02/96		02/14/96		300
Lewisville		TX		130,238		207,683				None		None		130,238		207,683		337,921		12,807				06/27/02		300
San Antonio		TX		198,828		437,422				None		None		198,828		437,422		636,250		145,078				09/15/95		300
Richmond		VA		403,549		516,946				None		None		403,549		516,946		920,495		134		In process		10/17/02		300
Roanoke		VA		349,628		322,545				None		None		349,628		322,545		672,173		77,956				12/19/97		300
Warrenton		VA		186,723		241,173				None		None		186,723		241,173		427,896		15,673				05/14/02		300
Bremerton		WA		261,172		373,080				None		None		261,172		373,080		634,252		105,935		03/19/97		07/24/96		300
Milwaukee		WI		173,005		499,244				None		None		173,005		499,244		672,249		160,590				12/22/95		300
Milwaukee		WI		152,509		475,480				None		None		152,509		475,480		627,989		138,681				09/27/96		300
New Berlin		WI		188,491		466,268				None		None		188,491		466,268		654,759		149,983				12/22/95		300
Racine		WI		184,002		114,167				None		None		184,002		114,167		298,169		7,419				05/14/02		300
Automotive Tire Services
Tucson		AZ		178,297		396,004				None		150		178,297		396,154		574,451		212,516				01/19/90		300
Yuma		AZ		120,750		268,190				None		None		120,750		268,190		388,940		143,904				01/23/90		300
Arvada		CO		301,489		931,092				None		None		301,489		931,092		1,232,581		116,424		09/22/00		11/18/99		300
Aurora		CO		221,691		492,382				None		None		221,691		492,382		714,073		264,200				01/29/90		300
Automotive Tire Services
Aurora		CO		353,283		1,135,051				None		None		353,283		1,135,051		1,488,334		126,784		01/03/01		03/10/00		300
Colorado Springs		CO		280,193		622,317				None		None		280,193		622,317		902,510		333,919				01/23/90		300
Colorado Springs		CO		192,988		433,542				None		None		192,988		433,542		626,530		189,460				05/20/93		300
Denver		CO		688,292		1,331,224				None		None		688,292		1,331,224		2,019,516		53,024		01/10/03		05/30/02		300
Westminster		CO		526,620		1,099,523				None		None		526,620		1,099,523		1,626,143		122,815		01/12/01		01/18/00		300
Lakeland		FL		500,000		645,402				None		None		500,000		645,402		1,145,402		136,799		06/04/98		12/31/97		300
Tampa		FL		427,395		472,030				None		None		427,395		472,030		899,425		100,073		06/10/98		12/05/97		300
Conyers		GA		531,935		1,180,296				None		None		531,935		1,180,296		1,712,231		80,339		03/28/02		11/13/01		300
Duluth		GA		638,509		1,186,445				None		None		638,509		1,186,445		1,824,954		5,930				11/29/03		300
Aurora		IL		513,204		953,737				None		None		513,204		953,737		1,466,941		4,767				11/29/03		300
Joliet		IL		452,267		840,568				None		None		452,267		840,568		1,292,835		4,201				11/29/03		300
Lombard		IL		428,170		795,817				None		None		428,170		795,817		1,223,987		3,977				11/29/03		300
Niles		IL		366,969		682,158				None		None		366,969		682,158		1,049,127		3,409				11/29/03		300
Orland Park		IL		663,087		1,232,091				None		None		663,087		1,232,091		1,895,178		6,158				11/29/03		300
Vernon Hills		IL		524,948		975,547				None		None		524,948		975,547		1,500,495		4,876				11/29/03		300

 

F 8

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
West Dundee		IL		530,835		986,480				None		None		530,835		986,480		1,517,315		4,930				11/29/03		300
Overland Park		KS		1,101,841		2,046,919				None		None		1,101,841		2,046,919		3,148,760		10,232				11/29/03		300
Allston		MA		576,505		1,071,296				None		None		576,505		1,071,296		1,647,801		5,354				11/29/03		300
Shrewsbury		MA		721,065		1,339,765				None		None		721,065		1,339,765		2,060,830		6,697				11/29/03		300
Waltham		MA		338,955		630,131				None		None		338,955		630,131		969,086		3,149				11/29/03		300
Weymouth		MA		752,234		1,397,650				None		None		752,234		1,397,650		2,149,884		6,986				11/29/03		300
Woburn		MA		676,968		1,257,869				None		None		676,968		1,257,869		1,934,837		6,287				11/29/03		300
Annapolis		MD		780,806		1,450,712				None		None		780,806		1,450,712		2,231,518		7,251				11/29/03		300
Bowie		MD		734,558		1,364,822				None		None		734,558		1,364,822		2,099,380		6,822				11/29/03		300
Capital Hts		MD		701,705		1,303,809				None		None		701,705		1,303,809		2,005,514		6,517				11/29/03		300
Germantown		MD		808,296		1,501,765				None		None		808,296		1,501,765		2,310,061		7,507				11/29/03		300
Waldorf		MD		427,033		793,705				None		None		427,033		793,705		1,220,738		3,966				11/29/03		300
Eagan		MN		902,443		845,536				None		300		902,443		845,836		1,748,279		181,856				02/20/98		300
Ferguson		MO		386,112		717,708				None		None		386,112		717,708		1,103,820		3,586				11/29/03		300
Grandview		MO		347,150		711,024				None		None		347,150		711,024		1,058,174		150,533		08/20/98		02/20/98		300
Independence		MO		721,020		1,339,681				None		None		721,020		1,339,681		2,060,701		6,696				11/29/03		300
Charlotte		NC		181,662		338,016				None		None		181,662		338,016		519,678		1,688				11/29/03		300
Matthews		NC		489,063		908,904				None		None		489,063		908,904		1,397,967		4,542				11/29/03		300
Omaha		NE		253,128		810,922				None		None		253,128		810,922		1,064,050		139,257		07/22/99		03/04/99		300
Manchester		NH		722,532		1,342,488				None		None		722,532		1,342,488		2,065,020		6,710				11/29/03		300
Newington		NH		690,753		1,283,470				None		None		690,753		1,283,470		1,974,223		6,415				11/29/03		300
Salem		NH		597,833		1,110,905				None		None		597,833		1,110,905		1,708,738		5,552				11/29/03		300
Deptford		NJ		619,376		1,150,914				None		None		619,376		1,150,914		1,770,290		5,752				11/29/03		300
Maple Shade		NJ		508,285		944,602				None		None		508,285		944,602		1,452,887		4,721				11/29/03		300
Akron		OH		242,133		450,318				None		None		242,133		450,318		692,451		2,249				11/29/03		300
Automotive Tire Services
Cambridge		OH		103,368		192,612				None		None		103,368		192,612		295,980		961				11/29/03		300
Canton		OH		337,161		626,800				None		None		337,161		626,800		963,961		3,132				11/29/03		300
Cleveland		OH		582,107		1,081,700				None		None		582,107		1,081,700		1,663,807		5,406				11/29/03		300
Columbus		OH		385,878		717,274				None		None		385,878		717,274		1,103,152		3,584				11/29/03		300
Oklahoma City		OK		509,370		752,691				None		None		509,370		752,691		1,262,061		136,910		04/14/99		09/24/98		300
Oklahoma City		OK		404,815		771,625				None		None		404,815		771,625		1,176,440		140,334		04/09/99		10/16/98		300
Greensburg		PA		594,891		1,105,441				None		None		594,891		1,105,441		1,700,332		5,525				11/29/03		300
Lancaster		PA		431,050		801,164				None		None		431,050		801,164		1,232,214		4,004				11/29/03		300
Mechanicsburg		PA		455,854		847,228				None		None		455,854		847,228		1,303,082		4,234				11/29/03		300
Monroeville		PA		723,660		1,344,584				None		None		723,660		1,344,584		2,068,244		6,721				11/29/03		300
Philadelphia		PA		334,939		622,673				None		None		334,939		622,673		957,612		3,111				11/29/03		300
Pittsburgh		PA		384,756		715,191				None		None		384,756		715,191		1,099,947		3,574				11/29/03		300
York		PA		389,291		723,612				None		None		389,291		723,612		1,112,903		3,616				11/29/03		300
Sioux Falls		SD		332,979		498,108				None		None		332,979		498,108		831,087		107,107		06/01/99		02/27/98		300
Goodlettsvlle		TN		601,306		1,117,355				None		None		601,306		1,117,355		1,718,661		5,585				11/29/03		300
Hermitage		TN		560,443		1,011,799				None		None		560,443		1,011,799		1,572,242		57,131		10/15/01		05/09/01		300
Arlington		TX		599,558		1,114,107				None		None		599,558		1,114,107		1,713,665		5,568				11/29/03		300

 

F 9

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Austin		TX		185,454		411,899				None		None		185,454		411,899		597,353		219,765				02/06/90		300
Austin		TX		710,485		1,320,115				None		None		710,485		1,320,115		2,030,600		6,598				11/29/03		300
Austin		TX		590,828		1,097,894				None		None		590,828		1,097,894		1,688,722		5,487				11/29/03		300
Austin		TX		569,909		1,059,047				None		None		569,909		1,059,047		1,628,956		5,293				11/29/03		300
Austin		TX		532,497		989,566				None		None		532,497		989,566		1,522,063		4,946				11/29/03		300
Carrollton		TX		568,401		1,056,245				None		None		568,401		1,056,245		1,624,646		5,279				11/29/03		300
Conroe		TX		396,068		736,197				None		None		396,068		736,197		1,132,265		3,679				11/29/03		300
Dallas		TX		191,267		424,811				None		None		191,267		424,811		616,078		227,942				01/26/90		300
Fort Worth		TX		543,950		1,010,836				None		None		543,950		1,010,836		1,554,786		5,052				11/29/03		300
Garland		TX		242,887		539,461				None		None		242,887		539,461		782,348		289,461				01/19/90		300
Harlingen		TX		134,599		298,948				None		None		134,599		298,948		433,547		160,408				01/17/90		300
Houston		TX		151,018		335,417				None		None		151,018		335,417		486,435		179,976				01/25/90		300
Houston		TX		392,113		728,853				None		None		392,113		728,853		1,120,966		3,642				11/29/03		300
Houston		TX		1,030,379		1,914,204				None		None		1,030,379		1,914,204		2,944,583		9,569				11/29/03		300
Houston		TX		619,101		1,150,403				None		None		619,101		1,150,403		1,769,504		5,750				11/29/03		300
Houston		TX		642,495		1,193,849				None		None		642,495		1,193,849		1,836,344		5,967				11/29/03		300
Houston		TX		872,866		1,621,681				None		None		872,866		1,621,681		2,494,547		8,106				11/29/03		300
Humble		TX		612,414		1,137,984				None		None		612,414		1,137,984		1,750,398		5,688				11/29/03		300
Leon Valley		TX		178,221		395,834				None		None		178,221		395,834		574,055		212,395				01/17/90		300
Leon Valley		TX		529,967		984,868				None		None		529,967		984,868		1,514,835		4,922				11/29/03		300
Mesquite		TX		591,538		1,099,215				None		None		591,538		1,099,215		1,690,753		5,494				11/29/03		300
N Richlnd Hls		TX		509,861		947,529				None		None		509,861		947,529		1,457,390		4,736				11/29/03		300
Pasadena		TX		107,391		238,519				None		None		107,391		238,519		345,910		127,983				01/24/90		300
Automotive Tire Services
Plano		TX		187,564		417,157				700		None		187,564		417,857		605,421		223,667				01/18/90		300
Plano		TX		494,407		918,827				None		None		494,407		918,827		1,413,234		4,592				11/29/03		300
Richardson		TX		555,188		1,031,707				None		None		555,188		1,031,707		1,586,895		5,156				11/29/03		300
San Antonio		TX		245,164		544,518				None		None		245,164		544,518		789,682		290,522				02/14/90		300
San Antonio		TX		688,249		1,278,819				None		None		688,249		1,278,819		1,967,068		6,392				11/29/03		300
Stafford		TX		706,786		1,313,246				None		None		706,786		1,313,246		2,020,032		6,564				11/29/03		300
Waco		TX		401,999		747,213				None		None		401,999		747,213		1,149,212		3,734				11/29/03		300
Webster		TX		600,261		1,115,415				None		None		600,261		1,115,415		1,715,676		5,575				11/29/03		300
Bountiful		UT		183,750		408,115				None		143		183,750		408,258		592,008		219,012				01/30/90		300
Provo		UT		125,395		278,507				None		143		125,395		278,650		404,045		149,468				01/25/90		300
Alexandria		VA		542,791		1,008,684				None		None		542,791		1,008,684		1,551,475		5,041				11/29/03		300
Alexandria		VA		592,698		1,101,368				None		None		592,698		1,101,368		1,694,066		5,505				11/29/03		300
Lynchburg		VA		342,751		637,181				None		None		342,751		637,181		979,932		3,184				11/29/03		300
Woodbridge		VA		774,854		1,439,658				None		None		774,854		1,439,658		2,214,512		7,196				11/29/03		300
Tacoma		WA		187,111		415,579				None		108		187,111		415,687		602,798		223,010				01/25/90		300
Brown Deer		WI		257,408		802,141				None		None		257,408		802,141		1,059,549		161,828		12/15/98		07/16/98		300
Delafield		WI		324,574		772,702				None		None		324,574		772,702		1,097,276		131,992		07/29/99		02/26/99		300
Madison		WI		452,630		811,977				None		None		452,630		811,977		1,264,607		169,218		10/20/98		04/07/98		300
Oak Creek		WI		420,465		852,408				None		None		420,465		852,408		1,272,873		177,644		08/07/98		03/20/98		300

 

F 10

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Book Stores
Tampa		FL		998,250		3,696,707				None		None		998,250		3,696,707		4,694,957		1,004,217				03/11/97		300
Matthews		NC		768,222		843,401				None		126		768,222		843,527		1,611,749		170,163				12/31/98		300
Business Services
Jackson		MI		550,162		571,590				None		602		550,162		572,192		1,122,354		111,700		01/15/99		09/25/98		300
Child Care
Birmingham		AL		63,800		295,791				None		96		63,800		295,887		359,687		245,623				10/31/84		300
Mobile		AL		78,400		237,671				None		411		78,400		238,082		316,482		237,975				10/15/82		180
Avondale		AZ		242,723		1,129,139				None		None		242,723		1,129,139		1,371,862		205,213		04/20/99		07/28/98		300
Chandler		AZ		291,720		647,923				None		102		291,720		648,025		939,745		397,543				12/11/87		300
Chandler		AZ		271,695		603,446				None		114		271,695		603,560		875,255		370,313				12/14/87		300
Mesa		AZ		308,951		1,025,612				None		None		308,951		1,025,612		1,334,563		176,101		07/26/99		01/13/99		300
Peoria		AZ		281,750		625,779				None		97		281,750		625,876		907,626		378,116				03/30/88		300
Phoenix		AZ		115,000		285,172				None		158		115,000		285,330		400,330		285,330				02/08/84		180
Phoenix		AZ		318,500		707,397				None		97		318,500		707,494		1,025,994		414,252				09/29/88		300
Phoenix		AZ		264,504		587,471				None		None		264,504		587,471		851,975		306,331				06/29/90		300
Phoenix		AZ		260,719		516,181				None		None		260,719		516,181		776,900		259,834				12/26/90		300
Child Care
Scottsdale		AZ		291,993		648,529				None		None		291,993		648,529		940,522		397,923				12/14/87		300
Tempe		AZ		292,200		648,989				None		None		292,200		648,989		941,189		392,123				03/10/88		300
Tucson		AZ		304,500		676,303				None		135		304,500		676,438		980,938		396,055				09/28/88		300
Tucson		AZ		283,500		546,878				None		135		283,500		547,013		830,513		320,266				09/29/88		300
Calabasas		CA		156,430		725,248				None		37		156,430		725,285		881,715		566,881				09/26/85		300
Carmichael		CA		131,035		607,507				None		None		131,035		607,507		738,542		451,546				08/22/86		300
Chino		CA		155,000		634,071				None		83		155,000		634,154		789,154		634,086				10/06/83		180
Chula Vista		CA		350,563		778,614				None		None		350,563		778,614		1,129,177		482,623				10/30/87		300
Corona		CA		144,856		671,584				None		37		144,856		671,621		816,477		553,068				12/19/84		300
El Cajon		CA		157,804		731,621				None		None		157,804		731,621		889,425		564,289				12/19/85		300
Encinitas		CA		320,000		710,729				None		None		320,000		710,729		1,030,729		436,088				12/29/87		300
Escondido		CA		276,286		613,638				None		None		276,286		613,638		889,924		376,514				12/31/87		300
Folsom		CA		281,563		625,363				None		199		281,563		625,562		907,125		388,478				10/23/87		300
Mission Viejo		CA		353,891		744,367				12,500		20,183		353,891		777,050		1,130,941		338,548				06/24/93		300
Moreno Valley		CA		304,489		676,214				None		None		304,489		676,214		980,703		436,240				02/11/87		300
Oceanside		CA		145,568		674,889				None		None		145,568		674,889		820,457		520,532				12/23/85		300
Palmdale		CA		249,490		554,125				None		None		249,490		554,125		803,615		324,483				09/14/88		300
Rancho Cordova		CA		276,328		613,733				None		None		276,328		613,733		890,061		348,044				03/22/89		300
Rancho Cucamonga		CA		471,733		1,047,739				None		None		471,733		1,047,739		1,519,472		642,871				12/30/87		300
Roseville		CA		297,343		660,411				None		199		297,343		660,610		957,953		410,242				10/21/87		300
Sacramento		CA		290,734		645,732				None		None		290,734		645,732		936,466		400,255				10/05/87		300

 

F 11

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Santee		CA		248,418		551,748				None		None		248,418		551,748		800,166		347,209				07/23/87		300
Simi Valley		CA		208,585		967,055				None		37		208,585		967,092		1,175,677		745,879				12/20/85		300
Valencia		CA		301,295		669,185				None		None		301,295		669,185		970,480		398,081				06/23/88		300
Walnut		CA		217,365		1,007,753				None		None		217,365		1,007,753		1,225,118		749,041				08/22/86		300
Aurora		CO		141,811		657,497				None		None		141,811		657,497		799,308		500,257				03/25/86		300
Aurora		CO		287,000		637,440				None		155		287,000		637,595		924,595		391,147				12/31/87		300
Aurora		CO		301,455		655,610				None		155		301,455		655,765		957,220		395,359				09/27/89		300
Broomfield		CO		107,000		403,080				None		210		107,000		403,290		510,290		403,113				01/12/83		180
Broomfield		CO		155,306		344,941				None		80		155,306		345,021		500,327		208,431				03/15/88		300
Colorado Springs		CO		58,400		271,217				None		159		58,400		271,376		329,776		271,246				12/22/82		180
Colorado Springs		CO		92,570		241,413				None		162		92,570		241,575		334,145		241,442				08/31/83		180
Colorado Springs		CO		115,542		535,700				None		None		115,542		535,700		651,242		391,660				12/04/86		300
Englewood		CO		131,216		608,372				None		None		131,216		608,372		739,588		444,792				12/05/86		300
Fort Collins		CO		55,200		256,356				None		3,600		55,200		259,956		315,156		258,516				12/22/82		180
Fort Collins		CO		117,105		542,950				None		None		117,105		542,950		660,055		413,103				03/25/86		300
Fort Collins		CO		137,734		638,593				None		None		137,734		638,593		776,327		485,874				03/25/86		300
Greeley		CO		58,400		270,755				None		382		58,400		271,137		329,537		224,180				11/21/84		300
Littleton		CO		161,617		358,956				None		292		161,617		359,248		520,865		220,304				12/10/87		300
Littleton		CO		287,000		637,435				None		188		287,000		637,623		924,623		366,457				09/29/88		300
Child Care
Longmont		CO		115,592		535,931				None		None		115,592		535,931		651,523		407,764				03/25/86		300
Louisville		CO		58,089		269,313				None		292		58,089		269,605		327,694		227,210				06/22/84		300
Parker		CO		153,551		341,042				None		292		153,551		341,334		494,885		211,890				10/19/87		300
Westminster		CO		306,387		695,737				None		155		306,387		695,892		1,002,279		403,350				09/27/89		300
Bradenton		FL		160,060		355,501				None		134		160,060		355,635		515,695		212,610				05/05/88		300
Clearwater		FL		42,223		269,380				None		None		42,223		269,380		311,603		269,380				12/22/81		180
Jacksonville		FL		48,000		243,060				None		233		48,000		243,293		291,293		243,106				12/22/81		180
Jacksonville		FL		184,800		410,447				None		124		184,800		410,571		595,371		232,770				03/30/89		300
Margate		FL		66,686		309,183				None		None		66,686		309,183		375,869		225,415				12/16/86		300
Melbourne		FL		256,439		549,345				None		None		256,439		549,345		805,784		248,949				04/16/93		300
Niceville		FL		73,696		341,688				None		None		73,696		341,688		415,384		249,810				12/03/86		300
Orlando		FL		68,001		313,922				None		None		68,001		313,922		381,923		245,942				09/04/85		300
Orlando		FL		159,177		353,538				None		134		159,177		353,672		512,849		222,504				07/02/87		300
Orlando		FL		245,249		544,704				None		134		245,249		544,838		790,087		334,244				12/10/87		300
Orlando		FL		190,050		422,107				None		124		190,050		422,231		612,281		239,383				03/30/89		300
Oviedo		FL		166,409		369,598				None		134		166,409		369,732		536,141		227,958				11/20/87		300
Panama City		FL		69,500		244,314				14,500		2,113		69,500		260,927		330,427		245,342				06/15/82		180
Pensacola		FL		147,000		326,492				None		96		147,000		326,588		473,588		185,164				03/28/89		300
Royal Palm Beach		FL		194,193		431,309				None		134		194,193		431,443		625,636		249,928				11/15/88		300
Spring Hill		FL		146,939		326,356				None		138		146,939		326,494		473,433		201,290				11/24/87		300
St. Augustine		FL		44,800		213,040				None		134		44,800		213,174		257,974		213,067				12/22/81		180
Sunrise		FL		245,000		533,280				None		11		245,000		533,291		778,291		302,248				05/25/89		300
Tampa		FL		53,385		199,846				None		134		53,385		199,980		253,365		199,873				12/22/81		180

 

F 12

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Duluth		GA		310,000		1,040,008.00				None		None		310,000		1,040,008		1,350,008		175,117		08/25/99		06/07/99		300
Dunwoody		GA		318,500		707,399				None		93		318,500		707,492		1,025,992		409,871				11/16/88		300
Ellenwood		GA		119,678		275,414				None		158		119,678		275,572		395,250		159,606				11/16/88		300
Fayetteville		GA		148,400		329,601				None		358		148,400		329,959		478,359		186,971				03/29/89		300
Lawrenceville		GA		141,449		314,161				None		13,731		141,449		327,892		469,341		187,056				07/07/88		300
Lilburn		GA		116,350		539,488				None		2,819		116,350		542,307		658,657		393,748				12/23/86		300
Lithia Springs		GA		187,444		363,358				None		93		187,444		363,451		550,895		201,891				12/28/89		300
Lithonia		GA		239,715		524,459				None		None		239,715		524,459		764,174		277,540				08/20/91		300
Marietta		GA		231,000		513,061				None		648		231,000		513,709		744,709		304,550				03/18/88		300
Marietta		GA		273,000		619,076				None		641		273,000		619,717		892,717		372,246				04/26/88		300
Marietta		GA		148,620		330,090				None		178		148,620		330,268		478,888		193,517				09/16/88		300
Marietta		GA		292,250		649,095				None		177		292,250		649,272		941,522		374,120				12/02/88		300
Marietta		GA		295,750		596,299				None		177		295,750		596,476		892,226		343,694				12/30/88		300
Marietta		GA		301,000		668,529				None		177		301,000		668,706		969,706		385,320				12/30/88		300
Smyrna		GA		274,750		610,229				None		100		274,750		610,329		885,079		353,570				11/15/88		300
Stockbridge		GA		168,700		374,688				None		93		168,700		374,781		543,481		212,486				03/28/89		300
Stone Mountain		GA		65,000		301,357				None		573		65,000		301,930		366,930		238,757				06/19/85		300
Child Care
Stone Mountain		GA		316,750		703,512				None		93		316,750		703,605		1,020,355		407,619				11/16/88		300
Cedar Rapids		IA		194,950		427,085				None		None		194,950		427,085		622,035		207,987				09/24/92		300
Iowa City		IA		186,900		408,910				None		None		186,900		408,910		595,810		200,931				09/24/92		300
Johnston		IA		186,996		347,278				None		None		186,996		347,278		534,274		166,504				08/19/91		300
Addison		IL		125,780		583,146				None		None		125,780		583,146		708,926		443,688				03/25/86		300
Algonquin		IL		241,500		509,629				None		None		241,500		509,629		751,129		266,476				07/10/90		300
Aurora		IL		165,679		398,738				None		406		165,679		399,144		564,823		229,880				12/21/88		300
Aurora		IL		468,000		1,259,926.00				None		None		468,000		1,259,926		1,727,926		203,779		10/26/99		06/14/99		300
Bartlett		IL		120,824		560,166				None		None		120,824		560,166		680,990		426,203				03/25/86		300
Bolingbrook		IL		60,000		409,024				None		243		60,000		409,267		469,267		409,069				10/18/82		180
Carol Stream		IL		122,831		586,416				None		None		122,831		586,416		709,247		446,176				03/25/86		300
Crystal Lake		IL		400,000		1,259,424				None		None		400,000		1,259,424		1,659,424		207,886		09/28/99		05/14/99		300
Elk Grove Village		IL		126,860		588,175				None		None		126,860		588,175		715,035		447,514				03/26/86		300
Glendale Heights		IL		318,500		707,399				None		None		318,500		707,399		1,025,899		409,867				11/16/88		300
Hoffman Estates		IL		318,500		707,399				None		None		318,500		707,399		1,025,899		401,161				03/31/89		300
Hoffman Estates		IL		211,082		468,818				None		1,078		211,082		469,896		680,978		253,192				12/08/89		300
Lake in the Hills		IL		375,000		1,127,678				None		None		375,000		1,127,678		1,502,678		186,144		09/03/99		05/14/99		300
Lockport		IL		189,477		442,018				None		406		189,477		442,424		631,901		274,059				10/29/87		300
Naperville		IL		425,000		1,230,654				None		None		425,000		1,230,654		1,655,654		199,039		10/06/99		05/19/99		300
O’Fallon		IL		141,250		313,722				None		468		141,250		314,190		455,440		194,547				10/30/87		300
Orland Park		IL		218,499		485,296				None		436		218,499		485,732		704,231		300,888				10/28/87		300
Oswego		IL		380,000		1,165,818				None		1,182		380,000		1,167,000		1,547,000		196,536		08/18/99		06/30/99		300
Palatine		IL		121,911		565,232				None		None		121,911		565,232		687,143		430,058				03/25/86		300
Roselle		IL		297,541		561,037				None		None		297,541		561,037		858,578		323,336				12/30/88		300
Schaumburg		IL		218,798		485,955				None		406		218,798		486,361		705,159		298,251				12/17/87		300

 

F 13

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Vernon Hills		IL		132,523		614,430				None		None		132,523		614,430		746,953		467,489				03/25/86		300
Westmont		IL		124,742		578,330				None		None		124,742		578,330		703,072		440,023				03/25/86		300
Carmel		IN		217,565		430,742				None		136		217,565		430,878		648,443		216,832				12/27/90		300
Fishers		IN		212,118		419,958				None		136		212,118		420,094		632,212		211,403				12/27/90		300
Highland		IN		220,460		436,476				None		136		220,460		436,612		657,072		219,717				12/26/90		300
Indianapolis		IN		245,000		544,153				None		None		245,000		544,153		789,153		283,743				06/29/90		300
Noblesville		IN		60,000		278,175				None		136		60,000		278,311		338,311		224,400				04/30/85		300
Zionsville		IN		127,568		319,770				None		170		127,568		319,940		447,508		198,211				10/28/87		300
Lenexa		KS		318,500		707,399				None		None		318,500		707,399		1,025,899		401,161				03/31/89		300
Olathe		KS		304,500		676,308				None		23		304,500		676,331		980,831		396,033				09/28/88		300
Overland Park		KS		305,691		707,397				None		27		305,691		707,424		1,013,115		414,239				09/28/88		300
Overland Park		KS		357,500		1,115,171				None		None		357,500		1,115,171		1,472,671		191,474		07/23/99		05/14/99		300
Shawnee		KS		315,000		699,629				None		None		315,000		699,629		1,014,629		407,524				10/27/88		300
Shawnee		KS		288,246		935,875				None		None		288,246		935,875		1,224,121		182,536		12/29/98		08/24/98		300
Wichita		KS		108,569		401,829				None		None		108,569		401,829		510,398		279,394				12/16/86		300
Child Care
Wichita		KS		209,890		415,549				None		None		209,890		415,549		625,439		209,178				12/26/90		300
Lexington		KY		210,427		420,883				None		None		210,427		420,883		631,310		215,539				08/20/91		300
Acton		MA		315,533		700,813				None		None		315,533		700,813		1,016,346		410,380				09/30/88		300
Marlborough		MA		352,765		776,488				None		332		352,765		776,820		1,129,585		449,925				11/04/88		300
Westborough		MA		359,412		773,877				None		333		359,412		774,210		1,133,622		448,411				11/01/88		300
Ellicott City		MD		219,368		630,839				None		None		219,368		630,839		850,207		363,563				12/19/88		300
Frederick		MD		203,352		1,017,109				None		None		203,352		1,017,109		1,220,461		222,069				07/06/98		300
Olney		MD		342,500		760,701				None		None		342,500		760,701		1,103,201		466,749				12/18/87		300
Waldorf		MD		130,430		604,702				None		None		130,430		604,702		735,132		504,110				09/26/84		300
Waldorf		MD		237,207		526,844				None		None		237,207		526,844		764,051		323,258				12/31/87		300
Canton		MI		55,000		378,848				None		None		55,000		378,848		433,848		378,848				10/06/82		180
Apple Valley		MN		113,523		526,319				None		165		113,523		526,484		640,007		400,484				03/26/86		300
Brooklyn Park		MN		118,111		547,587				None		165		118,111		547,752		665,863		416,665				03/26/86		300
Eagan		MN		112,127		519,845				None		165		112,127		520,010		632,137		395,557				03/31/86		300
Eden Prairie		MN		124,286		576,243				None		165		124,286		576,408		700,694		438,469				03/27/86		300
Maple Grove		MN		313,250		660,149				None		7		313,250		660,156		973,406		345,792				07/11/90		300
Plymouth		MN		134,221		622,350				None		492		134,221		622,842		757,063		455,107				12/12/86		300
White Bear Lake		MN		260,750		579,133				None		261		260,750		579,394		840,144		355,395				12/23/87		300
White Bear Lake		MN		242,165		537,856				None		7		242,165		537,863		780,028		277,216				08/30/90		300
Florissant		MO		181,300		402,672				None		230		181,300		402,902		584,202		228,371				03/29/89		300
Florissant		MO		318,500		707,399				None		230		318,500		707,629		1,026,129		401,180				03/30/89		300
Gladstone		MO		294,000		652,987				None		180		294,000		653,167		947,167		382,389				09/29/88		300
Lee’s Sumit		MO		313,740		939,367				None		None		313,740		939,367		1,253,107		158,174		09/08/99		06/30/99		300
Lee’s Summit		MO		239,627		532,220				None		169		239,627		532,389		772,016		291,288				09/27/89		300
Lee’s Summit		MO		330,000		993,787				None		None		330,000		993,787		1,323,787		170,630		07/26/99		06/17/99		300
Liberty		MO		65,400		303,211				None		169		65,400		303,380		368,780		240,122				06/18/85		300
North Kansas City		MO		307,784		910,401				None		None		307,784		910,401		1,218,185		183,077		09/28/99		08/21/98		300

 

F 14

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
St. Charles		MO		259,000		575,246				None		252		259,000		575,498		834,498		352,981				12/23/87		300
Pearl		MS		121,801		270,524				None		385		121,801		270,909		392,710		156,916				11/15/88		300
Cary		NC		75,200		262,973				None		228		75,200		263,201		338,401		263,190				01/25/84		180
Charlotte		NC		27,551		247,000				None		228		27,551		247,228		274,779		247,114				12/23/81		180
Charlotte		NC		134,582		268,222				None		158		134,582		268,380		402,962		155,437				11/16/88		300
Concord		NC		32,441		190,859				None		151		32,441		191,010		223,451		190,889				12/23/81		180
Durham		NC		175,700		390,234				None		None		175,700		390,234		565,934		221,298				03/29/89		300
Durham		NC		220,728		429,380				None		None		220,728		429,380		650,108		240,414				12/29/89		300
Durham		NC		238,000		471,201				None		None		238,000		471,201		709,201		225,919				08/20/91		300
Hendersonville		NC		32,748		186,152				None		235		32,748		186,387		219,135		186,369				12/23/81		180
Kernersville		NC		162,216		316,300				None		None		162,216		316,300		478,516		177,604				12/14/89		300
Bellevue		NE		60,568		280,819				None		None		60,568		280,819		341,387		204,735				12/16/86		300
Omaha		NE		60,500		280,491				None		None		60,500		280,491		340,991		235,668				08/01/84		300
Child Care
Omaha		NE		53,000		245,720				None		None		53,000		245,720		298,720		204,477				10/11/84		300
Omaha		NE		142,867		317,315				None		None		142,867		317,315		460,182		194,695				12/09/87		300
Londonderry		NH		335,467		745,082				None		None		335,467		745,082		1,080,549		411,129				08/18/89		300
Clementon		NJ		279,851		554,060				None		None		279,851		554,060		833,911		263,996				09/09/91		300
Las Vegas		NV		201,250		446,983				None		None		201,250		446,983		648,233		233,074				06/29/90		300
Sparks		NV		244,752		543,605				None		None		244,752		543,605		788,357		331,843				01/29/88		300
Beavercreek		OH		179,552		398,786				None		None		179,552		398,786		578,338		252,211				06/30/87		300
Centerville		OH		174,519		387,613				None		None		174,519		387,613		562,132		243,921				07/23/87		300
Dublin		OH		84,000		389,446				None		176		84,000		389,622		473,622		303,832				10/08/85		300
Englewood		OH		74,000		343,083				None		176		74,000		343,259		417,259		267,021				10/23/85		300
Forest Park		OH		170,778		379,305				None		None		170,778		379,305		550,083		236,939				09/28/87		300
Gahanna		OH		86,000		398,718				6,297		17,227		86,000		422,242		508,242		312,065				11/26/85		300
Huber Heights		OH		245,000		544,153				None		168		245,000		544,321		789,321		278,831				09/27/90		300
Loveland		OH		206,136		457,829				None		None		206,136		457,829		663,965		293,901				03/20/87		300
Maineville		OH		173,105		384,468				None		None		173,105		384,468		557,573		246,807				03/06/87		300
Pickerington		OH		87,580		406,055				None		176		87,580		406,231		493,811		296,904				12/11/86		300
Westerville		OH		82,000		380,173				None		344		82,000		380,517		462,517		296,608				10/08/85		300
Westerville		OH		294,350		646,557				None		61		294,350		646,618		940,968		335,424				09/26/90		300
Broken Arrow		OK		78,705		220,434				None		1,700		78,705		222,134		300,839		220,997				01/27/83		180
Midwest City		OK		67,800		314,338				None		279		67,800		314,617		382,417		247,989				08/14/85		300
Oklahoma City		OK		50,800		214,474				None		3,013		50,800		217,487		268,287		216,483				06/15/82		180
Oklahoma City		OK		79,000		366,261				None		461		79,000		366,722		445,722		303,895				11/14/84		300
Yukon		OK		61,000		282,812				None		379		61,000		283,191		344,191		227,242				05/02/85		300
Beaverton		OR		135,148		626,647				None		3		135,148		626,650		761,798		456,866				12/17/86		300
Beaverton		OR		115,232		534,301				None		13,872		115,232		548,173		663,405		391,401				12/22/86		300
Charleston		SC		125,593		278,947				None		151		125,593		279,098		404,691		166,834				05/26/88		300
Charleston		SC		140,700		312,498				None		None		140,700		312,498		453,198		177,216				03/28/89		300
Columbia		SC		58,160		269,643				None		1,042		58,160		270,685		328,845		224,329				11/14/84		300
Elgin		SC		160,831		313,600				None		None		160,831		313,600		474,431		176,088				12/14/89		300

 

F 15

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Goose Creek		SC		61,635		192,905				None		292		61,635		193,197		254,832		193,051				12/22/81		180
Mt. Pleasant		SC		40,700		180,400				None		None		40,700		180,400		221,100		180,400				12/22/81		180
Summerville		SC		44,400		174,500				None		None		44,400		174,500		218,900		174,500				12/22/81		180
Sumter		SC		56,010		268,903				None		1,007		56,010		269,910		325,920		213,295				06/18/85		300
Memphis		TN		238,263		504,897				None		471		238,263		505,368		743,631		295,742				09/29/88		300
Memphis		TN		238,000		528,608				None		471		238,000		529,079		767,079		309,629				09/30/88		300
Memphis		TN		221,501		491,962				None		96		221,501		492,058		713,559		253,573				08/31/90		300
Nashville		TN		274,298		609,223				None		96		274,298		609,319		883,617		345,498				03/30/89		300
Allen		TX		177,637		394,538				None		337		177,637		394,875		572,512		228,653				11/21/88		300
Arlington		TX		82,109		380,677				None		None		82,109		380,677		462,786		314,268				12/13/84		300
Arlington		TX		238,000		528,604				None		116		238,000		528,720		766,720		309,558				09/26/88		300
Child Care
Arlington		TX		241,500		550,559				None		None		241,500		550,559		792,059		348,169				09/22/89		300
Arlington		TX		195,650		387,355				None		None		195,650		387,355		583,005		192,663				02/07/91		300
Atascocita		TX		278,915		1,034,868				None		None		278,915		1,034,868		1,313,783		177,683		07/19/99		05/14/99		300
Austin		TX		103,600		230,532				8,750		15,414		103,600		254,696		358,296		232,784				10/29/82		180
Austin		TX		88,872		222,684				None		174		88,872		222,858		311,730		222,771				01/12/83		180
Austin		TX		134,383		623,103				None		357		134,383		623,460		757,843		454,353				12/23/86		300
Austin		TX		236,733		528,608				None		628		236,733		529,236		765,969		309,602				09/27/88		300
Austin		TX		191,636		425,629				None		110		191,636		425,739		617,375		245,314				12/22/88		300
Austin		TX		238,000		528,604				None		99		238,000		528,703		766,703		298,162				04/06/89		300
Austin		TX		217,878		483,913				None		99		217,878		484,012		701,890		269,991				06/22/89		300
Bedford		TX		241,500		550,559				None		None		241,500		550,559		792,059		348,169				09/22/89		300
Carrollton		TX		277,850		617,113				None		None		277,850		617,113		894,963		378,647				12/11/87		300
Cedar Park		TX		168,857		375,036				None		99		168,857		375,135		543,992		217,308				11/21/88		300
Colleyville		TX		250,000		1,070,360				None		None		250,000		1,070,360		1,320,360		180,222		08/17/99		05/14/99		300
Converse		TX		217,000		481,963				None		10		217,000		481,973		698,973		282,228				09/28/88		300
Coppell		TX		139,224		645,550				12,768		1,239		139,224		659,557		798,781		471,312				12/17/86		300
Coppell		TX		208,641		463,398				None		41		208,641		463,439		672,080		284,339				12/11/87		300
Corinth		TX		285,000		1,041,626				None		None		285,000		1,041,626		1,326,626		182,279		06/04/99		05/19/99		300
DeSoto		TX		86,000		398,715				29,103		3,060		86,000		430,878		516,878		337,279				10/24/84		300
Duncanville		TX		93,000		431,172				11,610		10,790		93,000		453,572		546,572		349,234				05/08/85		300
Euless		TX		234,111		519,962				None		None		234,111		519,962		754,073		330,492				05/08/87		300
Flower Mound		TX		202,773		442,845				None		None		202,773		442,845		645,618		282,877				04/20/87		300
Flower Mound		TX		281,735		1,099,726				None		None		281,735		1,099,726		1,381,461		199,756		04/23/99		01/13/99		300
Fort Worth		TX		85,518		396,495				None		116		85,518		396,611		482,129		289,899				12/03/86		300
Fort Worth		TX		238,000		528,608				None		None		238,000		528,608		766,608		309,541				09/26/88		300
Fort Worth		TX		210,007		444,460				None		None		210,007		444,460		654,467		239,878				02/01/90		300
Fort Worth		TX		216,160		427,962				None		None		216,160		427,962		644,122		212,860				02/07/91		300
Garland		TX		211,050		468,749				None		None		211,050		468,749		679,799		252,942				12/12/89		300
Grand Prairie		TX		167,164		371,276				None		134		167,164		371,410		538,574		213,993				12/13/88		300
Houston		TX		60,000		278,175				None		155		60,000		278,330		338,330		223,473				05/01/85		300
Houston		TX		102,000		472,898				None		155		102,000		473,053		575,053		379,928				05/01/85		300

 

F 16

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Houston		TX		139,125		308,997				None		158		139,125		309,155		448,280		196,432				05/22/87		300
Houston		TX		141,296		313,824				None		183		141,296		314,007		455,303		197,523				07/24/87		300
Houston		TX		219,100		486,631				None		None		219,100		486,631		705,731		284,960				09/30/88		300
Houston		TX		219,100		486,628				None		None		219,100		486,628		705,728		281,953				11/16/88		300
Houston		TX		149,109		323,314				None		None		149,109		323,314		472,423		190,520				06/26/89		300
Houston		TX		294,582		919,276				None		None		294,582		919,276		1,213,858		176,243		01/11/99		08/14/98		300
Katy		TX		309,898		983,041				None		None		309,898		983,041		1,292,939		194,995		11/30/98		08/21/98		300
Lewisville		TX		79,000		366,264				20,305		1,632		79,000		388,201		467,201		292,275				06/26/85		300
Lewisville		TX		192,777		428,121				None		None		192,777		428,121		620,898		276,760				01/07/87		300
Child Care
Lewisville		TX		192,218		426,922				None		None		192,218		426,922		619,140		246,043				12/29/88		300
Mansfield		TX		181,375		402,839				None		None		181,375		402,839		584,214		217,376				12/20/89		300
Mesquite		TX		85,000		394,079				None		124		85,000		394,203		479,203		327,248				10/24/84		300
Mesquite		TX		139,466		326,525				None		None		139,466		326,525		465,991		173,725				10/08/92		300
Missouri City		TX		221,025		437,593				None		None		221,025		437,593		658,618		220,275				12/13/90		300
N. Richland Hills		TX		238,000		528,608				None		122		238,000		528,730		766,730		309,561				09/26/88		300
Pasadena		TX		60,000		278,173				None		155		60,000		278,328		338,328		231,123				10/23/84		300
Plano		TX		261,912		581,658				None		None		261,912		581,658		843,570		377,091				01/06/87		300
Plano		TX		250,514		556,399				None		None		250,514		556,399		806,913		341,394				12/10/87		300
Plano		TX		259,000		575,246				None		116		259,000		575,362		834,362		336,870				09/27/88		300
Round Rock		TX		80,525		373,347				None		156		80,525		373,503		454,028		272,225				12/16/86		300
Round Rock		TX		186,380		413,957				None		99		186,380		414,056		600,436		233,498				04/19/89		300
San Antonio		TX		130,833		606,596				None		139		130,833		606,735		737,568		461,557				03/24/86		300
San Antonio		TX		102,512		475,288				None		139		102,512		475,427		577,939		347,514				12/03/86		300
San Antonio		TX		81,530		378,007				None		139		81,530		378,146		459,676		276,390				12/11/86		300
San Antonio		TX		139,125		308,997				None		239		139,125		309,236		448,361		196,448				05/22/87		300
San Antonio		TX		181,412		402,923				None		340		181,412		403,263		584,675		253,623				07/07/87		300
San Antonio		TX		234,500		520,831				None		340		234,500		521,171		755,671		319,638				12/29/87		300
San Antonio		TX		217,000		481,967				None		99		217,000		482,066		699,066		280,756				10/14/88		300
San Antonio		TX		182,868		406,155				None		110		182,868		406,265		589,133		234,091				12/06/88		300
San Antonio		TX		220,500		447,108				None		99		220,500		447,207		667,707		253,568				03/30/89		300
Southlake		TX		228,279		511,750				None		None		228,279		511,750		740,029		248,467				03/10/93		300
Sugarland		TX		339,310		1,000,876				None		None		339,310		1,000,876		1,340,186		178,488		05/30/99		01/13/99		300
Layton		UT		136,574		269,008				None		143		136,574		269,151		405,725		150,571				02/01/90		300
Sandy		UT		168,089		373,330				None		143		168,089		373,473		541,562		199,215				02/01/90		300
Centreville		VA		371,000		824,003				None		None		371,000		824,003		1,195,003		452,164				09/29/89		300
Chesapeake		VA		190,050		422,107				None		None		190,050		422,107		612,157		239,374				03/28/89		300
Glen Allen		VA		74,643		346,060				None		None		74,643		346,060		420,703		291,883				06/20/84		300
Portsmouth		VA		171,575		381,073				None		None		171,575		381,073		552,648		219,618				12/21/88		300
Richmond		VA		71,001		327,771				None		7,651		71,001		335,422		406,423		258,323				09/04/85		300
Richmond		VA		269,500		598,567				None		None		269,500		598,567		868,067		339,442				03/28/89		300
Virginia Beach		VA		69,080		320,270				None		656		69,080		320,926		390,006		265,589				11/15/84		300
Woodbridge		VA		358,050		795,239				None		None		358,050		795,239		1,153,289		465,674				09/29/88		300

 

F 17

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Federal Way		WA		150,785		699,101				None		108		150,785		699,209		849,994		509,711				12/17/86		300
Federal Way		WA		261,943		581,782				None		None		261,943		581,782		843,725		337,080				11/21/88		300
Kent		WA		128,300		539,141				None		22,213		128,300		561,354		689,654		539,515				06/03/83		180
Kent		WA		140,763		678,809				None		108		140,763		678,917		819,680		494,917				12/17/86		300
Kirkland		WA		301,000		668,534				None		108		301,000		668,642		969,642		403,954				03/31/88		300
Puyallup		WA		195,552		434,327				None		None		195,552		434,327		629,879		250,309				12/06/88		300
Redmond		WA		279,830		621,513				None		108		279,830		621,621		901,451		391,134				07/27/87		300
Child Care
Renton		WA		111,183		515,490				None		108		111,183		515,598		626,781		392,232				03/24/86		300
Appleton		WI		196,000		424,038				None		None		196,000		424,038		620,038		222,609				07/10/90		300
Waukesha		WI		233,100		461,500				None		None		233,100		461,500		694,600		232,309				12/13/90		300
Waukesha		WI		215,950		427,546				None		None		215,950		427,546		643,496		215,217				12/13/90		300
Cheyenne		WY		59,856		277,506				None		6,703		59,856		284,209		344,065		231,030				11/20/84		300
Consumer Electronics
Oxford		AL		323,085		406,655				None		112		323,085		406,767		729,852		115,912				11/26/96		300
Tuscaloosa		AL		204,790		585,115				None		96		204,790		585,211		790,001		166,770				11/26/96		300
Bradenton		FL		174,948		240,928				None		134		174,948		241,062		416,010		68,691				11/26/96		300
Mary Esther		FL		149,696		363,263				None		134		149,696		363,397		513,093		103,557				11/26/96		300
Melbourne		FL		269,697		522,414				None		134		269,697		522,548		792,245		148,915				11/26/96		300
Merritt Island		FL		309,652		482,459				None		134		309,652		482,593		792,245		137,528				11/26/96		300
Ocala		FL		339,690		543,504				None		134		339,690		543,638		883,328		154,925				11/26/96		300
Pensacola		FL		419,842		1,899,287				None		134		419,842		1,899,421		2,319,263		541,324				11/26/96		300
Tallahassee		FL		319,807		502,697				None		134		319,807		502,831		822,638		143,296				11/26/96		300
Titusville		FL		176,459		579,793				None		134		176,459		579,927		756,386		165,268				11/26/96		300
Rome		GA		254,902		486,812				None		96		254,902		486,908		741,810		138,754				11/26/96		300
Smyrna		GA		1,094,058		3,090,236				None		411		1,094,058		3,090,647		4,184,705		808,590				06/09/97		300
Council Bluffs		IA		255,217		117,792				None		None		255,217		117,792		373,009		33,571				11/26/96		300
Peoria		IL		193,868		387,737				None		230		193,868		387,967		581,835		110,524				11/26/96		300
Springfield		IL		219,859		630,595				None		217		219,859		630,812		850,671		179,739				11/26/96		300
Anderson		IN		180,628		653,162				None		136		180,628		653,298		833,926		186,151				11/26/96		300
Muncie		IN		148,901		645,235				None		136		148,901		645,371		794,272		183,897				11/26/96		300
Richmond		IN		93,999		193,753				None		136		93,999		193,889		287,888		55,225				11/26/96		300
Columbus		MS		144,908		463,707				None		96		144,908		463,803		608,711		132,169				11/26/96		300
Greenville		MS		144,588		433,764				None		96		144,588		433,860		578,448		123,635				11/26/96		300
Gulfport		MS		299,464		502,326				None		96		299,464		502,422		801,886		143,175				11/26/96		300
Hattiesburg		MS		198,659		457,379				None		96		198,659		457,475		656,134		130,365				11/26/96		300
Jackson		MS		405,360		656,296				None		96		405,360		656,392		1,061,752		187,057				11/26/96		300
Meridian		MS		181,156		515,598				None		96		181,156		515,694		696,850		146,958				11/26/96		300
Tupelo		MS		121,697		637,691				None		96		121,697		637,787		759,484		181,754				11/26/96		300
Vicksburg		MS		494,532		174,541				None		96		494,532		174,637		669,169		49,756				11/26/96		300
Pineville		NC		567,864		840,284				None		36,071		567,864		876,355		1,444,219		180,880				12/31/98		300
Lakewood		NY		144,859		526,301				None		422		144,859		526,723		671,582		150,041				11/26/96		300

 

F 18

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Westbury		NY		6,333,590		3,952,773				None		None		6,333,590		3,952,773		10,286,363		994,393				09/29/97		300
Defiance		OH		97,978		601,863				None		168		97,978		602,031		700,009		171,540				11/26/96		300
Kettering		OH		229,246		488,393				None		174		229,246		488,567		717,813		139,211				11/26/96		300
Bristol		TN		344,365		468,719				None		96		344,365		468,815		813,180		133,597				11/26/96		300
Clarksville		TN		290,775		395,870				None		96		290,775		395,966		686,741		112,835				11/26/96		300
Consumer Electronics
Vienna		WV		324,797		526,670				None		422		324,797		527,092		851,889		150,146				11/26/96		300
Convenience Stores
Manchester		CT		118,262		305,510				None		None		118,262		305,510		423,772		107,438				03/03/95		300
Vernon		CT		179,646		319,372				None		None		179,646		319,372		499,018		112,312				03/09/95		300
Westbrook		CT		98,247		373,340				None		None		98,247		373,340		471,587		131,291				03/09/95		300
Camden		DE		113,811		174,422				None		None		113,811		174,422		288,233		5,517				03/19/03		300
Camden		DE		250,528		379,152				None		None		250,528		379,152		629,680		12,000				03/19/03		300
Dewey		DE		147,465		224,652				None		None		147,465		224,652		372,117		7,107				03/19/03		300
Dover		DE		278,804		421,694				None		None		278,804		421,694		700,498		13,347				03/19/03		300
Dover		DE		367,137		554,194				None		None		367,137		554,194		921,331		17,543				03/19/03		300
Dover		DE		214,627		325,429				None		None		214,627		325,429		540,056		10,299				03/19/03		300
Dover		DE		367,425		554,871				None		None		367,425		554,871		922,296		17,564				03/19/03		300
Felton		DE		307,260		464,378				None		None		307,260		464,378		771,638		14,699				03/19/03		300
Harrington		DE		563,812		849,207				None		None		563,812		849,207		1,413,019		26,885				03/19/03		300
Milford		DE		310,049		468,561				None		None		310,049		468,561		778,610		14,831				03/19/03		300
Newcastle		DE		589,325		887,475				None		None		589,325		887,475		1,476,800		28,097				03/19/03		300
Smyrna		DE		121,774		186,423				None		None		121,774		186,423		308,197		5,897				03/19/03		300
Smyrna		DE		401,135		605,319				None		None		401,135		605,319		1,006,454		19,162				03/19/03		300
Townsend		DE		241,416		365,736				None		None		241,416		365,736		607,152		11,575				03/19/03		300
Wilmington		DE		280,682		424,512				None		None		280,682		424,512		705,194		13,436				03/19/03		300
Archer		FL		296,238		578,145				None		51		296,238		578,196		874,434		106,966				05/07/99		300
Gainesville		FL		515,834		873,187				None		None		515,834		873,187		1,389,021		161,538				05/07/99		300
Gainesville		FL		480,318		600,633				None		None		480,318		600,633		1,080,951		111,116				05/07/99		300
Gainesville		FL		347,310		694,859				None		None		347,310		694,859		1,042,169		128,547				05/07/99		300
Gainesville		FL		339,263		658,807				None		None		339,263		658,807		998,070		121,878				05/07/99		300
Gainesville		FL		351,921		552,557				None		None		351,921		552,557		904,478		102,222				05/07/99		300
Gainesville		FL		500,032		850,291				None		None		500,032		850,291		1,350,323		157,302				05/07/99		300
Jacksonville Bch		FL		522,188		371,885				None		None		522,188		371,885		894,073		68,797				05/07/99		300
Orange Park		FL		425,820		416,154				None		230		425,820		416,384		842,204		77,020				05/07/99		300
Augusta		GA		320,000		382,323				None		None		320,000		382,323		702,323		68,177				07/22/99		300
Augusta		GA		620,000		383,232				None		None		620,000		383,232		1,003,232		68,338				07/22/99		300
Augusta		GA		540,000		337,853				None		None		540,000		337,853		877,853		60,246				07/22/99		300
Augusta		GA		510,000		392,929				None		None		510,000		392,929		902,929		70,068				07/22/99		300
Augusta		GA		180,000		422,020				None		None		180,000		422,020		602,020		75,257				07/22/99		300
Augusta		GA		260,000		392,171				None		None		260,000		392,171		652,171		69,934				07/22/99		300
Cahutta		GA		437,500		813,619				None		None		437,500		813,619		1,251,119		6,776				10/16/03		300

 

F 19

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Calhoun		GA		122,500		228,619				None		None		122,500		228,619		351,119		1,901				10/16/03		300
Calhoun		GA		262,500		488,619				None		None		262,500		488,619		751,119		4,068				10/16/03		300
Chatsworth		GA		140,000		261,119				None		None		140,000		261,119		401,119		2,172				10/16/03		300
Convenience Stores
Chatsworth		GA		140,000		261,119				None		None		140,000		261,119		401,119		2,172				10/16/03		300
Chatsworth		GA		140,000		261,119				None		None		140,000		261,119		401,119		2,172				10/16/03		300
Chickamauga		GA		181,731		338,620				None		None		181,731		338,620		520,351		2,818				10/16/03		300
Dalton		GA		171,500		319,619				None		None		171,500		319,619		491,119		2,660				10/16/03		300
Dalton		GA		87,500		163,619				None		None		87,500		163,619		251,119		1,360				10/16/03		300
Dalton		GA		485,650		903,040				None		None		485,650		903,040		1,388,690		7,521				10/16/03		300
Dalton		GA		146,000		272,262				None		None		146,000		272,262		418,262		2,265				10/16/03		300
Dalton		GA		420,000		781,119				None		None		420,000		781,119		1,201,119		6,505				10/16/03		300
Dalton		GA		210,000		391,119				None		None		210,000		391,119		601,119		3,255				10/16/03		300
Dalton		GA		332,500		618,619				None		None		332,500		618,619		951,119		5,151				10/16/03		300
Dunwoody		GA		545,462		724,254				None		None		545,462		724,254		1,269,716		189,444				06/27/97		300
Euharlee		GA		262,500		488,619				None		None		262,500		488,619		751,119		4,068				10/16/03		300
Flintstone		GA		157,500		293,619				None		None		157,500		293,619		451,119		2,443				10/16/03		300
Hephzibah		GA		580,000		523,535				None		None		580,000		523,535		1,103,535		93,358				07/22/99		300
Lafayette		GA		122,500		228,619				None		None		122,500		228,619		351,119		1,901				10/16/03		300
Lithonia		GA		386,784		776,436				None		None		386,784		776,436		1,163,220		203,110				06/27/97		300
Mableton		GA		491,069		355,957				None		None		491,069		355,957		847,026		93,094				06/27/97		300
Martinez		GA		450,000		402,777				None		None		450,000		402,777		852,777		71,824				07/22/99		300
Norcross		GA		384,162		651,273				None		None		384,162		651,273		1,035,435		170,356				06/27/97		300
Ringgold		GA		350,000		651,119				None		None		350,000		651,119		1,001,119		5,422				10/16/03		300
Ringgold		GA		234,500		436,619				None		None		234,500		436,619		671,119		3,635				10/16/03		300
Ringgold		GA		385,000		716,119				None		None		385,000		716,119		1,101,119		5,964				10/16/03		300
Ringgold		GA		482,251		896,728				None		None		482,251		896,728		1,378,979		7,469				10/16/03		300
Rocky Face		GA		164,231		306,119				None		None		164,231		306,119		470,350		2,547				10/16/03		300
Rome		GA		210,000		391,119				None		None		210,000		391,119		601,119		3,255				10/16/03		300
Rome		GA		199,199		371,060				None		None		199,199		371,060		570,259		3,088				10/16/03		300
Rome		GA		201,791		375,875				None		None		201,791		375,875		577,666		3,128				10/16/03		300
Rome		GA		315,000		586,119				None		None		315,000		586,119		901,119		4,880				10/16/03		300
Rossville		GA		157,500		293,619				None		None		157,500		293,619		451,119		2,443				10/16/03		300
Stone Mountain		GA		529,383		532,429				None		None		529,383		532,429		1,061,812		139,258				06/27/97		300
Summerville		GA		66,231		124,120				None		None		66,231		124,120		190,351		1,030				10/16/03		300
Trenton		GA		129,231		241,120				None		None		129,231		241,120		370,351		2,005				10/16/03		300
Godfrey		IL		374,586		733,190				None		None		374,586		733,190		1,107,776		191,787				06/27/97		300
Granite City		IL		362,287		737,255				None		None		362,287		737,255		1,099,542		192,852				06/27/97		300
Madison		IL		173,812		625,030				None		None		173,812		625,030		798,842		163,505				06/27/97		300
New Albany		IN		181,459		289,353				None		None		181,459		289,353		470,812		101,756				03/03/95		300
New Albany		IN		262,465		331,796				None		None		262,465		331,796		594,261		116,682				03/06/95		300
Berea		KY		252,077		360,815				None		None		252,077		360,815		612,892		126,887				03/08/95		300
Elizabethtown		KY		286,106		286,106				None		None		286,106		286,106		572,212		100,614				03/03/95		300

 

F 20

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Henderson		KY		225,000		515,000				None		None		225,000		515,000		740,000		172,525				08/25/95		300
Convenience Stores
Lebanon		KY		158,052		316,105				None		None		158,052		316,105		474,157		111,164				03/03/95		300
Louisville		KY		198,926		368,014				None		None		198,926		368,014		566,940		129,418				03/03/95		300
Louisville		KY		216,849		605,697				None		None		216,849		605,697		822,546		182,585		06/18/96		11/17/95		300
Mt. Washington		KY		327,245		479,593				None		None		327,245		479,593		806,838		136,716		12/06/96		05/31/96		300
Owensboro		KY		360,000		590,000				None		None		360,000		590,000		950,000		197,650				08/25/95		300
Amherst		MA		110,969		639,806				None		None		110,969		639,806		750,775		9,597				08/18/03		300
North Reading		MA		574,601		756,174				None		None		574,601		756,174		1,330,775		11,343				08/18/03		300
Seekonk		MA		298,354		268,518				None		None		298,354		268,518		566,872		94,429				03/03/95		300
Berlin		MD		255,951		387,382				None		None		255,951		387,382		643,333		12,260				03/19/03		300
Crisfield		MD		219,704		333,011				None		None		219,704		333,011		552,715		10,539				03/19/03		300
Hebron		MD		376,251		567,831				None		None		376,251		567,831		944,082		17,975				03/19/03		300
La Plata		MD		1,017,544		2,706,729				None		None		1,017,544		2,706,729		3,724,273		148,622				08/06/02		300
Mechanicsville		MD		1,540,335		2,860,928				None		None		1,540,335		2,860,928		4,401,263		176,364				06/27/02		300
Millersville		MD		830,737		2,696,245				None		None		830,737		2,696,245		3,526,982		166,315				06/27/02		300
Flint		MI		194,492		476,504				None		None		194,492		476,504		670,996		153,276				12/21/95		300
Aberdeen		NC		600,000		300,625				None		None		600,000		300,625		900,625		35,551				01/25/01		300
Cary		NC		450,000		825,000				None		None		450,000		825,000		1,275,000		276,375				08/25/95		300
Goldsboro		NC		460,000		740,625				None		None		460,000		740,625		1,200,625		87,618				01/25/01		300
Greensboro		NC		700,000		655,000				None		None		700,000		655,000		1,355,000		110,258				10/27/99		300
Greenville		NC		330,000		515,000				None		None		330,000		515,000		845,000		172,525				08/25/95		300
Greenville		NC		225,000		405,000				None		None		225,000		405,000		630,000		135,675				08/25/95		300
Jacksonville		NC		150,000		530,000				None		None		150,000		530,000		680,000		177,550				08/25/95		300
Kinston		NC		550,000		1,057,833				None		None		550,000		1,057,833		1,607,833		262,622				10/24/97		300
Roxboro		NC		243,112		368,094				None		None		243,112		368,094		611,206		11,650				03/19/03		300
Galloway		NJ		1,367,872		2,540,604				None		None		1,367,872		2,540,604		3,908,476		156,627				06/27/02		300
Hamilton		NJ		1,539,117		2,858,630				None		None		1,539,117		2,858,630		4,397,747		177,176				06/27/02		300
MillVille		NJ		953,891		1,771,782				None		None		953,891		1,771,782		2,725,673		109,250				06/27/02		300
Toms River		NJ		1,265,861		2,351,154				None		None		1,265,861		2,351,154		3,617,015		145,342				06/27/02		300
Toms River		NJ		982,526		1,824,961				None		None		982,526		1,824,961		2,807,487		112,187				06/27/02		300
Wall		NJ		1,459,957		2,712,264				None		None		1,459,957		2,712,264		4,172,221		149,135				08/06/02		300
Kingston		NY		257,763		456,042				None		None		257,763		456,042		713,805		158,855				04/06/95		300
Atwater		OH		118,555		266,748				None		None		118,555		266,748		385,303		93,806				03/03/95		300
Columbus		OH		147,296		304,411				None		None		147,296		304,411		451,707		107,051				03/03/95		300
Columbus		OH		273,085		471,693				None		None		273,085		471,693		744,778		151,728				12/21/95		300
Cuyahoga Falls		OH		297,982		357,579				None		None		297,982		357,579		655,561		125,749				03/03/95		300
Galion		OH		138,981		327,597				None		7		138,981		327,604		466,585		115,206				03/06/95		300
Groveport		OH		277,198		445,497				None		None		277,198		445,497		722,695		143,302				12/21/95		300
Perrysburg		OH		211,678		390,680				None		None		211,678		390,680		602,358		110,393		01/10/96		09/01/95		300
Streetsboro		OH		402,988		533,349				None		None		402,988		533,349		936,337		122,670		01/27/97		09/03/96		300
Tipp City		OH		355,009		588,111				None		None		355,009		588,111		943,120		140,159		01/31/97		06/27/96		300
Convenience Stores

 

F 21

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Triffin		OH		117,017		273,040				None		None		117,017		273,040		390,057		96,019				03/07/95		300
Wadsworth		OH		266,507		496,917				None		None		266,507		496,917		763,424		125,223		11/26/96		07/01/96		300
Tulsa		OK		126,545		508,266				None		None		126,545		508,266		634,811		132,955				06/27/97		300
Cornwells Heights		PA		569,763		387,589				None		None		569,763		387,589		957,352		9,685				05/29/03		300
Doylestown		PA		800,134		1,226,431				None		None		800,134		1,226,431		2,026,565		30,656				05/29/03		300
East Caln		PA		1,722,222		576				None		None		1,722,222		576		1,722,798		18				02/25/03		300
Lansdale		PA		1,356,324		385,739				None		None		1,356,324		385,739		1,742,063		9,638				05/29/03		300
Penndel		PA		739,487		1,003,788				None		None		739,487		1,003,788		1,743,275		25,090				05/29/03		300
Philadelphia		PA		808,681		256,821				None		None		808,681		256,821		1,065,502		6,416				05/29/03		300
Philadelphia		PA		425,928		167,125				None		None		425,928		167,125		593,053		4,174				05/29/03		300
Philadelphia		PA		390,342		226,897				None		None		390,342		226,897		617,239		5,668				05/29/03		300
Philadelphia		PA		541,792		236,027				None		None		541,792		236,027		777,819		5,896				05/29/03		300
Philadelphia		PA		530,018		214,955				None		None		530,018		214,955		744,973		5,370				05/29/03		300
Philadelphia		PA		614,101		277,255				None		None		614,101		277,255		891,356		6,927				05/29/03		300
Philadelphia		PA		1,011,389		491,280				None		None		1,011,389		491,280		1,502,669		12,278				05/29/03		300
Philadelphia		PA		935,672		448,405				None		None		935,672		448,405		1,384,077		11,206				05/29/03		300
Philadelphia		PA		689,172		426,575				None		None		689,172		426,575		1,115,747		10,660				05/29/03		300
Philadelphia		PA		349,294		134,463				None		None		349,294		134,463		483,757		3,357				05/29/03		300
Philadelphia		PA		557,515		244,121				None		None		557,515		244,121		801,636		2,848				09/16/03		300
Southampton		PA		783,279		163,699				None		None		783,279		163,699		946,978		4,088				05/29/03		300
Willow Grove		PA		329,934		73,102				None		None		329,934		73,102		403,036		1,823				05/29/03		300
Aiken		SC		320,000		432,527				None		None		320,000		432,527		752,527		77,130				07/22/99		300
Aiken		SC		330,000		472,679				None		None		330,000		472,679		802,679		84,290				07/22/99		300
Aiken		SC		560,000		543,588				None		None		560,000		543,588		1,103,588		96,934				07/22/99		300
Aiken		SC		360,000		542,982				None		None		360,000		542,982		902,982		96,827				07/22/99		300
Aiken		SC		540,000		388,058				None		None		540,000		388,058		928,058		69,199				07/22/99		300
Aiken		SC		250,000		251,770				None		None		250,000		251,770		501,770		44,896				07/22/99		300
Belvedere		SC		490,000		463,080				None		None		490,000		463,080		953,080		82,578				07/22/99		300
Columbia		SC		150,000		450,000				None		None		150,000		450,000		600,000		150,750				08/25/95		300
Greenville		SC		390,000		462,847				None		None		390,000		462,847		852,847		82,537				07/22/99		300
Greenville		SC		300,000		402,392				None		None		300,000		402,392		702,392		71,756				07/22/99		300
Greenville		SC		370,000		432,695				None		None		370,000		432,695		802,695		77,160				07/22/99		300
Greenville		SC		620,000		483,604				None		None		620,000		483,604		1,103,604		86,237				07/22/99		300
Greenville		SC		720,000		534,059				None		None		720,000		534,059		1,254,059		95,234				07/22/99		300
Greenville		SC		680,000		423,604				None		None		680,000		423,604		1,103,604		75,537				07/22/99		300
Greer		SC		400,000		502,879				None		None		400,000		502,879		902,879		89,675				07/22/99		300
Jackson		SC		170,000		632,626				None		None		170,000		632,626		802,626		112,814				07/22/99		300
John’s Isle		SC		170,000		350,000				None		None		170,000		350,000		520,000		117,250				08/25/95		300
Lexington		SC		255,000		545,000				None		None		255,000		545,000		800,000		182,575				08/25/95		300
Lexington		SC		640,000		563,891				None		None		640,000		563,891		1,203,891		100,554				07/22/99		300
Convenience Stores
Lexington		SC		540,000		563,588				None		None		540,000		563,588		1,103,588		100,501				07/22/99		300
Lexington		SC		360,000		843,891				None		None		360,000		843,891		1,203,891		150,488				07/22/99		300

 

F 22

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Mauldin		SC		490,000		412,879				None		None		490,000		412,879		902,879		73,625				07/22/99		300
Myrtle Beach		SC		140,000		590,000				None		None		140,000		590,000		730,000		197,650				08/25/95		300
N. Augusta		SC		400,000		452,777				None		None		400,000		452,777		852,777		80,741				07/22/99		300
N. Charleston		SC		400,000		650,000				None		None		400,000		650,000		1,050,000		217,750				08/25/95		300
North Augusta		SC		350,000		352,323				None		None		350,000		352,323		702,323		62,827				07/22/99		300
Simpsonville		SC		530,000		573,485				None		None		530,000		573,485		1,103,485		102,266				07/22/99		300
Spartanburg		SC		470,000		432,879				None		None		470,000		432,879		902,879		77,192				07/22/99		300
Summerville		SC		115,000		515,000				None		None		115,000		515,000		630,000		172,525				08/25/95		300
W. Columbia		SC		410,000		693,574				None		None		410,000		693,574		1,103,574		123,682				07/22/99		300
West Aiken		SC		400,000		402,665				None		None		400,000		402,665		802,665		71,805				07/22/99		300
Arrington		TN		385,000		716,119				None		None		385,000		716,119		1,101,119		5,964				10/16/03		300
Athens		TN		175,000		326,119				None		None		175,000		326,119		501,119		2,714				10/16/03		300
Athens		TN		124,179		231,737				None		None		124,179		231,737		355,916		1,927				10/16/03		300
Benton		TN		192,500		358,619				None		None		192,500		358,619		551,119		2,985				10/16/03		300
Chattanooga		TN		181,731		338,619				None		None		181,731		338,619		520,350		2,818				10/16/03		300
Chattanooga		TN		168,000		313,119				None		None		168,000		313,119		481,119		2,605				10/16/03		300
Chattanooga		TN		175,000		326,119				None		None		175,000		326,119		501,119		2,714				10/16/03		300
Chattanooga		TN		159,979		298,223				None		None		159,979		298,223		458,202		2,481				10/16/03		300
Chattanooga		TN		105,000		196,119				None		None		105,000		196,119		301,119		1,630				10/16/03		300
Chattanooga		TN		271,250		504,869				None		None		271,250		504,869		776,119		4,203				10/16/03		300
Chattanooga		TN		245,000		456,119				None		None		245,000		456,119		701,119		3,797				10/16/03		300
Chattanooga		TN		297,500		553,619				None		None		297,500		553,619		851,119		4,610				10/16/03		300
Chattanooga		TN		323,750		602,369				None		None		323,750		602,369		926,119		5,016				10/16/03		300
Chattanooga		TN		280,000		521,119				None		None		280,000		521,119		801,119		4,339				10/16/03		300
Chattanooga		TN		257,250		478,869				None		None		257,250		478,869		736,119		3,987				10/16/03		300
Chattanooga		TN		283,209		527,079				None		None		283,209		527,079		810,288		4,388				10/16/03		300
Chattanooga		TN		542,500		1,008,619				None		None		542,500		1,008,619		1,551,119		8,401				10/16/03		300
Chattanooga		TN		332,500		618,619				None		None		332,500		618,619		951,119		5,151				10/16/03		300
Chattanooga		TN		175,000		326,119				None		None		175,000		326,119		501,119		2,714				10/16/03		300
Cleveland		TN		110,009		205,422				None		None		110,009		205,422		315,431		1,708				10/16/03		300
Cleveland		TN		227,500		423,619				None		None		227,500		423,619		651,119		3,526				10/16/03		300
Cleveland		TN		280,000		521,119				None		None		280,000		521,119		801,119		4,339				10/16/03		300
Cleveland		TN		245,000		456,119				None		None		245,000		456,119		701,119		3,797				10/16/03		300
Cleveland		TN		157,500		293,619				None		None		157,500		293,619		451,119		2,443				10/16/03		300
Cleveland		TN		122,500		228,619				None		None		122,500		228,619		351,119		1,901				10/16/03		300
Cleveland		TN		300,373		558,955				None		None		300,373		558,955		859,328		4,654				10/16/03		300
Dayton		TN		262,500		488,619				None		None		262,500		488,619		751,119		4,068				10/16/03		300
Decatur		TN		181,731		338,620				None		None		181,731		338,620		520,351		2,818				10/16/03		300
Convenience Stores		TN		315,000		586,119				None		None		315,000		586,119		901,119		4,880				10/16/03		300
Etowah		TN		192,500		358,619				None		None		192,500		358,619		551,119		2,985				10/16/03		300
Gallatin		TN		525,000		976,119				None		None		525,000		976,119		1,501,119		8,130				10/16/03		300
Harrison		TN		484,313		900,558				None		None		484,313		900,558		1,384,871		7,501				10/16/03		300

 

F 23

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Hixson		TN		513,215		954,233				None		None		513,215		954,233		1,467,448		7,948				10/16/03		300
Hixson		TN		94,500		176,619				None		None		94,500		176,619		271,119		1,468				10/16/03		300
Hixson		TN		300,373		558,955				None		None		300,373		558,955		859,328		4,654				10/16/03		300
Kimball		TN		332,500		618,619				None		None		332,500		618,619		951,119		5,151				10/16/03		300
La Vergne		TN		340,000		650,000				None		None		340,000		650,000		990,000		217,750				08/25/95		300
LeVergne		TN		577,500		1,073,619				None		None		577,500		1,073,619		1,651,119		8,943				10/16/03		300
Manchester		TN		266,119		495,340				None		None		266,119		495,340		761,459		4,124				10/16/03		300
Manchester		TN		281,675		524,230				None		None		281,675		524,230		805,905		4,365				10/16/03		300
Manchester		TN		319,846		595,120				None		None		319,846		595,120		914,966		4,955				10/16/03		300
Monteagle		TN		271,173		504,726				None		None		271,173		504,726		775,899		4,202				10/16/03		300
Mt. Juliet		TN		397,128		738,642				None		None		397,128		738,642		1,135,770		6,151				10/16/03		300
Murfreesboro		TN		549,500		1,021,619				None		None		549,500		1,021,619		1,571,119		8,510				10/16/03		300
Murfreesboro		TN		467,810		869,909				None		None		467,810		869,909		1,337,719		7,245				10/16/03		300
Murfreesboro		TN		300,373		558,955				None		None		300,373		558,955		859,328		4,654				10/16/03		300
Nashville		TN		498,628		927,142				None		None		498,628		927,142		1,425,770		7,722				10/16/03		300
Ocoee		TN		119,792		223,590				None		None		119,792		223,590		343,382		1,859				10/16/03		300
Ooltewah		TN		234,231		436,119				None		None		234,231		436,119		670,350		3,630				10/16/03		300
Ooltewah		TN		700,000		1,301,119				None		None		700,000		1,301,119		2,001,119		10,839				10/16/03		300
Ooltewah		TN		105,000		196,119				None		None		105,000		196,119		301,119		1,630				10/16/03		300
Red Bank		TN		350,000		651,119				None		None		350,000		651,119		1,001,119		5,422				10/16/03		300
Red Bank		TN		300,373		558,955				None		None		300,373		558,955		859,328		4,654				10/16/03		300
Royal		TN		320,229		595,830				None		None		320,229		595,830		916,059		4,961				10/16/03		300
Shelbyville		TN		200,000		465,000				None		None		200,000		465,000		665,000		155,775				08/25/95		300
Smyrna		TN		315,000		586,119				None		None		315,000		586,119		901,119		4,880				10/16/03		300
Smyrna		TN		426,466		793,128				None		None		426,466		793,128		1,219,594		6,606				10/16/03		300
Soddy Daisy		TN		297,500		553,619				None		None		297,500		553,619		851,119		4,610				10/16/03		300
Soddy Daisy		TN		350,000		651,119				None		None		350,000		651,119		1,001,119		5,422				10/16/03		300
Soddy Daisy		TN		245,000		456,119				None		None		245,000		456,119		701,119		3,797				10/16/03		300
Sweetwater		TN		122,500		228,619				None		None		122,500		228,619		351,119		1,901				10/16/03		300
Sweetwater		TN		339,231		631,120				None		None		339,231		631,120		970,351		5,255				10/16/03		300
Sweetwater		TN		133,000		248,119				None		None		133,000		248,119		381,119		2,064				10/16/03		300
Chatham		VA		347,728		525,018				None		None		347,728		525,018		872,746		16,619				03/19/03		300
Collinsville		VA		84,465		130,124				None		None		84,465		130,124		214,589		4,114				03/19/03		300
Danville		VA		149,276		227,320				None		None		149,276		227,320		376,596		7,192				03/19/03		300
Danville		VA		83,644		128,871				None		None		83,644		128,871		212,515		4,074				03/19/03		300
Danville		VA		266,722		403,488				None		None		266,722		403,488		670,210		12,771				03/19/03		300
Convenience Stores
Hampton		VA		433,985		459,108				None		None		433,985		459,108		893,093		104,819				04/17/98		300
Highland Springs		VA		396,720		598,534				None		None		396,720		598,534		995,254		18,947				03/19/03		300
Martinsville		VA		246,820		373,640				None		None		246,820		373,640		620,460		11,825				03/19/03		300
Martinsville		VA		83,521		128,693				None		None		83,521		128,693		212,214		4,069				03/19/03		300
Midlothian		VA		325,000		302,872				None		None		325,000		302,872		627,872		77,186				08/21/97		300
Newport News		VA		490,616		605,304				None		None		490,616		605,304		1,095,920		108,869				04/17/98		300

 

F 24

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Richmond		VA		700,000		400,740				None		None		700,000		400,740		1,100,740		91,495				04/17/98		300
Richmond		VA		700,000		440,965				None		None		700,000		440,965		1,140,965		100,677				04/17/98		300
Richmond		VA		400,000		250,875				None		None		400,000		250,875		650,875		57,274				04/17/98		300
Richmond		VA		1,000,000		740				None		None		1,000,000		740		1,000,740		161				04/17/98		300
Richmond		VA		700,000		100,695				None		None		700,000		100,695		800,695		22,985				04/17/98		300
Richmond		VA		1,144,841		3,371,146				None		None		1,144,841		3,371,146		4,515,987		183,572				08/22/02		300
Richmond		VA		298,227		451,001				None		None		298,227		451,001		749,228		14,275				03/19/03		300
Richmond		VA		329,698		498,001				None		None		329,698		498,001		827,699		15,763				03/19/03		300
Richmond		VA		213,982		324,646				None		None		213,982		324,646		538,628		10,274				03/19/03		300
Richmond		VA		482,735		727,763				None		None		482,735		727,763		1,210,498		23,039				03/19/03		300
Richmond		VA		350,453		529,352				None		None		350,453		529,352		879,805		16,756				03/19/03		300
Richmond		VA		323,496		488,905				None		None		323,496		488,905		812,401		15,475				03/19/03		300
Richmond		VA		278,443		421,571				None		None		278,443		421,571		700,014		13,343				03/19/03		300
Sandston		VA		152,535		232,515				None		None		152,535		232,515		385,050		7,356				03/19/03		300
South Boston		VA		160,893		244,765				None		None		160,893		244,765		405,658		7,744				03/19/03		300
Stafford		VA		271,865		601,997				None		None		271,865		601,997		873,862		169,562				12/20/96		300
Virginia Beach		VA		1,194,560		2,218,773				None		None		1,194,560		2,218,773		3,413,333		136,809				06/27/02		300
Warrenton		VA		515,971		649,125				None		None		515,971		649,125		1,165,096		182,837				12/20/96		300
Williamsburg		VA		838,172		1,556,910				None		None		838,172		1,556,910		2,395,082		95,934				06/27/02		300
Yorktown		VA		309,435		447,144				None		None		309,435		447,144		756,579		102,082				04/17/98		300
Craft and Novelty
Cutler Ridge		FL		743,498		657,485				68,215		35,192		743,498		760,892		1,504,390		154,377				12/31/98		300
Rockford		IL		159,587		618,398				None		11,300		159,587		629,698		789,285		176,434				11/26/96		300
Stony Brook		NY		980,000		1,801,586				None		None		980,000		1,801,586		2,781,586		357,303				01/11/99		300
Pleasant Hills		PA		631,084		1,172,563				None		None		631,084		1,172,563		1,803,647		52,763				11/01/02		300
Drug Stores
Casselberry		FL		1,075,020		1,664,284				None		None		1,075,020		1,664,284		2,739,304		352,301				09/30/98		300
Entertainment
Riverside		CA		4,000,000		130				None		None		4,000,000		130		4,000,130		5				07/05/02		300
Vista		CA		2,300,000		22				None		None		2,300,000		22		2,300,022		4				03/31/99		300
Entertainment
Dania		FL		8,272,080		1,713				None		None		8,272,080		1,713		8,273,793		305				03/31/99		300
Marietta		GA		1,500,000		768				None		None		1,500,000		768		1,500,768		63				06/29/01		300
Norcross		GA		1,600,000		768				None		None		1,600,000		768		1,600,768		63				06/29/01		300
Greensboro		NC		7,800,000		463				None		None		7,800,000		463		7,800,463		19				07/05/02		300
Flanders		NJ		2,222,205		890.00				None		1,208		2,222,205		2,098		2,224,303		407				06/29/99		300
Brookhaven		NY		1,500,000		745				None		None		1,500,000		745		1,500,745		133				07/23/99		300
Riverhead		NY		6,200,000		744				None		None		6,200,000		744		6,200,744		133				07/23/99		300

 

F 25

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Equipment Rental Services
Lake Worth		FL		679,079		1,262,568				None		None		679,079		1,262,568		1,941,647		23,147				07/03/03		300
Lewisville		TX		1,010,134		1,877,384				None		None		1,010,134		1,877,384		2,887,518		34,419				07/03/03		300
General Merchandise
Monte Vista		CO		47,652		582,159				None		None		47,652		582,159		629,811		117,416				12/23/98		300
Groveland		FL		101,782		189,258				None		None		101,782		189,258		291,040		36,271				03/31/99		300
Garnett		KS		59,690		518,121				None		None		59,690		518,121		577,811		104,501				12/23/98		300
Caledonia		MN		89,723		559,300				None		None		89,723		559,300		649,023		112,809				12/23/98		300
Long Prarie		MN		88,892		553,997				None		None		88,892		553,997		642,889		111,738				12/23/98		300
Paynesvile		MN		49,483		525,406				None		None		49,483		525,406		574,889		105,972				12/23/98		300
Spring Valley		MN		69,785		579,238				None		None		69,785		579,238		649,023		116,830				12/23/98		300
Warroad		MN		70,000		580,000				None		None		70,000		580,000		650,000		116,967				12/23/98		300
Mayville		ND		59,333		565,562				None		None		59,333		565,562		624,895		114,086				12/23/98		300
Bloomfield		NM		59,559		616,252				None		None		59,559		616,252		675,811		124,291				12/23/98		300
Colorado City		TX		92,535		505,276				None		None		92,535		505,276		597,811		101,911				12/23/98		300
Grocery Stores
Cloverdale		CA		1,505,000		2,795,321				None		None		1,505,000		2,795,321		4,300,321		32,612				09/30/03		300
Fortuna		CA		1,190,000		2,210,308				None		None		1,190,000		2,210,308		3,400,308		25,787				09/30/03		300
Boulder		CO		426,675		1,199,508				None		91,660		426,675		1,291,168		1,717,843		933,236				01/05/84		180
Central Point		OR		840,000		1,560,308				None		None		840,000		1,560,308		2,400,308		18,203				09/30/03		300
Phoenix		OR		840,000		1,560,308				None		None		840,000		1,560,308		2,400,308		18,203				09/30/03		300
Sheboygan		WI		1,513,216		4,427,968				None		1,829		1,513,216		4,429,797		5,943,013		775,968		06/03/99		08/24/98		300
Health and Fitness
Paradise Valley		AZ		2,608,389		3,418,783				None		None		2,608,389		3,418,783		6,027,172		256,375		06/06/02		06/26/01		300
Diamond Bar		CA		3,038,879		4,338,722				None		None		3,038,879		4,338,722		7,377,601		729,831		03/21/00		09/29/98		300
Norco		CA		1,247,243		3,807,569				None		None		1,247,243		3,807,569		5,054,812		575,474		12/13/00		06/29/99		300
Casselberry		FL		1,979,598		6,940,642				1,354		65,144		1,979,598		7,007,140		8,986,738		1,190,823				05/31/95		300
Coral Springs		FL		891,496		2,798,204				None		25		891,496		2,798,229		3,689,725		581,918		11/03/98		03/30/98		300
Health and Fitness
Miami		FL		3,115,101		4,439,526				None		25		3,115,101		4,439,551		7,554,652		635,415		05/19/00		06/07/99		300
Oakland Park		FL		2,800,000		2,196,480				None		None		2,800,000		2,196,480		4,996,480		124,659		07/06/01		03/27/01		300
Orlando		FL		2,144,778		3,403,058				None		None		2,144,778		3,403,058		5,547,836		541		08/07/03		11/26/02		300
Pembroke Pines		FL		1,714,388		4,387,824				None		25		1,714,388		4,387,849		6,102,237		542,440		12/11/00		10/01/99		300
Alpharetta		GA		3,091,079		137,565				26,323		55,994		3,091,079		219,882		3,310,961		29,373				06/30/99		300
Fort Worth		TX		1,445,901		5,277,886				None		None		1,445,901		5,277,886		6,723,787		753,594				06/30/99		300
Home Furnishings
Colorado Springs		CO		313,250		695,730				40,500		27,521		313,250		763,751		1,077,001		464,418				03/10/87		300
Danbury		CT		630,171		3,621,163				39,456		12		630,171		3,660,631		4,290,802		916,938				09/30/97		300

 

F 26

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Brandon		FL		430,000		1,020,608				None		None		430,000		1,020,608		1,450,608		226,233				06/26/98		300
Clearwater		FL		476,179		725,023				None		18,612		476,179		743,635		1,219,814		149,370				12/31/98		300
Jupiter		FL		1,698,316		3,209,801				None		None		1,698,316		3,209,801		4,908,117		465,378				05/03/00		300
Tampa		FL		685,000		885,624				None		None		685,000		885,624		1,570,624		196,311				06/26/98		300
Tampa		FL		494,763		767,737				71,880		1,870		494,763		841,487		1,336,250		197,325				12/31/98		300
West Palm Beach		FL		347,651		706,081				69,111		32,435		347,651		807,627		1,155,278		159,340				12/31/98		300
Davenport		IA		270,000		930,689				None		None		270,000		930,689		1,200,689		206,300				06/26/98		300
Joilet		IL		440,000		910,689				None		None		440,000		910,689		1,350,689		201,867				06/26/98		300
Wichita		KS		430,000		740,725				None		None		430,000		740,725		1,170,725		164,192				06/26/98		300
Alexandria		LA		400,000		810,608				None		None		400,000		810,608		1,210,608		179,683				06/26/98		300
Monroe		LA		450,000		835,608				None		None		450,000		835,608		1,285,608		185,224				06/26/98		300
Shreveport		LA		525,000		725,642				None		None		525,000		725,642		1,250,642		160,849				06/26/98		300
Battle Creek		MI		485,000		895,689				None		None		485,000		895,689		1,380,689		198,542				06/26/98		300
Eden Prairie		MN		500,502		1,055,244				None		None		500,502		1,055,244		1,555,746		205,736				02/26/99		300
Hattiesburg		MS		300,000		660,608				None		None		300,000		660,608		960,608		146,433				06/26/98		300
Ridgeland		MS		281,867		769,890				None		None		281,867		769,890		1,051,757		201,369				06/27/97		300
Omaha		NE		1,956,296		3,949,402				None		None		1,956,296		3,949,402		5,905,698		1,059,531				04/04/97		300
Henderson		NV		1,268,655		3,109,995				None		None		1,268,655		3,109,995		4,378,650		782,476				09/26/97		300
Staten Island		NY		3,190,883		2,569,802				None		862		3,190,883		2,570,664		5,761,547		595,282				03/26/98		300
Lancaster		OH		250,000		830,689				None		None		250,000		830,689		1,080,689		184,134				06/26/98		300
Altoona		PA		455,000		745,694				None		None		455,000		745,694		1,200,694		165,293				06/26/98		300
Erie		PA		510,000		900,689				None		None		510,000		900,689		1,410,689		199,650				06/26/98		300
Muncy		PA		315,000		835,648				None		None		315,000		835,648		1,150,648		185,233				06/26/98		300
Whitehall		PA		515,525		1,146,868				None		None		515,525		1,146,868		1,662,393		254,220				06/30/98		300
Columbia		SC		600,000		900,725				None		None		600,000		900,725		1,500,725		199,658				06/26/98		300
Jackson		TN		380,000		750,608				None		None		380,000		750,608		1,130,608		166,383				06/26/98		300
Memphis		TN		804,262		1,432,520				None		400		804,262		1,432,920		2,237,182		374,787				06/30/97		300
Abilene		TX		400,000		680,616				None		None		400,000		680,616		1,080,616		150,868				06/26/98		300
Arlington		TX		475,069		1,374,167				None		None		475,069		1,374,167		1,849,236		373,186				03/26/97		300
Cedar Park		TX		253,591		827,237				None		None		253,591		827,237		1,080,828		224,656				03/10/97		300
Home Furnishings
Houston		TX		867,767		687,042				None		None		867,767		687,042		1,554,809		186,524				03/07/97		300
San Antonio		TX		323,451		637,991				47,914		34,151		323,451		720,056		1,043,507		165,788				12/31/98		300
Spring		TX		1,794,872		1,810,069				None		None		1,794,872		1,810,069		3,604,941		455,349				09/29/97		300
Webster		TX		283,604		538,002				2,470		None		283,604		540,472		824,076		141,147				06/12/97		300
Eau Claire		WI		260,000		820,689				None		None		260,000		820,689		1,080,689		181,917				06/26/98		300
La Crosse		WI		372,883		877,812				None		None		372,883		877,812		1,250,695		194,579				06/26/98		300
Home Improvements
Lawndale		CA		667,007		1,238,841				None		None		667,007		1,238,841		1,905,848		249,831				12/31/98		300
Los Angeles		CA		902,494		1,676,204				None		None		902,494		1,676,204		2,578,698		338,032				12/31/98		300
Los Angeles		CA		163,668		304,097				None		None		163,668		304,097		467,765		61,324				12/31/98		300
Van Nuys		CA		750,293		1,393,545				None		None		750,293		1,393,545		2,143,838		281,029				12/31/98		300

 

F 27

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
West Covina		CA		311,040		577,733				None		None		311,040		577,733		888,773		116,509				12/31/98		300
Jacksonville		FL		478,314		618,348				None		280		478,314		618,628		1,096,942		124,776				12/31/98		300
Des Moines		IA		225,771		682,604				None		None		225,771		682,604		908,375		135,376				01/29/99		300
Broadview		IL		345,166		641,739				None		None		345,166		641,739		986,905		129,428				12/31/98		300
Baltimore		MD		171,320		318,882				None		None		171,320		318,882		490,202		64,319				12/31/98		300
Rochester		NY		158,168		294,456				None		None		158,168		294,456		452,624		59,393				12/31/98		300
Carrolton		TX		201,569		374,342				None		None		201,569		374,342		575,911		624				12/05/03		300
Pasadena		TX		147,535		274,521				None		None		147,535		274,521		422,056		55,364				12/31/98		300
Plano		TX		363,851		676,249				None		None		363,851		676,249		1,040,100		136,379				12/31/98		300
San Antonio		TX		367,890		683,750				None		None		367,890		683,750		1,051,640		137,892				12/31/98		300
Chesapeake		VA		144,014		649,869				None		11,754		144,014		661,623		805,637		485,046				12/22/86		300
Office Supplies
Lakewood		CA		1,398,387		3,098,607				None		None		1,398,387		3,098,607		4,496,994		862,372				01/29/97		300
Riverside		CA		1,410,177		1,659,850				None		None		1,410,177		1,659,850		3,070,027		417,663				09/17/97		300
Hutchinson		KS		269,964		1,704,013				None		None		269,964		1,704,013		1,973,977		445,806				06/25/97		300
Salina		KS		240,423		1,829,837				None		None		240,423		1,829,837		2,070,260		478,722				06/25/97		300
Sikeston		MO		409,114		2,005,416				None		None		409,114		2,005,416		2,414,530		157,078				01/24/02		300
Helena		MT		564,241		1,503,118				None		None		564,241		1,503,118		2,067,359		393,182				06/09/97		300
Asheboro		NC		465,557		2,176,416				None		None		465,557		2,176,416		2,641,973		504,071				03/27/98		300
Westbury		NY		3,808,076		2,377,932				None		None		3,808,076		2,377,932		6,186,008		598,198				09/29/97		300
New Philiadelphia		OH		726,636		1,650,672				None		None		726,636		1,650,672		2,377,308		437,320				05/30/97		300
Pet Supplies and Services
Tampa		FL		347,794		905,248				46,000		13,826		347,794		965,074		1,312,868		190,253				12/31/98		300
Duluth		GA		361,058		1,591,629				None		None		361,058		1,591,629		1,952,687		256,431		01/27/99		09/29/98		300
Marrietta		GA		495,412		1,526,370				None		None		495,412		1,526,370		2,021,782		229,263		05/28/99		09/29/98		300
Pet Supplies and Services
Indianapolis		IN		427,000		1,296,901				None		None		427,000		1,296,901		1,723,901		188,858		03/10/00		01/19/99		300
Sudbury		MA		543,038		2,477,213				None		None		543,038		2,477,213		3,020,251		341,749		11/12/99		09/30/98		300
Tyngsborough		MA		312,204		1,222,522				None		None		312,204		1,222,522		1,534,726		270,985				06/12/98		300
Matthews		NC		610,177		1,394,743				None		None		610,177		1,394,743		2,004,920		304,519				07/17/98		300
North Plainfield		NJ		0		1,590,447				None		None		—		1,590,447		1,590,447		268,636				09/24/98		300
Albuquerque		NM		684,036		874,914				300,000		42,875		684,036		1,217,789		1,901,825		213,080				12/31/98		300
Dickson City		PA		659,790		1,880,722				None		None		659,790		1,880,722		2,540,512		491,888				06/20/97		300
Private Education
Coconut Creek		FL		310,111		1,243,682				None		None		310,111		1,243,682		1,553,793		217,931		08/02/99		12/01/98		300
North Lauderdale		FL		1,050,000		2,567,811				None		None		1,050,000		2,567,811		3,617,811		594,749				03/30/98		300
Las Vegas		NV		1,080,444		3,346,772				None		None		1,080,444		3,346,772		4,427,216		775,239				03/04/98		300
Chantilly		VA		688,917		3,208,607				None		None		688,917		3,208,607		3,897,524		525,226		05/07/99		09/30/98		300
Kingstowne		VA		300,000		1,191,396				None		None		300,000		1,191,396		1,491,396		169,082		08/22/00		11/08/99		300

 

F 28

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Restaurants
Atmore		AL		272,044		505,636				None		None		272,044		505,636		777,680		48,030				08/31/01		300
Clanton		AL		230,036		427,391				None		None		230,036		427,391		657,427		40,600				08/31/01		300
Demopolis		AL		251,349		466,972				None		None		251,349		466,972		718,321		44,360				08/31/01		300
Fort Payne		AL		303,056		563,001				None		None		303,056		563,001		866,057		53,483				08/31/01		300
Gardendale		AL		398,669		740,568				None		None		398,669		740,568		1,139,237		70,352				08/31/01		300
Hoover		AL		251,434		467,185				None		None		251,434		467,185		718,619		44,379				08/31/01		300
Bentonville		AR		377,086		700,582				None		None		377,086		700,582		1,077,668		66,552				08/31/01		300
Hope		AR		288,643		536,715				None		None		288,643		536,715		825,358		50,979				08/31/01		300
Little Rock		AR		317,000		589,377				None		None		317,000		589,377		906,377		55,982				08/31/01		300
Siloam Springs		AR		190,000		352,808				None		None		190,000		352,808		542,808		86,427				11/20/97		300
Douglas		AZ		75,000		347,719				None		2,407		75,000		350,126		425,126		269,876				11/27/85		300
Glendale		AZ		624,761		895,976				None		100		624,761		896,076		1,520,837		279,263				03/06/96		300
Tucson		AZ		107,393		497,904				None		133		107,393		498,037		605,430		386,253				01/17/86		300
Yuma		AZ		236,121		541,651				None		None		236,121		541,651		777,772		121,868				05/28/98		300
Barstow		CA		689,842		690,204				None		None		689,842		690,204		1,380,046		146,096				09/24/98		300
Livermore		CA		662,161		823,242				None		None		662,161		823,242		1,485,403		174,256				09/23/98		300
Northridge		CA		—		—				None		None		—		—		—		—				04/01/70		N/A
Rancho Cucamonga		CA		95,192		441,334				None		68		95,192		441,402		536,594		340,404				12/20/85		300
Riverside		CA		90,000		170,394				135,301		55		90,000		305,750		395,750		176,224				12/09/76		300
Sacramento		CA		386,793		417,290				None		None		386,793		417,290		804,083		91,108				07/31/98		300
San Dimas		CA		240,562		445,521				None		None		240,562		445,521		686,083		445,521				03/12/81		180
San Ramon		CA		406,000		1,126,930				None		None		406,000		1,126,930		1,532,930		1,126,930				12/08/83		180
Colorado Springs		CO		152,000		704,736				None		262		152,000		704,998		856,998		521,370				09/30/86		300
Restaurants
Lakewood		CO		1,606,511		3,013				None		None		1,606,511		3,013		1,609,524		99		10/01/03		12/31/02		300
Sterling		CO		95,320		441,928				None		None		95,320		441,928		537,248		364,022				12/27/84		300
Westminster		CO		338,940		1,571,401				20,000		13,807		338,940		1,605,208		1,944,148		1,347,537				06/28/84		300
Danbury		CT		548,459		284,639				None		None		548,459		284,639		833,098		23,244				12/19/01		300
Glastonbury		CT		452,291		293,214				None		None		452,291		293,214		745,505		23,944				12/19/01		300
Manchester		CT		458,386		458,639				None		None		458,386		458,639		917,025		37,454				12/19/01		300
Unionville		CT		167,740		316,672				None		None		167,740		316,672		484,412		25,860				12/19/01		300
Waterbury		CT		521,021		705,163				None		None		521,021		705,163		1,226,184		57,587				12/19/01		300
Casselberry		FL		403,900		897,075				None		134		403,900		897,209		1,301,109		479,116				12/29/89		300
Chipley		FL		270,439		502,655				None		None		270,439		502,655		773,094		47,747				08/31/01		300
DeFuniak		FL		269,554		501,010				None		None		269,554		501,010		770,564		47,591				08/31/01		300
Green Cove Sprgs		FL		86,240		399,828				None		350		86,240		400,178		486,418		329,398				12/19/84		300
Jacksonville		FL		150,210		693,445				None		None		150,210		693,445		843,655		543,282				09/13/85		300
Jacksonville		FL		143,299		664,373				None		None		143,299		664,373		807,672		513,688				12/13/85		300
Orlando		FL		230,000		1,066,339				None		134		230,000		1,066,473		1,296,473		826,169				11/18/85		300
Orlando		FL		209,800		972,679				None		134		209,800		972,813		1,182,613		724,949				08/15/86		300
Orlando		FL		600,000		949,489				None		None		600,000		949,489		1,549,489		175,877		05/27/99		12/18/98		300

 

F 29

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Oviedo		FL		204,200		911,338				None		None		204,200		911,338		1,115,538		138,374				08/24/99		300
Palm Bay		FL		330,000		556,668				None		None		330,000		556,668		886,668		106,816		02/17/99		12/29/98		300
Garden City		GA		197,225		438,043				None		384		197,225		438,427		635,652		247,144				04/20/89		300
Hinesville		GA		89,220		413,644				None		349		89,220		413,993		503,213		340,789				12/20/84		300
Hinesville		GA		172,611		383,376				None		236		172,611		383,612		556,223		235,279				12/22/87		300
Lithonia		GA		89,220		413,647				None		1,080		89,220		414,727		503,947		340,309				01/04/85		300
Savannah		GA		143,993		345,548				None		236		143,993		345,784		489,777		212,068				12/22/87		300
Savannah		GA		165,409		367,380				None		236		165,409		367,616		533,025		225,463				12/22/87		300
Statesboro		GA		201,250		446,983				None		3		201,250		446,986		648,236		242,556				11/14/89		300
Stone Mountain		GA		215,940		1,001,188				50,765		1,533		215,940		1,053,486		1,269,426		744,983				10/30/86		300
Washington		GA		292,628		543,862				None		None		292,628		543,862		836,490		51,661				08/31/01		300
Ankeny		IA		100,000		349,218				25,075		533		100,000		374,826		474,826		350,540				07/28/83		180
Boone		IA		76,000		386,170				None		644		76,000		386,814		462,814		386,285				12/27/83		180
Boise		ID		190,894		423,981				None		119		190,894		424,100		614,994		253,556				05/17/88		300
Boise		ID		161,352		334,041				None		119		161,352		334,160		495,512		194,598				10/07/88		300
Nampa		ID		74,156		343,820				None		119		74,156		343,939		418,095		250,691				12/31/86		300
Rexburg		ID		90,760		420,787				None		None		90,760		420,787		511,547		326,004				11/25/85		300
Alton		IL		225,785		419,315				None		437		225,785		419,752		645,537		244,306				10/18/88		300
Lincoln		IL		206,532		383,970				None		None		206,532		383,970		590,502		36,472				08/31/01		300
Anderson		IN		197,523		438,706				None		None		197,523		438,706		636,229		260,974				03/25/88		300
Goshen		IN		115,000		533,165				None		1,242		115,000		534,407		649,407		399,328				07/07/86		300
Muncie		IN		136,400		632,380				8,000		13,335		136,400		653,715		790,115		489,925				03/18/86		300
Muncie		IN		67,156		149,157				None		None		67,156		149,157		216,313		90,122				03/30/88		300
Restaurants
New Castle		IN		246,192		320,572				None		None		246,192		320,572		566,764		204,204				01/07/87		300
South Bend		IN		133,200		617,545				None		19,347		133,200		636,892		770,092		486,916				04/28/86		300
Westfield		IN		213,341		477,300				None		None		213,341		477,300		690,641		256,075				12/21/89		300
Derby		KS		96,060		445,359				None		None		96,060		445,359		541,419		346,577				10/29/85		300
El Dorado		KS		87,400		405,206				None		None		87,400		405,206		492,606		307,678				04/10/86		300
Great Bend		KS		95,800		444,154				None		None		95,800		444,154		539,954		365,854				12/26/84		300
Wichita		KS		98,000		454,350				None		None		98,000		454,350		552,350		338,619				08/08/86		300
Lexington		KY		122,200		490,200				None		None		122,200		490,200		612,400		358,394				12/03/86		300
Alexandria		LA		143,000		662,985				None		15,150		143,000		678,135		821,135		521,915				01/17/86		300
Jennings		LA		107,120		496,636				None		None		107,120		496,636		603,756		386,480				10/17/85		300
Natchitoches		LA		291,675		541,890				None		None		291,675		541,890		833,565		51,477				08/31/01		300
Shreveport		LA		359,268		667,417				None		None		359,268		667,417		1,026,685		63,402				08/31/01		300
Attleboro		MA		369,815		693,655				None		None		369,815		693,655		1,063,470		56,647				12/19/01		300
Brockton		MA		298,359		272,297				None		None		298,359		272,297		570,656		22,236				12/19/01		300
Hanover		MA		397,203		281,202				None		None		397,203		281,202		678,405		22,963				12/19/01		300
Palmer		MA		141,524		598,480				None		None		141,524		598,480		740,004		48,874				12/19/01		300
Peabody		MA		529,555		222,590				None		None		529,555		222,590		752,145		18,177				12/19/01		300
Pittsfield		MA		286,241		950,022				None		None		286,241		950,022		1,236,263		77,583				12/19/01		300
South Weymouth		MA		351,472		296,284				None		None		351,472		296,284		647,756		24,195				12/19/01		300

 

F 30

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Springfield		MA		280,920		337,325				None		None		280,920		337,325		618,245		27,547				12/19/01		300
Springfield		MA		230,030		865,572				None		None		230,030		865,572		1,095,602		70,687				12/19/01		300
Springfield		MA		227,207		958,444				None		None		227,207		958,444		1,185,651		78,271				12/19/01		300
Stoneham		MA		397,544		191,717				None		None		397,544		191,717		589,261		15,655				12/19/01		300
Swansea		MA		173,853		488,699				None		None		173,853		488,699		662,552		39,909				12/19/01		300
Westboro		MA		335,191		424,534				None		None		335,191		424,534		759,725		34,669				12/19/01		300
Weymouth		MA		360,727		194,556				None		None		360,727		194,556		555,283		15,887				12/19/01		300
La Plata		MD		120,140		557,000				None		None		120,140		557,000		677,140		430,669				12/03/85		300
Flint		MI		827,853		0				None		None		827,853		—		827,853		—				04/13/95		300
Roseville		MN		281,600		1,305,560				None		7		281,600		1,305,567		1,587,167		1,075,406				12/18/84		300
Belton		MO		89,328		418,187				None		403		89,328		418,590		507,918		344,525				12/18/84		300
Bolivar		MO		237,094		440,596				None		None		237,094		440,596		677,690		41,853				08/31/01		300
Carthage		MO		85,020		394,175				None		200		85,020		394,375		479,395		304,776				12/03/85		300
Chillicothe		MO		81,080		375,908				None		403		81,080		376,311		457,391		309,699				12/26/84		300
Fulton		MO		210,199		466,861				None		None		210,199		466,861		677,060		293,791				07/30/87		300
Hazelwood		MO		157,117		725,327				None		25,030		157,117		750,357		907,474		581,690				08/28/85		300
Jackson		MO		210,199		466,860				None		None		210,199		466,860		677,059		293,790				07/30/87		300
Mt. Vernon		MO		160,000		282,586				None		None		160,000		282,586		442,586		69,223				11/20/97		300
Nevada		MO		222,552		494,296				None		1,649		222,552		495,945		718,497		311,751				07/30/87		300
Ozark		MO		140,000		292,482				None		None		140,000		292,482		432,482		71,648				11/20/97		300
Sedalia		MO		269,798		599,231				None		None		269,798		599,231		869,029		335,182				07/31/89		300
Restaurants
St. Charles		MO		175,413		809,791				None		10,000		175,413		819,791		995,204		645,696				08/28/85		300
St. Charles		MO		695,121		1,001,878				None		1,001		695,121		1,002,879		1,698,000		321,800		12/22/95		03/16/95		300
St. Joseph		MO		107,648		496,958				None		169		107,648		497,127		604,775		389,353				09/04/85		300
St. Robert		MO		329,242		611,728				None		None		329,242		611,728		940,970		58,110				08/31/01		300
Sullivan		MO		85,500		396,400				None		489		85,500		396,889		482,389		326,589				12/27/84		300
Clinton		MS		100,000		337,371				4,355		820		100,000		342,546		442,546		337,618				07/28/83		180
Fulton		MS		239,686		445,337				None		None		239,686		445,337		685,023		42,304				08/31/01		300
Greenville		MS		311,324		578,378				None		None		311,324		578,378		889,702		54,943				08/31/01		300
Indianola		MS		270,639		502,822				None		None		270,639		502,822		773,461		47,765				08/31/01		300
Newton		MS		284,350		528,311				None		None		284,350		528,311		812,661		50,186				08/31/01		300
Pearl		MS		334,822		621,994				None		None		334,822		621,994		956,816		59,087				08/31/01		300
Fayetteville		NC		116,240		538,919				None		None		116,240		538,919		655,159		443,914				12/20/84		300
Wilkesboro		NC		183,050		406,562				None		None		183,050		406,562		589,612		255,846				07/24/87		300
Winston-Salem		NC		353,239		656,427				None		None		353,239		656,427		1,009,666		62,355				08/31/01		300
Keene		NH		253,769		310,470				None		None		253,769		310,470		564,239		25,353				12/19/01		300
Laconia		NH		330,520		467,594				None		None		330,520		467,594		798,114		38,185				12/19/01		300
Manchester		NH		266,337		486,676				None		None		266,337		486,676		753,013		39,744				12/19/01		300
North Conway		NH		473,031		607,020				None		None		473,031		607,020		1,080,051		49,572				12/19/01		300
Rochester		NH		262,059		695,771				None		None		262,059		695,771		957,830		56,820				12/19/01		300
Bloomfield		NJ		556,520		260,498				None		None		556,520		260,498		817,018		21,272				12/19/01		300
Bricktown		NJ		297,264		243,581				None		None		297,264		243,581		540,845		19,891				12/19/01		300

 

F 31

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Fairlawn		NJ		341,922		198,320				None		None		341,922		198,320		540,242		16,195				12/19/01		300
Hackettstown		NJ		307,186		525,142				None		None		307,186		525,142		832,328		42,885				12/19/01		300
Hillsdale		NJ		398,221		204,106				None		None		398,221		204,106		602,327		16,667				12/19/01		300
Midland Park		NJ		476,002		254,594				None		None		476,002		254,594		730,596		20,790				12/19/01		300
Morris Plains		NJ		366,982		188,123				None		None		366,982		188,123		555,105		15,362				12/19/01		300
Amherst		NY		935,355		896,819				5,342		89,108		935,355		991,269		1,926,624		312,211				05/31/95		300
Carmel		NY		266,619		707,819				None		None		266,619		707,819		974,438		57,804				12/19/01		300
Fulton		NY		294,009		653,006				None		2,095		294,009		655,101		949,110		400,491				12/24/87		300
Glenville		NY		156,724		246,502				None		None		156,724		246,502		403,226		20,129				12/19/01		300
Middletown		NY		242,459		796,905				None		None		242,459		796,905		1,039,364		65,079				12/19/01		300
Mt. Kisco		NY		164,973		385,189				None		None		164,973		385,189		550,162		31,456				12/19/01		300
Watertown		NY		139,199		645,355				None		None		139,199		645,355		784,554		479,678				08/18/86		300
Akron		OH		723,347		17				None		67		723,347		84		723,431		17				12/22/94		300
Stow		OH		317,546		712,455				None		1,904		317,546		714,359		1,031,905		437,029				12/31/87		300
Broken Arrow		OK		245,000		369,002				None		None		245,000		369,002		614,002		89,173				12/12/97		300
Idabel		OK		214,244		398,545				None		None		214,244		398,545		612,789		37,853				08/31/01		300
Norman		OK		734,335		0				None		None		734,335		—		734,335		—		09/29/95		06/05/95		300
Oklahoma City		OK		759,826		0				None		None		759,826		—		759,826		—				07/06/95		300
Owasso		OK		327,043		607,645				None		None		327,043		607,645		934,688		57,723				08/31/01		300
Restaurants
Tulsa		OK		295,993		549,981				None		None		295,993		549,981		845,974		52,245				08/31/01		300
Hermiston		OR		85,560		396,675				None		None		85,560		396,675		482,235		326,745				12/18/84		300
Lake Oswego		OR		175,899		815,508				None		3		175,899		815,511		991,410		690,480				05/16/84		300
Milwaukie		OR		179,174		830,689				None		3		179,174		830,692		1,009,866		704,765				05/08/84		300
Salem		OR		198,540		440,964				None		3		198,540		440,967		639,507		245,641				05/23/89		300
Gettysburg		PA		289,040		809,676				None		None		289,040		809,676		1,098,716		66,122				12/19/01		300
Lancaster		PA		170,304		413,960				None		None		170,304		413,960		584,264		33,805				12/19/01		300
Lancaster		PA		276,251		460,784				None		None		276,251		460,784		737,035		37,629				12/19/01		300
Lansdale		PA		255,864		256,229				None		None		255,864		256,229		512,093		20,924				12/19/01		300
Warminster		PA		294,111		343,494				None		None		294,111		343,494		637,605		28,050				12/19/01		300
Waynesburg		PA		222,285		493,704				None		1,268		222,285		494,972		717,257		309,380				08/17/87		300
Westerly		RI		485,230		569,890				None		None		485,230		569,890		1,055,120		46,539				12/19/01		300
Brownsville		TN		289,379		538,081				None		None		289,379		538,081		827,460		51,109				08/31/01		300
Memphis		TN		405,274		1,060,680				None		25,399		405,274		1,086,079		1,491,353		363,708		06/30/95		03/17/95		300
Millington		TN		285,613		530,630				None		None		285,613		530,630		816,243		50,407				08/31/01		300
Ripley		TN		231,552		430,232				None		None		231,552		430,232		661,784		40,869				08/31/01		300
Allen		TX		165,000		306,771				None		None		165,000		306,771		471,771		54,708		07/09/99		05/28/99		300
Bedford		TX		919,303		98,231				None		None		919,303		98,231		1,017,534		98,231				12/27/94		300
Brownwood		TX		288,225		640,160				34,121		1,665		288,225		675,946		964,171		393,898				12/28/87		300
Crockett		TX		90,780		420,880				None		None		90,780		420,880		511,660		324,620				12/17/85		300
Dallas		TX		242,025		479,170				None		None		242,025		479,170		721,195		232,598				06/25/91		300
Dallas		TX		742,507		0				None		None		742,507		—		742,507		—				04/13/95		300
El Campo		TX		98,060		454,631				None		None		98,060		454,631		552,691		352,224				11/25/85		300

 

F 32

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Ennis		TX		173,250		384,793				None		None		173,250		384,793		558,043		236,101				12/28/87		300
Fort Worth		TX		223,195		492,067				None		None		223,195		492,067		715,262		248,799				06/26/91		300
Ft. Worth		TX		423,281		382,059				None		None		423,281		382,059		805,340		135,631				02/10/95		300
Gainesville		TX		89,220		413,644				None		None		89,220		413,644		502,864		340,723				12/18/84		300
Hillsboro		TX		75,992		352,316				None		156		75,992		352,472		428,464		296,047				08/01/84		300
Houston		TX		194,994		386,056				None		None		194,994		386,056		581,050		187,399				06/25/91		300
Houston		TX		184,175		364,636				None		None		184,175		364,636		548,811		177,001				06/25/91		300
Irving		TX		525,144		977,423				None		None		525,144		977,423		1,502,567		34,210		11/12/01		02/05/03		300
Killeen		TX		262,500		583,014				None		14,398		262,500		597,412		859,912		376,973				05/29/87		300
Lufkin		TX		105,904		490,998				None		None		105,904		490,998		596,902		383,015				10/08/85		300
Mesquite		TX		134,940		625,612				None		None		134,940		625,612		760,552		475,998				03/20/86		300
Mesquite		TX		729,596		120,820				None		None		729,596		120,820		850,416		120,820				12/23/94		300
Mexia		TX		93,620		434,046				None		None		93,620		434,046		527,666		334,775				12/18/85		300
New Braunfels		TX		185,500		411,997				None		191		185,500		412,188		597,688		264,517				03/26/87		300
Orange		TX		93,560		433,768				None		None		93,560		433,768		527,328		335,386				12/10/85		300
Plainview		TX		125,000		350,767				None		1,406		125,000		352,173		477,173		350,828				01/24/84		180
Plano		TX		847,078		1,573,913				None		None		847,078		1,573,913		2,420,991		96,728				06/27/02		300
Restaurants
Porter		TX		227,067		333,031				None		None		227,067		333,031		560,098		118,226				02/09/95		300
Rowlett		TX		126,933		585,986				None		None		126,933		585,986		712,919		459,091				09/06/85		300
Santa Fe		TX		304,414		623,331				None		None		304,414		623,331		927,745		144,347				03/23/98		300
Sealy		TX		197,871		391,753				None		None		197,871		391,753		589,624		190,164				06/25/91		300
Stafford		TX		214,024		423,733				None		None		214,024		423,733		637,757		205,688				06/26/91		300
Temple		TX		302,505		291,414				None		None		302,505		291,414		593,919		103,452				02/09/95		300
Texarkana		TX		311,263		578,266				None		None		311,263		578,266		889,529		54,933				08/31/01		300
Vidor		TX		90,618		420,124				None		None		90,618		420,124		510,742		352,987				08/01/84		300
Waxahachie		TX		326,935		726,137				None		156		326,935		726,293		1,053,228		445,532				12/29/87		300
Cedar City		UT		130,000		296,544				10,839		1,714		130,000		309,097		439,097		297,247				08/04/83		180
Orem		UT		516,129		1,004,608				15,000		1,155		516,129		1,020,763		1,536,892		315,241				12/13/95		300
Sandy		UT		635,945		884,792				None		148		635,945		884,940		1,520,885		284,638				12/22/95		300
Colonial Heights		VA		350,000		425,146				None		None		350,000		425,146		775,146		17,714				12/26/02		300
Bennington		VT		118,823		673,551				None		None		118,823		673,551		792,374		55,005				12/19/01		300
Auburn		WA		301,595		669,851				None		4,199		301,595		674,050		975,645		411,846				12/16/87		300
Oak Harbor		WA		275,940		612,874				7,967		1,971		275,940		622,812		898,752		386,328				07/16/87		300
Spokane		WA		479,531		646,719				None		None		479,531		646,719		1,126,250		149,771				03/27/98		300
Tacoma		WA		198,857		921,947				None		1,860		198,857		923,807		1,122,664		781,101				05/29/84		300
Grafton		WI		149,778		332,664				None		None		149,778		332,664		482,442		206,201				10/29/87		300
Sturgeon Bay		WI		214,865		477,221				None		1,539		214,865		478,760		693,625		293,120				12/01/87		300
Oak Hill		WV		85,860		398,069				None		486		85,860		398,555		484,415		327,946				12/28/84		300
Laramie		WY		210,000		466,417				None		None		210,000		466,417		676,417		246,368				03/12/90		300
Riverton		WY		216,685		481,267				None		1,594		216,685		482,861		699,546		295,613				12/01/87		300
Sheridan		WY		117,160		543,184				None		None		117,160		543,184		660,344		418,951				12/31/85		300

 

F 33

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Shoe Stores
Little Rock		AR		1,079,232		2,594,956				None		None		1,079,232		2,594,956		3,674,188		566,566				07/21/98		300
Maplewood		MN		785,023		2,715,629				None		2,240		785,023		2,717,869		3,502,892		511,884				04/02/99		300
Houston		TX		1,096,376		2,300,690				None		None		1,096,376		2,300,690		3,397,066		578,923				09/05/97		300
Mesquite		TX		1,049,287		1,949,085				None		None		1,049,287		1,949,085		2,998,372		139,680				03/28/02		300
Midland		TX		544,075		1,322,431				None		None		544,075		1,322,431		1,866,506		310,659				02/02/98		300
Sporting Goods
Anchorage		AK		1,486,000		5,045,244				None		None		1,486,000		5,045,244		6,531,244		445,655				10/17/01		300
Fresno		CA		1,650,000		3,321,244				None		None		1,650,000		3,321,244		4,971,244		293,368				10/17/01		300
Daytona Beach		FL		608,790		2,557,483				None		None		608,790		2,557,483		3,166,273		289		09/10/03		04/18/03		300
Fort Meyers		FL		1,695,000		2,025,554				None		None		1,695,000		2,025,554		3,720,554		178,920				10/17/01		300
Gainesville		FL		1,296,000		2,234,554				None		None		1,296,000		2,234,554		3,530,554		197,382				10/17/01		300
Melbourne		FL		994,000		4,076,554				None		None		994,000		4,076,554		5,070,554		360,092				10/17/01		300
Sporting Goods
Orlando		FL		1,197,000		2,573,554				None		None		1,197,000		2,573,554		3,770,554		227,327				10/17/01		300
Geneva		IL		2,082,000		1,838,888				None		None		2,082,000		1,838,888		3,920,888		162,429				10/17/01		300
Bowie		MD		2,084,000		3,046,888				None		None		2,084,000		3,046,888		5,130,888		269,136				10/17/01		300
Mechanicsburg		PA		2,101,415		3,902,912				None		None		2,101,415		3,902,912		6,004,327		331,747				11/08/01		300
El Paso		TX		700,000		2,501,244				None		None		700,000		2,501,244		3,201,244		220,935				10/17/01		300
Fredericksburg		VA		1,941,000		2,979,888				None		None		1,941,000		2,979,888		4,920,888		263,218				10/17/01		300
Theaters
Fairbanks		AK		2,586,879		9,575				None		None		2,586,879		9,575		2,596,454		1,165				09/27/00		300
Huntsville		AL		2,810,868		14,308				None		None		2,810,868		14,308		2,825,176		1,741				09/27/00		300
Naples		FL		2,618,441		8,979,199				None		None		2,618,441		8,979,199		11,597,640		1,182,241				09/27/00		300
Chamblee		GA		4,329,404		14,942				None		None		4,329,404		14,942		4,344,346		1,629				09/27/00		300
Akron		OH		1,511,018		1,386				None		None		1,511,018		1,386		1,512,404		169				09/27/00		300
Columbus		OH		2,103,351		5,161,550				None		None		2,103,351		5,161,550		7,264,901		232,257				11/01/02		300
Hillsboro		OR		4,915,032		16,377				None		None		4,915,032		16,377		4,931,409		1,993				09/27/00		300
Portland		OR		2,793,001		9,942				None		None		2,793,001		9,942		2,802,943		1,210				09/27/00		300
Glen Allen		VA		1,314,065		9,748,457				None		None		1,314,065		9,748,457		11,062,522		1,283,511				09/27/00		300
Sterling		VA		4,546,305		33,325				None		None		4,546,305		33,325		4,579,630		3,493				09/27/00		300
Marysville		WA		1,988,142		0				None		None		1,988,142		—		1,988,142		—				07/27/00		300
Travel Plazas
Baltimore		MD		1,740,080		3,239,772				None		None		1,740,080		3,239,772		4,979,852		91,794				04/01/03		300
Video Rental
Birmingham		AL		392,795		865,115				None		None		392,795		865,115		1,257,910		217,661				09/30/97		300
Southington		CT		399,562		1,009,125				None		None		399,562		1,009,125		1,408,687		203,511				12/29/98		300

 

F 34

 

										Cost Capitalized																Life on
										Subsequent				Gross Amount at Which Carried												which
				Initial Cost to Company						to Acquisition				at Close of Period (Notes 2, 3 and 5)												depreciation
Description (Note 1)				Land		Buildings, Improvements and Acquisition Fees				Improvements		Carrying Costs		Land		Buildings, Improvements and Acquisition Fees		Total		Accumulated Depreciation (Note 4)		Date of Construction		Date Acquired		in latest Income Statement is Computed (in Months)
Port St. Lucie		FL		612,695		701,759				None		4		612,695		701,763		1,314,458		139,360		12/09/98		09/08/98		300
Tampa		FL		401,874		933,768				None		None		401,874		933,768		1,335,642		225,659				12/23/97		300
Atlanta		GA		652,551		763,360				None		None		652,551		763,360		1,415,911		153,965				12/18/98		300
Brunswick		GA		290,369		788,880				None		None		290,369		788,880		1,079,249		190,640				12/31/97		300
Norcross		GA		431,284		724,037				None		None		431,284		724,037		1,155,321		179,738				10/01/97		300
Plainfield		IN		453,645		908,485				None		None		453,645		908,485		1,362,130		216,408				01/30/98		300
Topeka		KS		285,802		966,286				None		None		285,802		966,286		1,252,088		233,517				12/19/97		300
Wichita		KS		289,714		797,856				None		None		289,714		797,856		1,087,570		163,576				11/23/98		300
Winchester		KY		355,474		929,177				None		None		355,474		929,177		1,284,651		205,964				06/30/98		300
Warren		MI		356,348		903,351				None		None		356,348		903,351		1,259,699		215,192				01/09/98		300
Centerville		OH		601,408		758,192				None		None		601,408		758,192		1,359,600		168,063				06/30/98		300
Dayton		OH		401,723		698,872				None		None		401,723		698,872		1,100,595		154,915				06/29/98		300
Video Rental
Forest Park		OH		328,187		921,232				None		None		328,187		921,232		1,249,419		225,684				11/14/97		300
Franklin		OH		337,572		777,943				None		None		337,572		777,943		1,115,515		187,926				12/30/97		300
Springboro		OH		261,916		897,489				None		None		261,916		897,489		1,159,405		189,977				09/21/98		300
Tulsa		OK		318,441		1,004,663				None		None		318,441		1,004,663		1,323,104		252,782				09/26/97		300
Bartlett		TN		420,000		674,437				None		1,757		420,000		676,194		1,096,194		123,333		05/12/99		02/23/99		300
Clarksville		TN		499,885		840,869				None		None		499,885		840,869		1,340,754		175,189				10/02/98		300
Columbia		TN		466,469		716,723				None		None		466,469		716,723		1,183,192		180,319				09/26/97		300
Hendersonville		TN		333,677		938,592				None		None		333,677		938,592		1,272,269		226,825				12/10/97		300
Jackson		TN		381,076		857,261				None		None		381,076		857,261		1,238,337		215,698				09/26/97		300
Memphis		TN		381,265		900,580				None		None		381,265		900,580		1,281,845		208,573				03/31/98		300
Murfreesboro		TN		406,056		886,293				None		None		406,056		886,293		1,292,349		222,995				09/26/97		300
Murfreesboro		TN		385,437		782,396				None		None		385,437		782,396		1,167,833		149,931				03/11/99		300
Smyrna		TN		302,372		836,214				None		None		302,372		836,214		1,138,586		210,400				09/02/97		300
Austin		TX		407,910		885,113				None		None		407,910		885,113		1,293,023		213,900				12/01/97		300
Beaumont		TX		293,919		832,154				None		None		293,919		832,154		1,126,073		209,379				09/05/97		300
Hurst		TX		373,084		871,163				None		None		373,084		871,163		1,244,247		190,204				07/29/98		300
Lubbock		TX		266,805		857,492				None		None		266,805		857,492		1,124,297		218,594				08/29/97		300
Woodway		TX		372,487		835,198				None		None		372,487		835,198		1,207,685		201,840				12/16/97		300
Hampton		VA		373,499		836,071				None		None		373,499		836,071		1,209,570		202,048				12/19/97		300
Virginia Beach		VA		551,588		797,260				None		None		551,588		797,260		1,348,848		187,259				02/23/98		300
Other
Escondido		CA		None		None				13,900		None		None		13,900		13,900		2,386				08/01/92		N/A
San Diego		CA		3,745,000		8,885,351				89,182		33,244		3,745,000		9,007,777		12,752,777		6,716,491		03/08/86		03/25/86		300
San Diego		CA		2,485,160		8,697,822				82,810		47,298		2,485,160		8,827,930		11,313,090		5,688,461		01/23/89		09/19/86		300
San Diego		CA		5,797,411		15,473,497				165,325		65,529		5,797,411		15,704,351		21,501,762		9,575,095		01/20/89		08/05/87		300
Deerfield Beach		FL		475,000		871,738				None		20,982		475,000		892,720		1,367,720		175,950				01/29/99		300
Venice		FL		259,686		362,562				4,535		None		259,686		367,097		626,783		103,985				11/26/96		300
Humble		TX		106,000		545,518				18,061		11,138		106,000		574,717		680,717		485,469				03/25/86		300
Crest Net Lease				19,188,710		34,115,129				None		None		19,188,710		34,115,129		53,303,838		—						N/A

 

F 35

 

Cost Capitalized

Life on

Subsequent

Gross Amount at Which Carried

which

Initial Cost to Company

to Acquisition

at Close of Period (Notes 2, 3 and 5)

depreciation

Description (Note 1)

Land

Buildings, Improvements and Acquisition Fees

Improvements

Carrying Costs

Land

Buildings, Improvements and Acquisition Fees

Total

Accumulated Depreciation (Note 4)

Date of Construction

Date Acquired

in latest Income Statement is Computed (in Months)

Miscellaneous Investments

398,245

None

93,884

—

492,129

492,129

365,606

Various

581,267,171

1,012,046,246

—

1,634,240

1,328,194

581,267,171

1,015,008,679

1,596,275,850

275,630,524

 

F 36

 

Note 1.	One thousand three hundred ninety-nine of the properties are single unit retail outlets.  One property located in Sheboygan, WI, one property located in Humble, TX and three other properties located in San Diego, CA are multi-tenant commercial properties.  No encumbrances were outstanding for the periods presented.
Note 2.	The aggregate cost for federal income tax purposes is $ 1,471,155,961.
Note 3.	The following is a reconciliation of total real estate carrying value for the years ended December 31:

 

			2003		2002		2001
	Balance at Beginning of Period		1,293,466,526		1,202,756,116		1,111,481,809
	Additions During Period:
	Acquisitions		371,642,275		139,432,916		156,471,835
	Equipment		15,000		—		—
	Improvements, Etc.		248,931		641,553		547,000
	Other (Leasing Costs)		392,080		376,818		401,000
	Total Additions		372,298,286		140,451,287		157,419,835
	Deductions During Period:
	Cost of Real Estate Sold		68,840,976		48,258,896		64,305,657
	Cost of Equipment Sold		16,000		57,500		18,000
	Other (Fully Amortized Commissions)		61,986		104,481		371,871
	Other (Provision for Impairment Losses)		570,000		1,320,000		1,450,000
	Total Deductions		69,488,962		49,740,877		66,145,528
	Balance at Close of Period		1,596,275,850		1,293,466,526		1,202,756,116
Note 4.	The following is a reconciliation of accumulated depreciation for the years ended:
	Balance at Beginning of Period		255,289,362		235,086,623		217,204,145
	Additions During Period - Provision for Depreciation		33,675,519		30,977,786		27,974,195
	Deductions During Period:
	Accumulated Depreciation of Real Estate and Equipment Sold		13,272,371		10,670,566		9,719,846
	Other (Fully Amortized Commissions)		61,986		104,481		371,871
	Balance at Close of Period		275,630,524		255,289,362		235,086,623
Note 5.	In 2003, a provision for impairment loss was recorded on two properties which became held for sale.  In 2002, a provision for impairment loss was recorded on five properties which became held for sale.
	In 2001, a provision for impairment loss was recorded on six properties.

 

See accompanying independent auditors’ report

 

F 37