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, 2004

 

Commission File Number 1-13374

 

REALTY INCOME CORPORATION

(Exact name of registrant as specified in its charter)

 

Maryland		33-0580106
(State or other jurisdiction of		(IRS Employer
Incorporation or organization)		Identification Number)

 

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, 2004, the aggregate market value of the Registrant’s shares of common stock, $1.00 par value, held by non-affiliates of the Registrant was $1.6 billion, at the New York Stock Exchange (“NYSE”) closing price of $20.87, adjusted for a 2-for-1 stock split.

 

 

At February 16, 2005, the number of shares of common stock outstanding was 79,582,505, the number of Class D preferred shares outstanding was 5,100,000 and the number of Monthly Income Senior Notes, due 2008, outstanding was 4,000,000.

 

Documents incorporated by reference: Part III, Item 10, 11, 12, 13 and Part IV, Item 14 incorporate by reference certain specific portions of the definitive proxy statement for Realty Income Corporation’s Annual Meeting to be held on May 10, 2005, 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;

•                  Impairments in the value of our real estate assets;

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

•                  The outcome of any legal proceeding to which we are a party; 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, or SEC.  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.

 

2

 

REALTY INCOME CORPORATION

Index to Form 10-K

 

PART I
	Item 1:	Business
		The Company	4
		Recent Developments	5
		Distribution Policy	8
		Business Philosophy and Strategy	9
		Properties	13
		Other Items	19
	Item 2:	Properties	21
	Item 3:	Legal Proceedings	21
	Item 4:	Submission of Matters to a Vote of Security Holders	21
PART II
	Item 5:	Market for the Registrant’s Common Equity and Related Stockholder Matters	22
	Item 6:	Selected Financial Data	23
	Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations
		General	24
		Liquidity and Capital Resources	24
		Results of Operations	29
		Funds from Operations (FFO) Available to Common Stockholders	36
		Impact of Inflation	37
		Impact of Accounting Pronouncements	37
	Item 7A:	Quantitative and Qualitative Disclosures about Market Risk	37
	Item 8:	Financial Statements and Supplementary Data	39
	Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	60
	Item 9A.	Controls and Procedures	60
PART III
	Item 10:	Directors and Executive Officers of the Registrant	61
	Item 11:	Executive Compensation	61
	Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	61
	Item 13:	Certain Relationships and Related Transactions	61
PART IV
	Item 14:	Principal Accountant Fees and Services	61
	Item 15:	Exhibits, Financial Statement Schedules and Reports on Form 8-K	62
SIGNATURES			66

 

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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, or 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.  The monthly distributions are supported by the cash flow from our portfolio of retail properties leased to regional and national retail chains.  We have in-house acquisition, leasing, legal, retail and real estate research, portfolio management and capital markets expertise. Over the past 36 years, Realty Income and its predecessors have been acquiring and owning freestanding retail properties that generate rental revenue under long-term lease agreements (primarily 15- to 20-years).

 

In addition, 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 the 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, 2004, we owned a diversified portfolio:

 

•                  Of 1,533 retail properties;

•                  With an occupancy rate of 97.9%, or 1,501 properties occupied of the 1,533 properties in the portfolio;

•                  Leased to 93 different retail chains doing business in 30 separate retail industries;

•                  Located in 48 states;

•                  With over 11.9 million square feet of leasable space; and

•                  With an average leasable retail space of 7,800 square feet.

 

Of the 1,533 properties in the portfolio, 1,528, or 99.7%, are single-tenant, retail properties and the remaining five are multi-tenant properties. At December 31, 2004, 1,497, or 98.0%, of the 1,528 single-tenant properties were leased with a weighted average remaining lease term (excluding extension options) of approximately 12.0 years.

 

In addition, our wholly-owned taxable REIT subsidiary, Crest Net Lease, Inc., owned eight properties with a total investment of $10.1 million at December 31, 2004. These properties are classified as held for sale on our consolidated balance sheets.  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.

 

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

 

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 to a lesser degree, additional rent calculated as a percentage of the tenants’ gross sales above a specified level.

 

4

 

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 1.3% of our outstanding common stock with a market value of $24.7 million at February 15, 2005. The directors and six senior officers of Realty Income, as a group, owned 2.6% of our outstanding common stock with a market value of $51.9 million at February 15, 2005.

 

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 D cumulative redeemable preferred stock is listed on the NYSE under the ticker symbol “OprD” and its cusip number is 756109-609.

 

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 69 employees as of February 15, 2005, six of whom are part-time, plus one contract consultant..

 

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.  None of the information on our website is deemed to be part of this report.

 

RECENT DEVELOPMENTS

 

Two-for-one Common Stock Split

 

On December 31, 2004, after the New York Stock Exchange closed, we completed a 2-for-1 stock split.  At that time we issued, to our common stockholders, one share of common stock for each common share outstanding.  The total number of shares paid as a stock dividend to our common stockholders was 39,650,815.  All common share amounts and per common share amounts have been adjusted to reflect the common stock split.

 

One Billion Dollars of Dividends Paid

 

With the payment of the January 2005 dividend, Realty Income and its predecessors have paid $1 billion in common stock dividends. In addition, since October 1994 when the Company began trading on the New York Stock Exchange, shareholders have enjoyed regular increases in the amount of the dividend. The annualized dividend amount has grown from $0.90 per share in 1994 to $1.32 per share as of December 31, 2004, an increase of 46.7%.  The December 31, 2004 annualized dividend amount increased by 10% as compared to the December 31, 2003 annualized dividend amount.

 

Common Stock Issuance

 

In March 2004, we issued 3.2 million shares of common stock.  The net proceeds of $67.9 million from this offering were used to repay a portion of the borrowings on our $250 million unsecured acquisition credit facility, including amounts that were borrowed to fund the acquisition of 112 convenience store properties in March 2004.

 

Class D Preferred Stock Issuance

 

In May 2004, we issued 4.0 million shares of 7.375% Monthly Income Cumulative Redeemable Class D preferred stock with a liquidation value of $25 per share.  The issuance price was $25 per share and the net proceeds of approximately $96.4 million were used to redeem our outstanding Class B and C preferred stock, repay borrowings under our $250 million unsecured acquisition credit facility and for other general corporate purposes.

 

In October 2004, we issued an additional 1.1 million shares of 7.375% Class D preferred stock for $25.4311 per share.  The net proceeds of $27.4 million were used to repay borrowings on our $250 million unsecured credit facility, which had been used for recent acquisitions of new retail properties.

 

5

 

Class B Preferred Stock Redemption

 

In June 2004, we redeemed all of the 2,745,700 outstanding shares of our Class B preferred stock for $68.6 million.  Each share was redeemed at a liquidation value of $25.00, plus accrued and unpaid dividends at the time of the redemption.

 

In addition, when our Class B preferred stock was redeemed, we incurred a non-cash charge of $2.4 million representing the Class B preferred stock original issuance costs that were paid in 1999 and recorded as a reduction to net income available to common stockholders in June 2004.

 

Class C Preferred Stock Redemption

 

On July 30, 2004 we redeemed all of the 1,380,000 outstanding shares of our Class C preferred stock for $34.5 million.  Each share was redeemed at a liquidation value of $25.00, plus accrued and unpaid dividends at the time of the redemption.

 

In addition, when our Class C preferred stock was redeemed, we incurred a non-cash charge of $1.4 million representing the Class C preferred stock original issuance costs that were paid in 1999 and recorded as a reduction to net income available to common stockholders in July 2004.

 

Realty Income and Crest Net Aggregate Acquisitions

 

Realty Income and Crest Net invested $215.3 million in aggregate in 194 new properties and properties under development in 2004. These 194 properties are located in 19 states and are 100% leased with an initial average lease term of 17.5 years.

 

In February 2005, we invested $67.3 million in a portfolio of 24 properties leased to Rite Aid Corporation.  We acquired existing stores that are net-leased to Rite Aid with an average remaining lease term of 14.2 years. Realty Income plans to hold approximately $58 million in its core portfolio as long-term investments and approximately $9 million was acquired by Crest Net lease.

 

Realty Income Acquisitions

 

Realty Income invested $193.8 million during 2004 in 172 new properties and properties under development with an initial weighted average contractual lease rate of 9.5%. These 172 properties are located in 18 states and are 100% leased with an initial average lease term of 17.5 years and will contain over 913,000 leasable square feet.

 

Of the $193.8 million Realty Income invested in real estate during 2004, $11.1 million was invested in properties under development that were acquired before 2004. Estimated unfunded development costs on Realty Income and Crest Net properties under development at December 31, 2004 totaled $13.0 million. At December 31, 2004, five new properties acquired during 2004 were leased and under contract for development by the tenant (with development costs funded by Realty Income or Crest Net) with rent scheduled to begin at various times during 2005.

 

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 172 new properties acquired by Realty Income are net-leased to 12 different retail chains in seven industries: automotive collision service, automotive service, convenience store, health and fitness, motor vehicle dealerships, restaurant, and sporting goods.

 

6

 

Crest Net Acquisitions

 

Crest Net invested $21.5 million during 2004 in 22 new retail properties and properties under development.

 

Investments in Existing Properties

 

In 2004, we capitalized costs of $1.1 million on existing properties in our portfolio, consisting of $323,000 for re-leasing costs and $789,000 for building improvements.

 

Net Income Available to Common Stockholders

 

Net income available to common stockholders was $90.2 million in 2004 versus $76.7 million in 2003, an increase of $13.5 million. On a diluted per common share basis, net income was $1.15 per share in 2004 as compared to $1.08 per share in 2003.  During 2004, net income available to common stockholders included one-time, non-cash charges totaling $3.8 million, or approximately, $0.05 per share.  These non-cash charges represent the Class B and Class C preferred stock original issuance costs that were paid in 1999 and recorded as a reduction in net income available to common stockholders in 2004 when the preferred stock was redeemed.

 

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 2004 was $12.7 million as compared to $7.2 million during 2003.

 

Funds from Operations (FFO)

 

In 2004, our FFO increased by $14.8 million, or 14.3%, to $118.2 million versus $103.4 million in 2003.  On a diluted per common share basis, FFO was $1.50 in 2004 compared to $1.45 for 2003, an increase of $0.05, or 3.4%.  Included in FFO per diluted common share for 2004 was $0.08 per share in non-cash charges for property impairments and origination costs on redeemed preferred stock. For 2004, non-cash charges for property impairments of $2.4 million equated to $0.03 in FFO per diluted common share and non-cash charges for origination costs on redeemed preferred stock of $3.8 million equated to $0.05 in FFO per diluted common share.

 

FFO for 2003 has been adjusted to reflect additional impairments on the sale of certain properties.  These additional impairments relate to properties where a contract for the sale of a property and the closing of the sale transaction occurred during the same quarterly period. As these transactions were contracted for and closed during the same quarter, losses on the sales were booked and reflected in the Company’s financial statements, but no impairments were booked on these properties in the Company’s calculation of FFO.  The Company now believes that such impairments on property sales should be deducted from the calculation of FFO.  FFO for 2003 was reduced by $672,000 or $0.01 per share.  The losses from these transactions were previously included in the Company’s calculation of net income and, as such, have no impact on the Company’s previously reported consolidated statements of income or consolidated balance sheets for these periods.

 

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.

 

Crest Net Property Sales

 

During 2004 Crest Net sold 51 properties from its inventory for $75.0 million, which resulted in a gain of $10.3 million.

 

Crest Net’s Property Inventory

 

Crest Net’s property inventory at December 31, 2004 and December 31, 2003 totaled $10.1 million and $53.3 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.

 

7

 

Sales of Investment Properties by Realty Income

 

During 2004, we sold or exchanged 43 properties and a portion of land from four properties for an aggregate of $35.4 million, which resulted in gains on sales, of $12.7 million on 38 properties and impairments of $1.7 million on five properties. The 43 properties sold consisted of 16 child care facilities, 13 restaurants, 10 convenience stores, three consumer electronics stores and one automotive service location. Of this gain on sales, $12.5 million is included in discontinued operations and $185,000 is included in other revenue. 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 Cash Distributions to Common Stockholders

 

We continue our 35-year policy of paying distributions monthly. Monthly distributions per share were increased by $0.000625 in April 2004 to $0.100625, in July 2004 to $0.10125, in October 2004 to $0.109375 and in January 2005 to $0.11. The monthly distributions were also increased by $0.0075 per share in September 2004 to $0.10875.  The increase in January 2005 was our 29^th consecutive quarterly increase and the 32^nd increase in the amount of our cash dividend since our listing on the NYSE in 1994. In 2004, we paid the following monthly cash distributions per share; three in the amount of $0.10, three in the amount of $0.100625, two in the amount of $0.10125, one in the amount of $0.10875 and three in the amount of $0.109375, totaling $1.24125 per share. In December 2004, January 2005 and February 2005, we declared distributions of $0.11 per share, which were paid on January 18, 2005, on February 15, 2005 and will be paid on March 15, 2005, respectively.

 

The monthly distribution of $0.11 per share represents a current annualized distribution of $1.32 per share, and an annualized distribution yield of approximately 5.3% based on the last reported sale price of our common stock on the NYSE of $24.84 on February 15, 2005. 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 D preferred stockholders on a monthly basis if, as and when declared by our Board of Directors. The Class D preferred stockholders receive cumulative distributions at a rate of 7.375% per annum on the $25 per share liquidation preference (equivalent to $1.84375 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 2004, our cash distributions totaled $106.5 million, or approximately 107.8% of our estimated REIT taxable income of $98.8 million. 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 2004 cash distributions to common stockholders totaled $97.4 million, representing 82.4% of our funds from operations available to common stockholders of $118.2 million.

 

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.

 

8

 

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 that 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 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 or 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 4.7% of the distributions, made or deemed to have been made in 2004, 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 owning an actively managed, diversified portfolio of retail properties under long-term, net leases produces consistent and 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 to a lesser degree, additional rent calculated as a percentage of the tenants’ gross sales above a specified level. We believe that a portfolio of properties under long-term leases, coupled with the tenant’s responsibility for property expenses, generally produces 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 generally on providing expansion capital to retail chain owners and operators by acquiring, then leasing back, 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 locations. Middle market retail chains typically have 50 to 500 retail locations, 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 locations, operating nationally, in a proven, mature retail concept. Upper market retail chains generally have strong operating histories and access to several sources of capital.

 

Realty Income primarily focuses on acquiring properties leased to middle market retail chains 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 public and private retailers with more commonly recognized brand names;

•                  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.

 

9

 

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, 2004, approximately 81.6% 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, 2004, we have acquired and leased back to regional and national retail chains 1,678 properties (including 177 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 typically 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.

 

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 typical profile of companies whose properties have been approved for acquisition are those with 50 or more retail locations.  Generally the properties:

 

•                  Are located in highly visible areas,

•                  Have easy access to major thoroughfares; and

•                  Have 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, 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 store owners and operators, doing business in a variety of industries, by acquiring and leasing back 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.

 

10

 

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; and

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

 

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, 2004, we classified real estate with a carrying amount of $17.2 million as held for sale, which includes $10.1 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.

 

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 15, 2005, our total outstanding credit facility borrowings and outstanding notes were $571.0 million or approximately 21.3% of our total market capitalization of $2.68 billion. We define our total market capitalization at February 15, 2005 as the sum of:

 

•                  Shares of our common stock outstanding of 79,581,373 multiplied by the last reported sales price of our common stock on the NYSE of $24.84 per share, or $1.98 billion;

•                  Liquidation value of the Class D preferred stock of $127.5 million;

•                  Outstanding borrowings of $91.0 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.

 

We have a $250 million revolving, unsecured credit facility that expires in October 2005. At February 15, 2005, the outstanding balance on the acquisition credit facility was $91.0 million, with an effective interest rate of approximately 3.5%. 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 regularly evaluate our credit facility and may seek to extend, renew or replace our credit facility, to the extent we deem appropriate.

 

11

 

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.

 

We are currently assigned investment grade credit ratings, on our senior unsecured notes, from Fitch Ratings, Moody’s Investors 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 have also been assigned investment grade credit ratings from the same rating agencies on our preferred stock. Fitch Ratings has assigned a rating of BBB-, Moody’s Investors Service, Inc. has assigned a rating of Baa3 and Standard & Poor’s Rating Group has assigned a rating of BBB- to our preferred stock.  All of these ratings have been assigned a “stable” outlook.

 

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

 

We have no mortgage debt on any of our properties.

 

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. During 2004, we added two new industries, financial services and motor vehicle dealerships, to our portfolio.

 

12

 

•                  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, therefore further diversification of our portfolio is a continuing objective. At December 31, 2004, our retail property portfolio consisted of 1,533 properties located in 48 states, leased to 93 retail chains doing business in 30 industry segments. Each of the 30 industry segments, represented in our property portfolio, individually accounted for no more than 19.6% of our rental revenue for the quarter ended December 31, 2004.

 

•                  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.

 

PROPERTIES

 

At December 31, 2004, we owned a diversified portfolio:

 

•                  Of 1,533 retail properties;

•                  With an occupancy rate of 97.9%, or 1,501 properties occupied of the 1,533 properties in the portfolio;

•                  Leased to 93 different retail chains doing business in 30 separate retail industries;

•                  Located in 48 states;

•                  With over 11.9 million square feet of leasable space; and

•                  With an average leasable retail space of 7,800 square feet.

 

In addition to our real estate portfolio at December 31, 2004, our subsidiary, Crest Net had invested $10.1 million in a portfolio of eight retail properties located in five states. These properties are classified as held for sale on our consolidated balance sheets.

 

At December 31, 2004, 1,497, or 97.7%, of our 1,533 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 , to a lesser degree, 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 constituting a suitable market or trade area for the retailer’s business.

 

13

 

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 (30)		Dec 31, 2004		Dec 31, 2004		Dec 31, 2003		Dec 31, 2002		Dec 31, 2001		Dec 31, 2000		Dec 31, 1999		Dec 31, 1998
Apparel stores		1.7	%	1.8	%	2.1	%	2.3	%	2.4	%	2.4	%	3.8	%	4.1	%
Automotive collision services		1.3		1.0		0.3		—		—		—		—		—
Automotive parts		4.0		3.8		4.5		4.9		5.7		6.0		6.3		6.1
Automotive service		8.2		7.7		8.3		7.0		5.7		5.8		6.6		7.5
Automotive tire services		7.5		7.8		3.1		2.7		2.6		2.3		2.3		1.7
Book stores		0.3		0.3		0.4		0.4		0.4		0.5		0.5		0.6
Business services		0.1		0.1		0.1		0.1		0.1		0.1		0.1			*
Child care		13.7		14.4		17.8		20.8		23.9		24.7		25.3		29.2
Consumer electronics		1.8		2.1		3.0		3.3		4.0		4.9		4.4		5.4
Convenience stores		19.6		19.2		13.3		9.1		8.4		8.4		7.2		6.1
Crafts and novelties		0.5		0.5		0.6		0.4		0.4		0.4		0.4			*
Drug stores		0.1		0.1		0.2		0.2		0.2		0.2		0.2		0.1
Entertainment		2.3		2.3		2.6		2.3		1.8		2.0		1.2		—
Equipment rental services		0.3		0.3		0.2		—		—		—		—		—
Financial services		0.1		0.1		—		—		—		—		—		—
General merchandise		0.5		0.4		0.5		0.5		0.6		0.6		0.6			*
Grocery stores		0.8		0.8		0.4		0.5		0.6		0.6		0.5			*
Health and fitness		3.9		4.0		3.8		3.8		3.6		2.4		0.6		0.1
Home furnishings		3.9		4.1		4.9		5.4		6.0		5.8		6.5		7.8
Home improvement		1.0		1.0		1.1		1.2		1.3		2.0		3.6			*
Motor vehicle dealerships		1.4		0.6		—		—		—		—		—		—
Office supplies		1.6		1.6		1.9		2.1		2.2		2.3		2.6		3.0
Pet supplies and services		1.4		1.4		1.7		1.7		1.6		1.5		1.1		0.6
Private education		1.1		1.1		1.2		1.3		1.5		1.4		1.2		0.9
Restaurants		9.9		9.7		11.8		13.5		12.2		12.3		13.3		16.2
Shoe stores		0.1		0.3		0.9		0.8		0.7		0.8		1.1		0.8
Sporting goods		3.3		3.4		3.8		4.1		0.9		—		—		—
Theaters		3.3		3.5		4.1		3.9		4.3		2.7		0.6		—
Travel plazas		0.4		0.4		0.3		—		—		—		—		—
Video rental		2.7		2.8		3.3		3.3		3.7		3.9		4.3		3.8
Other		3.2		3.4		3.8		4.4		5.2		6.0		5.7		6.0
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.

 

14

 

The following table sets forth certain information regarding the properties owned by Realty Income at December 31, 2004, 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, 2004 (2)			Percentage of Rental Revenue
Tenants Providing Services
Automotive collision services		11		$	577		1.3	%
Automotive service		220		3,720			8.2
Child care		279		6,254			13.7
Entertainment		9		1,035			2.3
Equipment rental services		2		133			0.3
Financial services		3		66			0.1
Health and fitness		11		1,785			3.9
Private education		6		492			1.1
Theaters		11		1,510			3.3
Other		9		1,465			3.2
		561		17,037			37.4
Tenants Selling Goods and Services
Automotive parts (with installation)		30		583			1.3
Automotive tire services		104		3,402			7.5
Business services		1		32			0.1
Convenience stores		373		8,928			19.6
Home improvement		2		50			0.1
Motor vehicle dealerships		9		650			1.4
Pet supplies and services		8		542			1.2
Restaurants		201		4,519			9.9
Travel plazas		1		167			0.4
Video rental		34		1,235			2.7
		763		20,108			44.2
Tenants Selling Goods
Apparel stores		5		775			1.7
Automotive parts		73		1,244			2.7
Book stores		2		155			0.3
Consumer electronics		26		796			1.8
Crafts and novelties		4		211			0.5
Drug stores		1		61			0.1
General merchandise		11		208			0.5
Grocery stores		6		339			0.8
Home furnishings		38		1,793			3.9
Home improvement		14		404			0.9
Office supplies		9		716			1.6
Pet supplies		3		96			0.2
Shoe stores		4		51			0.1
Sporting goods		13		1,490			3.3
		209		8,339			18.4
TOTALS		1,533		$	45,484		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, 2004 (including revenue from properties reclassified to discontinued operations of $144).

 

15

 

Of the 1,533 properties in the portfolio at December 31, 2004, 1,528 were single-tenant properties with the remaining properties being multi-tenant properties. At December 31, 2004, 1,497 of the 1,528 single-tenant properties, or 98.0%, were net leased with a weighted average remaining lease term (excluding extension options) of approximately 12.0 years.

 

The following table sets forth certain information regarding the timing of the lease term expirations (excluding extension options) on our 1,497 net-leased, single-tenant retail properties at December 31, 2004 (dollars in thousands):

 

		Total Portfolio							Initial Expirations							Subsequent Expirations
Year		Total Number of Leases Expiring(1)		Rental Revenue for the Quarter Ended 12/31/04(2)			% of Rental Revenue		Number of Leases Expiring		Rental Revenue for the Quarter Ended 12/31/04			% of Total Rental Revenue		Number of Leases Expiring		Rental Revenue for the Quarter Ended 12/31/04			% of Total Rental Revenue
2005		99		$	1,848		4.2	%	64		$	1,211		2.7	%	35		$	637		1.5	%
2006		91		2,111			4.8		42		1,027			2.3		49		1,084			2.5
2007		118		2,199			5.0		87		1,645			3.7		31		554			1.3
2008		94		2,092			4.8		60		1,465			3.4		34		627			1.4
2009		85		1,906			4.3		28		646			1.4		57		1,260			2.9
2010		51		1,106			2.5		43		961			2.2		8		145			0.3
2011		40		1,545			3.5		32		1,333			3.0		8		212			0.5
2012		43		1,339			3.1		43		1,339			3.1		—		—			0.0
2013		74		3,331			7.6		66		3,091			7.0		8		240			0.6
2014		49		2,039			4.6		39		1,816			4.1		10		223			0.5
2015		33		1,050			2.4		31		1,003			2.3		2		47			0.1
2016		14		388			1.0		12		306			0.8		2		82			0.2
2017		16		1,269			2.9		12		1,202			2.7		4		67			0.2
2018		20		828			1.9		20		828			1.9		—		—			0.0
2019		84		3,284			7.5		83		3,091			7.1		1		193			0.4
2020		53		1,891			4.3		53		1,891			4.3		—		—			0.0
2021		130		4,333			9.9		130		4,333			9.9		—		—			0.0
2022		96		2,472			5.6		95		2,463			5.6		1		9				*
2023		233		6,332			14.4		232		6,307			14.4		1		25				*
2024		61		1,374			3.1		61		1,374			3.1		—		—			0.0
2025		1		87			0.2		1		87			0.2		—		—			0.0
2026		2		93			0.2		2		93			0.2		—		—			0.0
2028		2		54			0.1		2		54			0.1		—		—			0.0
2033		3		357			0.8		3		357			0.8		—		—			0.0
2034		2		244			0.6		2		244			0.6		—		—			0.0
2037		2		325			0.7		2		325			0.7		—		—			0.0
2043		1		13				*	—		—			0.0		1		13				*
Totals		1,497		$	43,910		100.0	%	1,245		$	38,492		87.6	%	252		$	5,418		12.4	%

 

*Less than 0.1%

 

(1)  Excludes, four multi-tenant properties, 32 vacant and unleased properties, one of which is a multi-tenant property, and 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 $144 from properties reclassified to discontinued operations and excludes revenue of $1,574 from four multi-tenant properties and from 32 vacant and unleased properties at December 31, 2004.

 

16

 

The following table sets forth certain state-by-state information regarding Realty Income’s property portfolio as of December 31, 2004 (dollars in thousands):

 

State		Number of Properties (1)		Percent Leased		Approximate Leasable Square Feet (1)		Rental Revenue For the Quarter Ended December 31, 2004 (2)			Percentage of Rental Revenue
Alabama		17		100	%	145,600		$	376		0.8	%
Alaska		2		100		128,500		251			0.5
Arizona		71		99		338,600		1,875			4.1
Arkansas		8		88		48,800		139			0.3
California		61		100		1,057,100		4,020			8.8
Colorado		45		98		367,300		1,547			3.4
Connecticut		16		100		245,600		927			2.0
Delaware		16		100		29,100		338			0.7
Florida		127		98		1,328,500		4,978			10.9
Georgia		94		99		580,400		2,267			5.0
Idaho		11		100		52,000		207			0.5
Illinois		44		100		391,300		1,292			2.8
Indiana		27		93		153,100		504			1.1
Iowa		9		89		57,500		142			0.3
Kansas		22		82		201,300		518			1.1
Kentucky		12		100		41,200		271			0.6
Louisiana		14		100		65,200		295			0.6
Maryland		24		100		207,600		1,136			2.5
Massachusetts		37		100		203,100		997			2.2
Michigan		13		100		81,600		298			0.7
Minnesota		18		100		211,600		553			1.2
Mississippi		19		79		145,300		302			0.7
Missouri		32		97		222,900		709			1.6
Montana		2		100		30,000		80			0.2
Nebraska		11		100		96,200		311			0.7
Nevada		10		100		102,300		444			1.0
New Hampshire		10		100		89,600		369			0.8
New Jersey		25		100		132,100		1,059			2.3
New Mexico		6		100		48,800		114			0.3
New York		27		100		327,900		1,492			3.3
North Carolina		50		100		290,100		1,315			2.9
North Dakota		1		100		22,000		25				*
Ohio		100		100		616,000		2,201			4.8
Oklahoma		17		100		94,300		358			0.8
Oregon		17		100		253,300		573			1.3
Pennsylvania		76		100		416,000		1,992			4.4
Rhode Island		1		100		3,500		29			0.1
South Carolina		52		98		156,200		1,125			2.5
South Dakota		1		100		6,500		24				*
Tennessee		98		100		461,900		2,213			4.9
Texas		170		94		1,656,700		4,406			9.7
Utah		6		100		35,100		119			0.3
Vermont		1		100		2,500		22				*
Virginia		55		100		412,600		2,073			4.6
Washington		37		100		243,900		751			1.7
West Virginia		2		100		16,800		41			0.1
Wisconsin		16		88		153,700		353			0.8
Wyoming		3		100		14,900		53			0.1
Totals/Average		1,533		98	%	11,986,100		$	45,484		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, 2004 (including revenue from properties reclassified to discontinued operations of $144).

 

17